Process For IBC Offences To Be Issued By Sessions Court Despite Companies Act Amendment Vesting Jurisdiction On Judicial Magistrate: Supreme Court

Observing that the offences committed under the Insolvency and Bankruptcy Code, 2016 (“IBC”) would be tried by the Special Court established under Section 435 of the Companies Act, 2013 and the sessions judge would have the power to issue process against the accused, the Supreme Court on Friday (April 19) upheld the issuance of process by the sessions judge to the accused.

The Court rejected the contention of the accused contention that the Sessions Judge wasn't empowered to issue process to the accused for the offences punishable up-to two years under the IBC but the judicial magistrate.

Reversing the High Court's decision, the Bench comprising Justices BR Gavai and Sandeep Mehta interpreted the scheme of Section 236(1) of the IBC to hold that the power to try offences punishable under the IBC was vested in the special court by 'legislation by incorporation', meaning thereby the intention of the Parliament was clear to vest the power to issue summons upon the special court consisting of a person qualified to be a Sessions Judge or an Additional Sessions Judge. Thus the subsequent amendments to the Section 435 companies act, 2013 authorizing judicial magistrates to issue summons for offences punishable up to two years under the IB Code would not have any effect on Section 236 of IB Code.

“It is further to be noted that the Code has also suffered two subsequent amendments i.e. the 2015 Amendment and the 2018 Amendment. If the legislative intent was to give effect to the subsequent amendments in the Companies Act to Section 236(1) of the Code, nothing prevented the legislature from amending Section 236(1) of the Code. The legislature having not done that the provision with regard to the reference in Section 236(1) of the Code pertaining to Special Court as mentioned in Section 435 of the Companies Act, 2013 stood frozen as on the date of enactment of the Code. As such, the learned Judge of the High Court has erred in holding that in view of the subsequent amendment, the offences under the Code shall be tried only by a Metropolitan Magistrate or a Judicial Magistrate of the First Class.”, the Judgment authored by Justice BR Gavai said.

The High Court had invalidated the summons issued by the Sessions Judge to the accused by holding that the subsequent amendments to Section 435 of the Companies Act, 2013 have vested the power to issue summons upon the magistrate for an offence punishable up to two years, therefore the Sessions Judge would not have the power to issue a summons.

Section 236 (1) of the IBC states that the offences punishable under the Code are required to be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013.

Section 435 of the Companies Act, 2013 originally vested power to issue summons upon the Special Court presided by the Sessions Judge or Additional Sessions Judge for offences punishable under the Companies Act, 2013. However, by way of subsequent amendments to Section 435, the power to try offences punishable up to two years was vested with the Judicial Magistrate, and the power to try offences punishable for more than two years was vested with the sessions judge or additional sessions judge.

Background

In the present case, the accused was served with a summons by the Sessions Judge for the offence punishable for up to two years under the IB Code. The accused contested the summons issued by the Sessions Judge on the ground that the subsequent amendments to Section 435 of the Companies Act, 2013 have authorized the judicial magistrate to issue summons and not the sessions judge.

However, the complainant/Insolvency and Bankruptcy Board of India (“IBBI”) contended that the Special Court consisting of sessions judge has rightly issued the summons to the accused as the power to issue summons by the Sessions Judge was specifically incorporated since the enactment of the Code. Therefore, the subsequent amendment to Section 435 of the Companies Act would not take away the power of the sessions judge to issue summons.

Supreme Court's Observation

Finding force in the complainant/IBBI's contention, the Court held that the present case is a case of 'legislation by incorporation' and not a case of 'legislation by reference', whereby the effect of incorporation of the original Section 435 of the Companies Act in Section 236 (1) of IBC was since the enactment of the IB Code, therefore, any subsequent change in Section 435 of Companies Act would not have any effect on Section 236 (1) of the IB Code. Therefore, the Court upheld the summons issued by the Sessions Judge despite there being subsequent amendments to Section 435 Companies Act authorizing the judicial magistrates to issue summons for the offences committed under the IB Code.

“The effect would be that the provision with regard to Special Court has been bodily lifted from Section 435 of the Companies Act, 2013 and incorporated in Section 236(1) of the Code. In other words, the provision of Section 435 of the Companies Act, 2013 with regard to Special Court would become a part of Section 236(1) of the Code as on the date of its enactment. If that be so, any amendment to Section 435 of the Companies Act, 2013, after the date on which the Code came into effect would not have any effect on the provisions of Section 236(1) of the Code.”, the court clarified.

Court Distinguished Between 'Legislation By Incorporation' and 'Legislation By Reference'

The court has explained the distinction between 'Legislation By Incorporation' and 'Legislation By Reference'.

'Legislation By Incorporation' means giving effect of former law to the later law, whereby in the later law it is specifically mentioned that the provisions of the former law would be applicable to the later law, and any subsequent changes in the former law would not have any effect on the later law.

Whereas, 'Legislation By Reference' means giving effect of former law to the later law, whereby there is a general reference of the former law to the later law, and in the event of any amendment to the former law, the later law would have the same effect as to the amended former law.

“It could thus be seen that the effect of incorporation means the bodily lifting of the provisions of one enactment and making it part of another so much so that the repeal of the former leaves the latter wholly untouched. However, in the case of a reference or a citation of the provisions of one enactment into another without incorporation, the amendment or repeal of the provisions of the said Act referred to in a subsequent Act will also bear the effect of the amendment or repeal of the said provisions.”, the court explained.

Conclusion

“We further find that the reasoning of the learned single judge of the High Court that in view of the 2018 Amendment only the offences under the Companies Act would be tried by a Special Court of Sessions Judge or Additional Sessions Judge and all other offences including under the Code shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class is untenable.”, the court concluded.

Therefore, while allowing the appeal, the court held that the Special Court presided by a Sessions Judge or an Additional Sessions Judge would have jurisdiction to try the complaint under the Code.

Counsels For Appellant(s) Mr. S.V. Raju, A.S.G. Ms. Rashi Rampal, Adv. Mr. Apoorv Khatore, Adv. Mr. Vikas Mehta, AOR

Counsels For Respondent(s) Mr. Amir Arsiwala, AOR Mr. Dhaval Deshpande, Adv. Mr. Anand Dilip Landge, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Bharat Bagla, Adv. Mr. Sourav Singh, Adv. Mr. Aditya Krishna, Adv. Ms. Preet S. Phanse, Adv. Mr. Adarsh Dubey, Adv.

Case Title: INSOLVENCY AND BANKRUPTCY BOARD OF INDIA VERSUS SATYANARAYAN BANKATLAL MALU & ORS.

Citation : 2024 LiveLaw (SC) 317

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