New Delhi: In its first judgment on the new insolvency and bankruptcy law, the Supreme Court has underlined that the parliamentary legislation will have primacy over state laws on issues of corporate debts.
The Court held that The Insolvency and Bankruptcy Code, 2016 was enacted with an objective of time-bound insolvency proceeding and therefore, laws enacted by state governments cannot be allowed to come in the way to cause delays or other complications.
A bench of Justices Rohinton F Nariman and Sanjay K Kaul, delivering a primer on the Code, noted that “other nations have marched ahead much before us” when insolvency resolution in India took 4.3 years on an average.
This, the Court said, is much higher when compared with the United Kingdom (1 year), USA (1.5 years) and South Africa (2 years).
“The World Bank’s Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia,” said the bench.
It pointed out that the 2016 Code has brought about a “paradigm” shift in the law by laying down a time-bound mechanism of 180 days to complete the insolvency proceedings.
In a boost for the Modi government’s new law, the top court held that the state laws cannot be allowed to “unsettle the scheme of the Code and the object with which it was enacted, namely, to bring defaulter companies back to the commercial fold or otherwise face liquidation.”
The order by the apex court came as it held that Maharashtra Relief Undertakings (Special Provisions Act), 1958 was repugnant to the 2016 Code and the former will have to give way to the exhaustive central law on the subjects of insolvency and bankruptcy.
Upholding the right of a consortium of banks led by ICICI to proceed with the insolvency proceedings against Innovative Industries under the new Code, the bench said that the Maharashtra Act will undoubtedly obstruct the scheme envisaged under the Code.
While the Code prescribed 180 days during which a resolution professional has to take over the management and take calls regarding liquidation etc, under the Maharashtra Act the proceedings may drag from one to 15 years during which the liabilities could remain suspended and the state government has to take over the management.
“The whole scheme and object of the Code would be set at naught,” said the bench, holding that the Maharashtra Act cannot come to the rescue of the defaulter in question and that the National Company Law Tribunal will deal with the matter under the 2016 Code.
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