2024 (10) TMI 62 - HC - IBC

Conflict between provisions of Insolvency and Bankruptcy Code, 2016 and Tamil Nadu Protection of Interests of Depositors Act, 1997 - Whether the provisions of IB Code, 2016, override the provisions of TNPID Act? - whether the proceedings initiated under TNPID Act, cannot go on in view of the provisions of the IB Code? - whether NCLT can declare the attachment made under the provisions of TNPID Act as null and void? - HELD THAT - The TNPID Act is a special enactment which is intended to protect the rights of depositors and provide a mechanism for the disbursement of the assets of the accused apart from punishing the accused. The NCLT, Chennai Bench, has relied upon the judgment of Hon'ble Supreme Court in Innoventive Industries Limited Vs. ICICI Bank and Another 2017 (9) TMI 58 - SUPREME COURT for the proposition that the provisions of the IB Code shall have effect not withstanding anything inconsistent therewith contained in any other law for the time being in force, particularly referring to Section 238 of the IB Code, 2016. A Full Bench of this Court in S.Bagavathy Vs. State of Tamil Nadu rep.by it Secretary, Law Department, Chennai and Others 2007 (3) TMI 783 - MADRAS HIGH COURT considered the constitutional validity of TNPID Act, elaborately. One of the issues raised before the Full Bench was regarding the legislative competence of the State to promulgate the law. Taking note of the primary object of the State legislation, the Full Bench held that the enactment is meant for public safety and to protect the interest of public and applied Doctrine of parens patriae by reminding sovereign power and duty of the State to shoulder responsibilities in public interest. The Hon'ble Supreme Court in K.K.Baskaran Vs. State represented by its Secretary, Tamil Nadu and Others 2012 (11) TMI 205 - SUPREME COURT , considered whether TNPID Act is beyond the legislative competency of State legislature as it falls within Entries 43, 44 and 45 of List I of VII Schedule of Constitution - The Hon'ble Supreme Court disagreed with the judgment of Bombay High Court with reference to Maharashtra Act and the subject matter covered by the Maharashtra Act does not fall within the subject matter of Sections 58-A and 58-AA of Companies Act. While holding that Courts should look at the legislation as a whole and there is a presumption that the legislature does not exceed its constitutional limits, the Hon'ble Supreme Court accepted the view that incidental trenching in exercise of ancillary powers into a forbidden legislative territory is permissible if a legislation is in substance one on a matter assigned to legislature then it must be held to be valid even though it incidentally trenches on matters beyond its legislative competence. The purpose and object of TNPID Act, which has been upheld by Hon'ble Supreme Court despite its marginal encroachment into the Central legislations, cannot be ignored. In view of the judgment of Hon'ble Supreme Court, this Court has no hesitation to hold that the order of NCLT is contrary to the settled principles of law. Therefore, this Court agrees with the submission of the learned Additional Advocate General reiterating the legal grounds raised in this writ petition. Petition allowed.

Summary

Issues:
1. Conflict between provisions of Insolvency and Bankruptcy Code, 2016 and Tamil Nadu Protection of Interests of Depositors Act, 1997.
2. Validity of NCLT's order declaring attachment made under TNPID Act null and void.
3. Legislative competence of State to promulgate TNPID Act.
4. Whether TNPID Act encroaches on Central legislations.
5. Implementation challenges and delays in cases under TNPID Act.

Analysis:
1. The judgment addresses the conflict between the Insolvency and Bankruptcy Code, 2016 (IB Code) and the Tamil Nadu Protection of Interests of Depositors Act, 1997 (TNPID Act). The core issue is whether the IB Code overrides the TNPID Act, preventing proceedings under the latter. The NCLT's order directing the handover of records to an Insolvency Resolution Professional under IB Code was challenged in the writ petition.

2. The NCLT declared the attachment made under the TNPID Act null and void, citing the supremacy of the IB Code. However, the High Court analyzed previous judgments, including the Supreme Court's decision in Innoventive Industries Limited case, to determine that the TNPID Act's purpose of protecting depositors' rights should not be undermined. The High Court held that the NCLT's order was contrary to established legal principles and quashed it.

3. The High Court extensively discussed the legislative competence of the State to enact the TNPID Act. Referring to the Full Bench decision in S.Bagavathy case, the Court upheld the constitutionality of the TNPID Act, emphasizing its objective of public safety and protection of public interests. The Court concluded that the TNPID Act should stand despite any overlap with Central legislations.

4. Further, the judgment analyzed the Hon'ble Supreme Court's decision in K.K.Baskaran case regarding the legislative competency of the State to enact the TNPID Act. The Court emphasized that incidental encroachment into a forbidden legislative territory is permissible if the legislation primarily concerns a matter within the State's jurisdiction. The Court highlighted that the TNPID Act's provisions, despite some overlap with Central laws, serve a distinct purpose.

5. Lastly, the High Court addressed the implementation challenges and delays in cases under the TNPID Act. Expressing concerns over prolonged trials and offenders evading justice, the Court directed the State Government to propose actions to expedite cases and ensure effective enforcement, particularly in cases of unauthorized deposit collections under the RBI Act, 1934. The Court emphasized the importance of timely and efficient resolution in TNPID cases to protect depositors' interests.