To begin with, we should know the meaning of non-obstante, it means notwithstanding anything. The clauses under IBC that are applicable non-obstante are those whose applicability is not hindered by any other clause or Act.
When the Insolvency and Bankruptcy Code was introduced in 2016, it stated clearly that this Act is to provide a speedy and timely remedy in cases of insolvency resolution whether dealing with a firm, company, partnership, or individuals. Credit availability is a critical component of economic growth, and a lack of credit could result in economic collapse. The Insolvency and Bankruptcy Code, 2016 was enacted to address this problem, with the goal of reducing the number of non-performing assets in the hands of Indian creditors and financial institutions.
Background:
The IBC was drafted as a consequence of the Bankruptcy Laws Reforms Committee’s deliberations. Regarding the discrepancy between the IBC and other legislation, the Committee specified the following in its report of November 4, 2015. A parliamentary statute on insolvency and bankruptcy can trump other laws on the issue from a constitutional standpoint.
So the framers of IBC had the idea of developing the legislation by way of judicial decisions and pronouncements. Thus, the drafters made a non-obstante clause mainly to override any other such provision or law that is in conflict with the IBC.
The non-obstante clause also called the overriding clause of IBC is stated under section 238 of IBC 2016. It states as follows:
Section 238: Provisions of this Code to override other laws.
238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
The provisions of this Code clearly apply despite anything in any other law currently in force or any act having effect by virtue of any such law that is inconsistent with them. That is, this clause allows the provision within it, to override the effects of any other legal provisions in the same or other laws that are in conflict with it.
The Supreme Court has had to resolve the legal position in relation to the Code’s connection with other statutes. The Apex Court has held that the Code is “a complete code in itself” that clearly overrides statutes or provisions in statutes that conflict with it.[1]
Important Judgements:
The overriding effect,
The issue of the beginning of the insolvency resolution proceedings against the appellant under the IBC was raised in the case of Innovative Industries Ltd v ICICI Bank and Ors.[2] In response, the appellant filed an interim application, claiming that no debt was legally due under the Maharashtra Relief Undertakings (Special Provisions Act), 1958 (‘Maharashtra Act,’) and that all of the appellant’s liabilities were temporarily postponed for a period of one year.
The Supreme Court ruled that the IBC’s subsequent non-obstante clause would take precedence over Section 4 of the Maharashtra Act’s limited non-obstante clause and that the Maharashtra Act would not obstruct the IBC’s corporate bankruptcy resolution procedure. As a result, the Supreme Court rejected the argument that a notification under the Maharashtra Act merely put the debt in perpetuity for a limited time, and that it would become payable as soon as the notification ceased to have an effect.
Non-Obstante Clause and the Limitation Act,
In the case of B. K. Educational Services[3], the Supreme Court stated that interpreting Section 238 of the Code to override the Limitation Act of 1963 would be preposterous. In view of Section 238-A, the Apex Court ruled that the Limitation Act would apply to IBC proceedings. Furthermore, the Supreme Court stated in Seven Hills[4] that Section 238 of the Code cannot be interpreted as overriding the public body’s authority but rather it is the public responsibility to manage and regulate how the properties are dealt with.
Dispute of non-obstante clause of IBC and that of PMLA,
Previously, several authorities made judgments in which IBC was found to be superior to the Prevention of Money Laundering Act, 2002 in some circumstances, and both were awarded the same rank in others.
Yet, these types of disagreements repeatedly cause problems for potential bidders and act as a roadblock in the resolution of insolvency cases. Also, PMLA offenses, for example, should be handled with the actual promoters of the company rather than the company itself, so that bidders are aware that any such offenses if discovered, will not affect their ownership rights after the takeover and will have no impact on the company’s operations after they have taken over.
For the time being, in the apparent lack of the interplay of the Code and the PMLA, the Director of Electorate sought to attach the assets of Bhushan Power and Steel Limited (BPSL)[5] after the NCLT approved a resolution proposal submitted by JSW Steel Limited for BPSL for alleged bank fraud by BPSL.[6]
A non-obstante provision was also added by Section 32A of the Code[7], which protects corporate debtors and acquirers of assets under the Code from any criminal or asset forfeiture procedures brought under the statute.
Cases based on similar situations:
Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. & Ors.[8]
The Supreme Court established an important legislative interpretation principle, where two non-obstante clauses exist in two separate special acts, the statute that was enacted later in time will prevail. The issue, in this case, did not arise from the non-obstante clause of IBC but dealt with the same clauses of the Sick Industrial Companies (Special Provisions) Act, 1985, and the Special Court (Trial of Offenses Relating to Securities Transactions) Act, 1992.
KSL and Industries Limited v Arihant Threads Limited[9]
In this case, the Supreme Court held that where a non-obstante clause in a later law is subordinate to an addition to an earlier enactment, the later enactment may be deemed to prevail over the earlier. The Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’) was defeated in this case by the Recovery of Debts Due to Banks and Financial Institutions (‘RDDB’) Act, 1993, which was a subsequent Act.
In some cases, the purpose behind the legislation is also considered to decide the non-obstante clause of which legislation shall prevail. Like in,
The Supreme Court decided in Swaran Singh v Kasturi Lal that the objective and intent of RERA is to protect the interests of consumers purchasing real estate, whereas the IBC was enacted to strengthen and amend the laws relating to insolvency resolution and to create employment through the recovery of funds for credit. So, in any case the requirements of RERA will take precedence over the rules of the IBC where it is tailored to the scenario of protecting residents’ rights in connection with construction projects.
If a special enactment conflicts with a general enactment, the special enactment will take precedence this was stated in the case of Jain Ink Manufacturing Company v Life Insurance Corporation.[10]
So, two conflicting laws with non-obstante clauses that cover any other law in force at the time operate in distinct fields, a harmonic construction of both laws should be used. If an earlier act is essential, the question of whether it supersedes later legislation will not be raised.[11]
Conclusion:
A non-obstante or validation clause has a detrimental impact on the adoption of a law when examining its practicality in conjunction with other relevant pieces of legislation. When interpreting a non-obstante clause, the court must determine whether the legislature intended for it to have an overriding effect. As a result, it is not advisable to include a non-obstante clause in any legislation without first determining whether such a punitive provision is appropriate.
It will be justifiable and beneficial for efficient law enforcement if laws are enacted after thorough and critical research and consideration of a comprehensive plan.
Refrences:
[1] Embassy Property Development Pvt. Ltd. v. State of Karnataka, Civil Appeal No. 9170 0f 2019, Supreme Court judgement dated December 03, 2019
[2] (2018) 1 SCC 407
[3] B. K. Educational Services Pvt Ltd vs Parag Gupta And Associates, Civil Appeal No. 23988 of 2017, Supreme Court judgement dated October 11, 2018
[4] Municipal Corporation of Greater Mumbai v. Abhilash Lal & Ors, Civil Appeal No. 6350 of 2019, Supreme Court judgement dated November 15, 2019
[5] Economic Times, Bank fraud: ED attaches assets of over Rs 4,000 crore of Bhushan Steel, October 13, 2019.
[6] JSW Steel Ltd. v. Mahender Kumar Khandelwal & Ors., Company Appeal (AT) (Insolvency) No. 957 of 2019, NCLAT order dated February 17, 2020.
[7] IBC 2016, s. 32A
[8] (2001) 3 SCC 71
[9] (2008) 9 SCC 763 [70]
[10] AIR 1981 SC 670
[11] Jay Engineering Works Ltd. v Industry Facilitation Council (2006) 8 SCC 677
