Special Court presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the IBC 2016
In a recent judgment, the Hon’ble Supreme Court has held that Special Court presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the IBC 2016
ABCAUS Case Law Citation:
ABCAUS 3968 (2024) (04) SC
The Insolvency & Bankruptcy Board of India (IBBI) had challenged the judgement and order passed by the Hon’ble Bombay High Court holding that in view of the Companies (Amendment) Act, 2017 (which came into effect from 7th May 2018), only the offences committed under the Companies Act can be tried by Special Court consisting of Sessions Judge or Additional Sessions Judge and all other offences including under the Insolvency & Bankruptcy Code 2016 (the Code) shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class
In the instant case, one company (the Corporate Debtor) had filed a petition under Section 10 of the Code for initiation of the Corporate Insolvency Resolution Process (CIRP). The National Company Law Tribunal (the NCLT) admitted the Petition, directed the moratorium and appointed Interim Resolution Professional (RP) to carry out the functions as prescribed under the provisions of the Code.
In the meanwhile, the Ex-Director of the Corporate Debtor filed an application before the NCLT under Section 12A of the Code for the withdrawal of the aforesaid petition under Section 10 in light of a One Time Settlement (OTS) entered into with the sole Financial Creditor.
On the other hand, the RP had also filed an application for the approval of the Resolution Plan. The NCLT however allowed the application for withdrawal observing the consent for withdrawal of the petition by the sole Financial Creditor.
However, on account of non-compliance of the terms of the OTS by the Corporate Debtor, the NCLT issued a Show-Cause Notice and further found it to be a fit case to propose the prosecution of the Ex-Directors.
Thereafter, the IBBI filed a Complaint against the Respondents before the Sessions Judge for offences punishable under Section 73(a) and 235A of the Code for the non-compliance of the terms of the OTS and for not having filed the application for withdrawal under Section 12A of the Code through the RP.
The Sessions Judge directed issuance of process against the Respondents and further directed them to be summoned.
Against the order of the Sessions Judge, the ex-directors filed a Writ Petition before the High Court praying for the quashing and setting aside of the order for the want of jurisdiction. The High Court vide impugned judgement allowed the Writ Petition.
The High Court held that in view of the Companies (Amendment) Act, 2017 (which came into effect from 7th May 2018), only the offences committed under the Companies Act can be tried by Special Court consisting of Sessions Judge or Additional Sessions Judge.
The Hon’ble Supreme Court observed that it had held that, in case of general reference in the Act in question to an earlier Act but there being no specific mention of the provisions of the former Act, then it would clearly be considered as ‘legislation by reference’. In such a case, the amending laws of the former Act would become applicable to the later Act. However, when the provisions of an Act are specifically referred and incorporated in the later statute, then those provisions alone are applicable and the amending provisions of the former Act would not become part of the later Act.
The Hon’ble High Court stated that it had in a catena of cases has held that the Code is a self-contained Code.
The Hon’ble Supreme Court observed that under Section 236(1) of the Code, reference is “offences under this Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013”. Thus, the reference is not general but specific. The reference is only to the fact that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act. Therefore, applying the principle as laid down in various judgments, since the reference is specific and not general, it will have to be held that the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’. 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.
The Hon’ble Supreme Court explained that 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 Special Court at that point of time only consists of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge.
The Hon’ble Supreme Court further observed that the Code had undergone 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 High Court had 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 Hon’ble Supreme Court opined that the reasoning 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 Hon’ble Supreme Court further added that even if for a moment, it is held that the reference in Section 236(1) of the Code is a ‘legislation by reference’ and not ‘legislation by incorporation’, still the offences punishable under the Code having imprisonment of two years or more will have to be tried by a Special Court presided by a Sessions Judge or an Additional Sessions Judge. Whereas the offences having punishment of less than two years will have to be tried by a Special Court presided by a Metropolitan Magistrate or a Judicial Magistrate of the First Class.
Accordingly, the Hon’ble Supreme Court quashed the impugned judgment and order passed by the Single Judge of the High Court and held that the Special Court presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the Code.
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