A) Abstract / Headnote:

This case revolves around the interpretation of Section 236(1) of the Insolvency and Bankruptcy Code, 2016 (IBC), concerning the trial of offenses by Special Courts established under the Companies Act, 2013. The Supreme Court addressed whether the reference to the Special Court under Section 236(1) is a “legislation by incorporation” or “legislation by reference”. The judgment clarified that Section 236(1) embodies legislation by incorporation, making subsequent amendments to Section 435 of the Companies Act, 2013, inapplicable to the IBC.

Keywords: Insolvency and Bankruptcy Code, Special Court, legislation by incorporation, Section 236(1), Companies Act.

B) Case Details:

i) Judgment Cause Title:
Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu & Ors.

ii) Case Number:
Criminal Appeal No. 3851 of 2023.

iii) Judgment Date:
April 19, 2024.

iv) Court:
Supreme Court of India.

v) Quorum:
Justice B.R. Gavai and Justice Sandeep Mehta.

vi) Author:
Justice B.R. Gavai.

vii) Citation:
[2024] 5 S.C.R. 1; 2024 INSC 319.

viii) Legal Provisions Involved:

• Section 236(1), Insolvency and Bankruptcy Code, 2016.
• Section 435, Companies Act, 2013.
• Sections 73(a) and 235A, IBC, 2016.
• Relevant sections of the Criminal Procedure Code, 1973.

ix) Judgments Overruled by the Case:
Not explicitly overruled but criticized the High Court’s reasoning.

x) Case Related to Law Subjects:
Corporate Law, Criminal Law, Procedural Law.

C) Introduction and Background of Judgment:

This case emerged from a complaint filed by the Insolvency and Bankruptcy Board of India (IBBI) against former directors of SBM Paper Mills Pvt. Ltd.. It questioned the jurisdiction of a Special Court presided over by a Sessions Judge under the IBC. A pivotal legal issue was whether the amended provisions of Section 435 of the Companies Act, 2013, post-2018, could alter the definition of a Special Court under the IBC.

D) Facts of the Case:

1. Corporate Insolvency Process: SBM Paper Mills Pvt. Ltd. initiated insolvency proceedings under Section 10 of the IBC in 2017. The NCLT admitted the petition and appointed an Interim Resolution Professional.
2. Withdrawal Application: Subsequently, one of the former directors filed an application for withdrawal based on a One-Time Settlement (OTS) with the sole financial creditor, Allahabad Bank. This was allowed by the NCLT.
3. Non-Compliance of OTS: The respondents failed to comply with the OTS terms. The NCLT issued a show-cause notice and recommended prosecution under Sections 73(a) and 235A of the IBC.
4. Complaint by IBBI: IBBI filed a complaint before a Sessions Judge acting as a Special Court.
5. High Court Quashing: The Bombay High Court quashed the Sessions Judge’s order, reasoning that the 2018 amendment to Section 435 mandated trial by a Metropolitan Magistrate or Judicial Magistrate of First Class, not by a Sessions Judge.

E) Legal Issues Raised:

1. Whether Section 236(1) of the IBC entails “legislation by incorporation” or “legislation by reference.”
2. Whether the amendment to Section 435 of the Companies Act in 2018 affects the definition of the Special Court under the IBC.

F) Petitioner’s Arguments:

1. Legislation by Incorporation: The petitioner argued that Section 236(1) of the IBC incorporates Section 435 of the Companies Act as it existed in 2016. Subsequent amendments do not apply.
2. Complete Code Doctrine: The IBC is a complete code, and provisions borrowed from other statutes must be interpreted in their original form as incorporated.
3. Precedents: Cited cases like Bolani Ores Ltd. v. State of Orissa and Mahindra and Mahindra Ltd. v. Union of India to support the incorporation argument.
4. Jurisdiction Validity: Submitted that the Special Court presided by a Sessions Judge was competent under the IBC.

G) Respondent’s Arguments:

1. Legislation by Reference: The respondents contended that Section 236(1) is legislation by reference, meaning amendments to Section 435 after 2016 should apply.
2. Procedural Fairness: Argued that only a court designated under the amended provisions of Section 435 had jurisdiction.
3. Merit-Based Defense: Claimed compliance with the IBC and sought remittance for re-evaluation on merits.

H) Judgment:

a. Ratio Decidendi:

The Supreme Court held that:

1. Section 236(1) of the IBC constitutes legislation by incorporation. The provisions of Section 435, as they existed when the IBC came into effect in 2016, remain relevant.
2. Amendments to Section 435, post-2016, including the 2018 changes, do not apply to the IBC.
3. The High Court’s reasoning was flawed, as it ignored the incorporation principle.

b. Obiter Dicta:

The Court emphasized the importance of interpreting procedural provisions to uphold the legislative intent of speedy and specialized trials under the IBC.

c. Guidelines (if any):

• Special Courts under Section 236(1) of the IBC should adhere to the Companies Act provisions as they existed in 2016.
• Amendments to external statutes do not automatically alter incorporated provisions unless explicitly stated.

I) Conclusion & Comments:

The judgment reinforces the principle of legislation by incorporation and clarifies the jurisdiction of Special Courts under the IBC. It highlights the significance of legislative intent in procedural law and ensures consistency in insolvency proceedings.

J) References:

Important Cases Referred:

1. Bolani Ores Ltd. v. State of Orissa (1974) 2 SCC 777.
2. Mahindra and Mahindra Ltd. v. Union of India (1979) 2 SCC 529.
3. Ebix Singapore Pvt. Ltd. v. Committee of Creditors (2021) 14 SCR 321.

Important Statutes Referred:

1. Insolvency and Bankruptcy Code, 2016.
2. Companies Act, 2013.
3. Criminal Procedure Code, 1973.