Supreme Court Upholds ICICI Bank’s Insolvency Petition Against Innoventive Industries Ltd.
The case of M/s Innoventive Industries Ltd. v. ICICI Bank & Anr. is a landmark judgment concerning the Insolvency and Bankruptcy Code (IBC), 2016. The Supreme Court was called upon to decide whether insolvency proceedings under IBC could override state laws such as the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, which provided temporary immunity to businesses from creditors’ actions. The ruling had significant implications for insolvency proceedings and financial institutions.
Background of the Case
Innoventive Industries Ltd., the appellant, was a multi-product company catering to diverse industrial sectors. Facing financial difficulties due to labor problems from August 2012, the company sought a corporate debt restructuring (CDR) package. Despite the restructuring efforts, the company defaulted on its payments to creditors, including ICICI Bank.
On December 7, 2016, ICICI Bank filed an application under Section 7 of the IBC, seeking initiation of corporate insolvency resolution proceedings against Innoventive Industries Ltd. The National Company Law Tribunal (NCLT) admitted the application, declaring a moratorium and appointing an interim resolution professional.
Key Legal Issues
- Whether the provisions of IBC, 2016, override state laws like the Maharashtra Relief Undertakings Act.
- Whether Innoventive Industries Ltd. was in default of its financial obligations.
- Whether the National Company Law Appellate Tribunal (NCLAT) correctly upheld the NCLT’s decision.
Arguments by the Parties
Petitioner’s Arguments (Innoventive Industries Ltd.)
Innoventive Industries Ltd. contended:
- That its debts were temporarily suspended due to the Maharashtra Relief Undertakings Act notifications of July 2015 and July 2016, and thus it could not be declared insolvent.
- That since the Maharashtra Act provided temporary immunity from debt recovery, IBC proceedings should not have been initiated.
- That creditors failed to infuse funds under the Master Restructuring Agreement (MRA), preventing the company from meeting its debt obligations.
Respondent’s Arguments (ICICI Bank)
ICICI Bank countered:
- That Innoventive Industries Ltd. had defaulted on its payments, which triggered insolvency under Section 7 of the IBC.
- That the IBC was a central legislation that superseded state laws like the Maharashtra Relief Undertakings Act.
- That the purpose of the IBC was to ensure that financially distressed companies were either revived or liquidated in a time-bound manner.
Supreme Court’s Judgment
The Supreme Court, comprising Justices R.F. Nariman and Sanjay Kishan Kaul, upheld the decision of the NCLT and NCLAT, ruling in favor of ICICI Bank.
“The Maharashtra Act is repugnant to the IBC because the latter is a complete and exhaustive code on insolvency and bankruptcy. Under Article 254 of the Constitution, when a state law is inconsistent with a central law in the concurrent list, the central law prevails.”
The Court held that:
- The IBC is a special law that overrides state legislation in matters of insolvency.
- The moratorium imposed by the Maharashtra Act was inconsistent with the provisions of the IBC and thus void.
- The default by Innoventive Industries Ltd. was established through documentary evidence provided by ICICI Bank.
Key Legal Observations
- The IBC, 2016, was enacted to consolidate insolvency laws under one framework and provide for a time-bound resolution process.
- The moratorium under the IBC ensures a structured and systematic approach to insolvency proceedings.
- State laws cannot impede the objectives of the IBC, which is a central law aimed at resolving financial distress efficiently.
Final Order
The Supreme Court dismissed the appeal filed by Innoventive Industries Ltd. and upheld the NCLT’s decision to admit the insolvency application filed by ICICI Bank. The Court reaffirmed the supremacy of the IBC in insolvency matters.
Conclusion
This judgment marks a significant development in insolvency jurisprudence in India. It clarifies that state laws providing temporary relief to financially distressed companies cannot obstruct the IBC’s insolvency resolution framework. The ruling reinforces the principle that insolvency matters fall within the exclusive domain of the central government, ensuring a uniform approach to corporate restructuring and liquidation.
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Download Judgment: Ms Innoventive Indu vs ICICI Bank & Anr. Supreme Court of India Judgment Dated 31-08-2017.pdf
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