Insolvency and Bankruptcy Board of India vs. Satyanarayan Bankatlal Malu (Supreme Court, 19 April 2024)
Background
This case arose from insolvency proceedings against SBM Paper Mills Pvt. Ltd. under the Insolvency and Bankruptcy Code, 2016 (IBC). After the National Company Law Tribunal (NCLT) admitted the corporate insolvency process and appointed an Interim Resolution Professional, a One-Time Settlement (OTS) was reached with the sole creditor, Allahabad Bank. The NCLT allowed withdrawal of the insolvency application under Section 12A IBC, but the respondents (ex-directors) failed to comply with the OTS terms. The NCLT recommended prosecution under Sections 73(a) and 235A of the IBC, and the Insolvency and Bankruptcy Board of India (IBBI) filed a complaint before a Sessions Judge acting as a Special Court.
Legal Issue
The central question was whether, after the 2018 amendment to Section 435 of the Companies Act, 2013, only a Metropolitan Magistrate or Judicial Magistrate First Class could try IBC offences, or whether a Special Court presided by a Sessions Judge retained jurisdiction under Section 236(1) of the IBC. The Bombay High Court had quashed the proceedings, holding that only a Magistrate could try such offences post-amendment.
Supreme Court’s Analysis
The Supreme Court, led by Justice B.R. Gavai, clarified the distinction between “legislation by incorporation” and “legislation by reference.” The Court held that Section 236(1) of the IBC constitutes legislation by incorporation: it adopts Section 435 of the Companies Act, 2013, as it existed when the IBC came into force in 2016. Thus, subsequent amendments to Section 435—including the 2018 change that altered the composition of Special Courts—do not affect the operation of Section 236(1) IBC.
The Court emphasized that the legislative intent was to ensure speedy and specialized trials for IBC offences, and that the original provision (Special Court presided by a Sessions Judge or Additional Sessions Judge) remains applicable for IBC prosecutions. The High Court’s reasoning, which treated the IBC as subject to subsequent changes in the Companies Act, was found to be legally flawed.
Judgment and Outcome
The Supreme Court set aside the Bombay High Court’s order, restoring the jurisdiction of the Special Court (Sessions Judge) to try offences under the IBC. The matter was remitted to the High Court for consideration of the respondents’ petition on merits, but with the clear direction that the Special Court as defined in 2016 remains competent.
Significance
This decision clarifies the procedural framework for prosecuting IBC offences, affirming that the IBC’s reference to Special Courts is fixed as of its enactment and not subject to later amendments in the Companies Act. It reinforces the principle of legislative intent and the doctrine of legislation by incorporation, ensuring certainty and consistency in insolvency proceedings.
Citation: Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu & Ors., [2024] 5 S.C.R. 1; 2024 INSC 319; Supreme Court of India, Judgment dated 19 April 2024.
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