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Overriding effect of IBC, 2016

The previous bankruptcy regime in India was highly fragmented, lacking coherence and regularity and there was no clear legal system to recognise the priority of claims. The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend the laws with regards to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons.
Written by:
Shivi Gupta
Published on
13th Sep, 2019

The previous bankruptcy regime in India was highly fragmented, lacking coherence and regularity and there was no clear legal system to recognise the priority of claims. The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend the laws with regards to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons. The Code was enacted to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues. It establishes the Insolvency and Bankruptcy Board of India, a special mechanism to oversee the insolvency and liquidation process for corporates, individuals and small and micro enterprises (SMEs). Section 238  of the Code states that provisions of this Code have an overriding effect on all other existing laws on matters pertaining to insolvency and bankruptcy. In ICICI Bank v Innoventive Industries Limited, the NCLT held that Section 238 of the Code contains a non-obstante clause similar to the MRU Act, which states that the provisions of the Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Since the Code is subsequent to the MRU Act, the non-obstante clause under Section 238 of the Code prevails.

 

The suspension of liability under the MRU Code is inconsistent with the ability of a creditor to initiate the CIR Process under the Code and therefore, the overriding powers under Section 238 of the Code shall render the suspension under MRU act inoperative. Declaration of moratorium keeps business as usual for employees without affecting their interest and therefore a declaration of the moratorium would not be in conflict with the objective of the MRU Act (which is to prevent unemployment of the existing employees of a relief undertaking). NCLAT has clarified that adherence to principles of natural justice would not mean that in every situation the NCLT is required to afford the reasonable opportunity of hearing to the corporate debtor before passing its order. Have some legal issues? Talk to the best lawyers at MyAdvo. Email us at info@myadvo.in or call now at 9811782573.