The Supreme Court issued its first comprehensive judgement on the implementation and operation of the Insolvency and Bankruptcy Code (Insolvency Code). The Court stated that it is issuing its complete decision in the first application under the Insolvency Code so that other Courts and Tribunals are aware of a legal paradigm shift.
In the instant case titled M/S Innoventive Industries Limited v. ICICI Bank & Anr three issues were raised before the Supreme Court for clarification:
i. Whether the provisions of Section 238 of the Code with the non-obstante clause would prevail upon the local law/ state statute?
ii. Whether natural justice was violated when no notice was given to the Corporate Debtor?
iii. Limited time frame of 14 days was available with the court for deciding the case & therefore, a plea of the Corporate Debtor was not taken into consideration after the expiry of 14 days?
With regard to the first issue, the Supreme Court decided that the question of Article 254 of the Indian Constitution's repugnancy must be demonstrated by demonstrating that the two enactments contain irreconcilable provisions that prevent them from standing together or operating in the same field. Furthermore, in order to determine where the competing statutes as a whole fall, the doctrine of pith and substance must be applied. Repugnancy must exist in reality and not only be potential.
With regard to the second issue, the Supreme Court declared that the Financial/ Operational Creditor must send notice of the application to the Corporate Debtor in advance of issuing the provision of natural justice.
The Supreme Court, in addressing the third issue, found that the court's availability of 14 days for deciding the case is merely suggestive and not mandatory.
The Court categorically held that:
“Under Section 8(1) of the IBC, an operational creditor is required to deliver a demand notice on the occurrence of default and under Section 8(2) of the IBC, then the corporate debtor can bring to the notice of the creditor, existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is preexisting. The existence of such a dispute will make the application of operational creditor inadmissible”.
The Court also held that, under Section 7, once the NCLT determines that a default has occurred, the financial creditor's application must be accepted (unless it is incomplete). The corporate debtor has the right to assert that there has been no default in the sense that the "debt," which could include a disputed claim, is not due.
The Insolvency Code has ushered in a paradigm shift in law and economic policy, according to the ruling. The decision is really progressive, forward-thinking, and ground-breaking, and it should pave the way for efficient and successful application of the Insolvency Code through adherence to the Insolvency Code's timetables and the speed with which the resolution process is completed.