Interpreting Legislative Intent: SC’s Ruling On Special Court’s Jurisdiction Under CPC & Companies Act

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The Supreme Court of India, while dealing with the issue of the jurisdiction of the Special Court under Section 236 of the Civil Procedure Code and Section 435 of the Companies Act in the recent case of Insolvency and Bankruptcy Board of India Vs Satyanarayan Bankatlal Malu & Ors., observed that:

When a subsequent Act refers to an earlier Act in a broad manner without delineating its specific provisions, this is known as ‘legislation by reference.’ In such instances, any amendments made to the earlier Act after the enactment of the later Act are also applicable to the later Act. This is because the later Act has effectively ‘borrowed’ the legal provisions of the earlier Act in their entirety.

However, if the later Act incorporates only certain provisions of the earlier Act, then only those specific provisions are applicable to the later Act. Any future amendments to the earlier Act do not automatically extend to the later Act. This is because the later Act has ‘borrowed’ only specific provisions of the earlier Act, and not the Act in its totality.

In essence, the impact of amendments to the earlier Act on the later Act depends on whether the later Act has made a general reference to the earlier Act or has incorporated specific provisions of the earlier Act. This is a fundamental principle in legislative drafting and statutory interpretation.”

In the case that was examined, the court looked into changes made to the Companies Act over time and the overall nature of the Act. The court pointed out the intention of the lawmakers, stating that there was nothing preventing them from making changes to Section 236(1). If the lawmakers’ goal was to change and influence the current system that handles the special court’s authority over certain matters, they have the power to do so, Court said.

Factual Background 

On September 4, 2017, SBM Paper Mills plunged into insolvency. The NCLT acknowledged the petition on October 17, 2017, appointing Amit Poddar as the Interim Resolution Professional. The Respondents pursued a withdrawal of the insolvency proceedings, citing a One Time Settlement with Allahabad Bank, which the NCLT sanctioned on December 20, 2018.

Non-compliance with the OTS terms led to a Show-Cause Notice from the NCLT on March 11, 2019, and a proposed prosecution on August 20, 2019. The IBBI lodged a complaint against the Respondents on September 22, 2020, for non-adherence to the OTS terms and procedural anomalies in the insolvency process. This prompted the Sessions Judge to initiate a process against the Respondents on March 17, 2021.

The Respondents filed a writ petition with the Bombay High Court, seeking to quash the Sessions Judge’s order. On February 14, 2022, the High Court upturned the Sessions Judge’s order, ruling in favour of the Respondents.

This appeal contests the Bombay High Court’s verdict dated February 14, 2022, favoring Satyanarayan Bankatlal Malu and Ramesh Satyanarayan Malu, ex-directors of SBM Paper Mills Pvt. Ltd. They contested an order by the Additional Sessions Judge, which was based on a complaint by the IBBI regarding violations of the IBC.

And as a consequence of the Appeal certain issues arise, which are:

1. Does a special court with a sessions judge possess the jurisdiction to try offences under the Insolvency and Bankruptcy Code (IBC)?

2. Is the issuance of process by the sessions judge to the accused valid?

3. Does the present case involve the “legislation by incorporation” instead of “legislation by reference?

HC’s Decision

The High Court examined a case concerning the jurisdiction for trying offenses specified under a particular section i.e. section 236 of the Insolvency Bankruptcy Code. It noted that the reference in the Code was specific, indicating a “legislation by incorporation” approach. Referring to the judgement of Ebix Singapore pvt.ltd. Vs. Coc of Educomp solution Ltd. Court held the code as complete in itself. This meant that the provision regarding the Special Court was directly lifted from the Companies Act and integrated into the civil procedure Code. Consequently, subsequent amendments to the Companies Act would not alter the civil procedure Code’s provisions regarding the Special Court. As the intent of the amendments would have been to effect the special courts jurisdiction of the matters, then the legislature could have made the respected certain amendments in section 236(1) of the IBC.

In the Girnar Traders case, the Court highlighted the importance of legislative intent when incorporating provisions from one law into another. It noted that the absence of an express provision for the general application of the Land Acquisition Act to the MRTP Act indicated a selective incorporation. The Court emphasized that both acts were self-contained, with specific references to certain sections of the Land Acquisition Act within the MRTP Act, rather than a blanket adoption.

The High Court, however, erroneously concluded that offenses should be tried by a lower court instead of the Special Court. Instead of outright quashing the complaint, it should have directed it to the appropriate court. The Supreme Court, upon appeal, upheld that offenses under the Code ought to be tried by a Special Court presided over by a Sessions Judge or an Additional Sessions Judge.

However, since the High Court did not delve into the merits of the case, the Supreme Court remanded it back for reconsideration. In summary, while affirming the jurisdiction of the Special Court, the Supreme Court emphasized the necessity for a thorough examination of the case’s merits by the High Court.

Conclusion

The judiciary’s scrutiny of jurisdictional matters and legislative interpretation is pivotal in ensuring the effective implementation of legal frameworks. In the first case, the Supreme Court reaffirmed the authority of special courts in trying offenses under the Insolvency and Bankruptcy Code (IBC), highlighting their jurisdiction and the validity of processes issued by sessions judges. This underscores the importance of specialized judicial bodies in adjudicating complex matters such as those arising under the IBC.

Conversely, the second case underscores the necessity for a meticulous assessment of legislative intent when incorporating provisions from one law into another. The High Court’s misinterpretation of the integration of provisions from the Companies Act into the civil procedure code necessitated the Supreme Court’s intervention to clarify the jurisdiction of special courts and emphasize the need for thorough examination of case merits.

Therefore, a comprehensive understanding of legislative intent and the proper exercise of jurisdiction by specialized courts are indispensable for the effective functioning of the legal system. Both cases exemplify the judiciary’s role in providing clarity on legal matters and upholding the integrity of the law, thereby ensuring fair and just outcomes in the adjudication of disputes.

 

Authors: Nevil Chopra & Mandar Latpate


Lawyers.

Interns and Paralegals.

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