INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK & ANR (2018) 1 SCC 407
FACTS
- The Appellant (Innoventive Industries) is a multi-product company, Owing to labour problems, the appellant began to suffer losses. An application was made on 7-12-2016 by ICICI Bank Ltd., in which it was stated that the appellant being a defaulter within the meaning of the IBC, 2016 the insolvency resolution process ought to be set in motion.
- To this application, a reply was filed by means of an interim application on behalf of the appellant, in which the appellant claimed that there was no debt legally due inasmuch as vide two Notifications dated 22-7-2015 and 18-7-2016, both under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 ( the Maharashtra Act), all liabilities of the appellant, except certain liabilities and remedies for enforcement thereof were temporarily suspended for a period of one year in the first instance under the first Notification of 22-7-2015 and another period of one year under the second Notification of 18-7-2016.
- Thereafter, a second application was filed by the appellant in which a different plea was taken. This time, the appellant pleaded that owing to non-release of funds under the master restructuring agreement entered into on 9-9-2014 (MRA), the appellant was unable to pay back its debts as envisaged.
- Further, it repaid only some amounts to five lenders, who, according to the appellant, complied with their obligations under MRA. In the aforesaid circumstances, it was pleaded that no default was committed by it.
ISSUE
- Whether appeals by the Directors of the Company, who are no longer in management was maintainable after an interim resolution professional had been appointed?
- Whether insolvency proceedings against the Company under the Insolvency and Bankruptcy Code of 2016, could be stalled when there a moratorium to the company is granted under Maharashtra Relief Undertakings (Special Provisions) Act, 1958?
APPELLANT CONTENTIONS
- Maharashtra Act applied for the reason that the moratorium imposed by the two notifications under the Maharashtra Act continued in force at the time when the insolvency application was made by ICICI and that, therefore, the Code would not apply.
- The debt was kept in temporary abeyance, after which the Code would apply. It was inter alia also contended that no repugnancy exists between the two statutes under Article 254 of the Constitution and each operated in its own field. The Maharashtra Act provides for relief against unemployment, whereas the Code is a liquidation process
- The Code is made under Entry 9, List III of the Seventh Schedule to the Constitution, whereas the Maharashtra Act, which is a measure for unemployment relief, is made under Entry 23, List III of the Seventh Schedule. This being so, as correctly held by the Appellate Tribunal, the two Acts operated in different spheres and, therefore, do not clash.
RESPONDENT CONTENTION
- According to Shri Salve, after an interim resolution professional has been appointed and a moratorium declared, the directors of the company are no longer in management and could not, therefore, maintain the appeal before us.
- It is obvious that the two Acts are repugnant to each other, inasmuch as they cannot stand together. Under the Maharashtra Act, a limited moratorium is imposed after which the State Government may take over management of the company. Under the Code, however, a full moratorium is to automatically attach the moment an application is admitted by the NCLT, and management of the company is then taken over by an interim resolution professional.
SUPREME COURT
- Once an insolvency professional is appointed to manage the Company, the erstwhile Directors who are no longer in management, obviously cannot maintain an appeal on behalf of the Company.
- Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority.
- The appellant only raised the plea of suspension of its debt under the Maharashtra Act, which, therefore, was that no debt was due in law. The adjudicating authority correctly referred to the non obstante clause in Section 238of the 2016 Code and arrived at a conclusion that a notification under the Maharashtra Act would not stand in the way of the corporate insolvency resolution process under the Code.
- It is clear that the later non-obstante clause of the Parliamentary enactment will also prevail over the limited non obstante clause contained in Section 4 of the Maharashtra Act. For these reasons, the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code.
HELD
- The obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant company. Also, the argument taken for the first time before us that no debt was in fact due under the MRA as it has not fallen due (owing to the default of the secured creditor) is not something that can be countenanced at this stage of the proceedings. In this view of the matter, we are of the considered view that the Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd.