In its first detailed order on the Insolvency and Bankruptcy Code, the Supreme Court has, via a series of observations, made it clear to managements of insolvent firms that their rule is over.
The judgement was pronounced in the case of Innoventive Industries that had challenged an unfavorable order by the National Company Law Appellate Tribunal. Last year in December, in what was the first case under the new IBC regime, ICICI Bank Ltd. had initiated insolvency proceedings against Innoventive Industries as it had defaulted on its dues to the bank.
The company challenged the move on grounds that all remedies for enforcement against it were temporarily suspended thanks to a reprieve it had won under the Maharashtra Relief Undertaking (Special Provisions Act), 1958 (MRU Act). The provisions in the MRU Act allow the state government to take over the management of a company.
This argument was rejected by the NCLAT which held that the insolvency code shall prevail over the provisions of the MRU Act.
The Supreme Court has now affirmed this view, concluding that the MRU Act cannot stand in the way of the insolvency code. It ruled so on the basis of Section 238 of the insolvency law that gives the IBC an overriding effect over conflicting laws.
As carried in bq on 9/8/2017