Holding

The Insolvency and Bankruptcy Code, 2016, by virtue of its non‑obstante clause in Section 238, prevails over the Maharashtra Relief Undertakings Act, 1958; the State law is repugnant and cannot impede the corporate insolvency resolution process, and the appeal is dismissed.

Summary

Innoventive Industries Ltd., a corporate debtor, defaulted on its financial obligations and a financial creditor (ICICI Bank) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The debtor argued that a notification under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 (MRA) temporarily suspended its debt, rendering no debt due and seeking to stall the insolvency process. The Supreme Court examined whether the MRA could override the IBC, applying the non‑obstante clause in Section 238 of the IBC and the repugnancy doctrine under Article 254 of the Constitution. It held that the IBC, being a later comprehensive code, prevails over the State law and the MRA is repugnant, so the insolvency resolution must proceed. The Court also ruled that the appeal filed by the company’s erstwhile directors was not maintainable. Consequently, the appeals were dismissed.

Issues considered

The applicability of the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 to suspend the corporate debtor's liability during an IBC insolvency proceeding.
Whether the non‑obstante clause in Section 238 of the IBC renders the State law repugnant under Article 254 of the Constitution.
Whether the corporate debtor's obligation under the Master Restructuring Agreement is conditional on the infusion of funds by creditors.
The maintainability of the appeal filed by the corporate debtor through its former directors.
The correctness of the NCLT/NCLAT decisions admitting the financial creditor's application.

Legislation cited

Constitution of Indias. Article 246, s. Article 254, s. Article 31, s. Article 31C
Insolvency and Bankruptcy Code, 2016s. 12, s. 13, s. 14, s. 16, s. 17, s. 20, s. 21, s. 238, s. 24, s. 28, s. 30, s. 31, s. 3(11), s. 3(12), s. 3(6), s. 4, s. 5(7), s. 5(8), s. 7, s. 7(1), s. 7(2), s. 7(5), s. 7(7), s. 8
Maharashtra Relief Undertakings (Special Provisions) Act, 1958s. 3, s. 4

Subjects

InsolvencyBankruptcySection 7Section 238Non‑obstante clauseRepugnancyArticle 254Maharashtra Relief Undertakings ActMoratoriumCorporate debtorDefaultAppeal maintainability

Judgment

[2017] 8 S.C.R. 33

MIS. INNOVENTIVE INDUSTRlES LTD. A
v.
ICICI BANK & ANR.
(Civil Appeal Nos. 8337-8338 of 2017)
AUGUST 31,2017 B

[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.)
Insolvency and Bankruptcy Code, 2016:
ss. 7 and 238 - Maharashtra Relief Undertakings (Special
Provisions Act), 1958 - Insolvency resolution process - Default by c
appellant company in payment of amount due under certain credit
facilities obtained from the bank-financial creditor - Insolvency
petition by bank against the appellant-defaulter company, to set
the insolvency resolution process in motion - Appellants interim
application that no debt legally due since its liability stood
temporarily suspended under the 1958 Act, for one year, which D
was later extended for one more year - Second application that
owing to non-release of funds under the master restructuring
agreement-MRA, the appellant was unable to pay back its debts -
NCLT held that the Code would prevail against the 1958 Act in
view of the non-obstante clause in s. 238; and that the corporate E
debtor had defaulted in making payments, as per the evidence placed
by the financial creditors, thus, the application was admitted and
moratorium was declared - In appeal, the NCLAT, held that the
Code and the Maharashtra Act operate in different fields and, thus,
not repugnant to each other; defaulter company failed to pay debt
and cannot derive any advantage from the 1958 Act to stall the F
insolvency resolution process uls 7 - On appeal, held: Maharashtra
Act cannot stand in the way of the corporate insolvency resolution
process under the Code - Non-obstante clause is contained in s.
238, so that any right of the corporate debtor under any other law
cannot come in the way of the Code - Thus, the tribunal was correct G
in appreciating that there would be repugnancy between the
provisions of the two enactments - Judgment of the appellate tribunal
· is not correct on this score - Obligation of the corporate debtor
was, unconditional and did not depend upon infusing of funds by

H
33
34 SUPREME COURT REPORTS [2017] 8 S.C.R.

A the creditors into the appellant company -- Also, the submission taken
for the first time that no debt was in fact due under the MRA as it
has not fallen due (owing to the default of the secured creditor) is
not something that can be countenanced at this stage of the
proceedings - Jn view thereof. the tribunal and the appellate tribunal
B right in admitting the application _filed by the .financial creditor.
Object and scheme - Object of the Code is speeding up of
the insolvency process - Code has brought paradigm shift in the
law - Entrenched managements not allowed to continue in
management if they cannot pay their debts.
C Operation and functioning of the Code - Discussed.
Constitution of India - Art. - 254 - Repugnancy between
Central and State laws - Constitutional principles - Discussed.
Insolvency laws - UK Insolvency Laws and USA Insolvency
Laws - Discussed.
D
Dismissing the appeals, the Court
HELD: 1.1 There is substance in the plea taken by the
respondents-financial creditor that the instant appeal at the behest
of the erstwhile directors of the appellant is not maintainable.
The appellant stated that this is a technical point and he could
E
move an application to amend the cause title stating that the
erstwhile directors do not represent the company, but are filing
the appeal as persons aggrieved by the impugned order as their
management right of the company has been taken away and as
they are otherwise affected as shareholders of the company. Once
F an insolvency professional is appointed to manage the company,
the erstwhile directors who are no longer in management,
obviously cannot maintain an appeal on behalf of the company. In
the instant case, the company is the sole appellant. This being
the case, the appeal is obviously not maintainable. [Para 111 [48-
G G-H; 49-A-BI
1.2 The Insolvency and Bankruptcy Code of 2016 has
brought paradigm shift in the law. Entrenched managements are
no longer allowed to continue in management if they cannot pay
their debts. (Para 111 (49-B-CI
H 1.3 One of the important objectives of the Code is to bring
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 35

the insolvency law in India under a single unified umbrella with A
the object of speeding up of the insolvency process. The scheme
of the Code is to ensure that when a default takes place, in the
sense that a debt becomes due and is not paid, the insolvency
resolution process begins. Default is defined in Section 3(12) in
very wide terms as meaning non-payment of a debt once it becomes B
due and payable, which includes non-payment of even part thereof
or an instalment amount. For the meaning of "debt", Section 3(11),
states that a debt means a liability of obligation in respect of a
"claim" and for the meaning of"claim", Section 3(6) which defines
"claim" to mean a right to payment even if it is disputed. The
Code gets triggered the moment default is of rupees one lakh or C
more (Section 4). The corporate insolvency resolution process
may be triggered by the corporate debtor itself or a financial
creditor or operational creditor. A distinction is made by the Code
between debts owed to financial creditors and operational
creditors. A financial creditor has been defined under Section
D
5(7) as a person to whom a financial debt is owed and a financial
debt is defined in Section 5(8) to mean a debt which is disbursed
against consideration for the time value of money. As opposed
to this, an operational creditor means a person to whom an
. operational debt is owed and an operational debt under Section 5
(21) means a claim in respect of provision of goods or services. E
[Paras 13, 27) [51-A; 71-H; 72-A-Dl
1.4 When it comes to a financial creditor triggering the
process, Section 7 becomes relevant. Under the explanation to
Section 7(1), a default is in respect of a financial debt owed to any
financial creditor of the corporate debtor - it need not be a debt F
owed to the applicant financial creditor. Under Section 7(2), an
application is to be made under sub-section (1) in such form and
manner as is prescribed, which takes us to the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
Under Rule 4, the application is made by a financial creditor in
Form 1 accompanied by documents and records required therein. G
Form 1 is a detailed form in 5 parts, which requires particulars of
the applicant in Part I, particulars of the corporate debtor in Part
II, particulars of the proposed interim resolution professional in
. part HI, particulars of the financial debt in part IV and documents,
records and evidence of default in part V. Under Rule 4(3), the H
36 SUPREME COURT REPORTS [2017] 8 S.C.R.

A applicant is to dispatch a copy of the application filed with the
adjudicating authority by registered post or speed post to the
registered office of the corporate debtor. The speed, within which
the adjudicating authority is to ascertain the existence of a default
from the records of the information utility or on the basis of
B evidence furnished by the financial creditor, is important. This it
must do within 14 days of the receipt of the application. It is at
the stage of Section 7(5), where the adjudicating authority is to
be satisfied that a d~fault has occurred, that the corporate debtor
is entitled to point out that a default has not occurred in the sense
that the "debt", which may also include a disputed claim, is not
C due. A debt may not be due if it is not payable in law or in fact.
The moment the adjudicating authority is satisfied that a default
has occurred, the application must be admitted unless it is
incomplete, in which case it may give notice to the applicant to
rectify the defect within 7 days of receipt of a notice from the
D adjudicating authority. Under sub-section (7), the adjudicating
authority shall then communicate the order passed to the financial
creditor and corporate debtor within 7 days of admission or
rejection of such application, as the case may be. [Para 281 [72-
E-H; 73-A-CI
1.5 The scheme of Section 7 stands in contrast with the
E scheme under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate debtor
can, within a period of 10 days of receipt of the demand notice or
F copy of the invoice mentioned in sub-section (1), bring to the
notice of the operational creditor the existence of a dispute or
the record of the pendency of a suit or arbitration proceedings,
which is pre-existing - i.e. before such notice or invoice was
received by the corporate debtor. The moment there is existence
of such a dispute, the operational creditor gets out of the clutches
G of the Code. [Para 29) (73-C-E]
1.6 In the case of a corporate debtor who commits a default
of a financial debt, the adjudicating authority has merely to see
the records of the information utility or other evidence produced
by the financial creditor to satisfy itself that a default has occurred.
H It is of no matter that th.e debt is disputed so long as the debt is
M/S. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 37

"due" i.e. payable unless interdicted by some law or has ·not yet A
become due in the sense that it is payable at some future date. _It
is only when this is proved to the satisfaction of the adjudicating
authority that the adjudicating authority may reject an application
and not otherwise. [Para 30) (73-F]
1.7 The rest of the insolvency resolution process is also B
very important. The entire process is to be completed within a
period of 180 days from !he date of admission of the application
under Section 12 and can only be extended beyond 180 days for
a further period of not exceeding 90 days if the committee of
creditors by a voting of 75% of voting shares so decides. It can C
be seen that time is of essence in seeing whether the corporate
body can be put back on its feet, so as to stave off liquidation. As
soon as the application is admitted, a moratorium in terms of
Section 14 of the Code is to be declared by the adjudicating
authority and a public announcement is made stating, inter alill,
the last date for submission of claims and the details of the interim D
resolution professional who shall be vested with the management
of the corporate debtor and be responsible for receiving claims.
.Under Section 17, the erstwhile management of the corporate
debtor is vested in an interim resolution professional who is a
trained person registered under Chapter IV of the Code. This
interim resolution professional is now to manage the operations E
qf the corporate debtor as a going concern under the directions
of a committee of creditors appointed under Section 21 of the
Act. Decisions by this committee are to be taken by a vote of not
less than 75% of the voting share of the financial creditors. Under
Section 28, a resolution professional, who is none other than an F
interim resolution professional who is appointed to carry out the
resolution process, is then given wide powers to raise finances,
create security interests, etc. subject to prior approval of the
committee of creditors. [Paras 31, 32) [73-G-H; 74-A-D]
1.8 Under Section 30, any person who is interested in G
putting the corporate body back on its feet may submit a resolution
plan to the resolution professional, which is prepared on the basis
of an information memorandum. This plan must provide for
payment of insolvency resolution process costs, management of
the affairs of the corporate debtor after approval of the plan, and
implementation and supervision of the plan. It is only when such H
38 SUPREME COURT REPORTS [2017] 8 S.C.R.

A plan is approved by a vote of not less than 75% of the voting
share of the financial creditors and the adjudicating authority is
satisfied that the plan, as approved, meets the statutory
requirements mentioned in Section 30, that it ultimately approves
such plan, which is then binding on the corporate debtor as well
as its employees, members, creditors, guarantors and other
B
stakeholders. Importantly, and this is a major departure from
previous legislation on the subject, the moment the adjudicating
authority approves the resolution plan, the moratorium order
passed by the authority under Section 14 shall cease to have effect.
The scheme of the Code, therefore, is to make an attempt, by
c divesting the erstwhile management of its powers and vesting it
in a professional agency, to continue the business of the corporate
body as a going concern until a resolution plan is drawn up, in
which event the management is handed over under the plan so
that the corporate body is able to pay back its debts and get back
D on its feet. All this is to be done within a period of 6 months with
a maximum extension of another 90 days or else the chopper
comes down and the liquidation process begins. [Para 331 [74-E-
H; 75-Al
1.9 On the facts of the instant case, in answer to the
application made under Section 7 of the Code, the appellant only
E raised the plea of suspension of its debt under the Maharashtra
Act, which, therefore, was that no debt was due in law. The
adjudicating authority correctly referred to the non-obstante
clause in Section 238 and arrived at a conclusion that a notification
under the Maharashtra Act would not stand in the way of the
F corporate insolvency resolution process under the Code.
However, the appellate tribunal by the impugned judgment held
that the appellant is not entitled to derive any advantage from
MRU Act, 1956 to stall the insolvency resolution process under
Section 7 of the Insolvency & Bankruptcy Code, 2016." This
statement by the AppelJate Tribunal has to be tested with
G reference to the constitutional position on repugnancy. [Para 341
[75-B-C, E-FI
1.10 Repugnancy under Article 254 arises only if both the
Parliamentary (or existing law) and the State law are referable to
List III in the 7'h Schedule to the Constitution of India. In order
H to determine whether the Parliamentary (or existing law) is
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 39

referable to the Concurrent List and whether the State law is A
also referable to the Concurrent List, the doctrine of pith and
substance must be applied in order to find out as to where in pith
and substance the competing statutes as a whole fall. It is only if
both fall, as a whole, within the Concurrent List, that repugnancy
can be applied to determine as to whether one particular statute B
or part thereof has to give way to the other. The question is what
is the subject matter of the statutes in question and not as to
·which entry in List III the competing statutes are traceable, as
the entries in List III are only fields of legislation; also, the
language of Article 254 speaks of repugnancy not merely of a
statute as a whole but also "any provision" thereof. Since there C
is a presumption in favour of the validity of statutes generally,
the onus of showing that a statute is repugnant to another has to
be on the party attacking its validity. It must not be forgotten
that that every effort should be made to reconcile the competing
statutes and construe them both so as to avoid repugnancy-care D
should be taken to see whether the two do not really operate in
different fields qua different subject matters. Repugnancy must
exist in fact and not depend upon a mere possibility. Repugnancy
may be direct in the sense that there is inconsistency in the actual
terms of the competing statutes and there is, therefore, a direct
conflict between two or more provisions of the competing statutes. E
In this sense, the inconsistency must be clear and direct and be
of such a nature as to bring the two Acts or parts thereof into
direct collision with each other, reaching a situation where it is
impossible to obey the one without disobeying the other. This
happens when two enactments produce different legal results
F
when applied to the same facts. Though there may be no direct
conflict, a State law may be inoperative because the Parliamentary
law is intended to be a complete, exhaustive or exclusive code.
In such a case, the State law is inconsistent and repugnant, even
though obedience to both laws is possible, because so long as
the State law is referable to the same subject matter as the G
Parliamentary law to any extent, it must give way. One test of
seeing whether the subject matter of the Parliamentary law is
encroached upon is to find out whether the Parliamentary statute
has adopted a plan or scheme which will be hindered and/or
obstructed by giving effect to the State law. It can then be said
H
40 SUPREME COURT REPORTS (2017] 8 S.C.R.

A that the State law trenches upon the Parliamentary statute.
Negatively put, where Parliamentary legislation does not purport
to be exhaustive or unqualified, but itself permits or recognises
other laws restricting or qualifying the general provisions made
in it, there can be said to be no repugnancy. A conflict may arise
when Parliamentary law and State law seek to exercise their
8
powers over the same subject matter. This need not be in the
form of a direct conflict, where one says "do" and the other says
"don't". Laws under this head are repugnant even if the rule of
conduct prescribed by both laws is identical. The test that has
been applied in such cases is based on the principle on which the
C rule of implied repeal rests, namely, that if the subject matter of
the State legislation or part thereof is identical with that of the
Parliamentary legislation, so that they cannot both stand together,
then the State legislation will be said to be repugnant to the
Parliamentary legislation. However, if the State legislation or part
D thereof deals not with the matters which formed the subject
matter of Parliamentary legislation but with other and distinct
matters though of a cognate and allied nature, there is no
repugnancy. Repugnant legislation by the State is void only to
the extent of the repugnancy. In other words, only that portion of
the State's statute which is found to be repugnant is to be declared
E void. The only exception to the above is when it is found that a
State legislation is repugnant to Parliamentary legislation or an
existing law if the case falls within Article 254(2), and Presidential
assent is received for State legislation, in which case State
· legislation prevails over Parliamentary legislation or an existing
F law within that State. Here again, the State law must give way to
any subsequent Parliamentary law which adds to, amends, varies
or repeals the law made by the legislature of the State, by virtue
of the operation of Article 254(2) proviso. [Para 50] (98-B-H; 99-
A-H; 100-A]
1.11 On reading the provisions of the Insolvency and
G Bankruptcy Code, 2016 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
H of a resolution plan under Section 31 of the said Code. In the
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 41

interim, an interim resolution professional is appointed under . A
Section 16 to manage the affairs of corporate debtors under
Section 17. It is clear, therefore, that the earlier State law is
repugnant to the later Parliamentary enactment as under the said
State law, the State Government may take over the management
of the relief undertaking, after which a temporary moratorium in B
much the same manner as that contained in Sections 13 and 14 of
the Code takes place under Section 4 of the Maharashtra Act.
There is no doubt that by giving effect to the State law, the said
plan or scheme which may be adopted under the Parliamentary
statute will directly be hindered and/or obstruc.ted to that extent
in that the management of the relief undertaking, which, if taken C
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. Also, the moratorium
imposed under Section 4 of the Maharashtra Act would directly
clash with the moratorium to be issued under Sections 13 and 14
D
of the Code. 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. In the instant case it is clear,
therefore, that unless the Maharashtra Act is out of the way, the E
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
F
repugnant ~o the earlier State enactment by virtue of Article 254
(1), would operate to render the Maharashtra Act void vis-a-vis
action taken under the later Central enactment. It is clear that
the later non-obstante clause of the Parliamentary enactment will
also prevail over the limited non-obstante clause contained in G
Section 4 of the Maharashtra Act. For these reasons, the
Maharashtra Act cannot stand in the way of the corporate
insolvency resolution process under the Code. [Paras 54, 55)
[105-C-H; 106-A-B, DJ
1.12 The submission of the appellant that the notification H
42 SUPREME COURT REPORTS [2017] 8 S.C.R.

A under the Maharashtra Act only kept in temporary abeyance the
debt which would become due the moment the notification under
the said Act ceases to have effect, cannot be accepted. The
notification under the Maharashtra Act continues for one year at
a time and can go upto 15 years. Given the fact that the timeframe
within which the company is either to be put back on its feet or is
B
to go into liquidation is only 6 months, it is obvious that the period
of one year or more of suspension of liability would completely
unsettle the scheme of the Code and the object with which it was
enacted, namely, to bring defaulter companies back to the
commercial fold or otherwise face liquidation. lf the moratorium
c imposed by the Maharashtra Act were to continue from one year
upto 15 years, the whole scheme and object of the Code would
be set at naught. Undeterred by this, the appellant submitted
that since the suspension of the debt took place from July, 2015
onwards, the appellant had a vested right which could not be
D interfered with by the Code. It is precisely for this reason that
the non-obstante clause, in the widest terms possible, is contained
in Section 238, so that any right of the corporate debtor under
any other law cannot come in the way of the Code. For all these
reasons, the Tribunal was correct in appreciating that there would
be repugnancy between the provisions of the two enactments.
E The judgment of the appellate tribunal is not correct on this score
because repugnancy does exist in fact. (Para 56( (106-E-H; 107-
Al
1.13 Both the tribunal and the appellate tribunal refused to
go into the other contentions of the appellant viz. that under the
F MRA, it was because the creditors did not disburse the amounts
thereunder that the appellant was not able to pay its dues. The
tribunal and the appellate tribunal were right in not going into
this submission for the very good reason that the period of 14
days within which the application is to be decided was long over
by the time the second application was made before the tribunal.
G Also, the second application clearly appears to be an after-thought
for the reason that the corporate debtor was fully aware of the
fact that the MRA had failed and could easily 1lave pointed out
these facts in the first application itself. However, for reasons
best known to it, the appellant chose to take up only a law point
H before the tribunal. It is only as an after-thought that the second
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 43

application was then filed to add an additional string to a bow A
which appeared to the appellants to have already been broken.
[Para 57) [107-B-D)
1.14 The obligation of the corporate debtor was,
unconditional and did not depend upon infusing of funds by the
creditors into the appellant company. Also, the argument taken B
for the first time that no debt was in fact due under the MRA as it
has not fallen due (owing to the default of the secured creditor) is
not something that can be countenanced at this stage of the
proceedings. In this view of the matter, the tribunal and the
appellate tribunal were right in admitting the application filed by
the financial creditor. [Para 591 [107-H; 108-A-BI C
Zaverbhai Amaidas v. State of Bombay [19551 1 SCR
799; Tika Ramji v. State of U.P. [1956[ SCR 393; Deep
Chand v. State of U.P. [1959[ Suppl. 2 SCR 8;· Pandit
Ukha Kolhe v. State of Maharashtra [1964[ 1SCR926;
M Karunanidhi v. Union of India [1979] 3 SCR 254; D
Hoechst Pharmaceuticals Ltd. v. State of Bihar [19831
3 SCR 130; Vijay Kumar Sharma & Ors. v. State Of
Karnataka (1990) 2 SCC 562 : [1990] 1 SCR 614;
Rajiv Sarin v. State of Uttarakhand (2011) 8 SCC
708:[20111 9 SCR 1012; Girnar Traders v. State of
E
Maharashtra (2011) 3 SCC 1:[2011] 3 SCRl; Off.~hore
Holdings (P) Limited v. Bangalore Development
Authority (2011) 3 SCC 139:(201111 SCR 453; Ravula
Subba Rao and another v. The Commissioner of Income
Tax, Madras [1956) SCR 577; Union of India v.
Mahindra Supply Company [19621 3 SCR 497; Joseph F
Peter v. State of Goa, Daman and Diu (1977) 3 SCC
280 : (1977) 3 SCR 771 - referred to.
State of Rhode Island v. Palmer 253 U.S. 350 - referred ,
to.
Case Law Reference , G
[1955] 1 SCR 799 referred to Para 40
[1956) SCR 393 referred to Para 41
[1959] Suppl. 2 SCR 8 referred to Para 42
[1964) 1 SCR 926 referred to Para 43
[1979) 3 SCR 254 referred to Para 44 H
44 SUPREME COURT REPORTS [2017] 8 S.C.R.

A [1983] 3 SCR 130 referred to Para 45
[1990] 1 SCR 614 referred to Para 46
[20111 9 SCR 1012 referred to Para 48
[2011] 3 SCR 1 referred to Para 49
[2011] 1 SCR 453 referred to Para 49
B
[1956 SCR 577 referred to Para 53
[19621 3 SCR 497 referred to Para 53
[19771 3 SCR 771 referred to Para 53
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8337-
c 8338 of 2017.
From the impugned final Judgment and Order dated 15.05.2017
passed by the National Company Law Appellate Tribunal, New Delhi
in Company Appeal (AT) (Insolvency) Nos.1 & 2 of2017.
Dr. A.M. Singhvi, Sr. Adv., Shikhil Suri, Kamal Deep, Ms. Manak
D Joshi, Shiv Kumar Suri, Advs. for the Appellant.
Shyam Divan, Sr. Adv., V. Vishwanthan, Indranil Deshmukh, Kapil
Arora, Animesh Bisht, Karan Khanna, Karan Lehri, Ms. Samiksha Jiodyal
(for M7s CyrilArnarchand Mangaldas), Raj iv S. Roy,Avrojyoti Chatterjee,
Abhijit Roy, Jayasree Saha, Anand Swain, Sebat Deauria, Advs. for the
E Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. I. The present case raises interesting
questions which arise under the Insolvency and Bankruptcy Code of
2016 (hereinafter referred to as the Code), which received the
F Presidential assent on 28th May, 2016, but which provisions were brought
into force only in November-December, 2016.
2. The appellant before us is a multi-product company catering
to applications in diverse sectors. From August, 2012, owing to labour
problems, the appellant began to suffer losses. Since the appellant was
G not able to service the financial assistance given to it by 19 banking
entities, which had extended credit to the appellant, the appellant itself
proposed corporate debt restructuring. The 19 entities formed a
consortium, led by the Central Bank of India, and by a joint meeting
dated 22"d February, 2014, it was decided that a CDR resolution plan
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 45
[R. F. NARIMAN, J.]

would be approved. The details of this plan are not immediately relevant A
· to the issues to be decided in the present case. The lenders, upon perusing
, the terms of the CDR proposal given by the appellant and a techno-
. economic viability study, (which was done at the instance of the lenders),
a CDR empowered group admitted the restrncturing proposal vide
minutes of a meeting dated 23'd May, 2014. The Joint Lenders Forum B
at a meeting of241h June, 2014 finally approved the restructuring plan.
3. In terms of the restrncturing plan, a master restrncturing
agreement was entered into on 91hSeptember, 2014 (hereinafter referred
to as the MRA), by which funds were to be infused by the creditors, and
certain obligations were to be met by the debtors. .The aforesaid
restructuring plan was implementable over a period of2 years. · C
4. Suffice it to say that both sides have copiously referred to
various letters which passed between the parties and various minutes of
meetings. Ultimately, an application was made on 7'h December, 2016
by ICICI Bank Ltd., in which it was stated that the appellant being a
defaulter within the meaning of the Code, the insolvency resolution D
process ought to be set in motion. To this application, a reply was filed
. by means of an interim application on behalf of the appellant dated 17'h
December, 2016, in which the appellant claimed that there was no debt
legally due inasmuch as vide two notifications dated22 11dJuly, 2015 and
18th July, 2016, both under the Maharashtra Relief Undertakings (Special E.
Provisions Act), 1958 (hereinafter referred to as the Maharashtra Act),
all liabilities of the appellant, except certain liabilities with which we are.
not concerned, and remedies for enforcement thereof were temporarily
suspended for a period of one year in the first instance under the first
notification of22 11dJuly, 2015 and another period of one year under the
second notification of18'h July, 2016. It maybe added that this was the F
only point raised on behalf of the appellant in order to stave off the
admission of the ICICI Bank application made before the NCLT. We
are informed that hearings took place in the matter on 22 11d and 23n1
December, 2016, after which the NCLT adjourned the case to l61h
January, 2017. G
5. On this date, a second application was filed by the appellant in
. which a different plea was taken. This time, the appellant pleaded that
owing to non-release of funds under the MRA, the appellant was unable _
to pay back its debts as envisaged. Further, it repaid only some amounts
to five lenders, who, according to the appellant, complied with their H
46 SUPREME COURT REPORTS (2017] 8 S.C.R.

A obligations under the MRA. In the aforesaid circumstances, it was
pleaded that no default was committed by it.
6. By an order dated 17th January, 2017, the NCLT held that the
Code would prevail against the Maharashtra Act in view of the non-
obstante clause in Section 238 of the Code. It, therefore, held that the
B Parliamentary statute would prevail over the State statute and this being
so, it is obvious that the corporate debtor had defaulted in making
payments, as per the evidence placed by the financial creditors. Hence,
the application was admitted and a moratorium was declared.
7. By a separate order dated 23'd January, 2017 passed by the
c NCLT, in which a clarification application was dismissed, it was held
that the second application of l 61h January, 2017 was raised belatedly
and would not be maintainable for two reasons-( I) because no audience
has been given to the corporate debtor in the Tribunal by the Code; and
(2) the corporate debtor has not taken the plea contained in the second
application in the earlier application. This was because a limited
D timeframe of only 14 days was available under the Code from the date
of filing of the creditors' petition, to decide the application.
8. From the aforesaid order, an appeal was carried to the NC LAT,
which met with the same fate. The NCLAT, however, held that the
Code and the Maharashtra Act operate in different fields and, therefore,
E are not repugnant to each other. Having recorded this, however, the
NCLAT went on to hold that the appellant.cannot derive any advantage
from the Maharashtra Act to stall the insolvency resolution process under
Section 7 of the Code. It was further held as under:
"80. Insofar as Master Restructuring Agreement dated 8th
F September 2014 is concerned; the appellant cannot take
advantage of the same. Even if it is presumed that fresh
agreement came into existence, it does not absolve the Appellant
from paying the previous debts which are due to the financial
creditor.
G 81. The Tribunal has noticed that there is a failure on the part of
appellant to pay debts. The Financial Creditor has attached
different records in support of default of payment. Apart from
that it is not supposed to go beyond the question to see whether
there is a failure on fulfilment of obligation by the financial creditor
under one or other agreement, including the Master Restructuring
H
M/S. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 47
[R. F. NARIMAN, J.]

Agreement. In that view of the matter, the Appellant cannot A
derive any advantage of the Master Restructuring Agreement
dated 8th September, 2014."
9. Dr. A.M. Singhvi, learned Senior Advocate, who appeared on
behalf of the appellants, has argued before us that the Appellate Tribunal,
in fact, decided in his favour by holding the two Acts to be not repugnant B
· to each other, but then went on to say that the Maharashtra Act will not
apply. According to him, the Maharashtra Act would apply for the
reason that the moratorium imposed by the two notifications under the
Maharashtra Act continued in force at the time when the insolvency
application was made by ICICI and that, therefore, the Code would not
apply. According to him, the debt was kept in temporary abeyance, C
after which the Code would apply. He argued that he had a vested right
under the Maharashtra Act and that the debt was only suspended
temporarily. According to him, no repugnancy exists between the two
statutes under Article 254 of the Constitution and each operates in its
own field. The Maharashtra Act provides for relief against D
unemployment, whereas the Code is a liquidation process. Further, the
Code is made under Entry 9, List III of the Seventh Schedule to the
Constitution, whereas the Maharashtra Act, which is a measure for
unemployment relief, is made under Entry 23, List Ill of the Seventh
Schedule. This being so, as correctly held by the Appellate Tribunal, the
two Acts operated in different spheres and, therefore, do not clash. Dr. E
Singhvi mounted a severe attack on the Appellate Tribunal by stating
that the Tribunal ought to have gone into the MRA, in which case it
would have discovered that there was no debt due by the appellant,
inasmuch as the funds that were to be disbursed by the creditors to the
appellant were never disbursed, as a result of which the corporate F
restructuring package never took off from the ground. He further argued
that amounts due under the MRA had not yet frnctified and for that
reason also the application was premature.
I 0. Shri H.N. Salve, learned Senior Advocate, appearing on behalf
of the respondents, took us through the Code in some detail and argu\:d G
before us that the object of this Code is that the interests of all stakeholders,·
namely shareholders, creditors and workmen, are to be balanced and
the old notion ofa sick management which cannot pay its financial debts
continuing nevertheless in the management seat has been debunked by
the Code. The entire object of the Code would be stultified if we were
H
48 SUPREME COURT REPORTS [2017] 8 S.C.R.

A to heed Dr. Singhvi's submission, as according to Shri Salve, when an
application is made under Section 7 of the Code, the only limited scope
of argument before the NCLT by a corporate debtor is that the debt is
not due for any reason. According to Shri Salve, the first application in
reply to the corporate debtor was, in fact, the only arguable point in the
case which has been concurrently turned down. According to Shri Salve,
B
after an interim resolution professional has been appointed and a
moratorium declared, the directors of the company are no longer in
management and could not, therefore, maintain the appeal before us.
Also, according to Shri Salve, the NCLT and NCLAT were both right in
refusing to go into the plea that, since the financial creditors had not
c pumped in funds, the corporate debtor could not pay back its debts in
accordance with the MRA, as this plea was an after-thought which
could easily have been taken in the first reply. Further, in order to satisfy
our conscience, he has taken us through the MRA to some detail to
show us that the appellant would emerge as a defaulter under the MRA
D in any case. He has also argued that it is obvious that the two Acts are
repugnant to each other, inasmuch as they cannot stand together. Under
the Maharashtra Act, a limited moratorium is imposed after which the
State Government may take over management of the company. Under
the Code, however, a full moratorium is to automatically attach the moment
an application is admitted by the NCLT, and management of the company
E is then taken over by an interim resolution professional. Obviously, the
moratorium under the Maharashtra Act and the management taken over
by the State Government cannot stand together with the moratorium
imposed under the Central Act and takeover of the management by the
interim resolution professional. According to him, therefore, no case
whatsoever is made out and the appeal should be dismissed, both on
F
grounds of maintainability and on merits.
11. Having heard learned counsel for both the parties, we find
substance in the plea taken by Shri Salve that the present appeal at the
behest of the erstwhile directors of the appellant is not maintainable.
Dr. Singhvi stated that this is a technical point and he could move an
G application to amend the cause title stating that the erstwhile directors
do not represent the company, but are filing the appeal as persons
aggrieved by the impugned order as their management right of the
company has been taken away and as they are otherwise affected as
shareholders of the company. According to us, once an insolvency
H professional is appointed to manage the company, the erstwhile directors
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 49
[R. F. NARIMAN, J.]

who are no longer in management, obviously cannot maintain an appeal A
on behalf of the company. In the present case, the company is the sole
appellant. This being the case, the present appeal is obviously not
maintainable. However, we are not inclined to dismiss the appeal on this
score alone. Having heard both the learned counsel at some length, and
because this is the very first application that has been moved under the B
Code, we thought it necessary to deliver a detailed judgment so that all
Courts and Tribunals may take notice of a paradigm shift in the law.
Entrenched managements are no longer allowed to continue in
management if they cannot pay their debts.
12. The Insolvency and Bankruptcy Code, 2016 has been passed
after great deliberation and pursuant to various committee reports, the C
most important of which is the report of the Bankruptcy Law Reforms
Committee ofNovember, 2015. The Statement of Objects and Reasons
of the Code reads as under:
"STATEMENT OF OBJECTS AND REASONS
D
There is no single law in India that deals with insolvency and
bankruptcy. Provisions relating to insolvency and bankruptcy for
companies can be found in the Sick Industrial Companies (Special
Provisions) Act, 1985, the Recovery of Debt Due to Banks and
Financial Institutions Act, 1993, the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security E
Interest Act, 2002 and the Companies Act, 2013. These statutes
provide for creation of multiple fora such as Board oflndustrial
and Financial Reconstruction (BlFR), Debt Recovery Tribunal
(DRT) and National Company Law Tribunal (NCLT) and their
respective Appellate Tribunals. Liquidation of companies is F
handled by the High Courts. Individual bankruptcy and insolvency
is dealt with under the Presidency Towns Insolvency Act, 1909,
and the Provincial Insolvency Act, 1920 and is dealt with by the
Courts. The existing framework for insolvency and bankruptcy
is inadequate, ineffective and results in undue delays in resolution,
therefore, the proposed legislation. G
2. The objective of the Insolvency and Bankruptcy Code, 2015
is to consolidate and amend the laws relating to reorganization
and insolvency resolution of comorate persons, partnership firms
and individuals in a time bound manner for maximization of value
of assets of such persons. to promote entrepreneurship, H
50 SUPREME COURT REPORTS [2017] 8 S.C.R.

A availability of credit and balance the interests of all the
stakeholders including alteration in the priority of payment of
government dues and to establish an Insolvency and Bankruptcy
Fund, and matters connected therewith or incidental thereto. An
effective legal framework for timely resolution of insolvency and
bankruptcy would support development of credit markets and
B
encourage entrepreneurship. It would also improve Ease of Doing
Business, and facilitate more investments leading to higher
economic growth and development.
3. The Code seeks to provide for designating the NCLT and
DRT as the Adjudicating Authorities for corporate persons and
c firms and individuals, respectively, for resolution of insolvency,
liquidation and bankruptcy. The Code separates commercial
aspects ofinsolvency and bankruptcy proceedings from judicial
aspects. The Code also seeks to provide for establishment of
the Insolvency and Bankruptcy Board of India (Board) for
D regulation of insolvency professionals, insolvency professional
agencies and information utilities. Till the Board is established,
the Central Government shall exercise all powers of the Board
or designate any financial sector regulator to exercise the powers
and functions of the Board. Insolvency professionals will assist
in completion of insolvency resolution, liquidation and bankruptcy
E proceedings envisaged in the Code. Information Utilities would
collect, collate, authenticate and disseminate financial information
to facilitate such proceedings. The Code also proposes to establish
a fund to be called the Insolvency and Bankruptcy Fund oflndia
for the purposes specified in the Code.
F 4. The Code seeks to provide for amendments in the Indian
Partnership Act, 1932, the Central Excise Act, 1944, Customs
Act, 1962, Income-Tax Act, 1961, the Recovery of Debts Due
to Banks and Financial Institutions Act, l 993, the Finance Act,
1994, the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, the Sick
G Industrial Companies (Special Provisions) Repeal Act, 2003, the
Payment and Settlement Systems Act, 2007, the Limited Liability
Partnership Act, 2008, and the Companies Act, 2013.
5. The Code seeks to achieve the above objectives."
(Emphasis Supplied)
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 51
[R. F. NARIMAN, J.]

13. One of the important objectives of the Code is to bring the A
insolvency law in India under a single unified umbrella with the object of
speeding up of the insolvency process. As per the data available with
the World Bank in 2016, insolvency resolution in India took 4.3 years on
an average, which was much higher when compared with the United
Kingdom (1 year), USA (1.5 years) and South Africa (2 years). The B
World Bank's Ease of Doing Business Index, 2015, ranked India as
country number 135 out of 190 countries on the ease of resolving
insolvency based on various indicia.
14. Other nations are have marched ahead much before us. For
example, the USA has adopted the Bankruptcy Reform Act of 1978,
which has since been codified in Title XI of the United States Code.
c
The US Code continues to favour the debtor. In a reorganization case
under Chapter 11, the debtor and its existing management ordinarily
continue to operate the business as a "debtor in possession" - See USC
11, Sec. 1107-1108. The Court 'can appoint a tmstee to take over
management of the debtor's affairs only for "cause" which includes D
fraud, dishonesty or gross mismanagement of the affairs of the debtor-
See USC 11, Sec. 1104. Having regard to the aforesaid grounds, such
appointments are rare. Creditors are not permitted a direct role in
operating the on-going business operations of the debtor. However, the
United States Tmstee is to appoint a committee of creditors to monitor
the debtor's ongoing operations. A moratorium is provided, which gives E
the debtor a breathing spell in which he is to seek to reorganize his
business. While a Chapter 11 case is pending, the debtor only needs to
pay post petition wages, expenses etc. In the meanwhile, the debtor can
work on permanent financial resolution of its pre-petition debts. It is
only when this does not work that the bankmptcy process is then put F
into effect.
15. The UK Law, on the other hand, is governed by the Insolvency
Act of 1986 which has served as a model for the present Code. While
piloting the Code in Parliament, Shri Arnn Jaitley, learned Finance
Minister, stated on the floor of the House: G
"SHRI;\RUN JAITLEY: One of the differences between your
Chapter 11 and this is that in Chapter 11, the debtor continues to
be in possession. Here the creditors will be in possession. Now,·
the SICA is being phased out, and I will tell you one of the reasons
why SICA didn't function. Under SICA, the predominaq.t H
52 SUPREME COURT REPORTS [2017] 8 S.C.R.

A experience has been this, and that is why a decision was taken
way back in 2002 to repeal SICA when the original Company
Law amendments were passed. Now since they were challenged
before the Supreme Court, it didn't come into operation. Now,
the object behind SICA was revival of sick companies. But not
too many revivals took place. But what happened in the process
B
was that a protective wall was created under SICA that once
you enter the BIFR, nobody can recover money from you. So,
that non-performing investment became more non-performing
because the companies were not being revived and the banks
were also unable to pursue any demand as far as those sick
c companies were concerned, and therefore, SICA runs contrary
to this whole concept of exit that if a particular management is
not in a position to run a company, then instead of the company
closing down under this management, a more liquid and a
professional management must come and then save this
company. That is the whole object. And if nobody can save it,
D
rather than allowing it to be squandered, the assets must be
distributed - as the Joint Committee has decided - in
accordance with the waterfall mechanism which they have
created."
(Emphasis Supplied)
E
16.At this stage, it is important to set out the important paragraphs
contained in the report of the Bankruptcy Law Reforms Committee of
November, 2015, as these excerpts give us a good insight into why the
Code was enacted and the purpose for which it was enacted:

F "As Chairman of the Committee on bankruptcy law reforms, l
have had the privilege of overseeing the design and drafting of a
new legal framework for resolving matters of insolvency and
bankruptcy. This is a matter of critical importance: India is one
of the youngest republics in the world, with a high concentration
of the most dynamic entrepreneurs. Yet these game changers
G and growth drivers are crippled by an environment that takes
some of the longest times and highest costs by world standards
to resolve any problems that arise while repaying dues on debt.
This problem leads to grave consequences: India has some of
the lowest credit compared to the size of the economy. This is a
H troublesome state to be in, particularly for a young emerging
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 53
[R. F. NARIMAN, J.]

economy with the entrepreneurial dynamism of India. Such A
dynamism not only needs reforms, but reforms done urgently."
xxx xxx xxx xxx
"The limited liability company is a contract between equity and
debt. As long as debt obligations are met. equity owners have
complete control, and creditors have no say in how the business B
is run. When default takes place, control is supposed to transfer
to the creditors; equity owners have no say.
This is not how companies in India work today. For many decades,
creditors have had low power when faced with default. Promoters
stay in control of the company even after default. Only one C
element of a bankruptcy framework has been put into place: to a
limited extent, banks are able to repossess fixed assets which
were pledged with them.
While the existing framework for secured credit has given rights
to banks, sonie of the most important lenders in society are not D
banks. They are the dispersed mass of households and financial
firms who buy corporate bonds. The lack of power in the han&
of a bondholder has been one (though not the only) reason why
the corporate bond market has not worked. This, in turn, has far
reaching ramifications such as the difficulties of infrastructure E
financing. ,.,..
Under these conditions, the recovery rates obtained in India are
among the lowest in the world. When default takes place, broadly
speaking, lenders seem to recover 20% of the value of debt, on
an NPV basis. F
When creditors know that they have weak rights resulting in a
low recoverv rate. they are averse to lend. Hence, lending in
India is concentrated in a few large companies that have a low
probability of failure. Further, secured credit dominates, as
creditors rights are partially present only in this case. Lenders G
have an emphasis on secured credit. In this case, credit analysis
is relatively easy: It only requires taking a view on the market
value of the collateral. As a consequence, cre_dit analysis as a
sophisticated analysis of the business prospects of a firm has
shriveled.
H
54 SUPREME COURT REPORTS [2017] 8 S.C.R.

A Both these phenomena are unsatisfactory. In many settings, debt
is an efficient tool for corporate finance; there needs to be much
more debt in the financing of Indian firms. E.g. long-dated
corporate bonds are essential for most infrastructure projects.
The lack of lending without collateral, and the lack of lending
based on the prospects of the firm, has emphasised debt financing
B
ofasset-heavy industries. However, some of the most important
industries for India s rapid growth are those which are more
labour intensive. These industries have been starved of credit."
xxx xxx xxx xxx
c "The key economic question in the bankruptcy process
When a firm (referred to as the corporate debtor in the draft
law) defaults, the question arises about what is to be done. Many
possibilities can be envisioned. One possibility is to take the firm
into liquidation. Another possibility is to negotiate a debt
D restructuring, where the creditors accept a reduction of debt on
an NPV basis, and hope that the negotiated value exceeds the
liquidation value. Another possibility is to sell the firm as a going
concern and use the proceeds to pay creditors. Many hybrid
structures of these broad categories can be envisioned.
E The Committee believes that there is only one correct forum for
evaluating such possibilities, and making a decision: a creditors
committee, where all financial creditors have votes in proportion
to the magnitude of debt that they hold. In the past, laws in India
have brought arms of the government (legislature. executive or
judiciary) into this question. This has been strictly avoided by the
F Committee. The appropriate disposition of a defaulting firm is a
business decision. and only the creditors should make it."
xxx xxx xxx xxx
"Speed is of essence
G Speed is of essence for the working of the bankruptcy code, for
two reasons. First, while the 'calm period' can help keep an
organisation afloat, without the full clarity of ownership and
control, significant decisions cannot be made. Without effective
leadership, the firm will tend to atrophy and fail. The longer the
delay, the more likely it is that liquidation will be the only answer.
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 55
[R. F. NARIMAN, J.]

Second, the liquidation value tends to go down with time as many A
assets suffer from a high economic rate of depreciation.
From the viewpoint of creditors, a good realisation can generally
be obtained ifthe firm is sold as a going concern. Hence, when
delays induce liquidation, there is value destruction. Further, even
in liquidation, the realisation is lower when there are delays. B
Hence, delays cause value destruction. Thus, achieving a high
recovery rate is primarily about identifying and combating the
sources of delay."
xxx xxx xxx xxx
"The role that insolvency and bankruptcy plays in debt C
financing
Creditors put money into debt investments today in return for
the promise of fixed future cash flows. But the returns expected
on these investments are still uncertain because at the time of
repayment, the seller (debtor) may make repayments as promised, D
or he may default and does not make the payment. When this
happens, the debtor is considered insolvent. Other than cases
of outright fraud, the debtor may be insolvent because of
• Financial failure-a persistent mismatch between payments
by the enterprise and receivables into the enterprise, even E
though the business model is generating revenues, or
• Business failure - which is a breakdown in the business
model of the enterprise, and it is unable to generate sufficient
revenues to meet payments.
F
Often, an enterprise may be a successful business model while
still failing to repay its creditors. A sound bankruptcy process is
one that helps creditors and debtors realise and agree on whether
the entity is facing financial failure and business failure. This is
important to allow both parties to realise the maximum value of
the business in the insolvency." G

xxx xxx xxx xxx
"Control ofa company is not divine right. When a firm defaults
on its debt, control of the company should shift to the creditors.
In the absence of swift and decisive mechanisms for achieving
H
56 SUPREME COURT REPORTS [2017] 8 S.C.R.

A this, management teams and shareholders retain control after
default. Bankruptcy law must address this."
xxx xxx xxx xxx
"Objectives
B The Committee set the following as objectives desired from
implementing a new Code to resolve insolvency and bankruptcy:
1. Low time to resolution.
2. Low loss in recovery.
3. Higher levels of debt financing across a wide variety of debt
c instruments.
The performance of the new Code in implementation will be
based on measures of the above outcomes.
Principles driving the design
D The Committee chose the following principles to design the new
insolvency and bankruptcy resolution framework:
I. The Code will facilitate the assessment of viability of the
enterprise at a very early stage.

E 1. The law must explicitly state that the viability of the enterprise
is a matter of business, and that matters of business can only be
negotiated between creditors and debtor. While viability is
assessed as a negotiation between creditors and debtor, the final
decision has to be an agreement among creditors who are the
financiers willing to bear the loss in the insolvency.
F
2. The legislature and the courts must control the process of
resolution, but not be burdened to make business decisions.
3. The law must set up a calm period for insolvency resolution
where the debtor can negotiate in the assessment of viability
without fear of debt recovery enforcement by creditors.
G
4. The law must appoint a resolution professional as the manager
of the resolution period, so that the creditors can negotiate the
assessment of viability with the confidence that the debtors will
not take any action to erode the value of the enterprise. The
professional will have the power and responsibility to monitor
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 57
[R. F. NARIMAN, J.]

and manage the operations and assets of the enterprise. The A
professional will manage the resolution process of negotiation to
ensure balance of power between the creditors and debtor, and
protect the rights of all creditors. The professional will ensure
the reduction of asymmetry of information between creditors
· and debtor in the resolution process.
B
II. The Code will enable symmetry of information between
creditors and debtors.
5. The law must ensure that information that is essential for the
insolvency and the bankruptcy resolution process is created and
available when it is required. c
6. The law must ensure that access to this information is made
available to all creditors to the enterprise, either directly or through
the regulated professional.
7. The law must enable access to this information to third parties
who can participate in the resolution process, through the D
regulated professional.
III. The Code will ensure a time-bound process to better
preserve economic value.
8. The law must ensure that time value of money is preserved,
E
and that delaying tactics in these negotiations will not extend the
time set for negotiations at the start.
IV. The _Code will ensure a collective process.
9. The law must ensure that all key stakeholders will participate
to collectively assess viability. The law must ensure that all F
creditors who have the capability and the willingness to restructure
their liabilities must be part of the negotiation process. The
liabilities of all creditors who are not part of the negotiation process
must also be met in any negotiated solution. ·
V. The Code will respect the rights of all creditors equally. G
10. The law must be impartial to the type of creditor in counting
their weight in the vote on the final solution in resolving insolvency.
VI. The Code must ensure that, when the negotiations fail _to
establish viability, the outcome of bankruptcy must be
binding. H
58 SUPREME COURT REPORTS [2017) 8 S.C.R.

A 11. The law must order the liquidation of an enterprise which
has been found unviable. This outcome of the negotiations should
be protected against all appeals other than for very exceptional
cases.
VII. The Code must ensure clarity of priority, and that the
B rights of all stakeholders are upheld in resolving bankruptcy.
12. The law must clearly lay out the priority of distributions in
bankruptcy to all stakeholders. The priority must be designed so
as to incentivise all stakeholders to participate in the cycle of
building enterprises with confidence.
c 13. While the law must incentivise collective action in resolving
bankruptcy, there must be a greater flexibility to allow individual
action in resolution and recovery during bankruptcy compared
with the phase of insolvency resolution."
xxx xxx xxx xxx
D
"An application from a creditor must have a record of the liability
and evidence of the entity having defaulted on payments. The
Committee recommends different documentation requirements
depending upon the type of creditor, either financial or operational.
A financial creditor must submit a record of default by the entity
E as recorded in a registered Information Utility (referred to as
the IU) as described in Section 4.3 (or on the basis of other
evidence). The default can be to any financial creditor to the
entity, and not restricted to the creditor who triggers the IRP.
The Code requires that the financial creditor propose a registered
F
Insolvency Professional to manage the IRP. Operational creditors
must present an "undisputed bill" which may be filed at a
registered information utility as requirement to trigger the IRP.
The Code does not require the operational creditor to propose a
registered Insolvency Professional to manage the IRP. If a
professional is not proposed by the operational creditor, and the
G IRP is successfully triggered, the Code requires the Adjudicator
to approach the Regulator for a registered Insolvency
Professional for the case.
In case the financial creditor triggers the IRP, the Adjudicator
verifies the default from the information utility (if the default has
H been filed with an information utility, tit such be incontrovertible
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 59
[R. F. NARIMAN, J.]

evidence of the existence of a default) or otherwise confirms A
the existence of default through the additional evidence adduced
by the financial creditor, and puts forward the proposal for the
RP to the Regulator for validation. In case the operational creditor
triggers the IRP, the Adjudicator verifies the documentation.
Simultaneously, the Adjudicator requests the Regulator for an B
RP. If either step cannot be verified, or the process verification
exceeds the specified amount of time, then the Adjudicator rejects
the application, with a reasoned order for the rejection. The order
rejecting the application cannot be appealed against. Instead,
application has to be made afresh. Once the documents are
verified within a specified amount of time, the Adjudicator will C
trigger the IRP and register the IRP by issuing an order. The
order will contain a unique ID that will be issued for the case by
which all reports and records that are generated during the IRP
will be stored, and accessed."
xxx xxx xxx xxx D
"Steps at the start of the lRP In order to ensure that the resolution
can proceed in an orderly manner, it is important for the
Adjudicator to put in place an environment of a "calm period"
with a definite time of closure, that will assure both the debtor
and creditors of a time-bound and level field in their negotiations E
to assess viability. The first steps that the Adjudicator takes is
put in place an order for a moratorium on debt recovery actions
and any existing or new law suits being filed in other courts. a
public announcement to collect claims of liabilities. the
appointment of an interim RP and the creation of a creditor
committee." F

(Emphasis Supplied)
17. The stage is now set for an in-depth examination of Part II of
the Code, with which we are immediately concerned in this case.
18. There are two sets of definition sections. They are rather G
involved, the dovetailing of one definition going into another. Section 3
defines various terms as follows:
"Sec. 3(6) "claim" means-
(a) a right to payment, whether or not such right is reduced to
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60 SUPREME COURT REPORTS [2017] 8 S.C.R.

A judgment, fixed, disputed, undisputed, legal, equitable, secured
or unsecured;
(b) right to remedy for breach of contract under any law for the
time being in force, if such breach gives rise to a right to payment,
whether or not such right is reduced to judgment, fixed, matured,
B unmatured, disputed, undisputed, secured or unsecured;
Sec. 3(10) "creditor" means any person to whom a debt is owed
and includes a financial creditor, an operational creditor, a secured
creditor, an unsecured creditor and a decree-holder;
Sec. 3(11) "debt" means a liability or obligation in respect of a
c claim which is due from any person and includes a financial debt
and operational debt;
Sec. 3(12) "default" means non-payment of debt when whole or
any part or instalment of the amount of debt has become due
and payable and is not repaid by the debtor or the corporate
D debtor, as the case may be;
Sec. 3( 13) "financial information", in relation to a person, means
one or more of the following categories ofinformation, namely:-
(a) records of the debt of the person;
E (b) records ofliabilities when the person is solvent;
(c) records' of assets of person over which security interest has
been created;
(<l) records, if any, of instances of default by the person against
any debt;
F
(e) records of the balance sheet and cash-flow statements of
the person; and
(f) such other information as may be specified.
Sec. 3(19) "insolvency professional" means a person enrolled
G under section 206 with an insolvency professional agency as its
member and registered with the Board as an insolvency
professional under section 207;"
(Emphasis Supplied)

H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 61
[R. F. NARIMAN, J.]

19. Certain definitions contained in Section 5 are also important A
from our point of view. Section 5(7), (8), (12), (14), (20) and (27) read
asunder:
"Sec. 5(7) "financial creditor" means any person to whom a
financial debt is owed and includes a person to whom such debt
has been legally assigned or transferred to; B
Sec. 5(8) "financial debt" means a debt along with interest, if
any, which is disbursed against the consideration for the time
value of money and includes-
(a) money borrowed against the payment of interest; c
(b) any amount raised by acceptance under any acceptance credit
facility or its de-materialised equivalent;
(c) any amount raised pursuant to any note purchase facility .or
the issue of bonds, notes, debentures, loan stock or any similar
instrument; D
(d) the amount of any liability in respect of any lease or hire
purchase contract which is deemed as a finance or capital lease
under the Indian Accounting Standards or such other accounting
standards as may be prescribed;
E
(e) receivables sold or discounted other than any receivables
sold on nonrecourse basis;
(f) any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial
effect of a borrowing;
F
(g) any derivative transaction entered into in connection with
protection against or benefit from fluctuation in any rate or price
and for calculating the value of any derivative transaction, only
the market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, G
indemnity, bond, documentary letter of credit or any other
instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee
or indemnity for any of the items referred to in sub-clauses (a)
to (h) of this clause;
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62 SUPREME COURT REPORTS [2017] 8 S.C.R.

A Sec. 5(12) "insolvency commencement date" means the date of
admission of an application for initiating corporate insolvency
resolution process by the Adjudicating Authority under sections
7, 9 or section 10, as the case may be;
Sec. 5(14) "insolvency resolution process period" means the
B period of one hundred and eighty days beginning from the
insolvency commencement date and ending on one hundred and
eightieth day;
Sec. 5(20) "operational creditor" means a person to whom an
operational debt is owed and includes any person to whom such
c debt has been legally assigned or transferred;
Sec. 5(27) "resolution professional", for the purposes of this Part,
means an insolvency professional appointed to conduct the
corporate insolvency resolution process and includes an interim
resolution professional;"
D 20. Under Section 4 of the Code, Part II applies to matters relating
to the insolvency and liquidation of corporate debtors, where the minimum
amount of default is rupees one lakh. Sections 6, 7 and 8 form part of
one scheme and are very important for the decision in the present case.
They read as follows:
E "Sec. 6. Persons who may initiate corporate insolvency
resolution process. - Where any corporate debtor commits a
default, a financial creditor, an operational creditor or the corporate
debtor itself may initiate corporate insolvency resolution process
in respect of such corporate debtor in the manner as provided
F under this Chapter.
Sec. 7. Initiation of corporate insolvency resolution
process by financial creditor. - (I) A financial creditor either
by itself or jointly with other financial creditors may file an
application for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating Authority when
G
a default has occurred.
Explanation.-For the purposes of this sub-section, a default
includes a default in respect of a financial debt owed not only to
the applicant financial creditor but to any other financial creditor.
of the corporate debtor.
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 63
[R. F. NARlMAN, J.]

(2) The financial creditor shall make an application under sub- A
section ( 1) in such form and manner and accompanied with such
fee as may be prescribed.
(3) The financial creditor shall, along with the application furnish-
(a) record of the default recorded with the information utility or
such other record or evidence of default as may be specified; B
(b) the name of the resolution professional proposed to act as an
interim resolution professional; and
(c) any other information as may be specified by the Board.
(4) The Adjudicating Authority shall, within fourteen days of the C
receipt of the application under sub-section (2), ascertain the
existence of a default from the records of an information utility
or on the basis of other evidence furnished by the financial creditor
under sub-section (3).
(5) Where the Adjudicating Authority is satisfied that- D
(a) a default has occurred and the application under sub-section
(2) is complete, and there is no disciplinary proceedings pending
against the proposed resolution professional, it may, by order,
admit such application; or
(b) default has not occurred or the application under sub-section E
(2) is incomplete or any disciplinary proceeding is pending against
the proposed resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting
the application under clause (b) of sub-section (5), give a notice F
to the applicant to rectify the defect in his application within
seven days of receipt of such notice from the Adjudicating
Authority.
(6) The corporate insolvency resolution process shall commence
from the date of admission of the application under sub-section G
(5).
(7) The Adjudicating Authority shall communicate-
(a) the order under clause (a) of sub-section (5) to the financial
creditor and the corporate debtor;
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64 SUPREME COURT REPORTS [2017] 8 S.C.R.

A (b) the order under clause (b) of sub-section (5) to the financial
creditor,
within seven days of admission or rejection of such application,
as the case may be.
Sec. 8. Insolvency resolution by operational creditor.- (I)
B An operational creditor may, on the occurrence of a default,
deliver a demand notice ofunpaid operational debtor copy of an
invoice demanding payment of the amount involved in the default
to the corporate debtor in such form and manner as may be
prescribed.
c (2) The corporate debtor shall, within a period often days of the
receipt of the demand notice or copy of the invoice mentioned in
sub-section (I) bring to the notice of the operational creditor-·
(a) existence of a dispute, if any, and record of the pendency of
the suit or arbitration proceedings filed before the receipt of such
D notice or invoice in relation to such dispute;
(b) the repayment of unpaid operational debt-
(i) by sending an attested copy of the record of electronic transfer
of the unpaid amount from the bank account of the corporate
debtor; or
E
(ii) by sending an attested copy of record that the operational
creditor has encashed a cheque issued by the corporate debtor.
Explanation.-For the purposes of this section, a "demand
notice" means a notice served by an operational creditor to the
F corporate debtor demanding repayment of the operational debt
in respect of which the default has occurred."
21. Section 12 provides for a time limit for completion of the
insolvency resolution process and reads as follows:
"Sec. 12. Time-limit for completion of insolvency resolution
G process.- (I) Subject to sub-section (2), the corporate insolvency
resolution process shall be completed within a period of one
hundred and eighty days from the date of admission of the
application to initiate such process.
(2) The resolution professional shall file an application to the
H Adjudicating Authority to extend the period of the corporate
M/S. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 65
[R. F. NARIMAN, J.]

insolvency resolution process beyond one hundred and eighty A
days, if instructed to do so by a resolution passed at a meeting of
the committee of creditors by a vote of seventy-five per cent. of
the voting shares.
(3) On receipt of an application under sub-section (2), ifthe
Adjudicating Authority is satisfied that the subject matter of the B
case is such that corporate insolvency resolution process cannot
be completed within one hundred and eighty days, it may by
order extend the duration of such process beyond one hundred
and eighty days by such further period as it thinks fit, but not
exceeding ninety days:
c
Provided that any extension of the period of corporate insolvency
resolution process under this section shall not be granted more
than once."
22. Sections 13 and 14 deal with the declaration of moratorium
and public announcements and read as under: D
"Sec. 13. Declaration of moratorium and public
announcement.-(1) TheAdjudicatingAuthority, after admission
of the application under section 7 or section 9 or section 10,
shall, by an order- ·
(a) declare a moratorium for the purposes referred to in section E
14;
(b) cause a public announcement of the initiation of corporate
insolvency resolution process and call for the submission of claims
under section 15; and
F
(c) appoint an interim resolution professional in the manner as
laid down in section 16.
(2) The public announcement referred to in clause (b) of sub-
section (1) shall be made immediately after the appointment of
the interim resolution professional.
G
Sec.14 Moratorium.-(!) Subject to provisions of sub-sections
(2) and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare moratorium for
prohibiting all of the following, namely:-
(a) the institution of suits or continuation of pending suits or H
66 SUPREME COURT REPORTS [2017) 8 S.C.R.

A proceedings against the corporate debtor including execution of
any judgment, decree or order in any court of law, tribunal,
arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the
corporate debtor any of its assets or any legal right or beneficial
B interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its property
including any action under the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
c 2002;
(d) the recovery of any property by an owner or lessor where
such property is occupied by or in the possession of the corporate
debtor.
(2) The supply of essential goods or services to the corporate
D debtor as may be specified shall not be terminated or suspended
or interrupted during moratorium period.
(3) The provisions of sub-section (I) shall not apply to such
transactions as may be notified by the Central Government in
consultation with any financial sector regulator.
E
(4) The order of moratorium shall have effect from the date of
such order till the completion of the corporate insolvency
resolution process:
Provided that where at any time during the corporate insolvency
resolution process period, if the Adjudicating Authority approves
F
the resolution plan under sub-section (I) of section 31 or passes
an order for liquidation of corporate debtorunder section 33, the
moratorium shall cease to have effect from the date of such
approval or liquidation order, as the case may be."
23. Under Section 17, from the date of appointment of the interim
G resolution professional, the management of the affairs of the corporate
debtor vests with interim resolution professional. Section l 7(l)(a) reads
asunder:
"Sec. 17. Management of affairs of corporate debtor by
interim resolution professional. - (I) From the date of
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 67
(R. F. NARIMAN, J.]

appointment of the interim resolution professional,- A
(a) the management of the affairs of the corporate debtor shall
vest in the interim resolution professional;"
24. Under Section 20 of the Act, the interim resolution professional
shall manage the operations of the corporate debtor as a going concern.
Section 21 is extremely important and provides for appointment of a B
committee of creditors. Section 21 reads as follows:
"21. Committee of creditors. - (1) The interim resolution
professional shall after collation of all claims received against
the corporate debtor and detennination of the financial position
of the corporate debtor, constitute a committee of creditors. C
(2) The committee of creditors shall comprise all financial
creditors of the corporate debtor:
Provided that a related party to whom a corporate debtor owes
a financial debt shall not have any right of representation, D
participation or voting in a meeting of the committee of creditors.
(3) Where the corporate debtor owes financial debts to two or
more financial creditors as part of a consortium or agreement,
each such financial creditor shall be part of the committee of
creditors and their voting share shall be determined on the basis
E
of the financial debts owed to them.
(4) Where any person is a financial creditor as well as an
operational creditor,-
(a) such person shall be a financial creditor to the extent of the
financial debt owed by the corporate debtor, and shall be included F
in the committee of creditors, with voting share proportionate to
the extent of financial debts owed to such creditor;
(b) such person shall be considered to be an operational creditor
to the extent of the operational debt owed by the corporate debtor
to such creditor. G
(5) Where an operational creditor has assigned or legally
transferred any operational debt to a financial creditor, the
assignee or transferee shall be considered as an operational
creditor to the extent of such assignment or legal transfer.
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68 SUPREME COURT REPORTS [2017] 8 S.C.R.

A (6) Where the terms of the financial debt extended as part of a
consortium arrangement or syndicated facility or issued as
securities provide for a single trustee or agent to act for all financial
creditors, each financial creditor may-
(a) authorise the trustee or agent to act on his behalf in the
B committee of creditors to the extent of his voting share;
(b) represent himself in the committee of creditors to the extent
of his voting share;
(c) appoint an insolvency professiop.al (other than the reso!Ution
professional) at his own cost to represent himself in the committee
c of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share
with one or more financial creditors jointly or severally.
(7) The Board may specify the manner of determining the voting
D share in respect of financial debts issued as securities under
sub-section (6) .
(8) All decisions of the committee of creditors shall be taken by
a vote of not less than seventy-five per cent. of voting share of
the financial creditors:
E Provided that where a corporate debtor does not have any
financial creditors, the committee of creditors shall be constituted
and comprise of such persons to exercise such functions in such
manner as may be specified by the Board.
(9) The committee of creditors shall have the right to require the
F resolution professional to furnish any financial information in
relation to the corporate debtor at any time during the corporate
insolvency resolution process.
( 10) The resolution professional shall make available any financial
information so required by the committee of creditors under sub-
G section (9) within a period of seven days of such requisition."
25. Under Section 24, members of the committee of creditors may
conduct meetings in order to protect their interests. Under Section 28, a
resolution professional appointed under Section 25 cannot take certain
actions without the prior approval of the committee of creditors. Section
H 28 reads as under:
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 69
[R. F. NARIMAN, J.]

"28. Approval of committee of creditors for certain A
actions. - (1) Notwithstanding anything contained in any other
law for the time being in force, the resolution professional, during
the corporate insolvency resolution process, shall not take any
of the following actions without the prior approval of the
committee of creditors namely:-
B
(a) raise any interim finance in excess· of the amount as may
be decided by the committee of creditors in their meeting;
(b) create any security interest over the assets of the corporate
debtor;
(c) change the capital structure of the corporate debtor, C
including by way of issuance of additional securities, creating
a new class of securities or buying back or redemption of issued
securities in case the corporate debtor is a company;
(d) record any change in the ownership interest of the corporate
debtor; D
(e) give instructions to financial institutions maintaining accounts
of the corporate debtor for a debit transaction from any such
accounts in excess of the amount as may be decided by the
committee of creditors in their meeting;
E
(f) undertake any related party transaction;
(g) amend any constitutional documents of the corporate debtor;
(h) delegate its authority to any other.person;
(i) dispose oforpermit the disposal of shares of any shareholder
of the corporate debtor or their nominees to third parties; F
(j) make any change in the management of the corporate debtor
.or its subsidiary;
(k) transfer rights or financial debts or operational debts under
material contracts otherwise than in the ordinary course of G
business; '
(I) make changes in the appointment or terms of contract of
such personnel as specified by the committee of creditors; or
(m) make changes in the appointment or terms of contract of
statutory auditors or internal auditors of the corporate debtor. H
70 SUPREME COURT REPORTS [2017] 8 S.C.R.

A (2) The resolution professional shall convene a meeting of the
committee of creditors and seek the vote of the creditors prior to
taking any of the actions under sub-section (l ).
(3) No action under sub-section (1) shall be approved by the
committee of creditors unless approved by a vote of seventy
B five per cent. of the voting shares.
(4) Where any action under sub-section (1) is taken by the
resolution professional without seeking the approval of the
committee of creditors in the manner as required in this section,
such action shall be void.
c (5) The committee of creditors may report the actions of the
resolution professional under sub-section (4) to the Board for
taking necessary actions against him under this Code."
26. The most important sections dealing with the restructuring of
the corporate debtor are Sections 30 and 31, which read as under:
D
"Sec 30. Submission of resolution plan.- ( l) A resolution
applicant may submit a resolution plan to the resolution
professional prepared on the basis of the information
memorandum.
(2) The resolution professional shall examine each resolution plan
E
received by him to confirm that each resolution plan-
(a) provides for the payment of insolvency resolution process
costs in a manner specified by the Board in priority to the
repayment of other debts of the corporate debtor;
F (b) provides for the repayment of the debts of operational
creditors in such manner as may be specified by the Board
which shall not be less than the amount to be paid to the
operational creditors in the event of a liquidation of the corporate
debtor under section 53;
G (c) provides for the management of the affairs of the Corporate
debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for
the time being in force;
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 71
[R. F. NARIMAN, J.]

(f) conforms to such other requirements as may be specified A
by the Board.
(3) The resolution professional shall present to the committee of
creditors for its approval such resolution plans which confirm
the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan by B
a vote of not less than seventy five per cent. of voting share of
the financial creditors.
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the applicant
is considered: Provided that the resolution applicant shall not have C
a right to vote at the meeting of the committee of creditors unless
such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan
as approved by the committee of creditors to the Adjudicating
Authority. D
Sec 31. Approval of resolution plan.- (1) If the Adjudicating
Authority is satisfied that the resolution plan as approved by the
committee of creditors under sub-section (4) of section 30 meets
the requirements as referred to in sub-section (2) of section 30,
it shall by order approve the resolution plan which shall be binding E
on the corporate debtor and its employees, members, creditors,
guarantors and other stakeholders involved in the resolution plan.
(2) Where the AdjudicatingAuthority is satisfied that the resolution
plan does not confirm to the requirements referred to in sub-
section ( 1), it may, by an order, reject the resolution plan. F
(3) After the order of approval under sub-section (1),-
(a) the moratorium order passed by the Adjudicating Authority
under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating G
to the conduct of the corporate insolvency resolution process
and the resolution plan to the Board to be recorded on its
database."
27. The scheme of the Code is to ensure that when a default
takes place, in the sense that a debt becomes due and is not paid, the H
72 SUPREME COURT REPORTS [2017) 8 S.C.R.

A insolvency resolution process begins. Default is defined in Section 3( 12)
in very wide tenns as meaning non-payment of a debt once it becomes
due and payable, which includes non-payment of even part thereof or an
instalment amount. For the meaning of"debt", we have to go to Section
3( 11 ), which in turn tells us that a debt means a liability of obligation in
B respect ofa "claim" and for the meaning of"claim", we have to go back
to Section 3(6) which defines "claim" to mean a right to payment even if
it is disputed. The Code gets triggered the moment default is of rupees
one lakh or more (Section 4). The corporate insolvency resolution process
may be triggered by the corporate debtor itself or a financial creditor or
operational creditor. A distinction is made by the Code between debts
C owed to financial creditors and operational creditors. A financial creditor
has been defined under Section 5(7) as a person to whom a financial
debt is owed and a financial debt is defined in Section 5(8) to mean a
debt which is disbursed against consideration for the time value of money.
As opposed to this, an operational creditor means a person to whom an
D operational debt is owed and an operational debt under Section 5 (21)
means a claim in respect of provision of goods or services.
28. When it comes to a financial creditor triggering the process,
Section 7 becomes relevant. Under the explanation to Section 7( 1), a
default is in respect of a financial debt owed to any financial creditor of
the corporate debtor-it need not be a debt owed to the applicant financial
E creditor. Under Section 7(2), an application is to be made under sub-
section (l) in such fonn and manner as is prescribed, which takes us to
the Insolvency and Bankruptcy (Application to Adjudicating Authority)
Rules, 2016. Under Rule 4, the application is made by a financial creditor
in Fonn 1 accompanied by documents and records required therein.
F Fonn I is a detailed form in 5 parts, which requires particulars of the
applicant in Part I, particulars of the corporate debtor in Part II, particulars
of the proposed interim resolution professional in part Ill, particulars of
the financial debt in part IV and documents, records and evidence of
default in part V. Under Rule 4(3 ), the applicant is to dispatch a copy of
the application filed with the adjudicating authority by registered post or
G speed post to the registered office of the corporate debtor. The speed,
within which the adjudicating authority is to ascertain the existence of a
default from the records of the information utility or on the basis of
evidence furnished by the financial creditor, is important. This it must do
within 14 days of the receipt of the application. It is at the stage of
H Section 7(5), where the adjudicating authority is to be satisfied that a
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 73
[R. F. NARIMAN, J.]

default has occurred, that the corporate debtor is entitled to point out A
that a default has not occurred in the sen~e that the "debt'', which may
also include a disputed claim, is not due. A debt may not be due if it is
not payable in law or in fact. The moment the adjudicating authority is
-~, satisfied that a default has occurred, the application must be admitted
unless it is incomplete, in which case it may give notice to the applicant
B
to rectify the defect within 7 days of receipt of a notice from the
adjudicating authority. Under sub-section (7), the adjudicating authority
shall then communicate the order passed to the financial creditor and
corporate debtor within 7 days of admission or rejection of such application,
as the case may be.
29. The scheme of Section 7 stands in contrast with the scheme C
under Section 8 where an operational creditor is, on the occurrence of a
default, to first deliver a demand notice of the unpaid debt to the
operational debtor in the manner provided in Section 8(1) of the Code.
Under Section 8(2), the corporate debtor can, within a period of 10 days
ofreceipt of the demand notice or copy of the invoice mentioned in sub- D
section (1 ), bring to the notice of the operational creditor the existence
of a dispute or the record of the pendency of a suit or arbitration
proceedings, which is pre-existing - i.e. before such notice or invoice
was received by the corporate debtor. The moment there is existence of
such a dispute, the operational creditor gets out of the clutches of the
Code. E

30. On the other hand, as we have seen, in the case ofa corporate
debtor who commits a default of a financial debt, the adjudicating authority
has merely to see the records of the information utility or other evidence
produced by the financial creditor to satisfy itself that a default has
occurred. It is of no matter that the debt is disputed so long as the debt F
is "due" i.e. payable unless interdicted by some law or has not yet become
due in the sense that it is payable at some future date. It is only when
this is proved to the satisfaction of the adjudicating authority that the
adjudicating authority may reject an application and not otherwise.
31. The rest of the insolvency resolution process is also very G
important. The entire process is to be completed within a period of 180
days from the date of admission of the application under Section 12 and
can only be extended beyond 180 days for a further period of not
exceeding 90 days ifthe committee of creditors by a voting of 75% of
voting shares so decides. It can be seen that time is of essence in seeing H
74 SUPREME COURT REPORTS [2017) 8 S.C.R.

A whether the corporate body can be put back on its feet, so as to stave
off liquidation.
32. As soon as the application is admitted, a moratorium in terms
of Section 14 of the Code is to be declared by the adjudicating authority
and a public announcement is made stating, inter alia, the last date for
B submission of claims and the details of the interim resolution professional
who shall be vested with the management of the corporate debtor and
be responsible for receiving claims. Under Section 17, the erstwhile
management of the corporate debtor is vested in an interim resolution
professional who is a trained person registered under Chapter IV of the
Code. This interim resolution professional is now to manage the operations
C of the corporate debtor as a going concern under the directions of a
committee of creditors appointed under Section 21 of the Act. Decisions
by this committee are to be taken by a vote of not less than 75% of the
voting share of the financial creditors. Under Section 28, a resolution
professional, who is none other than an interim resolution professional
D who is appointed to carry out the resolution process, is then given wide
powers to raise finances, create security interests, etc. subject to prior
approval of the committee of creditors.
33. Under Section 30, any person who is interested in putting the
corporate body back on its feet may submit a resolution plan to the
E resolution professional, which is prepared on the basis of an information
memorandum. This plan must provide for payment of insolvency resolution
process costs, management of the affairs of the corporate debtor after
approval of the plan, and implementation and supervision of the plan. It
is only when such plan is approved by a vote of not Jess than 75% of the
voting share of the financial creditors and the adjudicating authority is
F satisfied that the plan, as approved, meets the statutory requirements
mentioned in Section 30, that it ultimately approves such plan, which is
then binding on the corporate debtor as well as its employees, members,
creditors, guarantors and other stakeholders. Importantly, and this is a
major departure from previous legislation on the subject, the moment the
G adjudicating authority approves the resolution plan, the moratorium order
passed by the authority under Section 14 shall cease to have effect.
The scheme of the Code, therefore, is to make an attempt, by divesting
the erstwhile management of its powers and vesting it in a professional
agency, to continue the business of the corporate body as a going concern
until a resolution plan is drawn up, in which event the management is
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 75
[R. F. NARIMAN, J.]

handed over under the plan so that the corporate body is able to pay A
back its debts and get back on its feet. All this is to be done within a
period of6 months with a maximum extension ofanother90 days or else
the chopper comes down and the liquidation process begins.
34. On the facts of the present case, we find that in answer to the
application made under Section 7 of the Code, the appellant only raised B
the plea of suspension of its debt under the Maharashtra Act, which,
therefore, was that no debt was due in law. The adjudicating authority
correctly referred to the non-obstante clause in Section 238 and arrived
at a conclusion that a notification under the Maharashtra Act would not
Stand in the way of the corporate insolvency resolution process under
the Code. However, the Appellate Tribunal by the impugned judgment C
held thus:
"78. Following the law laid down by Hon'ble Supreme Court in
"Yogendra Krishnan Jaiswal" and "Madras Petrochem Limited"
we hold that there is no repugnancy between I&B Code, 2016
and the MRU Act as they both operate in different fields. The D
Parliament has expressly stated that the provisions of the I&B
Code, 2016 (which is a later enactment to the MRU Act) shall
have effect notwithstanding the provisions of any other law for
the time being in force. This stipulation does not mean that the
provisions of MRU Act or for that matter any other law are E
repugnant to the provisions of the Code.
79. In view of the finding as recorded above, we hold that the
Appellant is not entitled to derive any advantage from MRU
Act, 1956 to stall the insolvency resolution process under Section
7 of the Insolvency & Bankruptcy Code, 2016." F
This statement by the Appellate Tribunal has to be tested with
· reference to the constitutional position on repugnancy.
35. A1ticle 254 of the Constitution oflndia is substantially modeled
on Section 107 of the Government oflndia Act, 1935. Article 254 reads
asunder: G
"Article 254 - Inconsistency between laws made by
Parliament and laws made by the Legislatures of States
( 1) If any provision of a law made by the Legisfature of a State
is repugnant to any provision of a law made by Parliament which
H
76 SUPREME COURT REPORTS [2017] 8 S.C.R.

A Parliament is competent to enact, or to any provision of an existing
law with respect to one of the matters enumerated in the
Concurrent List, then, subject to the provisions of clause (2), the
law made by Parliament, whether passed before or after the
law made by the Legislature of such State, or, as the case may
be, the existing law, shall prevail and the law made by the
B
Legislature of the State shall, to the extent of the repugnancy, be
void.
(2) Where a law made by the Legislature of a State [***) with
respect to one of the matters enumerated in the Concurrent List
contains any provision repugnant to the provisions of an earlier
c law made by Parliament or an existing law with respect to that
matter, then, the law so made by the Legislature of such State
shall, if it has been reserved for the consideration of the President
and has received his assent, prevail in that State:
Provided that nothing in this clause shall prevent Parliament from
D enacting at any time any law with respect to the same matter
including a law adding to, amending, varying or repealing the law
so made by the Legislature of the State."
Section 107 reads as follows:

E "Inconsistency between Federal Laws and Provincial or
State Laws
(1) Ifany provision of a Provincial law is repugnant to any provision
of a Federal law which the Federal Legislature is competent to
enact or to any provision of an existing Indian law with respect
F to one of the matters enumerated in the Concurrent Legislative
List, then, subject to the provisions of this section, the Federal
law, whether passed before or after the Provincial law, or as the
case may be, the existing Indian law, shall prevail and the
Provincial law shall, to the extent of the repugnancy, be void.
(2) Where a Provincial law with respect to one of the matters
G
enumerated in the Concurrent Legislative List contains any
provision repugnant to the provisions of an earlier Federal law or
an existing Indian law with respect to that matter, then, if the
Provincial law, having been reserved for the consideration of the
Governor-General has received the assent of the Governor-
H General or for the signification of His Majesty's pleasure has
M/S. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 77
[R. F. NARIMAN, J.]

received the assent of the Governor-General or of His Majesty, A
the Provincial law shall in that Province prevail, ~ut nevertheless
the Federal Legislature may at anytime enact further legislation
with respect to the same matter..
Provided that no Bill or amendment for making any provision
repugnant to any Provincial law, which, having been so reservea B
has received the assent of the Governor-General or of His
Majesty, shall be introduced or moved in either Chamber of the
Federal Legislature without the previous sanction-' of the
Governor-General in his discretion.
(3) If any provision of a law of a Federated State is repugnant to c
a Federal law which extends to that State, the Federal law,
whether passed before or after the law of the State, shall prevail
and the law of the State shall, to the extent of the repugnancy be
void."
36. The British NorthAmericaAct, which is the oldest among the D
Constitutions framed by the British Parliament for its colonies, had under
Sections 91 and 92 exclusive law making power for the different subjects
set out therein which is distributed between Parliament and the Provincial
Legislatures. The only concurrent subject was stated in Section 95 of
the said Act, which reads as follows:
E
"In each Province the Legislature may make laws in relation to
agriculture in the Province, and to immigration into the Province;
and it is hereby declared that the Parliament of Canada may
from time to time make laws in relation to agriculture in all or
any of the Provinces, and to immigration into all or any of the
Provinces; and any law of the Legislature ofa Province relative {
F
to agriculture or to immigration shall have effect in and for the
· Province as long and as far only as it is not repugnant to any Act
of the Parliament of Canada."
. It is for this reason that the Canadian cases on repugnancy were sa.id t9
· be sonie~hat restricted and have rarely been applied in construing Article G
254.
37. In so far as the US Constitution is. concerned, there again
legislative powers are reserved completely to the States and Congress
is given the power to legislate only on enumerated subjects that are set
out in Article 1 Section 8 of the US Constitution. In this context, no H
78 SUPREME COURT REPORTS [2017] 8 S.C.R.

A questions of repugnancy can arise as the States can legislate even with
respect to matters laid down in Article l Section 8 so long as they do not
exceed the territorial boundary of the State. It is only when Congress
actually enacts legislation under Article l Section 8 that State legislation,
if any, cin the same subject matter can be said to be ousted. However,
when Congress passed the Eighteenth Amendment to the US Constitution,
B
by which it imposed prohibition, Section 2 thereof stated that Congress
and the several States shall have concurrent powers to enforce this
Article by appropriate legislation. The question that arose in State of
Rhode Island v. Palmer, 253 U.S. 350, was as to the meaning of the
expression "concurrent power". It was argued that, unless both Congress
c and the State legislatures concurrently enact laws, laws under Section 2
of the Eighteenth Amendment could not be made. This argument was
turned down by the majority judgment ofVan Devanter, J. which, strangely
enough, merely announced conclusions on the questions involved without
any reasoning1• Van Devanter, J. 's majority judgment held (at 387):
D "8. The words "concurrent power" in that section do not mean
joint power, or require that legislation thereunder by Congress,
to be effective, shall be approved or sanctioned by the several
states or any of them; nor do they mean that the power to enforce
is divided between Congress and the several states along the
lines which separate or distinguish foreign and interstate
E commerce from intrastate affairs.
9. The power confided to Congress by that section, while not
exclusive, is territorially coextensive with the prohibition of the
first section, embraces manufacture and other intrastate
transactions as well as importation, exportation and interstate
F traffic, and is in no wise dependent on or affected by action or
inaction on the part of the several states or any of them."
Two dissents, on the other hand, held that unless the Congress and the
States concurrently legislate, Section 2 does not give them the power to
enforce prohibition. The US cases also do not, therefore, assist in this
G context.
' White, C.J. concurring stated (at 388):
"I profoundly regret that in a case of this magnitude, affecting, as it does, an amendment
to the Constitution dealing with the powers and duties of the national and
state governments, and intimately concerning the welfare of the whole people, the
court has deemed it proper to state only ultimate conclusions, without an exposition
H of the reasoning by which they have been reached."
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 79
[R. F. NARIMAN, J.]

38. On the other hand, the Commonwealth ofAustralia Constitution A
Act of 1900, also enacted by the British Parliament, has a scheme by
which Parliament, in Section 51, has power to make laws with respect
to 39 stated matters. Under Section 52, Parliament, subject to the
Constitution, has exclusive power to make laws only qua three subjects
set out therein. Section 109 of the Australian Constitution reads as under:
B
"When a law of a State is inconsistent with a law of the
Commonwealth, the latter shall prevail, and the former shall, to
the extent of the inconsistency, be invalid."
39. Since the Australian cases deal with repugnancy in great detail,
they have been referred to by the early judgments of this ·court. C
40. In ZaverbhaiAmaidas v. State Of Bombay, (1955) 1 SCR
799, a question arose as to the efficacy of a Bombay Act of 1947 vis-a-
vis the Essential Supplies (Temporary Powers) Act of 1946, as amended
in 1950. This Court, after referring to Section 107 of the Government of
India Act and Article 254 of the Constitution, stated thatArticle 254, is in D
substance, a reproduction of Section 107 with one difference- that the
power of Parliament under Article 254(2) goes even to the extent of
. repealing a State law. This Court then examined the subject matters of
the two Acts and found that the Parliamentary enactment as amended
in 1950 prevailed over the Bombay Act in as much as the higher
punishment given for the same offence under the Bombay Act was E
repugnant to the lesser punishment given by Section 7 of the Parliamentary
enactment.
41. In Tika Ramji v. State ofU.P., (1956) SCR 393, this Court,
after setting out Article 254 of the Constitution, referred in detail to a
treatise on the Australian Constitution and to various Australian judgments F
as follows:
"Nicholas in his Australian Constitution, 2nd ed., p. 303, refers
to three tests of inconsistency or repugnancy:-
(1) There may be inconsistency in the actual terms of the G
competing statutes (R. v. Brisbane Licensing Court, [1920] 28
CLR23).
(2) Though there may be no direct conflict, a State law
may be inoperative because the Commonwealth law, or the award
of the Commonwealth Court, is intended to be a complek
H
80 SUPREME COURT REPORTS [2017] 8 S.C.R.

A exhaustive code {Clyde Engineering Co. Ltd. v. Cowburn,
[1926) 37 CLR466).
(3) Even in the absence of intention, a conflict may arise
when both State and Commonwealth seek to exercise their
powers over the same subject-matter
B (Victoria v. Commonwealth, [1937) 58 CLR
618; Wenn v. Attorney-General (Viet.), [1948] 77 CLR 84)
Isaacs, J. in Clyde Engineering Company,
Limitedv. Cowburn [(1926) 37 CLR 466, 489) laid down one
test of inconsistency as conclusive: "If, however, a competent
c legislature expressly or implicitly evinces its intention to cover
the whole field, that is a conclusive test of inconsistency where
another Legislature assumes to enter to any extent upon the
same field".
Dixon, J. elaborated this theme in Ex parte McLean [{1930) 43
D CLR472,483]:
"When the Parliament of the Commonwealth and the
Parliament of a State each legislate upon the same subject and
prescribe what the rule of conduct shall be, they make laws
which are inconsistent, notwithstanding that the rule of conduct
E is identical which each prescribes, and section 109 applies.
That this is so is settled, at least when the sanctions they impose
are diverse. But the reason is that, by prescribing the rule to be
observed, the Federal statute shows an intention to cover the
subject matter and provide what the law upon it shall be. If it
appeared that the Federal Jaw was intended to be supplementary
F to or cumulative upon State law, then no inconsistency would
be exhibited in imposing the same duties or in inflicting different
penalties. The inconsistency does not lie in the mere co-
existence of two laws which are susceptible of simultaneous
obedience. It depends upon the intention of the paramount
G
Legislature to express by its enactment, completely,
exhaustively, or exclusively, what shall be the law governing
the particular conduct or matter to which its attention is directed.
When a Federal statute discloses such an intention, it is
inconsistent with it for the law of a State to govern the same
conduct or matter".
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 8I
[R. F. NARIMAN, J.]

To the same effect are the observations of Evatt, J. in Stock A
Motor Plough Ltd. v. Forsyth [(1932) 48 CLR 128, .147]:
"It is now established, therefore, that State and Federal laws
may be inconsistent, although obedience to both laws is possible.
There may even be inconsistency although each law imposes
the very same duty of obedience. These conclusions have, in B
the main, been reached, by ascribing "inconsistency" to a State
law, not because the Federal law directly invalidates or conflicts
with it, but because the Federal law is said to ."cover the field".
This is a very ambiguous phrase, because subject matters of
legislation bear little resemblance to geographical areas. It is
no more than a cliche for expressing the fact that, by reason of c
the subject matter dealt with, and the method of dealing with it,
and the nature and multiplicity of the regulations prescribed,
the Federal authority has adopted a plan or scheme which will
be hindered and obstructed if any additional regulations
whatever are prescribed upon the subject by any other authority: D
if, in other words, the subject is either touched or trenched
upon by State authority''.
The Calcutta High Court in G.P. Stewart v. B.K. Roy
Chaudhury [AIR 1939 Cal 628] had occasion to consider the
meaning of repugnancy and B.N. Rau, J. who delivered the E
judgment of the Court observed at p. 632:
"It is sometimes said that two laws cannot be said to be properly
repugnant unless there is a direct conflict between them, as
when one says "do" and the other "don't", there is no true
repugnancy, according to this view, if it is possible to obey both F
the laws. For reasons which we shall set forth presently, we
think that this is too narrow a test: there may well be cases of
repugnancy where both laws say "don't" but in different ways.
For example, one law may say, "No person shall sell liquor by
retail, that is, in quantities of less than five gallons at a time"
and another law may say, "No person shall sell liquor by retail, G
that is, in quantities ofless than ten gallons at a time". Here, it
is obviously possible to obey both laws, by obeying the more
stringent of the two, namely the second one; yet it is equally
obvious that the two laws are repugnant, for to the extent to
which a citizen is compelled to obey one of them, the other, H
82 SUPREME COURT REPORTS [2017) 8 S.C.R.

A though not actually disobeyed, is nullified".
The learned Judge then discussed the various authorities which
laid down the test of repugnancy in Australia, Canada, and England
and concluded at p. 634:
"The principle deducible from the English cases, as from the
B Canadian cases, seems therefore to be the same as that
enunciated by Isaacs, J. in the Australian 44 hour case (37
C.L.R. 466) if the dominant law has expressly or impliedly
evinced its intention to cover the whole field, then a subordinate
law in the same field is repugnant and therefore inoperative.
c Whether and to what extent in a given case, the dominant law
evinces such an intention must necessarily depend on the
language of the particular law".
Sulaiman, J. in Shyamakant Lal v. Rambhajan Singh [(1939)
FCR 188, 212] thus laid down the principle of construction in
D regard to repugnancy:
"When the question is whether a Provincial legislation is
repugnant to an existing Indian law, the onus of showing its
repugnancy and the extent to which it is repugnant should be
on the party attacking its validity. There ought to be a
E presumption in favour ofits validity, and every effort should be
made to reconcile them and construe both so as to avoid their
being repugnant to each other; and care should be taken to see
whether the two do not really operate in different fields without
encroachment. Further. repugnancy must exist in fact, and
not depend merely on a possibility. Their Lordships can
F discover no adequate grounds for holding that there exists
repugnancy between the two laws in districts of the Province
of Ontario where the prohibitions of the Canadian Act are not
and may never be in force: (Attorney-General for Ontario v.
Attorney-General for the Dominion) [(1896) AC 348, 369-
G 70)."
(at pages 424-427)
(Emphasis Supplied)
This Court expressly held that the pith and substance doctrine has no
application to repugnancy principles for the reason that:
H
. MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 83
[R. F. NARIMAN, J.]

"The pith and substance argument also cannot be imported here A
for the simple reason that, when both the Centre as well as the
State Legislatures were operating in the concurrent field, there
was no question of any trespass upon the exclusive jurisdiction
vested in the Centre under Entry 52 of List I, the only question
which survived being whether, putting both the pieces oflegislation B
enacted by the Centre and the State Legislature together, there
was any repugnancy, a contention which will be dealt with
hereafter."
(at pages 420-421)
42. In Deep Chand v. State ofU.P., 1959 Supp. (2) SCR 8, this c
Court referred to its earlier judgments in Zaverbhai (supra) and Tika
Ramji (supra) and held:
"Repugnancy between two statutes may thus be ascertained on
the basis of the following three principles:
(1) Whether there is direct conflict between the two D
provisions;
(2) Whether Parliament intended to lay down an exhaustive
code in respect of the subject matter replacing the Act of the
State Legislature; and
E
(3) Whether the law made by Parliament and the law made
by the State Legislature occupy the same field."
(at page 43)
43. In Pandit Ukha Kolhe v. State of Maharashtra, (1964) I
SCR 926, this Court found that Sections 129A and 129B did not repeal in F
its entirety an existing law contained in Section 510 of the Code of Criminal
Procedure in its application to offences under Section 66 of the Bombay
Prohibition Act. It was held that Sections 129A and 129B must be
regarded as enacted in exercise of power conferred by Entries 2 and 12
in the Concurrent List. It was then held:
G
"It is, difficult to regard Section 129B of the Act as so repugnant
to Section 510 of the Code as to make the latter provision wholly
inapplicable to trials for offences under the Bombay Prohibition
Act. Section 510 is a general provision dealing with proof of
reports of the Chemical Examiner in respect of matters or things
H
84 SUPREME COURT REPORTS [2017] 8 S.C.R.

A duly submitted to him for examination or analysis and report.
Section 129B deals with a special class of reports and certificates.
In the investigation of an offence under the Bombay Prohibition
Act, examination of a person suspected by a Police Officer or
Prohibition Officer of having consumed an intoxicant, or of his
blood may be carried out only in the manner prescribed by Section
B
129A: and the evidence to prove the facts disclosed thereby will
be the certificate or the examination viva voce of the registered
Medical Practitioner, or the Chemical Examiner, for examination
in the course of an investigation of an offence under the Act of
the person so suspected or of his blood has by the clearest
c implication of the law to be carried out in the manner laid down
or not at all. Report of the Chemical Examiner in respect of
blood collected in the course of investigation ofan offence under
the Bombay Prohibition Act, otherwise than in the manner set
out in Section 129A cannot therefore be used as evidence in the
case. To that extent Section 510 of the code is superseded by
D
Section 129B. But the report of the Chemical Examiner relating
to the examination of blood of an accused person collected at a
time when no investigation was pending, or at the instance not of
a Police Officer or a Prohibition Officer remains admissible under
Section 510 of the Code."
E (at pages 953-954)
44. In M. Karunanidhi v. Union of India, (1979) 3 SCR 254,
this Court referred to a number of Australian judgments and judgments
of this Court and held:
F "It is well settled that the presumption is always in favour of the
constitutionality of a statute and the onus lies on the person
assailing the Act to prove that it is unconstitutional. Prima facie,
there does not appear to us to be any inconsistency between the
State Act and the Central Acts. Before any repugnancy can arise,
the following conditions must be satisfied:-
G
1. That there is a clear and direct inconsistency between
the Central Act and the State Act.
2. That such an inconsistency is absolutely irreconcilable.
3. That the inconsistency between the provisions of the two
H Acts is of such a nature as to bring the two Acts into direct
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 85
[R. F. NARIMAN, J.]

collision with each other and a situation is reached where it is A
impossible to obey the one without disobeying the other.
In Colin Howard's Australian Federal Constitutional Law, 2nd
Edition the author while describing the nature of inconsistency
between the two enactments observed as follows:-
"An obvious inconsistency arises when the two enactments B
produce different legal results when applied to the same facts''.
In the case of Humev. Palmer(38 CLR441) Knox, C.J. observed
as follows:-
"The rules prescribed by the Commonwealth Law and the State c
law respectively are for present purposes substantially identical,
but the penalties imposed for the contravention differ ...
In these circumstances, it is I think, clear that the reasons given
by my brothers Issacs and Starke for the decisions of this Court
in Union Steamship Co. of New Zealand v. Commonwealth D
(36 CLR 130) and Clyde Engineering Co. v. Cowburn (37
CLR 466) establish that the provisions of the law of the State
for the breach of which the appellant was convicted are
inconsistent with the law of the Commonwealth within the
meaning of sec. 109 of the Constitution and are therefore
invalid". E
Issacs, J. observed as follows:-
"There can be no question that the Commonwealth Navigation
Act, by its own direct provisions·and the Regulations made
under its authority, applies upon construction to the
F
circumstances of the case. It is inconsistent with the State Act
in various ways, including (1) general supersession of the
regulations of conduct, and so displacing the State regulations,
whatever those may be; (2) the jurisdiction to convict, the State
law empowering the Court to convict summarily, the
Commonwealth Law making the contravention an indictable G
offence, and therefore bringing into operation sec. 80 of the
Constitution, requiring ajury; (3) the penalty, the State providing
a maximum of £50 the Commonwealth Act prescribing a
maximum of £100, or imprisonment, or both; (4) the tribunal
itself'.
H
86 SUPREME COURT REPORTS [2017] 8 S.C.R.

A Starke, J. observed as follows:-
"lt is not difficult to see that the Federal Code would be
'disturbed or deranged' ifthe State Code applied a different
sanction in respect of the same act. Consequently the State
regulations are, in my opinion, inconsistent with the law of the
B Commonwealth and rendered invalid by force of sec. 109 of
the Constitution".
In a later case of the Australian High Court in Ex. Parle Mclean
(43 CLR 472) Issacs and Starke, JJ. while dwelling on the
question ofrepugnancy made the following observation:-
c s
"In Cowburn case (supra) is stated the reasoning for that
conclusion and we will now refer to those statements without
repeating them. In short, the verv same conduct by the same
persons is dealt with in conflicting terms by the Commonwealth
and State Acts. A Court, seeing that, has no authority to inquire
D further, or to seek to ascertain the scope or bearing of the State
Act. It must simply apply sec. 109 of the Constitution, which
declares the invalidity pro tanto of the State Act".
Similarly Dixon, J. observed thus:-
" When the Parliament of the Commonwealth and the
E Parliament of a State each legislate upon the same subject and
prescribe what the rule of conduct shall be, they make· laws
which are inconsistent, notwithstanding that the rule of conduct
is identical which each prescribes, and sec. 109 applies. That
this is so is settled, at least when the sanctions they impose are
diverse Hume v. Palmer (supra)".
F
In the case of Zaverbhai Amaidas v. The State of Bombay
[(1955) 1 SCR 799] this Court laid down the various tests to
determine the inconsistency between two enactments and
observed as follows-
G "The important thing to consider with reference to this provision
is whether the legislation is 'in respect of the same matter'. lf
the later legislation deals not with the matters which formed
the subject of the earlier legislation but with other and distinct
matters though of a cognate and allied character, then Article
254 (2) will have no application. The principle embodied
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 87
[R. F. NARIMAN, J.]

in section 107 (2) and Article 254 (2) is that when there is A
legislation covering the same ground both by the Centn,~ and·
by the Province, both of them being competent to enact the
same, the law of the Centre should prevail over that of the
State".
"It is true, as already pointed out, that on a question under Article B
254 (1) whether an Act of Parliament prevails against a law of
the State, no question of repeal arises; but the principle on
which the rule of implied repeal rests, namely, that if subject-
matter of the later legislation is identical with that of the earlier,
so that they cannot both stand together, then the earlier is
repealed by the later enactment, will be equally applicable to a C
question under Article 254(2) whether the further legislation
by Parliament is in respect of the same matter as that of the
State law".
In the case of Ch. Tika Ramji & Ors. etc. v. The State of Uttar
Pradesh & Ors. [(1956) SCR 393) while dealing with the D
question of repugnancy between a Central and a State enactment,
this Court relied on the observations ofNicholas in his Australian
Constitution, 2nd Ed. p.303, where three tests of inconsistency
or repugnancy have been laid down and which are as follows:-
"( 1) There may be inconsistency in the actual terms of the E
competing statutes (R. v. Brisbane Licensing Court, [1920]
28 CLR23).
(2) Though there may be no direct conflict, a State law may be
inoperative because the Commonwealth law, or the award of
the Commonwealth Court, is intended to be a complete F
exhaustive code (Clyde Engineering Co. Ltd. v. Cowburn,
[1926] 37 CLR 466).
(3) Even in the absence of intention, a conflict may arise when
both State and Commonwealth seek to exercise their powers
over the same subject-matter (Victoria v. Commonwealth, G
[1937] 58 CLR618; Wenn v. Attorney-General (Viet.), [1948]
77 CLR84)
This Court also relied on the decisions in the case of Hume v.
Palmer as also the case of Ex Parte Mclean (supra) referred
to above. This Court also endorsed the observations of H
88 SUPREME COURT REPORTS [2017) 8 S.C.R.

A Sulaiman, J. in the case of Shyamakant Lal v. Rambhajan Singh
[(1939) FCR 188) where Sulaiman, J. observed as follows:
"When the question is whether a Provincial legislation is
repugnant to an existing Indian law, the onus of showing its
repugnancy and the extent to which it is repugnant should be
B on the party attacking its validity. There ought to be a
presumption in favour of its validity, and every effort should be
made to reconcile them and construe both so as to avoid their
being repugnant to each other, and care should be taken to see
whether the two do not really operate in different fields without
encroachment. Further, repugnancy must exist in fact, and not
c depend merely on a possibility".
In the case of Om Prakash Gupta v. State of U.P. [(1957)
SCR 423) where this Court was considering the question of the
inconsistency between the two Central enactments, namely, the
Indian Penal Code and the Prevention of Corruption Act held
D that there was no inconsistency and observed as follows:-
"It seems to us, therefore, that the two offences are distinct
and separate. This is the view taken in Amarendra Nath Roy
v. The State (AIR 1955 Cal 236) and we endorse the opinion
of the learned Judges, expressed therein. Our conclusion,
E therefore, is that the offence created under section 5 (I) (c)
of the Corruption Act is distinct and separate from the one
under section 405 of the Indian Penal Code and, therefore, there
can be no question of section 5 ( 1) {c) repealing section 405 of
the Indian Penal Code. If that is so, then, Article 14 of the
F Constitution can be no bar".
Similarly in the case of Deep Chand v. The State of Uttar
Pradesh & Ors. (1959 Supp (2) SCR 8) this Court indicated
the various tests to ascertain the question of repugnancy
between the two statutes and observed as follows:-
G "Repugnancy between two statutes may thus be ascertained
on the basis of the following three principles:-
( I) Whether there is direct conflict between the two provisions;
(2) Whether Parliament intended to lay down an exhaustive
code in respect of the subject matter replacing the Act of the
H
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[R. F. NARIMAN, J.]

State Legislature; and A
(3) Whether the law made by Parliament and the law made by
the State Legislature occupy the same field''.
In the case of Megh Raj and Ors. v. Allah Rakhia & Ors.
(AIR 1942 FC 27) where Varadachariar, J. speaking for the
· Court pointed out that where as in Australia a provision similar 8
to section 107 of the Government oflndiaAct, 1935 existed in
the shape of section 109 of the Australian Constitution, there
was no corresponding provision in the American Constitution.
Similarly, the Canadian cases have laid down a principle too
narrow for application to Indian cases. According to the learned c
Judge, the s.afe rule to follow was that where the paramount
legislation does not purport to be exhaustive orunqualified there
is no inconsistency and in this connection observed as follows:-
"The principle of that decision is that where the paramount
legislation does not purport to be exhaustive or unqualified, but D
itself permits or recognises other laws restricting or qualifying
the general provision made in it. it cannot be said that any
qualification or restriction introduced by another Jaw is
repugnant to the provision in the main or paramount law".
"The position will be even more obvious, if another test of E
repugnancy which has been suggested in some cases is applied,
namely, whether there is such an inconsistency between the
two provisions that one must be taken to repeal the other by
necessary implication."
In the case of State of Orissa v. M A. Tulloch & Co: F
[(1964) 4 SCR 461] Ayyangar J. speaking for the Court
observed as follows:-
"Repugnancy arises when two enactments both within the .
competence of the two Legislatures collide and when the
Constitution expressly or by necessary implication provide~that ff'
the enactment of one Legislature has superiority over the other
then to the extent of the repugnancy the one supersedes the
other. But two enactments may be repugnant to each other
even though obedience to each of them is possible without
disobeying the other. The test of two legislations containing
contradictory provisions is not, however, the only criterion of H
90 SUPREME COURT REPORTS [2017] 8 S.C.R.

A repugnancy, for if a competent legislature with a superior
efficacy expressly or impliedly evinces by its legislation an
intention to cover the whole field, the enactments of the other
legislature whether passed before or after would be overborne
on the ground of repugnance. Where such is the position, the
inconsistency is demonstrated not by a detailed comparison of
B
provisions of the two statutes but by the mere existence of the
two pieces oflegislation".
In the case of T. S. Balliah v. T. S. Rangachari [(1969) 3 SCR
65] it was pointed out by this Court that before coming to the
conclusion that there is a repeal by implication, the Court must
c be satisfied that the two enactments are so inconsistent that it
becomes impossible for them to stand together. In other words,
this Court held that when there is a direct collision between the
two enactments which is irreconcilable then only repugnancy
results. In this connection, the Court made the following
D observations:-
"Before coming to the conclusion that there is a repeal by
implication, the Court must be satisfied that the two enactments
are so inconsistent or repugnant that they cannot stand together
and the repeal of the express prior enactment must flow from
E necessary implication of the language of the later enactment.
It is therefore necessary in this connection to scrutinise the
terms and consider the true meaning and effect of the two
enactments".
"The provisions enacted in s. 52 of the 1922 Act do not alter
F the nature or quality of the offence enacted in s. 177, Indian
Penal Code but it merely provides a new course of procedure
for what was already an offence. In a case of this description
the new statute is regarded not as superseding, nor repealing
by implication the previous law, but as cumulative".

G "A plain reading of the section shows that there is no bar to the
trial or conviction of the offender under both enactments but
there is only a bar to the punishment of the offender twice for
the same offence. In other words, the section provides that
where an act or omission constitutes an offence under two
enactments, the offender may be prosecuted and punished
H under either or both the enactments but shall not be liable to be
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punished twice for the same offence". A
On a careful consideration, therefore, of the authorities referred
to above, the following propositions emerge:-
!. That in order to decide the question of repugnancy it must be
shown that the two enactments contain inconsistent and
irreconcilable provisions, so that they cannot stand together or B
operate in the same field.
2. That there can be no repeal by implication unless the
inconsistency appears on the face of the two statutes.
3. That where the two statutes occupy a particular field, there is c
room or possibility of both the statutes operating in the same
field without coming into collision with each other, no repugnancy
results.
4. That where there is no inconsistency but a statute occupying
the same field seeks to create distinct and separate offences, no D
question ofrepugnancy arises and both the statutes continue to
operate in the same field."
(at pages 272-278)
(Emphasis Supplied)
45. In Hoechst Pharmaceuticals Ltd. v. State of Bihar, E
(1983) 3 SCR 130, this Court after referring to the earlier judgments
held:
"Article 254 of the Constitution makes provision first, as to what
would happen in the case of conflict between a Central and
State law with regard to the subjects enumerated in the F
Concurrent List, and secondly, for resolving such conflict. Art.
254( 1) enunciates the normal rule that in the event of a conflict
between a Union and a State Jaw in the concurrent field, the
former prevails over the latter. CL ( 1) lays down that if a State
law relating to a concurrent subject is 'repugnant' to a Union
law relating to that subject, then, whether the Union law is prior G
or later in time, the Union law will prevail and the State law shall,
to the extent of such repugnancy, be void. To the general rule
laid down in cl. (1), cl. (2) engrafts an exception, viz., that if the
President assents to a State law which has been reserved for his
consideration, it will prevail notwithstanding its repugnancy to an H
92 SUPREME COURT REPORTS [2017] 8 S.C.R.

A earlier law of the Union, both laws dealing with a concurrent
. subject. In such a case, the Central Act will give way to the State
Act only to the extent of inconsistency between the two, and no
more. In short, the result of obtaining the assent of the President
to a State Act which is inconsistent with a previous Union law
relating to a concurrent subject would be that the State Act will
B
prevail in that State and override the provisions of the Central
Act in their applicability to that State only. The predominance of
the State law may however be taken away if Parliament legislates
under the proviso to cl. (2). The proviso to Art. 254(2) empowers
the Union Parliament to repeal or amend a repugnant State law,
c either directly, or by itself enacting a law repugnant to the State
law with respect to the 'same matter'. Even though the subsequent
law made by Parliament does not expressly repeal a State law,
even then, the State law will become void as soon as the
subsequent law of Parliament creating repugnancy is made. A
State law would be repugnant to the Union law when there is
D
direct conflict between the two laws. Such repugnancy may also
arise where both laws operate in the same field and the two
cannot possibly stand together. See: Zaverbhai Amaidas v. State
of Bombay (1955 l SCR 799), M. Karunanidhi v. Union of
India (1979 3 SCR 254) and T Barai v. Henry Ah Hoe & Am:
E (1983 I sect 77).
We may briefly refer to the three Australian decisions relied
upon. As stated above, the decision in Clyde Engineering
Company s case (supra), lays down that inconsistency is also
created when one statute takes away rights conferred by the
F other. In Ex Parle McLean s case, supra, Dixon J. laid down
another test viz., two statutes could be said to be inconsistent if
they, in respect of an identical subject-matter, imposed identical
duty upon the subject, but provided for different sanctions for
enforcing those duties. In Stock Motor Ploughs Limited5· case,
supra, Evatt, J. held that even in respect of cases where two
'G laws impose one and the same duty of obedience there may be
inconsistency. As already stated the controversy in these appeals
falls to be determined by the true nature and character of the
impugned enactment, its pith and substance, as to whether it
falls within the legislative competence of the State Legislature
H under Art. 246(3) and does not involve any question of
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repugnancyunder Art. 254(1). A
We fail to comprehend the basis for the submission put forward
on behalf of the appellants that there is repugnancy between
sub-s. (3) of s. 5 of the Act which is relatable to Entry 54 of List
II of the Seventh Schedule and paragraph21 of the Control order
issued by the Central Government under sub-s. ( 1) of s. 3 of the B
Essential Commodities Act relatable to Entry 33 of List III and
therefore sub-s. (3) of s. 5 of the Act which is a law made by
. the State Legislature is void under Art. 254(1). The question of
repugnancy under Art. 254(1) between a law made by
Parliament and a law made by the State Legislature arises only
in case both the legislations occupy the same field with respect C
to one of the matters enumerated in the Concurrent List, and
there is direct conflict between the two laws. It is only when
both these requirements are fulfilled that the State law will, to
the extent of repugnancy become void. Art. 254(1) has no
application to cases of repugnancy due to overlapping found D
between List II on the one hand and List I and List III on the
other. If such overlapping exists in any particular case, the State
law will be ultra vires because of the non-obstante clause in Art.
246(1) read with the opening words "Subject to" in Art. 246(3). In
such a case, the State law will fail not because of repugnance to
the Union law but due to want of legislative competence. It is no E
doubt true that the expression "a law rriade by Parliament which
Parliament is competent to enact" in Art. 254( 1) is susceptible
of a construction that repugnance between a State law and a
law made by Parliament may take place outside the concurrent
sphere because Parliament is competent to enact law with respect F
to subjects included in List Ill as well as "List I". But if Art.
254(1) is read as a whole, it will be seen that it is expressly made
subject to cl. (2) which makes reference to repugnancy in the
field of Concurrent List-in other words, if cl. (2) is to be the
guide in the determination of scope of cl. (1 ), the repugnancy
between Union and State law must be taken to refer only to the G
Concurrent field. Art. 254( I) speaks of a State law being
repugnant to (a) a law made by Parliament or (b) an existing
law.
There was a controversy at one time as to whether the succeeding
H
94 SUPREME COURT REPORTS [2017] 8 S.C.R.

A words "with respect to one of the matters enumerated in the
Concurrent List" govern both (a) and (b) or (b) alone. It is now
settled that the words "with respect to" qualify both the clauses
in Art. 254( I) viz. a law made by Parliament which Parliament
is competent to enact as well as any provision of an existing law.
The under lying principle is that the question of repugnancy arises
B
only when both the Legislatures are competent to legislate in the
same field i.e. with respect to one of the matters enumerated in
the Concurrent List. Hence, Art. 254( 1) can not apply unless
both the Union and the State laws relate to a subject specified in
the Concurrent List, and they occupy the same field.
c This construction of ours is supported by the observations of
Venkatarama Ayyar, J. speaking for the Court in A. S. Krishna s
case, supra, while dealing withs. 107(1) of the Government of
India Act, 193 5 to the effect:
"For this section to apply, two conditions must be fulfilled: (I)
D The provisions of the Provincial law and those of the Central
legislation must both be in respect of a matter which is
enumerated in the Concurrent List, and (2) they must be
repugnant to each other. It is only when both these requirements
are satisfied that the Provincial law will, to the extent of the
E repugnancy, become void."
In Ch. Tika Ramji s case, supra, the Court observed that no
question ofrepugnancy under Art. 254 of the Constitution could
arise where parliamentary legislation and State legislation occupy
different fields and deal with separate and distinct matters even
F though of a cognate and allied character and that where, as in
that case, there was no inconsistency in the actual terms of the
Acts enacted by Parliament and the State Legislature relatable
to Entry 33 of List III, the test ofrepugnancy would be whether
Parliament and State Legislature, in legislating on an entry in the
Concurrent List, exercised their powers over the same subject-
G matter or whether the laws enacted by Parliament were intended
to be exhausted as to cover the entire field, and added:
"The pith and substance argument cannot be imported here
for the simple reason that, when both the Centre as well as the
State Legislatures were operating in the concurrent field, there
H was no question of any trespass upon the exclusive jurisdiction
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of the Centre under Entry 52 of List I, the only question which A
survived being whether put in both the pieces of legislation
enacted by the Centre and the State Legislature, there was
any such repugnancy."
This observation lends support to the view that in cases of
overlapping between List II on the one hand and Lists I and Ill B
on the other, there is no question of repugnancy under Art.
254(1). Subba Rao. J. speaking for the Court in Deep Chand's
case, supra, interpreted Art. 254(1) in these terms:
"Art. 254(1) lays down a general rule. Clause (2) is an
exception to that Article and the proviso qualified the said c
exception. If there is repugnancy between the law made by
the State and that made by the Parliament with respect to one
of the matters enumerated in the Concurrent List, the law made
by Parliament shall prevail to the extent of the repugnancy and
law made by the State shall, to the extent of such repugnancy,
be void."· D
-
(at pages 179-183)
(Emphasis Supplied)
46. In Vijay Kumar Sharma & Ors. Etc v. State Of Karnataka,
(1990) 2 SCC 562, this Court held that theKarnataka Contract Carriages E
(Acquisition) Act, 1976 enacted under Entry 42 of List Ill was not
· . repugnant to the Motor Vehicles Act, 1988 enacted under Entry 35 of
the same List. In so holding, Sawant, J. laid down:
"32.Thus the Karnataka Act and the MV Act, 1988 deal with
two different subject matters. As stated earlier the Karnataka F
Act is enacted by the State Legislature for acquisition of contract
carriages under Entry 42 of the Concurrent List read with Article
31 of the Constitution to give effect to the provisions of Articles
39(b) and (c) thereof. The MV Act 1988 on the other hand is
enacted by the Parliament under Entry 35 of the Concurrent
List to regulate the operation of the motor vehicles. The objects G
and the subject matters of the two enactments are materially
different. Hence the provisions of Article 254 do not come into
play in the present case and hence there is no question of
repugnancy between the two legislations."
(at page 581) H
96 SUPREME COURT REPORTS [2017] 8 S.C.R.

A 47. Ranganath Misra, J., in a concurring judgment, posed the
question as to whether when the State law is under one head oflegislation
in the Concurrent List and the Parliamentary legislation is under another
head in the same list, can there be repugnancy at all? The question was
answered thus:
B "13. In cl. (I) of Art. 254 it has been clearly indicated that the
competing legislations must be in respect of one of the matters
enumerated in the Concurrent List. The seven Judge Bench
examining the vires of the KarnatakaAct did hold that the State
Act was an Act for acquisition and came within Entry 42 of the
Concurrent List. That position is not disputed before us. There is
c unanimity at the bar that the Motor Vehicles Act is a legislation
coming within Entry 35 of the Concurrent List. Therefore,
the Acquisition Act and the 1988 Act as such do not relate to
one common head of legislation enumerated in the Concurrent
List and the State Act and the parliamentary statute deal with
D different matters oflegislation."
"19. A number of precedents have been cited at the hearing and
those have been examined and even some which were not
referred to at the bar. There is no clear authority in support of
the stand of the petitioners - where the State law is under one
E head of legislation in the Concurrent List, the subsequent
Parliamentary legislation is under another head oflegislation in
the same list and in the working of the two it is said to give rise
to a question ofrepugnancy."
(at pages 575 and 577)
F 48. In Raj iv Sarin v. State of Uttarakhand, (2011) 8 SCC 708,
this Court examined the Kumaun and Uttarakhand Zamindari Abolition
and Land Reforms Act, 1960 vis-a-vis the Forest Act, 1927 and found
that there was no repugnancy between the two. This Court held:
"52. The aforesaid position makes it quite clear that even if both
G the legislations are relatable to List Ill of the Seventh Schedule
of the Constitution, the test for repugnancy is whether the two
legislations "exercise their power over the same subject-matter... "
and secondly, whether the law of Parliament was intended "to
be exhaustive to cover the entire field". The answer to both these
questions in the instant case is in the negative, as the Indian Forest
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Act, 1927 deals with the law relating to forest transit, forest levy A
and forest produce, whereas the KUZALR Act deals with the
land and agrarian reforms.
53. In respect of the Concurrent List under Seventh Schedule to
the Constitution, by definition both the legislatures viz. the
Parliament and the State legislatures are competent to enact a B
law. Thus, the only way in which the doctrine of pith and substance
can and is utilised in determining the question of repugnancy is
to find out whether in pith and substance the two laws operate
and relate to the same matter or not. This can be either in the
context of the same Entry in List III or different Entries in List
III of the Seventh Schedule of the Constitution. In other words, c
what has to be examined is whether the two Acts deal with the
same field in the sense of the same subject matter or deal with
different matters."
(at page 727)
(Emphasis Supplied) D
49. It will be noticed that the Constitution Bench judgment in Raj iv
Sarin (supra) does not at all refer to Tika Ramji (supra). Tika Ramji
(supra) had clearly held that the doctrine of pith and substance canriot
be referred to in determining questions of repugnancy, once it is found
that both the Parliamentary law and State law are referable to the E
Concurrent List. Therefore, the statement in paragraph 53 in Rajiv
Sarin (supra), that the doctrine of pith and substance has utility in finding
out whether, in substance, the two laws operate and relate to the same
· matter, may not be a correct statement of the law in view of the
unequivocal statement made in Tika Ramji (supra) by an earlier F
Constitution Bench decision. 2 However, the following sentence is of
great importance, which is, that the two laws, namely, the Parliamentary
and the State legislation, do not need to find their origin in the same entry
in List III so long as they deal, either as a whole or in part, with the same
subject matter. This clarification of the law is important in that Ranganath
Misra, J. 's separate concurring opinion in Vijay Kumar Sharma (supra) G
2 Similar observations were made with respect to the doctrine of pith and substance in

the context of Article 254 in the following judgments, without referring to the
aforementioned paragraph in Tika Ramji (supra, at pages 420-421): Vijay Kumar
Sharma (supra) at 595, para 53, Girnar Traders v. State of Maharashtra, (2011) 3
SCC I at 79, para 174, Offshore Holdings (P) Limited v. Bangalore Development
Authority, (2011) 3 SCC 139 at 179, para 92. H
98 SUPREME COURT REPORTS [2017] 8 S.C.R.

A seems to point to a different direction. However, Hoechst
Pharmaceuticals (supra), also does not agree with this view and indicates
that so long as the two laws are traceable to a matter in the Concurrent
List and there is repugnancy, the State law will have to be yield to the
Central law except if the State law is covered by Article 254(2).
B 50. The case law referred to above, therefore, yields the following
propositions:
i) Repugnancy under Article 254 arises only if both the Parliamentary
(or existing law) and the State law are referable to List Ill in the 7'h
Schedule to the Constitution of India.
c ii) In order to determine whether the Parliamentary (or existing law) is
referable to the Concurrent List and whether the State law is also
referable to the Concurrent List, the doctrine of pith and substance must
be applied in order to find out as to where in pith and substance the
competing statutes as a whole fall. It is only if both fall, as a whole,
D within the Concurrent List, that repugnancy can be applied to determine
as to whether one particular statute or part thereof has to give way to
the other.
iii) The question is what is the subject matter of the statutes in question
and not as to which entry in List III the competing statutes are traceable,
E as the entries in List lil are only fields oflegislation; also, the language
of Article 254 speaks of repugnancy not merely of a statute as a whole
but also "any provision" thereof.
iv) Since there is a presumption in favour of the validity of statutes
generally, the onus of showing that a statute is repugnant to another has
to be on the party attacking its validity. It must not be forgotten that that
F
every effort should be made to reconcile the competing statutes and
construe them both so as to avoid repugnancy- care should be taken to
see whether the two do not really operate in different fields qua different
subject matters.
G v) Repugnancy must exist in fact and not depend upon a mere possibility.
vi) Repugnancy may be direct in the sense that there is inconsistency in
the actual terms of the competing statutes and there is, therefore, a
direct conflict between two or more provisions of the competing statutes.
In this sense, the inconsistency must be clear and direct and be of such
a nature as to bring the two Acts or parts thereof into direct collision
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with each other, reaching a situation where it is impossible to obey the A
one without disobeying the other. This happens when two enactments
produce different legal results when applied to the same facts.
vii) Though there may be no direct conflict, a State law may be inoperative
because the Parliamentary law is intended to be a complete, exhaustive
or exclusive code. In such a case, the State law is inconsistent and B
repugnant, even though obedience to both laws is possible, because so
long as the State law is referable to the same subject matter as the
Parliamentary law to any extent, it must give way. One test of seeing
whether the subject matter of the Parliamentary law is encroached upon
is to find out whether the Parliamentary statute has adopted a plan or
scheme which will be hindered and/or obstructed by giving effect to the c
· State law. It can then be said that the State law trenches upon the
Parliamentary statute. Negatively put, where Parliamentary legislation
does not purport to be exhaustive or unqualified, but itself permits or
recognises other laws restricting or qualifying the general provisions made
in it, there can be said to be no repugnancy. D
viii) A conflict may arise when Parliamentary law and State law seek to
exercise their powers over the same subject matter. This need not be in
the form of a direct conflict, where one says "do" and the other says
"don't". Laws under this head are repugnant even ifthe rule of conduct
prescribed by both laws is identical. The test that has been applied in E
such cases is based on the principle on which the rule of implied repeal
rests, namely, that ifthe subject matter of the State legislation or part
thereof is identical with that of the Parliamentary legislation, so that they
cannot both stand together, then the State legislation will be said to be
repugnant to the Parliamentary legislation. However, if the State
legislation or part thereof deals not with the matters which formed the F
subject matter of Parliamentary legislation but with other and distinct
matters though of a cognate and allied nature, there is no repugnancy.
ix) Repugnant legislation by the State is void only to the extent of the
repugnancy. ln other words, only that portion of the State's statute which
is found to be repugnant is to be declared void. G
x) The only exception to the above is when it is found that a State
legislation is repugnant to Parliamentary legislation or an existing law if
the case falls within Article 254(2), and Presidential assent is received
for State legislation, in which case State legislation prevails over
Parliamentary legislation or an existing law within that State. Here again, H
100 SUPREME COURT REPORTS [2017] 8 S.C.R.

A the.State law must give way to any subsequent Parliamentary law which
adds to, amends, varies or repeals the law made by the legislature of the
State, by virtue of the operation of Article 254(2) proviso.
51. Applying the aforesaid rules to the facts of the present case,
we find that the State statute in question is the Maharashtra Act. The
B Statement of Objects and Reasons for the aforesaid Act reads thus:
"In order to mitigate the hardship that may be caused to the
workers who may be thrown out of employment by the closure
of an undertaking, Government may take over such undertaking
either on lease or on such conditions as may be deemed suitable
c and run it as a measure of unemployment relief. In such cases
Government may have to fix revised terms of employment of
the workers or to make other changes which may not be in
consonance with the existing labour laws or any agreements or
awards applicable to the undertaking. It may become necessary
even to exempt the undertaking from certain legal provisions.
D For these reasons it is proposed to obtain power to exclude an
undertaking, run by or under the authority of Government as a
measure of unemployment relief, from the operation of certain
labour laws or any specified provisions thereof subject to such
conditions and for such periods as may be specified. It is also
E proposed to make a provision to secure that while the rights and
liabilities of the original employer and workmen may remain
suspended during the period the undertaking is nm by Government,
they would revive and become enforceable as soon a·s the
undertaking ceases to be under the control of Government."

F There is no doubt that this Maharashtra Act is referable to Entry 23, List
Ill in the 7'h Schedule to the Constitution, which reads as under:
"23. Social security and social insurance; employment and
unemployment."
Sections 3 and 4 of the Maharashtra Act are material and are set out
G herein:
"3. Declaration of relief undertaking .
( 1) If at any time it appears to the State Government necessary
to do so, the State Government may, by notification in the Official
Gazette, declare that an industrial undertaking specified in the
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notification, whether started, acquired or otherwise taken over A
by the State Government, and carried on or proposed to be carried
on by itself or under its authority, or to which any loan, guarantee
or financial assistance has been provided by the State
Government shall, with effect from the date specified for the
purpose in the notification, be conducted to serve as a measure B
of preventing unemployment or ofuriemployment relief and the
undertaking shall accordingly be deemed to be a relief
undertaking for the purposes of this Act.
(2)Anotification under sub-section (1) shall have effect for such
period not exceeding twelve months as may be specified in the
notification; but it shall be renewable by like notifications from c
time to time for further periods not exceeding twelve months at
a time, so however that all the periods in the aggregate do not
exceed fifteen years.
4. Power to prescribe industrial relations and other
facilities temporarily for relief undertakings. D
(I) Notwithstanding any law, usage, custom, contract, instmment,
decree, order, award, submission, settlement, standing order or
other provision whatsoever, the State Government may, by
notification in the Official Gazette, direct that-
E
(a) in relation to any relief undertaking and in respect of the
period for which the relief undertaking continues as such under
sub-section (2) of section 3-
(i) all or any of the laws in the Schedule to this Act or any
provisions thereof shall not apply (and such reliefundertaking F
shall be exempt therefrom), or shall, if so directed by the State
Government, be applied with such modifications (which do not
however affect the policy of the said laws) as may be specified
in the notification;
(ii) all or any of the agreements, settlements, awards or standing G
orders made under any of the laws in the Schedule to this Act,
which may be applicable to the undertaking immediately before
it was acquired or taken over by the State Government or before
any loan, guarantee or other financial assistance was provided
to it by, or with the approval of the State Government, for
being run as a reliefundertaking, shall be suspended in operation H
102 SUPREME COURT REPORTS [2017] 8 S.C.R.

A or shall, if so directed by the State Government, be applied
with such modifications as may be specified in the notification;
(iii) rights, privileges, obligations and liabilities shall be
determined and be enforceable in accordance with clauses (i)
and (ii) and the notification;
B (iv) any right, privilege, obligation on liability accrued or incurred
before the undertaking was declared a relief undertaking and
any remedy for the enforcement thereof shall be suspended
and all proceedings relative thereto pending before any court,
tribunal, officer or authority shall be stayed;
c (b) the right, privilege, obligation and liability referred to in clause
(a) (iv) shall, on the notification ceasing to have force, revive
and be enforceable and the proceedings referred to therein shall
be continued:
Provided that in computing the period of limitation for the
D enforcement of such right, privilege, obligation or liability, the
period during which it was suspended under clause (a) (iv) shall
be excluded notwithstanding anything contained in any law for
the time being in force.
(2) A notification under sub-section ( 1) shall have effect from
E such date, not being earlier than the date referred to in sub-
section (1) of section 3, as may be specified therein, and the
provisions of section 21 of the Bombay General Clauses Act,
1904, shall apply to the power to issue such notification."
52. On the other hand, the Insolvency and Bankruptcy Code;2016
F is an Act to consolidate and amend the laws relating to reorganization
and insolvency resolution, inter alia, of corporate persons. Insofar as
corporate persons are concerned, amendments are made to the following
enactments by Sections 249 to 252 and 255:
"249. Amendments of Act 51 of 1993.
G The Recovery of Debts due to Banks and Financial Institutions
Act, 1993 shall be amended in the manner specified in the Fifth
Schedule.
250. Amendments of Act 32 of 1994.
The Finance Act, 1994 shall be amended in the manner specified
H in the Sixth Schedule.
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 103
[R. F. NARIMAN, J.]

251. Amendments of Act 54 of 2002. A
The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 shall be amended in
the manner specified in the Seventh Schedule.
252. Amendments of Act 1 of 2004.
B
The Sick Industrial Companies (Special Provisions) Repeal Act,
2003 shall be amended in the manner specified in the Eighth
Schedule.
(253) and (254) xxx xxx xxx
255. Amendments of Act 18 of 2013. c
The Companies Act, 2013 shall be amended in the manner
specified in the Eleventh Schedule."
53. It is settled law that a consolidating and amending act like the
present Central enactment forms a code complete in itself and is
. exhaustive of the matters dealt with therein. In Ravula Subba Rao and D
another v. The Commissioner oflncome Tax, Madras, ( 1956) S.C.R.
577, this Court held:
"The Act is, as stated in the preamble, one to consolidate and
amend the law relating to income-tax. The rule. of construction
to be applied to such a statute is thus stated by Lord Herschell in E
Bank of England v. Vagliano [(1891) AC 107, 141]:
"I think the proper course is in the first instance to examine the
language of the statute, and to ask what is its natural meaning,
uninfluenced by any considerations derived from the previous
state of the law, and not to start with inquiring how the law F
previously stood, and then, assuming that it was probably
"intended to leave it unaltered... "
We must therefore construe the provisions of the Indian Income-
tax Act as forming a code complete in itself and exhaustive of
the matters dealt with therein, and ascertain what their true scope G
is."
(at page 585)
Similarly in Union oflndia v. Mohindra Supply Company, [1962] 3
S.C.R. 497, this Court held:
H
104 SUPREME COURT REPORTS [2017) 8 S.C.R.

A "The Arbitration Act of 1940 is a consolidating and amending
statute and is for all purposes a code relating to arbitration. In
dealing with the interpretation of the Indian Succession Act, 1865,
the Privy Council in Narendra Nath Sircar v. Kamlabasini
Desai [(1896) LR 23, IA 18) observed that a code must be
construed according to the natural meaning of the language used
B
and not on the presumption that it was intended to leave the
existing law unaltered. The Judicial Committee approved of the
observations of Lord Herschell in Bank ofEngland v. Vagliano
Brothers [( 1891) AC 107, 144-145) to the following effect:
"I think the proper course is in the first instance to examine the
c language of the statute and to ask what is its natural meaning
uninfluenced by any considerations derived from the previous
state of the law, and not to start with enquiring how the law
previously stood, and then, assuming that it was probably
intended to leave it unaltered, to see if the words of the
D enactment will bear an interpretation in conformity with this
view. If a statute, intended to embody in a code a particular
branch of the law, is to be treated in this fashion, it appears to
me that its utility will be almost entirely destroyed, and the
very object with which it was enacted will be frustrated. The
purpose of such a statute surely was that on any point
E specifically dealt with by it the law should be ascertained by
interpreting the language used instead of, as before, by roaming
over a vast number of authorities in order to discover what the
law was, extracting it by a minute critical examination of the
prior decisions .... "
F The court in interpreting a statute must therefore proceed without
seeking to add words which are not to be found in the statute,
nor is it permissible in interpreting a statute which codifies a
branch of the law to start with the assumption that it was not
intended to alter the pre-existing law; nor to add words which
G are not to be found in the statute, or "for which authority is not
found in the statute"."
(at pages 506-508)
In Joseph Peter v. State of Goa, Daman and Diu, ( 1977) 3 SCC 280,
this Court dealt with a Goa regulation vis-a-vis the Code of Criminal
H Procedure. In that context, this Court observed:
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK 105
'[R. F. NARIMAN, J.]

"A Code is complete and that marks the distinction between a A
Code and an ordinary enactment. The Criminal Procedure Code,
by that canon, is self-contained and complete."
(at page 282)
There can be no doubt, therefore, that the Code is a Parliamentary law
that is an exhaustive code on the subject matterofinsolvency in relation B
to corporate entities, and is made under Entry 9, List llI in the 7"' Schedule
which reads as under:
"9. Bankruptcy and insolvency"
54. On reading its provisions, the moment initiation of the corporate C
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 D
corporate debtors under Section 17.
55. It is clear, therefore, that the earlier State law is repugnant to
the later Parliamentary enactment as under the said State law, the State
Government may take over the management of the relief undertaking,
after which a temporary moratorium in much the same manner as that E
t:ontained in Sections 13 and 14 of the Code takes place under Section 4
of the Maharashtra Act. There is no doubt 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 F
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. Also, the moratorium imposed under
Section 4 of the Maharashtra Act would directly clash with the
moratorium to be issued under Sections 13 and 14 of the Code. It will be
noticed that whereas the moratorium imposed under the Maharashtra G
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. In the
present case it is clear, therefore, that unless the Maharashtra Act is out
of the way, the Parliamentary enactment will be hindered and obstructed H
106 SUPREME COURT REPORTS [2017] 8 S.C.R.

A 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 ( l ), would operate to render the
B Maharashtra Act void vis-a-vis action taken under the later Central
enactment. Also, Section 238 of the Code reads as under:
"Sec. 238. Provisions of this Code to override other laws.-
The provisions of this Code shall have effect, notwithstanding
c anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue
of any such law."
It is clear that the later non-obstante clause of the Parliamentary
enactment will also prevail over the limited non-obstante clause contained
D in Section 4 of the Maharashtra Act. For these reasons, we are of the
view that the Maharashtra Act cannot stand in the way of the corporate
insolvency resolution process under the Code.
56. Dr. Singhvi, however, argued that the notification under the
Maharashtra Act only kept in temporary abeyance the debt which would
E become due the moment the notification under the said Act ceases to
have effect. We are afraid that we cannot accede to this contention.
The notification under the Maharashtra Act continues for one year at a ·
time and can go upto 15 years. Given the fact that the timeframe within
which the company is either to be put back on its feet or is to go into
liquidation is only 6 months, it is obvious that the period of one year or
F more of suspension of liability would completely unsettle the scheme of
the Code and the object with which it was enacted, namely, to bring
defaulter companies back to the commercial fold or otherwise face
liquidation. If the moratorium imposed by the Maharashtra Act were to
continue from one year upto 15 years, the whole scheme and object of
G the Code would be set at naught. Undeterred by this, Dr. Singhvi,
however, argued that since the suspension of the debt took place from
July, 2015 onwards, the appellant had a vested right which could not be
interfered with by the Code. It is precisely for this reason that the non-
obstante clause, in the widest terms possible, is contained in Section 238
of the Code, so that any right of the corporate debtor under any other
H law cannot come in the way of the Code. For all these reasons, we are
MIS. INNOVENTIVE INDUS.TRIES LTD. v. ICICI BANK 107
[R. F. NARIMAN, J.]

of the view that the Tribunal was correct in appreciating that there would A
be repugnancy between the provisions of the two enactments. The
judgment of the Appellate Tribunal is not correct on this score because
repugnancy does exist in fact.
57. Both the Tribunal and the Appellate Tribunal refused to go
into the other contentions of Dr. Singhvi, viz. that under the MRA, it was B
· because the creditors did not disburse the amounts thereunder that the
appellant was not able to pay its dues. We are of the view that the
Tribunal and the Appellate Tribunal were right in not going into this
contention for the very good reason that the period of 14 days within
which the application is to be decided was long over by the time the
second application was made before the Tribunal. Also, the second C
application clearly appears to be an after-thought for the reason that the
corporate debtor was fully aware of the fact that the MRA had failed
and could easily have pointed out these facts in the first application itself.
However, for reasons best known to it, the appellant chose to take up
only a law point before the Tribunal. The law point before the Tribunal D
was argued on 22 11d and 23rd December, 2016, presumably with little
success. It is only as an after-thought that the second application was
then filed to add an additional string to a bow which appeared to the
appellants to have already been broken.
58. Even otherwise, Shri Salve took us through the MRA in great E
detail. Dr. Singhvi did likewise to buttress his point of view that having
promised to infuse funds into the appellant, not a single naya paisa was
ever disbursed. According to us, one particular clause in the MRA is
determinative on the merits of this case, even if we were to go into the
same. Under Article V entitled "Representations and Warranties", clause
20{t) states as follows: F

"(t) NATURE OF OBLIGATIONS.
Th~ obligations under this Agreement and the other Restructuring
Documents constitute direct, unconditional and general obligations
of the Borrower and the Reconstituted Facilities; rank at least 0
pari passu as to priority of payment to all other unsubordinated
indebtedness of the Borrower other than any priority established
under applicable law."
59. The obligation of the corporate debtor was, therefore,
µnconditional and did not depend upon infusing of funds by the creditors H
108 SUPREME COURT REPORTS [2017] 8 S.C.R.

A into the appellant company. Also, the argument taken for the first time
before us that no debt was in fact due under the MRA as it has not fallen
due (owing to the default of the secured creditor) is not something that
can be countenanced at this stage of the proceedings. In this view of
the matter, we are of the considered view that the Tribunal and the
Appellate Tribunal were right in admitting the application filed by the
8
financial creditor ICICI Bank Ltd.
60. The appeals, accordingly, stand dismissed. There shall,
however, be no order as to costs.

Nidhi Jain Appeals dismissed.