Special Court presided by Sessions Judge or Additional Sessions Judge will have jurisdiction to try complaint under IBC, clarifies Apex Court
Justices B.R. Gavai & Sandeep Mehta [19-04-2024]

Read Order: INSOLVENCY AND BANKRUPTCY BOARD OF INDIA v. SATYANARAYAN BANKATLAL MALU & ORS [SC- CRIMINAL APPEAL NO. 3851 OF 2023]

Tulip Kanth

New Delhi, April 22, 2024: The Supreme Court has held that the Single-Judge Bench of the Bombay High Court grossly erred in quashing a complaint filed by the Insolvency and Bankruptcy Board of India under Section 236 of the Insolvency and Bankruptcy Code, 2016 only on the ground that it was filed before a Special Court presided by a Sessions Judge.

The facts of the case suggested that M/s. SBM Paper Mills Private Limited (Corporate Debtor) had filed a petition on under Section 10 of the Insolvency and Bankruptcy Code, 2016 for initiation of the Corporate Insolvency Resolution Process (CIRP) of itself. The National Company Law Tribunal, Mumbai Bench (NCLT) admitted the Petition and appointed Amit Poddar as the Interim Resolution Professional (RP) to carry out the functions as prescribed under the provisions of the Code.

In the meanwhile, Satyanarayan Malu, i.e., the Respondent/Ex-Director of the Corporate Debtor filed an application before the NCLT under Section 12A for the withdrawal of the aforesaid petition under Section 10 in light of a One Time Settlement (OTS) entered into with the sole Financial Creditor, i.e., Allahabad Bank. On the other hand, the RP had also filed an application for the approval of the Resolution Plan. The NCLT allowed the application of the Respondent.

However, on account of non-compliance of the terms of the OTS by the Respondents, the NCLT issued a Show-Cause Notice against them. The Appellant-Board filed a Complaint against the Respondents before the Sessions Judge for offences punishable under Section 73(a) and 235A for the non-compliance of the terms of the OTS and for not having filed the application under Section 12A through the RP. The Sessions Judge directed issuance of process against the Respondents and further directed them to be summoned on the next date of hearing.

Being aggrieved thereby, the Respondents filed a Writ Petition before the Bombay High Court, praying for the quashing of the order passed by the Sessions Judge for the want of jurisdiction. The High Court allowed the Writ Petition. Hence, the appeal was filed before the Top Court.

It was the case of the petitioners that the reasoning given by the Single Judge that the offences other than the Companies Act cannot be tried by the Special Court consisting of Sessions Judge or Additional Sessions Judge was totally in ignorance of the provisions of sub-section (1) of Section 236 of the Code.The petitioner contended that the Single Judge had grossly erred in holding that, in view of the Companies (Amendment) Act, 2017, only the offences committed under the Companies Act can be tried by Special Court consisting of Sessions Judge or Additional Sessions Judge.

At the outset, the Division Bench of Justice B.R. Gavai and Justice Sandeep Mehta referred to Section 236(1) of the Code which provides that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013.

The Bench made it clear that that Section 435 of the Companies Act, 2013 as it originally existed, provided for only one class of Special Courts i.e. a person holding office of a Sessions Judge or an Additional Sessions Judge and all offences under the Companies Act, 2013 were required to be tried by such Special Courts. By the 2018 Amendment, two classes of Special Courts were established. The first class of Special Courts comprised of an officer holding the office as Sessions Judge or Additional Sessions Judge, whereas the second class of Special Courts comprised of Metropolitan Magistrate or a Judicial Magistrate of the First Class. The offences punishable under the Companies Act with imprisonment of two years or more were required to be tried by a Special Court comprising of Sessions Judge or Additional Sessions Judge, whereas all other offences i.e. the offences punishable with imprisonment of less than two years were to be tried by a Special Court comprising of Metropolitan Magistrate or the Judicial Magistrate of the First Class.

Another issue to be considered was whether the Special Court under the Code would be as provided under Section 435 of the Companies Act as it existed at the time when the Code came into effect, or it would be as provided under Section 435 of the Companies Act after the 2018 Amendment. The Bench observed that the answer to that question would depend upon as to whether the reference to Special Court established under Chapter XXVIII of the Companies Act, 2013 in Section 236(1) of the Code is a legislation by incorporation or a legislation by reference. If it is held that it is a legislation by incorporation, then the subsequent amendments would not have any effect on the Code and the Special Court would continue to be as provided under Section 435 of the Companies Act, as it existed when the Code came into effect. Per contra, if it is held that it is a legislation by reference then the subsequent amendments would also be applicable to the Code and the Special Courts would be as provided under Section 435 of the Companies Act after its amendment by the 2018 Amendment.

Noting that under Section 236(1) of the Code, reference is offences under this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013, the Bench opined that the reference is not general but specific. The reference is only to the fact that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act.

Since the reference is specific and not general, the Bench observed the present case is a case of legislation by incorporation and not a case of legislation by reference. The effect would be that the provision with regard to Special Court has been bodily lifted from Section 435 of the Companies Act, 2013 and incorporated in Section 236(1) of the Code. This would mean that the provision of Section 435 of the Companies Act, 2013 with regard to Special Court would become a part of Section 236(1) of the Code as on the date of its enactment. If that be so, any amendment to Section 435 of the Companies Act, 2013, after the date on which the Code came into effect would not have any effect on the provisions of Section 236(1) of the Code. The Special Court at that point of time only consists of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge.

Further noticing that Section 236(1) of the Code wasn’t amended, the Bench stated that the provision with regard to the reference in Section 236(1) of the Code pertaining to Special Court as mentioned in Section 435 of the Companies Act, 2013 stood frozen as on the date of enactment of the Code. As such, the Judge of the High Court had erred in holding that in view of the subsequent amendment, the offences under the Code shall be tried only by a Metropolitan Magistrate or a Judicial Magistrate of the First Class.

“In any case, the learned single Judge of the High Court has grossly erred in quashing the complaint only on the ground that it was filed before a Special Court presided by a Sessions Judges. At the most, the learned single judge of the High Court could have directed the complaint to be withdrawn and presented before the appropriate court having jurisdiction”, it held.

Thus, allowing the appeal, the Bench quashed the impugned judgment of the Single Judge and said, “It is held that the Special Court presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the Code. However, since the learned single judge of the High Court has not considered the merits of the matter, the matter is remitted to the learned single judge of the High Court for considering the petition of the respondents afresh on merits.”