Special Court Presided by Sessions Judge or Addl. Sessions Judge Will Have Jurisdiction to Try Complaint Under IBC

Case Details: Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu - [2024] 161 taxmann.com 578 (SC)

Judiciary and Counsel Details

• • B.R. Gavai & Sandeep Mehta, JJ.

Facts of the Case

In the instant case, an appeal was filed against the order passed by the High Court. The High Court allowed the petition filed by respondents challenging the order passed by the Sessions Judge. The Sessions Judge has directed the issuance of process against the respondents on account of a complaint filed by the appellant (i.e. the Board) u/s 236 of IBC read with sections 190, 193 and 200 of the Cr.P.C. for offences punishable under IBC.

The High Court had invalidated the summons issued by the Sessions Judge to the respondent/accused by holding that the subsequent amendments to section 435 of the Companies Act, 2013 vested the power to issue summons upon the magistrate for an offence punishable up to 2 years. Therefore, the Sessions Judge would not have the power to issue summons.

The question was placed before the Supreme Court regarding whether the Special Court presided by Sessions Judge or Addl. Sessions Judge would have the jurisdiction to try complaint under IBC.

It was noted that section 236(1) of the IBC states that the offences punishable under the 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. It refers only to the fact that offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act.

Supreme Court Held

The Supreme Court observed that since the reference u/s 236(1) is specific and not general, 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. Thus, the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’.

In other words, 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 consisted of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge.

Further, the Supreme Court observed that the Code had also suffered 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.

However, 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 learned Judge of 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 Supreme Court held that the reasoning of the learned single judge 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 was untenable.

Further, the Supreme Court held that the High Court had grossly erred in quashing the complaint only on the ground that it was filed before a Special Court presided by a Sessions Judges. At the most, the learned single judge of the High Court could have directed the complaint to be withdrawn and presented before the appropriate court having jurisdiction.