Provisions of IBC have overriding effect over other laws and the same would prevail in view of Section 238: Karnataka HC

A Single-Judge Bench of the Hon’ble Karnataka High Court in the matter of Dreams Infra India Private Limited v. The Competent Authority, Dreamz Infra India Private Limited & Others, REED 2021 Kant 05520 vide its judgment held that the provisions of the Insolvency and Bankruptcy Code, 2016 have an overriding effect over other laws and the same would prevail in view of Section 238 of IBC.

The Petitioner, which is a real estate company, had executed an Agreement of Sale and Memorandum of Understanding with thousands of homebuyers for sale of apartments in various construction projects. As per the agreement, the homebuyers paid a certain amount as advance money in lieu of booking their apartments in the said projects. The apartments were not handed over after collecting advance money from the home buyers. The Respondent was a Constituted Authority, appointed by the Government of Karnataka under section 5(1) of the Karnataka Protection of Interest of Depositors in Financial Establishment Act, 2004 (the Act, 2004). The Respondent had initiated section 7(1) of the Act, 2004 against the Petitioner and the same was admitted by the Principal City Civil and Sessions Judge (Special Judge), Metropolitan, Bengaluru on 9 January 2020, thereby attaching all the properties of the Petitioner company since 2018. In the meantime, the National Company Law Tribunal (NCLT) on 20 August 2019, also admitted an application filed under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by three home-buyers, initiating Corporate Insolvency Resolution Process (CIRP) against the Petitioner.

The present petition was filed under Articles 226 and 227 of the Constitution of India read with section 482 of Cr.P.C, praying the Karnataka High Court to issue a writ of certiorari to quash the proceedings initiated against the Petitioner under section 7(1) of the Act, 2014. The Petitioner contended that in view of the admission of the petition before the NCLT, period of moratorium parallely commenced, whereby as per section 14 of IBC, no suit or proceedings can either be filed against the Petitioner or can any pending proceedings including execution continued against the Petitioner.

The Karnataka High Court noted that in Innoventive Industries Limited v. ICICI Bank and Another, REED 2017 SC 08563, the Supreme Court had discussed with regard to repugnancy with IBC and effect of moratorium given to the Company under the Maharashtra Act, and held that the provisions of the IBC have overriding effect over other laws and the same would prevail in view of Section 238 of the IBC. Further, in Alchemist Asset Reconstruction Company Limited v Hotel Gaudavan Private Limited and Others, REED 2017 SC 10628, it was held that once moratorium comes into effect, Section 14(1)(a) expressly stops institution or continuation of pending proceedings against Corporate Debtors and that the IBC prevails over the State enactment. Furthermore, the Apex Court recently in J. Manivannan case has held that there cannot be any other civil proceedings when the matter has been ceased and already some homebuyers have approached the NCLT and the Resolution Professional has been appointed. In the case on hand, the matter has been already seized before the NCLT before initiating the present proceedings. Hence, in view of the foregoing, the writ petition was allowed and the proceedings initiated against the Petitioner under section 7(1) of the Act, 2004 were quashed.