NCLT Hyderabad: IBC Overrides The Provisions Of Andhra Pradesh Revenue Recovery Act, 1864

Background Facts:

NCS Sugars Ltd. (Corporate Debtor) involved in the sugarcane business defaulted in payment of the price for the sugarcane supplied by farmers. Proceedings under the Andhra Pradesh Revenue Recovery Act, 1864 to sell the immovable property were initiated by Tahsildar, Bobbili (Respondent 2), and Tahsildar, Seethanagaram (Respondent 3) to pay the amounts due to farmers. Two Sale notices were also issued on 04.01.2022. A public auction was conducted with Dhatri Real Estate & Developers (Respondent 4) being declared as the highest bidder and an Earnest Money Deposit ('EMD') of Rs.3.75 Lakhs was deposited by it.

The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process ('CIRP') initiated by Punjab National as per Order dated 24.06.2022. As of 19.11.2022, Respondent 4 deposited the total consideration of Rs. 20.05 crores minus EMD with the balance amount of Rs. 17.04 crores. A Sale Certificate was issued on 03.12.2022 in favor of Respondent 4, Punjab National Bank (Respondent 5), and Dharti Promoters (Respondent 6).

NCLT via its Order dated 05.12.2022 restrained Respondent 1 to 3 from further disbursement of amount as deposited by Respondent 4 as per the Two Sale notices.

The instant application has been filed by K. Sivalingam ('Applicant') Resolution Professional of the Corporate Debtor to annul the sale of the immovable property, declare the Sale certificate as invalid, declare the sale deed of the Immovable Property as invalid, declare the proclamation of sale dated 04.12.2022 as invalid and order and grant a permanent injunction restraining Respondent 4 and 6 from giving effect to the Sale certificate.

NCLT Verdict:

The NCLT Hyderabad allowed the application and held that IBC overrides the provisions of the Andhra Pradesh Revenue Recovery Act, 1864.

The Tribunal placed reliance on the Supreme Court decision in Innoventive Industries Ltd. vs. ICICI Bank & Anr.. It noted and observed Paras 58, 59 and 60 of the decision which is read as follows:

“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 in relation to corporate entities, and is made under Entry 9, List III in the Seventh Schedule which reads as under:

“9. Bankruptcy and insolvency”

“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 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 corporate debtors under Section 17.”

“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 that 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 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 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, inasmuch 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.

Also, Section 238 of the IBC provides that the provisions of IBC 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.

It is clear that the later non-obstante clause of the Parliamentary enactment will also prevail over the limited non-obstante clause contained 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.”

The Tribunal also referred to Section 238 of IBC which reads as follows:

Section 238 Provisions of this Code to override other laws:

The provisions of this 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.

Based on the above decision, the NCLT observed that as per the Supreme Court's decision, it can be held that the provisions of the IBC override the provisions of the State-enacted law, such as the Andhra Pradesh Revenue Recovery Act, 1864.

Case Title: K. Sivalingam RP of NCS Sugars Ltd. vs. District Collector and Ors.

Case No.: IA (IBC) 410 & 1879/2023, IA (IBC) 1433/2022 in CP(IB) No.299/7/HDB/2018

Counsel for the Applicant: Shri Y. Suryanarayana, Advocate with Shri Yohaan Lunathwala, Advocate & J.Sagar Associates.

Counsel for respondents 1, 2, and 3: Shri. O. Manohar Reddy, Senior Advocate, for Shri O.P. Subash, and Shri K. Dilip Naik, Advocates.

Counsel for respondents 4 and 6: Shri D.V. Seetharam Murthy, Senior Advocate, for Shri Bendi Ravi Teja, Advocate.

Counsel for respondent 5: Shri M. Sunil Kumar, Advocate.

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