Home  > Recent judgements> Supreme Court Backs Sessions Judge’s Summons In Insolvency Board Dispute

 April 27 , 2024

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INSOLVENCY AND BANKRUPTCY CODE

The Insolvency and Bankruptcy Code (“IBC”) was enacted in 2016 to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. The primary objective of the IBC is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders.

BACKGROUND

In the case of Insolvency and Bankruptcy Board of India Vs. Satyanarayan Bankatlal Malu & Ors., an appeal was filed against the order passed by the High Court. The High Court allowed the petition filed by respondents challenging the order passed by the Sessions Judge. The Sessions Judge has directed the issuance of process against the respondents on account of a complaint filed by the appellant under section 236 of IBC read with sections 190, 193 and 200 of the Cr.P.C. for offences punishable under IBC.

The High Court had invalidated the summons issued by the Sessions Judge to the respondent/accused by holding that the subsequent amendments to section 435 of the Companies Act, 2013 vested the power to issue summons upon the magistrate for an offence punishable up to 2 years. Therefore, the Sessions Judge would not have the power to issue summons.

It was noted that section 236(1) of the IBC states that the offences punishable under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. Thus, the reference is not general but specific. It refers only to the fact that offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act.

LEGAL PROVISIONS

  1. Section 435 of Companies Act, 2013 prescribes the establishment of special court. It states that the central government may, for the purpose of providing speedy trial of offences under this act, by notification, establish, or designate as many special courts as necessary.
  2. Section 236(1) of the Insolvency and Bankruptcy Code states that the offences punishable under the code are required to be tried by the Special Court established under Chapter XXVIII of the Companies Act,2013.

LEGISLATION BY INCORPORATION

Legislation by Incorporation means giving effect of former law to the later law, whereby in the later law it is specifically mentioned that the provisions of the former law would be applicable to the later law, and any subsequent changes in the former law would not have any effect on the later law.

LEGISLATION BY REFERENCE

Legislation by Reference means giving effect of former law to the later law, whereby there is a general reference of the former law to the later law, and in the event of any amendment to the former law, the later law would have the same effect as to the amended former law.

The court explained that it could thus be seen that the effect of incorporation means the bodily lifting of the provisions of one enactment and making it part of another so much so that the repeal of the former leaves the latter wholly untouched. However, in the case of a reference or a citation of the provisions of one enactment into another without incorporation, the amendment or repeal of the provisions of the said act referred to in a subsequent act will also bear the effect of the amendment or repeal of the said provisions.

KEY ISSUES

  • The main issues of the present case revolve around whether the application for withdrawal filed by Mr. Satyanarayan Malu under Section 12 of the IBC was valid and was according to the provisions of the code.
  • Whether the issued order by the Sessions Judge, directing the issuance of legal process against the respondents and summoning them for the next hearing, was within the jurisdiction of the Sessions Judge considering the nature of the proceedings of the IBC.
  • Whether the decision of the High Court to nullify the order issued by the Sessions Judge on jurisdictional grounds was legally sound and aligned with the principles of law.
  • Whether the appeal instituted in the Supreme Court challenging the decision of the High Court has merit and whether the Supreme Court has the jurisdiction to review and overturn the decision of the High Court.

COURT’S JUDGMENT

The court observed that the contentions put forward by the complainant ascertain that the present case involves the “legislation by incorporation” instead of “legislation by reference.” In identical cases, the effect of including the original Section 435 of the Companies Act into the Section 236(1) of the IBC has been intact since the enactment of the IBC. Therefore, any subsequent amendments done to the Section 435 of the Companies Act does not affect the Section 236(1) of the IBC. Thus, the court upheld the summons issued by the Sessions Judge even though there were amendments done to the Section 435 of the Companies Act, accrediting Judicial Magistrates to issue summons for offences committed under the IBC.

The issuance of the process by the Sessions Judge to the accused was upheld by the Supreme Court stating that the offences that come under the ambit of the IBC, 2016 shall be tried by Special Courts under the Section 435 of the Companies Act, 2013 and that the Sessions Judge shall hold the power of issuance of process against the accused. The decision of the High Court was reversed and Justice Gavai interpreted that the Section 236(1) of the IBC ,2016 holding the power to try offences punishable under the IBC vests in the hands of the Special Courts by the “legislation of incorporation”.

ANALYSIS

The Supreme Court held that the reasoning of the learned single judge of the High Court that in view of the 2018 Amendment only the offences under the Companies Act would be tried by a Special Court of Sessions Judge or Additional Sessions Judge and all other offences including under the Code shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class was untenable.

Further, the Supreme Court held that the High Court had grossly erred in quashing the complaint only on the ground that it was filed before a Special Court presided by a Sessions Judges. At the most, the learned single judge of the High Court could have directed the complaint to be withdrawn and presented before the appropriate court having jurisdiction.

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