Supreme Court observed when a statute incorporates specific provisions from another statute, subsequent amendments to the latter statute do not affect the former statute.
The Supreme Court Bench of Justice B.R. Gavai and Justice Sandeep Mehta were hearing an appeal and noted when a statute incorporates specific provisions from another statute, subsequent amendments to the latter statute do not affect the former statute. The Bench observed that this principle applies regardless of whether the incorporated provisions are subsequently amended. Therefore, Section 236(1) of the Insolvency and Bankruptcy Code, 2016, which specifically refers to the Special Court established under Chapter XXVIII of the Companies Act, 2013, was construed as 'legislation by incorporation’. As a result, any subsequent amendments to the Companies Act did not affect the jurisdiction conferred by Section 236(1) of the Code. Thus, the Special Court retained jurisdiction over offences under the Code, and the High Court erred in quashing the complaint based on jurisdictional grounds.
The Supreme Court judgment addressed the appeal against the Bombay High Court's decision dated February 14, 2022, which quashed an order by the Additional Sessions Judge directing the issuance of process against Satyanarayan Bankatlal Malu and Ramesh Satyanarayan Malu, former directors of M/s. SBM Paper Mills Pvt. Ltd. The complaint, filed by the Insolvency and Bankruptcy Board of India (Appellant-Board) under Section 236 of the Insolvency and Bankruptcy Code, 2016 (the Code), alleged offences under Sections 73(a) and 235A of the Code.
The factual background involved SBM Paper Mills Pvt. Ltd. filing a petition on September 4, 2017, to initiate the Corporate Insolvency Resolution Process (CIRP), which was admitted by the NCLT on October 17, 2017. Following a One Time Settlement (OTS) with Allahabad Bank, the NCLT allowed the withdrawal of the petition on December 20, 2018. However, due to non-compliance with the OTS terms, the NCLT issued a Show-Cause Notice on March 11, 2019, and proposed prosecution of the Respondents on August 20, 2019. The Appellant-Board subsequently filed a complaint on September 22, 2020, and the Sessions Judge ordered the issuance of the process on March 17, 2021. This order was later quashed by the High Court.
In their submissions, the Appellant argued that the High Court misinterpreted Section 236(1) of the Code, asserting that offenses under the Code should be tried by the Special Court established under the Companies Act, 2013, regardless of amendments. The Respondents countered that the legislative references should be considered as 'legislation by reference,' thereby applying subsequent amendments to the Companies Act to the Code.
The Supreme Court analyzed Section 236(1) of the Code and Section 435 of the Companies Act, highlighting the distinction between 'legislation by reference' and 'legislation by incorporation.' The Court cited legal precedents, concluding that Section 236(1) of the Code was a specific reference, indicating 'legislation by incorporation.' Therefore, amendments to Section 435 of the Companies Act post-enactment did not affect the jurisdiction over offences under the Code.
The Supreme Court criticized the High Court's decision to quash the complaint based on the Special Court's jurisdiction and asserted that it should have redirected the complaint to the appropriate court. Consequently, the appeal was allowed, setting aside the High Court's judgment, and affirming that the Special Court presided by a Sessions Judge or Additional Sessions Judge had jurisdiction over the complaint under the Code. The matter was remanded to the High Court for reconsideration on merits, with an acknowledgement of the counsel's valuable assistance.
This judgment underscored the nuanced application of legislative doctrines, emphasizing the precedence of specific incorporation and ensuring judicial coherence in statutory interpretation.
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