NCLT: IBC Overrules Andhra Pradesh Revenue Recovery Act Provisions

NCLT: IBC Overrules Andhra Pradesh Revenue Recovery Act Provisions

Cites the decision of the Supreme Court in a previous case

The Hyderabad branch of the National Company Law Tribunal has held that the Insolvency and Bankruptcy Code (IBC), 2016 overrides the provisions of the Andhra Pradesh Revenue Recovery (APRR) Act, 1864.

NCS Sugars Ltd (corporate debtor), involved in the sugarcane business, defaulted in payment for the sugarcane supplied by the farmers.

Thereafter, to sell the immovable property, proceedings under the APRR Act were initiated by tehsildar, Bobbili (respondent No.2) and tehsildar, Seethanagaram (respondent No.3) to pay the amounts due to the farmers.

Subsequently, on 04 January 2022, two sale notices were also issued. A public auction was conducted with Dhatri Real Estate & Developers (respondent No.4), who was declared the highest bidder and deposited the Earnest Money Deposit (EMD) of Rs.3.75 lakh.

However, as per the 24 June 2022 order, the corporate debtor was admitted into the Corporate Insolvency Resolution Process (CIRP) initiated by Punjab National Bank. On 19 November 2022, respondent No.4 deposited Rs.20.05 crores (minus the EMD) with the balance amount of Rs.17.04 crores.

Thereafter, on 03 December 2022, the sale certificate was issued in favor of respondent 4, Punjab National Bank (respondent No.5), and Dharti Promoters (respondent 6).

The Coram of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Charan Singh (Technical Member) via its 05 December 2022 order, restrained respondent Nos.1 to 3 from further disbursement of the amount as deposited by respondent No.4 as per the two sale notices.

Promptly, an application was filed by K. Sivalingam (applicant) the Resolution Professional (RP) of the corporate debtor. He sought to annul the sale of the immovable property and declare the sale certificate and the sale deed as invalid. He also demanded the proclamation of the 04 December 2022 sale as invalid, and grant of a permanent injunction restraining respondent Nos.4 and 6 from giving effect to the sale certificate.

On observing, the NCLT allowed the application and held that the IBC nullified the provisions of the APRR Act.

The tribunal relied on the decision of the Supreme Court in the decision in Innoventive Industries Ltd. vs. ICICI Bank & Anr case.

It noted Paras 58, 59, and 60 of the decisions:

“Para 58. There can be no doubt, therefore, that the Code is a Parliamentary law that is an exhaustive code on the subject matter of insolvency of corporate entities, and is made under Entry 9, List III in the Seventh Schedule which reads as: 9. Bankruptcy and insolvency.”

“Para 59. On reading its provisions, 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 proceed. 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 corporate debtors under Section 17.”

“Para 60. 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 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 aforesaid plan or scheme, which may be adopted under the Parliamentary statute will directly be hindered and/or obstructed to the extent in that the management of the relief undertaking, which, if taken over by the State government, would directly impede or come in the way of taking over 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 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 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 as a matter of constitutional law. The later Central enactment being repugnant to the earlier State enactment by virtue of Article 254 (1), would operate to render the Maharashtra Act void vis-àvis action taken under the later Central enactment.”

The top court also held that Section 238 of the IBC provided that the provisions of the IBC would be effective, notwithstanding anything inconsistent therewith contained in any other law being in force or any instrument having effect by virtue of any such law.

It added that the later non-obstante clause of the Parliamentary enactment would prevail over the limited non-obstante clause contained in Section 4 of the Maharashtra Act. Thus, the Maharashtra Act could not stand in the way of the CIRP under the IBC.

The NCLT referred to Section 238 of the IBC, which read, “Section 238 provisions of the Code override other laws. The provisions of the Code shall have effect, notwithstanding 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.”

The tribunal thus stated that as per the decision of the apex court, it the provisions of the IBC override the provisions of the State-enacted law, including the APRR Act.