The Supreme Court grants appeals and clarifies the distinction between “legislation by reference” and “legislation by incorporation.”
CASE TITLE – Insolvency and Bankruptcy Board of India Versus Satyanarayan Bankatlal Malu & Ors.
CASE NUMBER – CRIMINAL APPEAL NO.3851 OF 2023/ 2024 INSC 319
DATED ON – 19.04.2024
QUORUM – Justice B.R. Gavai.
FACTS OF THE CASE
M/s. SBM Paper Mills Private Limited (Corporate Debtor) filed a petition on 4th September 2017 under Section 10 of the Code for initiation of the Corporate Insolvency Resolution Process (CIRP) of itself vide. The National Company Law Tribunal, Mumbai Bench (NCLT) vide order dated 17th October 2017, admitted the Petition and directed the moratorium to commence as prescribed under Section 14 of the Code and directed certain statutory steps to be taken as a consequence thereof. Vide the said order, the NCLT also appointed Mr. Amit Poddar as the Interim Resolution Professional (“RP”) to carry out the functions as prescribed under the provisions of the Code. In the meanwhile, Mr. Satyanarayan Malu, i.e., the Respondent/Ex-Director of the Corporate Debtor filed an application being M.A. No. 1396/2018 before the NCLT under Section 12A of the Code for the withdrawal of the aforesaid petition under Section 10 in light of a One Time Settlement (“OTS”) entered into with the sole Financial Creditor, i.e., Allahabad Bank. On the other hand, the RP had also filed an application being M.A. No. 827/2018 for the approval of the Resolution Plan. The NCLT vide order dated 20th December 2018 allowed the M.A. No. 1396/2018 filed by the Respondent while 3 observing the consent for withdrawal of the petition by the sole Financial Creditor vide letter dated 27th November 2018. However, on account of non-compliance of the terms of the OTS by the Respondents, the NCLT issued a Show-Cause Notice against them vide order dated 11th March 2019. The NCLT further found it to be a fit case to propose the prosecution of the Respondents vide order dated 20th August 2019 while hearing an application filed by the sole Financial Creditor being M.A. 494 and 495 of 2019 thereby seeking prosecution of the Respondent. Thereafter, on 22nd September 2020, the Appellant-Board filed a Complaint against the Respondents before the Sessions Judge in Special Case No. 853/2020 under the aforementioned provisions and for offences punishable under Section 73(a) and 235A of the Code for the non-compliance of the terms of the OTS and for not having filed the M.A. 1396/2018 under Section 12A of the Code through the RP. The Sessions Judge vide Order dated 17th March 2021 directed issuance of process against the Respondents and further directed them to be summoned on the next date of hearing. Being aggrieved thereby, the Respondents filed a Writ Petition No. 2592 of 2021 before the High Court of Judicature at Bombay, praying for the quashing and setting aside of the order dated 17th March 2021 passed by the Sessions Judge for the want of jurisdiction. The High Court vide impugned judgement and order dated 14th February 2022 allowed the Writ Petition No. 2592 of 2021 filed by the Respondents.
This appeal challenges the judgement and order dated 14th February 2022, passed by the learned Single Judge of the High Court of Judicature at Bombay in Writ Petition No.2592 of 2021, thereby allowing the petition filed by Satyanarayan Bankatlal Malu and Ramesh Satyanarayan Malu, the Ex-Directors of M/s. 1 SBM Paper Mills Pvt. Ltd. (hereinafter referred to as ‘the Respondents’) challenging the order dated 17th March 2021 passed by the learned Additional Sessions Judge, 58th Court in Special Case No.853 of 2020.
ISSUES
Whether the the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’?
LEGAL PROVISIONS
Section 435(3) of the Companies Act, 2013, lays out the qualification requirement for appointment as a judge in a Special Court.
CONTENTION OF APPELLANTS
The Learned Counsel submitted that only the offences committed under the Companies 5 Act can be tried by Special Court consisting of Sessions Judge or Additional Sessions Judge. He submitted that the reasoning given by the learned Single Judge that the offences other than the Companies Act cannot be tried by the Special Court consisting of Sessions Judge or Additional Sessions Judge is totally in ignorance of the provisions of sub-section (1) of Section 236 of the Code. Learned ASG submitted that sub-section (1) of Section 236 of the Code provides that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. He stated that the legislative intent is clear. There is no general reference to the provisions of the Companies Act. He contended that what has been done by sub section (1) of Section 236 of the Code is 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. 6. Learned ASG therefore submitted that, if the reference made to the Special Court established under Chapter XXVIII of the Companies Act, 2013 is held to be legislation by incorporation, then the subsequent amendments to the Companies Act, 2013 would not be applicable to the Code. He submitted that since the Code has come into effect on 28th May, 2016, the provisions of Section 435, as it existed in Chapter XXVIII of the Companies Act, 2013 then, would only be applicable. He submitted that, if a statute is a complete Code in itself, then normally a reference to the provisions of the prior statute referred to in a subsequent statute would only have a restrictive operation. In such a case, it would be a ‘legislation by incorporation’ and not a ‘legislation by reference’. He therefore submits that the finding of the learned Single Judge of the High Court that in view of the Companies (Amendment) Act, 2017, the Special Court consisting of Sessions Judge or Additional Sessions Judge will not have the jurisdiction to entertain the complaint in question is totally erroneous. Learned ASG submits that, in any event, the learned Single Judge of the High Court has erred in quashing the complaint. It was submitted that, in the event the learned Single Judge found that the Special Court consisting of Sessions Judge or Additional Sessions Judge did not have jurisdiction and it is the Special Court of Metropolitan Magistrate or Judicial Magistrate First Class which has jurisdiction, then it should have returned the complaint for presentation of the same before the competent court having jurisdiction.
CONTENTIONS OF RESPONDENTS
The Learned Advocate on Record appearing for the Respondents raises a preliminary objection. He submitted that the point with regard to ‘legislation by incorporation’ was not argued before the learned Single Judge of the High Court and therefore the said contention cannot be permitted to be raised for the first time in this Court. He submitted that the judgment of this Court in the case of Bolani Ores Ltd. (supra) would not be applicable in the facts of the present case inasmuch as, in the said case what was incorporated in the subsequent statute was a definition of ‘motor vehicles’ as found in the earlier statute i.e. Motor Vehicles Act, 1939. It is therefore submitted that, the definition cannot be in a state of flux subject to the mercy of amendments to the Central Act. He submitted that in the said case, this Court was considering a provision which provided a substantive right to file an appeal. As such, a reference to Section 100 of the CPC was held amounting to be an ‘incorporation’ as the substantive right of appeal could not be left at the mercy of subsequent amendments to the CPC. Learned counsel stated that in the present case, a general reference is made to Chapter XXVIII of the Companies Act. It was therefore contended that, since a general reference is made, the present case would not be a case of ‘legislation by incorporation’ but would be a case of ‘legislation by reference’. Learned counsel submits that in any case, the Respondents Nos.1 and 2 have a good case on merits. He argued that the learned Single Judge of the High Court has not considered the merits of the matter and in the event this Court holds that the learned Single Judge was not justified in quashing the proceedings, the matter be remitted to the learned Single Judge of the High Court for deciding it afresh on merits.
COURT ANALYSIS AND JUDGEMENT
The Hon’ble Supreme Court held that the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’. In other words, the provision of Section 435 of the Companies Act, 2013 with regard to Special Court would become a part of Section 236(1) of the Code as on the date of its enactment. If that be so, any amendment to Section 435 of the Companies Act, 2013, after the date on which the Code came into effect would not have any effect on the provisions of Section 236(1) of the Code. The Special Court at that point of time only consists of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge. It was further stated that the Code has also suffered two subsequent amendments i.e. the 2015 Amendment and the 2018 Amendment. If the legislative intent was to give effect to the subsequent amendments in the Companies Act to Section 236(1) of the Code, nothing prevented the legislature from amending Section 236(1) of the Code. The legislature having not done that, 54 the provision with regard to the reference in Section 236(1) of the Code pertaining to Special Court as mentioned in Section 435 of the Companies Act, 2013 stood frozen as on the date of enactment of the Code. As such, they stated that the learned Judge of the High Court had erred in holding that in view of the subsequent amendment, the offences under the Code shall be tried only by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. The Hon’ble Supreme Court further stated 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 is untenable. For a moment, even if it was held that the reference in Section 236(1) of the Code is a ‘legislation by reference’ and not ‘legislation by incorporation’, still the offences punishable under the Code having imprisonment of two years or more will have to be tried by a Special Court presided by a 55 Sessions Judge or an Additional Sessions Judge. Whereas the offences having punishment of less than two years will have to be tried by a Special Court presided by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. The Supreme Court further stated that in any case, the learned single Judge of 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.
The Learned Advocate-on-record for the respondent Nos.1 and 2, had submitted that in the event this Court holds that the Special Courts presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the Code, the Supreme Court stated that they should remand the matter to the High Court for deciding the matter afresh on merits. It was stated that the respondents have a good case on merits and there has been no adjudication on merits of the matter. In the result, the court allowed the appeal.
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Judgement Reviewed by – Gnaneswarran Beemarao