Key Judicial Interpretation

The Supreme Court interpreted Section 236(1) of the Insolvency and Bankruptcy Code (IBC) to mean that the reference to Special Courts under Chapter XXVIII of the Companies Act, 2013, is a case of ‘legislation by incorporation’, thereby freezing the qualification of Special Courts as on the date of the IBC enactment (paras 18-25).

Court’s View

The Court held that the legislative intent of Section 236(1) of the IBC was to incorporate the provisions of Special Courts from the Companies Act as they existed at the time of the IBC’s enactment, making amendments to the Companies Act post-enactment of the IBC irrelevant for the purposes of IBC (paras 42-44).

Conclusion

The Supreme Court set aside the High Court’s decision, reinstated the order of the Sessions Judge, and confirmed that offences under the IBC must be tried by Special Courts as constituted under the Companies Act at the time of the IBC’s enactment, which includes judges qualified to be Sessions Judges or Additional Sessions Judges (paras 54-55).

Relevant Acts, Sections, Provisions, and Rules Cited

Sections 236(1) of the Insolvency and Bankruptcy Code, 2016; Sections 435 of the Companies Act, 2013; Sections 190, 193, 200 of the Code of Criminal Procedure, 1973.

Case of the Appellant

The appellant, Insolvency and Bankruptcy Board of India (IBBI), argued that the High Court erred in quashing the proceedings against the respondents by misinterpreting the jurisdiction of Special Courts under the IBC. They asserted that the offences should be tried by Special Courts established under the Companies Act as of the IBC’s enactment.

Appellant Relied On

The appellant relied on precedents and legal principles that establish the legislative intent and scope of ‘legislation by incorporation’ vs. ‘legislation by reference’ to argue their case.

Case of the Respondent

The respondents, Satyanarayan Bankatlal Malu and others, contended that the offences under the IBC should be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class following the amendments to the Companies Act, 2013.

Respondent Relied On

The respondents argued based on the legislative changes and the High Court’s interpretation of the Companies (Amendment) Act, asserting that the jurisdiction for trying IBC offences shifted accordingly.

Question & Answer

Question: What did the Supreme Court rule regarding the jurisdiction of Special Courts under the IBC? Answer: The Supreme Court ruled that the jurisdiction of Special Courts under the IBC is based on the provisions of the Companies Act as they existed at the time of the IBC’s enactment, meaning judges qualified to be Sessions Judges or Additional Sessions Judges are appropriate for trying IBC offences (paras 42-44).

Question: How did the Supreme Court interpret Section 236(1) of the IBC? Answer: The Supreme Court interpreted Section 236(1) of the IBC as ‘legislation by incorporation,’ meaning the provisions of Special Courts under the Companies Act were incorporated into the IBC as they stood at the time of its enactment, making subsequent amendments to the Companies Act irrelevant for this purpose (paras 18-25).

Question: Why did the Supreme Court set aside the High Court’s decision? Answer: The Supreme Court set aside the High Court’s decision because it found the High Court incorrectly interpreted the legislative intent and jurisdictional provisions of Special Courts under the IBC, leading to an erroneous quashing of the proceedings (paras 54-55).

Question: What was the Supreme Court’s stance on subsequent amendments to the Companies Act affecting the IBC? Answer: The Supreme Court held that subsequent amendments to the Companies Act do not affect the IBC’s provisions for Special Courts, as the IBC’s reference to these courts is a case of ‘legislation by incorporation’ (para 44).

Question: What was the final outcome for the respondents in this case? Answer: The Supreme Court reinstated the order of the Sessions Judge and directed that the offences under the IBC should be tried by Special Courts with judges qualified to be Sessions Judges or Additional Sessions Judges, as per the provisions of the Companies Act at the time of the IBC’s enactment (para 55).

Details of Case

Court: Supreme Court of India
Bench: Justice B.R. Gavai, Justice Aravind Kumar
Date of Order: April 19, 2024
Case Name: Insolvency and Bankruptcy Board of India vs. Satyanarayan Bankatlal Malu & Ors.
Case No.: Criminal Appeal No. 3851 of 2023