Introduction
In a significant judgment impacting the prosecutorial mechanism under India’s insolvency regime, the Supreme Court in Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu & Ors. (2022) resolved a key jurisdictional dispute concerning the trial of offences under the Insolvency and Bankruptcy Code, 2016 (IBC). The ruling restores coherence and certainty to criminal prosecutions under the IBC by reaffirming that such offences are to be tried by Sessions Courts—not Magistrate Courts—as per the original statutory design, notwithstanding subsequent amendments to the Companies Act, 2013.
1. Factual Background and Procedural History
The dispute emanated from a complaint filed by the Insolvency and Bankruptcy Board of India (IBBI) against the former directors of SBM Paper Mills Pvt. Ltd., alleging non-compliance with a One-Time Settlement (OTS) agreement and procedural violations under the IBC. Specifically, the complaint invoked Section 73(a) read with Section 235A of the IBC, which criminalises contraventions of provisions for which no separate penalty is prescribed.
The Sessions Court, Mumbai, took cognizance and issued process under these provisions. The accused challenged the jurisdiction of the Sessions Court before the Bombay High Court, arguing that the 2018 amendment to the Companies Act introduced a bifurcation in the structure of Special Courts, thereby vesting jurisdiction for certain lesser offences in Judicial Magistrates of the First Class.
The Bombay High Court accepted this argument, holding that, in light of the Companies (Amendment) Act, 2018, IBC offences were now triable by a Judicial Magistrate. Aggrieved by this ruling, the IBBI approached the Supreme Court.
2. Identification of Legal Issues
The Supreme Court was tasked with resolving the following legal questions:
a) Whether Section 236 of the IBC statically incorporated Section 435 of the Companies Act, 2013, or merely referred to it dynamically?
b) Whether the 2018 amendment to Section 435 of the Companies Act—bifurcating Special Court jurisdiction—automatically altered the jurisdictional structure for offences under the IBC?
c) Consequently, which court—Sessions Court or Judicial Magistrate—has jurisdiction to try IBC offences?
3. Arguments of the Parties
By the Appellant (IBBI):
- Statutory Incorporation: The IBC is a self-contained code. Section 236(1) explicitly adopts the Special Court framework from Chapter XXVIII of the Companies Act, which, at the time of IBC’s enactment, vested trial jurisdiction in Sessions Courts.
- Legislative Intent: The adoption of Section 435 was by way of incorporation, not mere reference. Thus, subsequent amendments to Section 435 (such as the 2018 amendment) do not apply unless the IBC itself is amended.
- Jurisdiction of Sessions Courts Intact: Since the IBC has not been amended to reflect the changes introduced in the Companies Act, jurisdiction under Section 236 remains with the Sessions Court.
By the Respondents (Accused):
- Legislation by Reference: The IBC merely refers to the Companies Act for Special Court structure. Therefore, any amendments to the latter automatically apply to the IBC.
- 2018 Amendment Effect: The 2018 amendment introduced a two-tier structure—offences punishable with less than two years’ imprisonment were to be tried by Judicial Magistrates. Given that the offence under Section 235A carries less than two years’ punishment, Magistrate Courts had jurisdiction.
- Lack of Jurisdiction in Sessions Court: The Sessions Court’s cognizance of the offence was therefore illegal and void ab initio.
4. Court’s Analysis and Reasoning
a) Static Incorporation vs. Dynamic Reference
The Court undertook a rigorous statutory interpretation exercise, ultimately holding that Section 236 of the IBC statutorily incorporates Section 435 of the Companies Act, 2013, as it stood in 2016. Consequently, later amendments do not automatically apply.
Key Precedents:
- Bolani Ores Ltd. v. State of Orissa (1974): When a statute incorporates provisions from another, the incorporated provisions become part of the adopting statute as they stood at the time of adoption, unless stated otherwise.
- Mahindra & Mahindra Ltd. v. Union of India (1979): Statutory incorporation is distinct from reference. Incorporation “freezes” the borrowed provision in time.
- Girnar Traders v. State of Maharashtra (2011): Emphasised the distinction between incorporation and reference, reiterating that whether the legislature intended incorporation or reference depends on legislative context and structure.
b) IBC as a Self-Contained Code
The Supreme Court underscored that the IBC is a comprehensive code that includes its own procedural and adjudicative framework. Though it borrows provisions from other statutes (like the Companies Act), these are not subject to change unless Parliament explicitly amends the IBC itself.
c) Rejection of Bombay High Court’s Dynamic Interpretation
The Court disagreed with the High Court’s assumption that the IBC’s jurisdictional framework should be modified by subsequent amendments to the Companies Act. Such a view would create procedural chaos and undermine legislative certainty.
d) Policy and Constitutional Values
The judgment affirms the legislative objective of the IBC—to ensure speedy resolution of insolvency disputes and associated offences. Allowing jurisdictional ambiguity would hamper timely prosecutions and defeat the Code’s efficacy. The Court’s reasoning promotes the values of legal certainty, legislative supremacy, and structural integrity in specialized legislations.
5. Final Conclusion and Holding
The Supreme Court allowed the appeal, overturned the Bombay High Court’s judgment, and reinstated the jurisdiction of the Sessions Court over IBC offences. It authoritatively held that:
- The IBC incorporates Section 435 of the Companies Act as it stood in 2016;
- The 2018 amendment to the Companies Act does not affect the jurisdictional scheme under the IBC;
- Accordingly, offences under the IBC must continue to be tried by Sessions Courts designated as Special Courts.
FAQs:
1. Who has jurisdiction to try offences under the Insolvency and Bankruptcy Code (IBC)?
Offences under the IBC are tried by Sessions Courts designated as Special Courts. The Supreme Court clarified that this jurisdiction is unaffected by later changes in the Companies Act.
2. What is the difference between statutory incorporation and reference in legal drafting?
Statutory incorporation means a law adopts provisions of another statute as they stood at a fixed point in time. A reference, on the other hand, allows for updates—amendments in the original law apply automatically to the referring statute.
3. Does an amendment to one statute automatically apply to another statute that refers to it?
Not necessarily. If the second statute incorporates the first’s provision, amendments in the original do not apply unless explicitly adopted. Only a reference allows automatic application of amendments.
4. Is the IBC a self-contained code under Indian law?
Yes. The IBC is designed to comprehensively regulate insolvency and bankruptcy. While it borrows some provisions from other laws, such borrowings do not imply those laws’ future changes affect the IBC unless Parliament says so.
5. Can jurisdiction of courts under one law be changed by amending a different law?
No. Jurisdictional provisions are governed by the law under which the case arises. Changes in a different statute, even if initially referenced, do not alter jurisdiction unless the concerned law is amended accordingly.
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