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Case Title – Insolvency and Bankruptcy Board of India Vs. Satyanarayan Bankatlal Malu & Ors.

Case Number – Criminal Appeal No. 3851 of 2023

Dated on – 14th February, 2022

Quorum – Justice B.R. Gavai

FACTS OF THE CASE

In The Case of Insolvency and Bankruptcy Board of India Vs. Satyanarayan Bankatlal Malu & Ors., M/s. SBM Paper Mills Private Limited instituted a petition on the 4^th of September,2017 under Section 10 of the Code of Initiation of the Corporate Insolvency Resolution Process (CIRP). The National Company Law Tribunal (NCLT), accepted the petition and instructed the moratorium to commence as outlined in Section 14 of the Code. Additionally, it mandated specific statutory actions to be carried out consequently. Mr. Amit Poddar was appointed as the Interim Resolution Professional (RP) to carry out the functions as outlined in the provisions of the code. Meanwhile, the respondent in the present case, Mr. Satyanarayan Malu of the M/s. SBM Paper Mills Private Limited filed an application before the NCLT under Section 12A of the code for the purpose of withdrawal of the petition under Section 10 of the code. Following a One Time Settlement (OTS) made with Allahabad Bank, the sole Financial Creditor, the resolution professional also applied regarding the approval of the Resolution Plan. The NCLT on the 20^th of December, 2018, approved the petition filed by the respondent, noting the withdrawal of the petition by the sole Financial Creditor on the 27^th of November, 2018. However, due to the failure of the Respondent to comply with the terms and conditions of the OTS, the NCLT issued a show-cause notice against them on the 11^th of March, 2019. Subsequently, on the 20^th of August, 2019, while taking into consideration the application filed by the sole Financial Creditor, seeking prosecution of the Respondents, the NCLT deemed it appropriate to propose their prosecution.  Subsequently, on the 22^nd of September, 2020, the Appellant-Board filed a complaint against the Respondent before the Sessions Judge, alleging their failure to comply with the terms of the OTS and their omission to fie a Miscellaneous Application under Section 12 of the Code through the RP. The Sessions Judge, in response, through an order dated 17^th of March, 2021, directed the issuance of legal process against the respondents and summoned them for the next hearing.

The respondents filed a Writ Petition before the High Court of Judicature at Bombay, in response to this development, seeking to annul the order dated 17^th of March, 2021, issued by the Sessions Judge on Jurisdictional Grounds. The High Court, through its impugned judgment and order dated 14^th of February, 2022 granted the Writ Petition filed by the respondents. Consequently, this appeal was instituted in the Supreme Court of India.

CONTENTIONS OF THE APPELLANTS

1. The appellant, through their counsel, contented that the learned single judge of the High Court has erred in quashing the proceedings and that the High Court has erred in holding the view of the Companies (Amendment) Act of 2017 that the offences committed under the Companies Act can be tried by the Special Court consisting of Sessions Judge or Additional Sessions Judge.
2. The appellant, through their counsel, contented that the reasoning given by the learned Single Judge or Additional Sessions Judge is totally ignorance of the provisions of Sub-section (1) of the Section 236 of the Code.
3. The appellant, through their counsel, contented that since the code has come into effect on 18^th May, 2016, the provisions of Section 453, as existed in the Chapter XXVIII of the Companies Act,2013, then would only be applicable and that the code has been held to be a complete code in itself in a sequence of judgments of this court.
4. The appellant, through their counsel, contented that if a statute is a complete code in itself, then normally a reference to the provisions of the prior statute referred in a subsequent statute would only have a restrictive operation and that in such a case, it would be a “legislation by incorporation” and not a “legislation by reference”.
5. The appellant, through their counsel, contented that the findings of the learned Single Judge of the High Court in purview of the Companies (Amendment) Act, 2017, the special Court consisting of Sessions Judge or Additional Sessions Judge do not have the jurisdiction to entertain the complaint and that only the Special court of the Metropolitan Magistrate or the Judicial Magistrate First Class have the jurisdiction to entertain the case and that it should have returned the complaint for presentation of the same before the competent court having jurisdiction.

CONTENTIONS OF THE RESPONDENT

1. The respondents, through their counsel, contented that the point regarding the “legislation by incorporation” was never argued before the Learned Single Judge of the High Court and therefore the contentions raised by the prosecution as invalid as it is raised for the first time in this court.
2. The respondents, through their counsel, contented that the Learned Single Judge of the High Court has not considered the merits of the said case and in the event this court holds that the Learned Single Judge was not justified to quash the proceedings, the matter be remitted to the learned Single Judge of the High Court for deciding it afresh on merits.

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

ISSUES

1. 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?
2. Whether the plan of resolution approved by the NCLT got executed in compliance with the requirements of the IBC and whether the failure to comply with the terms and conditions of the OTS affects the validity of the resolution plan?
3. Whether the proposal of prosecution against the respondent by the NCLT for their failure to comply with the terms of the OTS and for omitting to file a Miscellaneous Application under Section 12 of the IBC through the Resolution Professional justifiable?
4. 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?
5. 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.
6. 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 ANALYSIS AND JUDGMENT

The court in the case of Insolvency and Bankruptcy Board of India Vs. Satyanarayan Bankatlal Malu & Ors., 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 IB Code. 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.

Thus, 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”.

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Judgement Reviewed by – Sruti Sikha Maharana

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