India: Supreme Court On Innoventive Industries: Recognition Of Paradigm Shift In Insolvency Law

Last Updated: 4 September 2017
Article by Kumar Saurabh Singh, Ashwin Bishnoi, Rajeev Vidhani, Dhwani Shah and Ashwij Ramaiah

Most Read Contributor in India, October 2017

In its first detailed ruling on some of the substantive legal questions under the Insolvency and Bankruptcy Code, 2016 (Code), the Hon'ble Supreme Court (Apex Court) has delivered a landmark order in the matter of Innoventive Industries Ltd v ICICI Bank and Another with an expressly avowed objective of ensuring that all the courts and tribunals across the country take notice of a 'paradigm shift in the law' ushered in by the Code.

Brief Background

In January 2017, ICICI Bank (Financial Creditor) filed a petition before the National Company Law Tribunal (NCLT) to initiate Corporate Insolvency Resolution Process (CIRP) against Innoventive Industries Ltd (Corporate Debtor) for having defaulted in its repayment obligations, distinguishing the application as a first under the Code. The Corporate Debtor, while defending the application inter alia claimed that it was categorized as a 'relief undertaking' under the provisions of the Maharashtra Relief Undertaking (Special Provisions) Act, 1958 (MRU Act) pursuant to which, all the debt obligations of the Corporate Debtor towards its creditors stood suspended. It was further argued that there was a non-obstante clause under Section 4 of the MRU Act which lays down that that the provisions of the MRU Act applied to relief undertakings notwithstanding anything contained in any other law. The Financial Creditor argued that there is a similar nonobstante clause under Section 238 of the Code which prescribes that the provisions of the Code would apply notwithstanding anything inconsistent contained in any other law.

The NCLT held the Code would prevail over the MRU Act as the Code was enacted subsequent to the MRU Act and the latter law prevails over the former one. Further, there was no repugnancy between the objects of the MRU Act and the Code since the objects of the MRU Act and the Code operate in different fields viz. prevention of unemployment of the existing employees of a relief undertaking and protection of creditors of the said entity, respectively.

Aggrieved by the above, the Corporate Debtor preferred an appeal under Section 60 of the Code before the National Company Law Appellate Tribunal (NCLAT) inter alia the ground that no reasonable opportunity of hearing was granted to the Corporate Debtor. The NCLAT dismissed the petition inter alia on the following grounds:

  • Further to NCLT's reasoning on this point, the NCLAT held that the protection under the MRU Act cannot be extended to other legislations especially to the Code which is a union legislation and relates to insolvency resolution;
  • While relying on well-settled law expounded by the Apex Court (AK Kripak, Maneka Gandhi, Swadeshi Cotton Mills, State of Orissa v. Bina Pani dei), the NCLAT held that natural justice is essential and as per amended Section 424 of Companies Act, 2013, it is mandatory for the adjudicating authority to follow the principles of natural justice while passing an order under the Code. The NCLAT also noted that Rule 4(3) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 mandates a notice to be issued post filing of the application under the Code. However, there are exceptions to the rules of natural justice, inter alia: (A) where prompt action is needed; (B) where procedural effect has no effect on the outcome; and (C) where it is a useless formality. In the opinion of the NCLAT, the exceptions applied to the instant case; and
  • As far as the Master Restructuring Agreement dated 8 September 2014 (MRA) executed between the Financial Creditor and the Corporate Debtor was concerned; the Corporate Debtor cannot take advantage of the same. Even if it was presumed that fresh agreement came into existence, it does not absolve the Corporate Debtor from paying the previous debts which was due to the Financial Creditor.

The Corporate Debtor subsequently preferred an appeal before the Apex Court under Section 62 of the Code against the order of NCLAT on the ground that the 'debt' in question was temporarily suspended in terms of the notification issued under the MRU Act until 18 July 2017 and accordingly proceedings under the Code cannot be initiated against the Corporate Debtor. Further, the Corporate Debtor also relied on the MRA under which funds were to be infused by the Financial Creditor stating that the Corporate Debtor was unable to fulfil its repayment obligations as a direct consequence of the non-disbursal of funds by the Financial Creditor under the MRA.

Judgment of the Apex Court

The Apex Court after hearing the parties before it observed that under Section 17(b) of the Code, once an interim insolvency resolution professional has been appointed, the powers of the board of directors stand suspended and the erstwhile directors are no longer in the management of the company. Therefore, subsequent to the appointment of the interim insolvency professional, the erstwhile directors do not have any right to maintain an appeal on behalf of the company even if it pertains to challenge against the order of NCLT in terms of the provisions of the Code.

This observation of the Apex Court may raise some practical concerns with respect to filing of appeals by the Corporate Debtor whose CIRP is admitted by the NCLT. To provide a perspective, if according to the Apex Court's interpretation, only the person who is in management and control of the company can maintain an appeal on behalf of the company, the logical corollary of the same would be that only the insolvency resolution professional can maintain an appeal on behalf of the company. However, this would create a situation of potential conflict as the insolvency resolution professional is appointed on admission of the application filed by the creditors.

The Apex Court while observing that this procedural irregularity itself makes the appeal non-maintainable and liable to be dismissed, proceeded to address the other grounds of the appeal in order to substantively settle certain important legal questions under the Code to guide the subordinate courts and tribunals across the country.

Applicability of MRU Act Vis-Ŕ-Vis the Code

On the issue of inconsistency between the provisions of the Code which is a central legislation and the MRU Act, which is a state legislation, relying upon Article 254 of the Constitution of India, 1950 which recognises supremacy of central laws over state laws, to the extent of any repugnancy and authorities from several other jurisdictions across the world such as UK, USA, Australia etc., the Apex Court held that the provisions of the Code override the provisions of the MRU Act and the moratorium under the MRU Act would not come in the way of initiating proceedings under the Code.

After elaborately elucidating on different conditions under which legislation can be held to be repugnant with each other, the Apex Court while overruling the findings of the NCLAT held that the MRU Act was indeed in repugnance with the Code for the following reasons:

  • Both the legislations stem out of the subjects enshrined under the Concurrent List (i.e. Entry 9 for the Code and Entry 23 for the MRU Act), satisfying the primary test for repugnancy;
  • The Code envisages a CIRP of 180 days (extendable by another 90 days) during which the insolvency resolution professional shall take over the management from the board of directors, which stand suspended during this period. On the other hand, the MRU Act provides that if an entity has been categorized as a 'relief undertaking' then, the State Government may take over the management of such undertaking and a temporary moratorium is imposed restricting the creditors from proceeding against the concerned relief undertaking from recovering their debts. Therefore, giving effect to the provisions of the MRU Act, would certainly interfere with the operation and scheme of the Code, as it would directly impede the taking over of the management of the corporate body by the interim resolution professional;
  • Additionally, the moratorium imposed by the MRU Act would directly clash with the moratorium to be issued under the Code, as the moratorium under the MRU Act is discretionary and may relate to one or more matters, however, the moratorium under Section 14 of the Code is bereft of discretion and pertains to all matters set out therein;
  • Giving effect to the non-obstante clause under Section 4 of the MRU Act would necessarily come in the way of giving effect to the non-obstante clause under Section 238 of the Code; and
  • Lastly, the notification under the MRU Act, continues for 1 year at a time and can continue upto 15 years, as compared to the significantly shorter time period under the Code. Therefore, the vast difference in the length of the two provisions would scuttle the scheme and objective of the Code which is time bound resolution of stressed assets.

Failure of the Lender to Infuse Additional Funds

The Apex Court while rejecting the contention that failure of lenders to disburse under the MRA contributed to inability on the part of the Corporate Debtor to discharge its dues held that any such contention would not be maintainable in view of the unconditional nature of payment obligations under the MRA which did not depend upon infusion of funds by the creditors into the Corporate Debtor.

Basis the above two reasons, the Apex Court upheld the findings of NCLAT and dismissed the appeal filed by the Corporate Debtor.


The judgment of the Apex Court clearly recognises the objective and importance of the Code in so far as it provides a unified and time bound regime on insolvency and bankruptcy which can considerably ease the process of exit of entities in distress and help in protecting and preserving value of assets stuck in such distress situations. In this context, the multitude of overlapping legislations which would be repugnant to the provisions of the Code present a challenge in implementation of this landmark legislation and to that extent the ruling of Apex Court in Innoventive Industries is very welcome in so far as it clarifies and recognises the overriding nature of the Code in case of inconsistency. This would clearly provide an impetus for resolution of plethora of distressed accounts in the Indian banking system through the regime introduced under the Code.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.