On April 19, 2024, the Hon’ble Supreme Court (Supreme Court) delivered a significant judgment in the matter of Insolvency and Bankruptcy Board of India (IBBI) Vs. Satyanarayan Bankatlal Malu and Ors. addressed the jurisdictional authority of Sessions Judges in the context of the Insolvency and Bankruptcy Code, 2016 (IBC). The case arose from a complaint filed by the IBBI (Appellant-Board) against the Respondents, who were ex-directors of M/s. SBM Paper Mills Pvt. Ltd. The complaint was lodged under section 236 of the IBC, alleging offenses related to the non-compliance of terms during the Corporate Insolvency Resolution Process (CIRP) initiated by the company itself.
The procedural journey saw the learned Sessions Judge issuing process against the Respondents, which was subsequently challenged in the High Court of Bombay (Bombay HC/Court) by way of a writ petition. The Bombay HC’s decision to quash the complaint based on jurisdictional grounds was the focal point of contention in the Supreme Court. The Supreme Court bench, comprising Justices B.R. Gavai and Sandeep Mehta, was tasked with interpreting the intricate legal principles of ‘legislation by incorporation’ versus ‘legislation by reference’ and their applicability to the IBC in light of subsequent amendments to the Companies Act, 2013 (Companies Act).
The Appellant-Board’s argument hinged on the assertion that the IBC is a self-contained code, and its provisions should remain unaffected by amendments to the Companies Act. Conversely, the Respondents contended that the offenses under the IBC should not fall within the purview of the Special Court as per the Companies Act. The Supreme Court’s analysis delved into the legislative intent and the conceptual distinction between incorporation and reference in legislative drafting. The Supreme Court elucidated that ‘legislation by incorporation’ involves integrating provisions from one statute into another, such that subsequent changes to the former do not impact the latter’s incorporated provisions.
In its comprehensive judgment, the Supreme Court overturned the High Court’s verdict, affirming the Sessions Judge’s authority to try offenses under the IBC. The court’s reasoning upheld the independence of the IBC’s framework and its jurisdictional competence, irrespective of the Companies Act’s amendments. This decision not only clarified the procedural aspects of the IBC but also reinforced the legislative scheme’s robustness in dealing with insolvency-related offenses.