Case Note & Summary
The appeal arises from a challenge by the Insolvency and Bankruptcy Board of India (IBBI) against the judgment of the Bombay High Court quashing the order of issuance of process against the respondents, ex-directors of SBM Paper Mills Pvt. Ltd., for offences under Sections 73(a) and 235A of the Insolvency and Bankruptcy Code, 2016 (IBC). The corporate debtor had filed a petition under Section 10 IBC for initiation of CIRP, which was admitted by NCLT on 17 October 2017. Subsequently, the respondents filed an application under Section 12A for withdrawal based on a One Time Settlement with the sole financial creditor, Allahabad Bank, which was allowed on 20 December 2018. However, due to non-compliance with the OTS terms, NCLT issued show-cause notice and proposed prosecution. IBBI filed a complaint before the Sessions Judge, who issued process. The respondents challenged this before the High Court, which quashed the proceedings on the ground that the Special Court (Sessions Judge) lacked jurisdiction in view of the Companies (Amendment) Act, 2017, which amended Section 435 of the Companies Act, 2013, restricting the Special Court's jurisdiction to offences under the Companies Act only. The Supreme Court considered the issue of whether the reference to 'Special Court established under Chapter XXVIII of the Companies Act, 2013' in Section 236(1) IBC is legislation by incorporation or legislation by reference. The Court held that it is legislation by incorporation, meaning that the provisions of Chapter XXVIII as they existed at the time of enactment of the IBC (i.e., prior to the 2017 amendment) are incorporated into the IBC. Therefore, the subsequent amendment to the Companies Act does not affect the jurisdiction of the Special Court to try IBC offences. The Court also noted that even if the High Court found lack of jurisdiction, it should have returned the complaint for presentation before the competent court, not quashed it. The appeal was allowed, the High Court's order was set aside, and the complaint was restored to the file of the Sessions Judge for further proceedings.
Headnote
A) Criminal Law - Jurisdiction of Special Court - Legislation by Incorporation vs. Legislation by Reference - Section 236(1) of the Insolvency and Bankruptcy Code, 2016 - The reference to 'Special Court established under Chapter XXVIII of the Companies Act, 2013' in Section 236(1) IBC is legislation by incorporation, not legislation by reference. Therefore, the subsequent amendment to Section 435 of the Companies Act by the Companies (Amendment) Act, 2017 does not affect the jurisdiction of the Special Court (Sessions Judge or Additional Sessions Judge) to try offences under the IBC. The High Court erred in quashing the complaint on the ground that the Special Court lacked jurisdiction. (Paras 18-40)
B) Criminal Procedure - Quashing of Complaint - Return of Complaint for Want of Jurisdiction - Even if the High Court found that the Special Court lacked jurisdiction, it should have returned the complaint for presentation before the competent court, rather than quashing it. (Para 10)
C) Insolvency and Bankruptcy Code - Complete Code - The IBC is a complete code in itself, and a reference to a prior statute in a subsequent complete code is normally legislation by incorporation. (Paras 7-8)
Issue of Consideration
Whether the reference to 'Special Court established under Chapter XXVIII of the Companies Act, 2013' in Section 236(1) of the Insolvency and Bankruptcy Code, 2016 is legislation by incorporation or legislation by reference, and consequently, whether the amendment to Section 435 of the Companies Act by the Companies (Amendment) Act, 2017 affects the jurisdiction of the Special Court to try offences under the IBC.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment and order of the High Court dated 14th February 2022, and restored the complaint to the file of the learned Sessions Judge for further proceedings in accordance with law.
Law Points
- Legislation by incorporation
- Legislation by reference
- Jurisdiction of Special Court
- Trial of offences under IBC
- Section 236 IBC
- Companies Act 2013 Chapter XXVIII
Case Details
2024 LawText (SC) (4) 197
Criminal Appeal No. 3851 of 2023
S.V. Raju (ASG) for Appellant, Amir Arsiwala (AOR) for Respondents
Insolvency and Bankruptcy Board of India
Satyanarayan Bankatlal Malu & Ors.
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Criminal appeal against High Court order quashing issuance of process in a complaint filed by IBBI for offences under IBC.
Remedy Sought
Appellant (IBBI) sought setting aside of High Court order and restoration of complaint before Sessions Judge.
Filing Reason
High Court quashed the complaint on the ground that the Special Court (Sessions Judge) lacked jurisdiction due to amendment to Companies Act.
Previous Decisions
NCLT allowed withdrawal of CIRP petition under Section 12A; later issued show-cause notice and proposed prosecution for non-compliance of OTS. Sessions Judge issued process. High Court quashed the order.
Issues
Whether the reference to 'Special Court established under Chapter XXVIII of the Companies Act, 2013' in Section 236(1) IBC is legislation by incorporation or legislation by reference.
Whether the amendment to Section 435 of the Companies Act by the Companies (Amendment) Act, 2017 affects the jurisdiction of the Special Court to try offences under the IBC.
Whether the High Court was correct in quashing the complaint instead of returning it for presentation before the competent court.
Submissions/Arguments
Appellant (IBBI): The reference is legislation by incorporation; subsequent amendment to Companies Act does not affect IBC; the High Court should have returned the complaint, not quashed it.
Respondents: The point of legislation by incorporation was not argued before the High Court; the reference is legislation by reference; the High Court correctly quashed the complaint for lack of jurisdiction.
Ratio Decidendi
The reference to 'Special Court established under Chapter XXVIII of the Companies Act, 2013' in Section 236(1) of the IBC is legislation by incorporation, meaning that the provisions of Chapter XXVIII as they existed at the time of enactment of the IBC are incorporated into the IBC. Therefore, the subsequent amendment to Section 435 of the Companies Act by the Companies (Amendment) Act, 2017 does not affect the jurisdiction of the Special Court (Sessions Judge or Additional Sessions Judge) to try offences under the IBC. The High Court erred in quashing the complaint on the ground of lack of jurisdiction.
Judgment Excerpts
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.
The legislative intent is clear. There is no general reference to the provisions of the Companies Act.
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.
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.
Procedural History
The corporate debtor filed a petition under Section 10 IBC on 4 September 2017, admitted by NCLT on 17 October 2017. The respondents filed an application under Section 12A for withdrawal based on OTS, allowed on 20 December 2018. Due to non-compliance, NCLT issued show-cause notice on 11 March 2019 and proposed prosecution on 20 August 2019. IBBI filed a complaint on 22 September 2020 before the Sessions Judge, who issued process on 17 March 2021. The respondents filed a writ petition before the Bombay High Court, which quashed the order on 14 February 2022. IBBI appealed to the Supreme Court.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 10, Section 12A, Section 14, Section 73(a), Section 235A, Section 236
- Companies Act, 2013: Chapter XXVIII, Section 435
- Code of Criminal Procedure, 1973: Section 190, Section 193, Section 200
- Companies (Amendment) Act, 2017:
