In the case of Innoventive Industries Limited v. ICICI Bank Limited, which was heard on August 31, 2017, the Supreme Court of India issued the first comprehensive ruling on the application and operation of the Insolvency and Bankruptcy Code, 2016. The Court stated that it is issuing its detailed ruling in the very first case under the Insolvency Code so that other courts and tribunals may announce a paradigm change in the law.
The views of the Honourable Supreme Court in this case might be seen as a broad endorsement of the NCLAT decision in Kirusa Software Case, which found that a "dispute" pursuant to Section 8(2) must be "pending" and cannot be raised by the corporate debtor for the first time while it is pending.
In the instant case titled Innoventive Industries Limited v. ICICI Bank Limited. The issues raised for clarification before the Supreme Court was:
Whether the Maharashtra Act clashes with the Code in any way?
With regard to this issue, in accordance with Article 254 of the Constitution, the Supreme Court examined precedent and procedural guidelines pertaining to conflicts between federal and state laws. It asserts that the MRUA violates the IBC because it allows the State Government to take control of the endeavour and enforce the moratorium in a manner similar to that of the IBC. It was concluded that putting the MRUA into effect would immediately inhibit the plan or scheme that might be implemented under the IBC and that there would be a direct conflict between the moratoria under the two statutes. The Supreme Court further declared that the non-obstante clause in the IBC would take precedence over the non-obstante clause in the MRUA. Regarding the suspension of debt resulting from the MRUA relief order, it was determined that the IBC's non-obstante clause prevented the corporate debtor from using any other legal rights to obstruct it. The Court made some comments regarding Section 8 of the IBC even though the judgement primarily addresses Section 7. It is significant that it states that Section 8(2) permits the corporate debtor to notify the operating creditor of any conflict or record of the pendingness of a lawsuit or arbitration proceedings. Any conflict must also pre-exist, meaning that it must exist before the corporate debtor receives the notice of claim or the invoice. The NCLAT decision in the Kirusa Software Case held that a "dispute" pursuant to Section 8(2) must not be pending in a lawsuit or arbitration proceeding; however, the same must be "pending" and cannot be raised by the corporate debtor for the first time while it is pending. These observations by the Hon'ble Supreme Court may be viewed as a broad affirmation of that decision.
The Court categorically stated that,
"In the present case it is clear, therefore, that unless the Maharashtra Act is out of the way, the Parliamentary enactment will be hindered and obstructed in such a manner that it will not be possible to go ahead with the insolvency resolution process outlined in the Code. Further, the non-obstante clause contained in Section 4 of the Maharashtra Act cannot possibly be held to apply to the Central enactment, inasmuch as a matter of constitutional law, the later Central enactment being repugnant to the earlier State enactment by virtue of Article 254 (1), would operate to render the Maharashtra Act void vis-à-vis action taken under the later Central enactment".
The decision, which adheres to the Insolvency Code's deadlines and pace of the resolution process, is therefore genuinely positive, forward-looking and ground-breaking. It will pave the way for the effective and successful application of the Insolvency Code. The court's decision acknowledges that the Code changed the rules of law and economics in significant ways.