Innoventive Industries Ltd. v. ICICI Bank

Facts

ICICI Bank filed an application under Section 7 of the IBC to initiate the corporate insolvency resolution process against Innoventive Industries upon its default. Innoventive resisted, relying on the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, under which a State notification had suspended its liabilities. NCLT admitted the application and NCLAT affirmed. The corporate debtor appealed to the Supreme Court.

Issues

• What is the scope of NCLT's inquiry on a Section 7 application by a financial creditor
• Whether a State enactment (the Maharashtra Relief Undertakings Act) suspending the debtor's liabilities can bar or be repugnant to proceedings under the IBC

Arguments

Innoventive argued that the State notification suspended its debts and obligations, so no enforceable default existed, and that the State law operated to protect it. ICICI Bank argued that under Section 7 the only question was whether a default had occurred, and that the IBC, a later Central law on the subject, prevailed over the repugnant State Act by virtue of Section 238 and Article 254.

Held

The Supreme Court dismissed the appeal and explained the Section 7 scheme in detail: the adjudicating authority must only be satisfied that a default has occurred and that the application is complete, after which it must admit the application; the debtor's defence is limited. It held that the moment of default triggers the Code, and proof of debt and default may come from records of an information utility or other evidence. On repugnancy, the Court held the IBC is a complete code that, by Section 238 and Article 254(1), prevails over the State Relief Undertakings Act to the extent of inconsistency, so the suspension of liabilities under the State law could not defeat the creditor's IBC remedy.

Ratio decidendi

In a Section 7 proceeding NCLT's enquiry is confined to the existence of a default and completeness of the application; and the IBC, being a later Parliamentary enactment, overrides inconsistent State legislation by operation of Section 238 and Article 254.

Significance

The first authoritative Supreme Court exposition of the IBC's working and of the non-obstante / repugnancy principle, establishing the primacy of the Code over conflicting laws and the narrow admission test; cited in virtually every later Section 7 decision.

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