Moratorium provisions under Maharashtra Relief Undertakings (Special Provisions Act), 1958 repugnant to Insolvency and Bankruptcy Code of 2016

Supreme Court: Dealing with the question relating to applicability of the Maharashtra Relief Undertakings (Special Provisions Act), 1958 vis-a-vis the Insolvency and Bankruptcy Code of 2016, the bench of RF Nariman and SK Kaul, JJ held that the State law is repugnant to the Parliamentary enactment as under the said State law, the moratorium imposed under Section 4 of the Maharashtra Act directly clashes with the moratorium to be issued under Sections 13 and 14 of the Code.

Explaining the scheme of both the Laws, the Court said that the moment initiation of the corporate insolvency resolution process takes place, a moratorium is announced by the adjudicating authority vide Sections 13 and 14 of the Code, by which institution of suits and pending proceedings etc. cannot be proceeded with. This continues until the approval of a resolution plan under Section 31 of the said Code. In the interim, an interim resolution professional is appointed under Section 16 to manage the affairs of corporate debtors under Section 17 of the Code.

It was further explained that whereas the moratorium imposed under the Maharashtra Act is discretionary and may relate to one or more of the matters contained in Section 4(1), the moratorium imposed under the Code relates to all matters listed in Section 14 and follows as a matter of course. Hence, unless the Maharashtra Act is out of the way, the Parliamentary enactment will be hindered and obstructed in such a manner that it will not be possible to go ahead with the insolvency resolution process outlined in the Code. Further, the non-obstante clause contained in Section 4 of the Maharashtra Act cannot possibly be held to apply to the Central enactment, inasmuch as a matter of constitutional law, the later Central enactment being repugnant to the earlier State enactment by virtue of Article 254 (1), would operate to render the Maharashtra Act void vis-à-vis action taken under the later Central enactment

It was, hence, held that by giving effect to the State law, the aforesaid plan or scheme which may be adopted under the Parliamentary statute will directly be hindered and/or obstructed to that extent in that the management of the relief undertaking, which, if taken over by the State Government, would directly impede or come in the way of the taking over of the management of the corporate body by the interim resolution professional. Hence, the Code would prevail against the Maharashtra Act in view of the non-obstante clause in Section 238 of the Code. [Innoventive Industries Ltd. v. ICICI Bank, 2017 SCC OnLine SC 1025, decided on 31.08.2017]

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