Whether State Law can supersede the Insolvency Proceedings under Insolvency & Bankruptcy Code, 2016? No, says Supreme Court.

Whether State Law can supersede the Insolvency Proceedings under Insolvency & Bankruptcy Code, 2016? No, says Supreme Court.

ICICI BANK

VS

INNOVENTIVE INDUSTRIES

FACTS

This is the first case filed in December 2016 in Mumbai under the Insolvency and Bankruptcy Code. Innoventive Industries approached the Supreme Court for the relief against the order of NCLAT & Bombay High Court.

In this case, Supreme Court has ruled the management of a company undergoing bankruptcy proceedings cannot run the company’s management.

Supreme Court was of the opinion that entrenched managements are no longer permitted to remain in management if they unable to pay their debts.

This bolsters the Insolvency and Bankruptcy Code, which says once an insolvency professional is appointed by creditors, the management should step aside and let the company be run by the professional.

The insolvency professional, in turn, will decide if the company must go in for liquidation after six months.

The ICICI bank had sued Pune-based Innoventive Industries over non-payment of dues. The steelmaker owes banks over Rs 950 crore.

After the NCLT ruled in favour of ICICI Bank, Innoventive Industries moved the Bombay High Court and the appellate tribunal, challenging the validity of the Insolvency and Bankruptcy Code and demanding borrowers be heard before creditors during insolvency proceedings.

The appellate tribunal upheld the NCLT verdict. In February, the Bombay High Court disposed of the writ petition by the company.

ISSUE

Supreme Court discussed about the concept of default under the Insolvency and Bankruptcy Code and how it must be ascertained; what was the scope and extent of enquiry at the admission of an insolvency application; and what was the scope of hearing to be provided to a corporate debtor. 

The Supreme Court also scrutinised whether protection granted under the Maharashtra Relief Undertaking Act rendered an application under the Insolvency and Bankruptcy Code not maintainable.

DECISION

Innoventive Industries had appealed that it could not be called a defaulter because the Maharashtra government had notified a suspension of its dues for a period of one year up to July 2017. The Supreme Court ruled in matters of contention between state laws and those of the Centre’s, the latter should prevail.

Supreme Court was of the opinion that time was of essence in insolvency proceedings, admission of default should be made by the authorities within 14 days of the receipt of the application. In case a debtor has defaulted, the adjudicating authority has to merely see the evidence produced by the creditor to satisfy itself that there was indeed a default.

Courtesy -Business Standard