Company Law

Innoventive Industries Ltd. v. ICICI Bank

(2018) 1 SCC 407

Facts

Innoventive Industries had borrowed substantial sums from a consortium of banks led by ICICI Bank.
The company defaulted on repayment.
ICICI Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 to begin the corporate insolvency resolution process.
Innoventive relied upon the Maharashtra Relief Undertakings Act.
The State legislation had declared the company a relief undertaking and temporarily suspended certain liabilities and enforcement proceedings.
Innoventive argued that because its debts were suspended under State law, no enforceable default existed under the IBC.
The NCLT admitted ICICI’s application.
The NCLAT upheld admission.
The Supreme Court considered the relationship between the newly enacted IBC and inconsistent State legislation.

What must the NCLT examine when a financial creditor files a Section 7 application?
Whether the State-law moratorium prevented admission under the IBC.
Which law prevailed in case of inconsistency.
What is the effect of admission on corporate management?

A financial creditor may initiate CIRP when a financial debt is due and default has occurred.
At the admission stage, the NCLT determines:
existence of financial debt;
occurrence of default;
completeness of the application; and
absence of disciplinary proceedings against the proposed resolution professional.
Unlike an operational-creditor application, there is no separate pre-existing-dispute defence under Section 7.
Section 238 gives the IBC overriding effect over inconsistent laws.
The IBC is a complete parliamentary framework governing insolvency resolution.
Upon admission:
a moratorium begins;
an interim resolution professional takes control;
the board’s powers are suspended; and
the process shifts from debtor control to creditor-supervised resolution.

ICICI produced records showing that financial facilities had been extended and repayment obligations had fallen due.
Innoventive did not establish that the debt had been paid.
Its main defence was that State legislation had temporarily suspended the liability.
The Supreme Court identified a direct inconsistency.
The State Act attempted to prevent enforcement and suspend liabilities, while the IBC required insolvency proceedings to begin once financial default was proved.
Both rules could not operate simultaneously in relation to the same default.
Parliament had enacted the IBC under its constitutional competence and expressly included an overriding provision.
Section 238 therefore displaced the inconsistent State moratorium.
The NCLT was not required to conduct a full trial regarding the company’s commercial difficulties.
Section 7 deliberately provides a swift admission mechanism.
Once debt and default are shown, admission follows unless the application is incomplete or another statutory defect exists.
The Court also explained the institutional change produced by admission.
Insolvency proceedings are not ordinary recovery suits run by the debtor company.
Management passes to an independent resolution professional so that the enterprise can be preserved while creditors consider resolution.
Innoventive’s suspended board therefore had limited authority to continue litigation in the company’s name after admission.

The Supreme Court upheld commencement of CIRP against Innoventive.
The Maharashtra Relief Undertakings Act could not prevent IBC proceedings because Section 238 gave the Code overriding effect.
The judgment provided the first major Supreme Court explanation of:
the Section 7 admission test;
the meaning of default;
the IBC’s supremacy; and
the shift from debtor-in-possession to creditor-controlled resolution.
Use this case for: once a financial debt and default are established, the NCLT must admit a complete Section 7 application despite inconsistent State-law protection.