Case study: Innoventive Industries Vs ICICI Bank

The case involved an appeal concerning the Insolvency and Bankruptcy Code of 2016. The appellant, Innoventive Industries Ltd., faced losses from August 2012 due to labour issues and was unable to service its debts to 19 banking entities. A corporate debt restructuring plan was proposed, but ICICI Bank Ltd. eventually applied to initiate the insolvency resolution process, claiming the appellant was a defaulter under the Code.  

Innoventive Industries argued that its liabilities were temporarily suspended under the Maharashtra Relief Undertakings (Special Provisions Act), 1958, and later claimed that non-release of funds under the restructuring agreement prevented it from repaying its debts.  

Key Issues and Judgments

• Conflict between Insolvency and Bankruptcy Code and Maharashtra Act: The National Company Law Tribunal (NCLT) held that the Code would prevail over the Maharashtra Act, citing the non-obstante clause in Section 238 of the Code. The MRU Act’s moratorium clashed with the IBC’s moratorium (Sections 13–14) and management takeover by resolution professionals (Section 17). The National Company Law Appellate Tribunal (NCLAT) found that the two acts operate in different fields and are not repugnant, but ruled that the appellant could not use the Maharashtra Act to stall the insolvency process under the Code.  
• Maintainability of Appeal: The Supreme Court addressed the maintainability of the appeal by the erstwhile directors of the appellant company. It was held that once an insolvency professional is appointed, the former directors cannot maintain an appeal on behalf of the company.  
• Objectives and Purpose of the Insolvency and Bankruptcy Code: The Supreme Court provided an overview of the Code, emphasizing its objectives to consolidate insolvency laws, speed up the insolvency process, and balance the interests of all stakeholders. The Court highlighted the shift from favoring debtor management to prioritizing creditor interests and efficient resolution of insolvency.  
• Repugnancy Analysis: The Supreme Court analyzed the repugnancy between the Insolvency and Bankruptcy Code and the Maharashtra Act under Article 254 of the Constitution of India. It discussed the principles of repugnancy, including the doctrine of occupied field and the tests for determining inconsistency between laws.  

Outcome

The Supreme Court ultimately upheld the NCLT and NCLAT’s decision to admit the application filed by ICICI Bank Ltd., dismissing the appeals. The Court emphasized the importance of the Insolvency and Bankruptcy Code in providing a comprehensive framework for insolvency resolution and its primacy over state laws in matters of repugnancy.

Significance of the Judgment

Primacy of IBC: The judgment affirmed the IBC as a comprehensive code for insolvency, overriding conflicting state laws. This ensures uniformity and efficiency in resolving insolvencies.

Clarity on Repugnancy: It clarified that repugnancy arises when laws occupy the same field and create irreconcilable conflicts, even if framed under different Concurrent List entries.

Strict Timelines: The Court upheld the IBC’s time-bound process, discouraging dilatory tactics by debtors.

Corporate Governance: Reinforced that management rights cease upon insolvency commencement, shifting control to resolution professionals.

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