Explained| Supreme Court’s verdict on Jurisdiction of Special Court presided by Sessions Judge or Add. Sessions Judge to try complaint under IBC

Supreme Court: In an appeal against the judgment and order passed by Bombay High Court, wherein, the Court quashed complaint filed by Insolvency and Bankruptcy Board of India (‘IBBI’) on the ground that it was filed before a Special Court presided by a Sessions Judge, as in view of the subsequent amendment, the offences under the Insolvency and Bankruptcy Code, 2016 (‘Code’) shall be tried only by a Metropolitan Magistrate or a Judicial Magistrate of the First Class, the division bench of BR Gavai* and Sandeep Mehta, JJ. has held that 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’ and not a case of ‘legislation by reference’, thus the Special Court presided by a Sessions Judge, or an Additional Sessions Judge will have jurisdiction to try the complaint under the Code. Further, the Bench remitted the matter to the High Court to consider the petition of the respondents afresh on merits.

IBBI has challenged the order passed by Bombay High Court, wherein the Court allowed the petition filed by Ex-Directors of SBM Paper Mills Pvt. Ltd., challenging the order passed by Additional Sessions Judge, wherein it directed issuance of process against the Ex- Directors on account of a Complaint filed by the IBBI under Section 236 of the Code read with Sections 190, 193 and 200 of the Code of Criminal Procedure, 1973 (‘CrPC’) for the offences punishable under Section 73(a) and Section 235A of the Code.

Whether 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 Court took note of Section 236(1) of the Code and said that it begins with a non-obstante clause. It provides that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. Chapter XXVIII of the Companies Act, 2013 deals with ‘Special Courts’.

Further, the Bench noted that as per Section 435(3) of the Companies Act, 2013, as it existed on the date on which the Code came into effect (after the 2015 Amendment), a person to be qualified for appointment as a Judge of a Special Court was required to hold office of a Sessions Judge or an Additional Sessions Judge immediately before his appointment as a Judge of a Special Court.

The Court noted 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. All offences under the Companies Act, 2013 were required to be tried by such Special Courts. The 2015 Amendment to Section 435 also provided for only one class of Special Courts i.e. a person holding the rank of a Sessions Judge or an Additional Sessions Judge. The change that was brought out was that, only offences punishable under the Companies Act, 2013 with imprisonment of two years or more were to be tried by the Special Courts, whereas all other offences i.e. offences punishable with imprisonment of less than two years were to be tried by the jurisdictional Metropolitan Magistrate or the Judicial Magistrate of the First Class.

Further, it noted that 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

• The second class of Special Courts comprised of Metropolitan Magistrate or a Judicial Magistrate of the First Class.

The Court said that it has to be seen 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’. As, if 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 existed when the Code came into effect. Per contra, if 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.

The Court noted that in a catena of cases it has held that the Code is a self-contained Code.

After analysing Section 236(1) of the Code, the Court said that reference is “offences under this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013”. Thus, 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.

The Court held that the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’. Thus, the provision of Section 435 of the Companies Act, 2013 regarding Special Court would become a part of Section 236(1) of the Code on the date of its enactment. Thus, 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 in time only consisted of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge.

The Court also noted that the Code has also suffered two subsequent amendments i.e. the 2015 Amendment and the 2018 Amendment and said that if the legislative intent was to give effect to the subsequent amendments in the Companies Act to Section 236(1) of the Code, nothing prevented the legislature from amending Section 236(1) of the Code. Thus, the provision regarding 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.

Therefore, the Court held that the High Court has 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.

Further, the Bench rejected the reasoning of the single judge of the High Court, that in view of the 2018 Amendment only the offences under the Companies Act would be tried by a Special Court of Sessions Judge or Additional Sessions Judge and all other offences including under the Code shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class.

Thus, the Court said that 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. As, the High Court could have directed the complaint to be withdrawn and presented before the appropriate Court having jurisdiction.

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