Non –Obstante Clause in IBC 2016: Need for precedence over all other Non Obstante Clause

Opening paragraph of the Insolvency and Bankruptcy Code 2016 reads:

An act to consolidate and amend the law relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance of interests of all the shareholders including alteration in the order of priority of payment of Government dues and to establish and Insolvency and Bankruptcy Board of India, and for matters connected therewith and incidental thereto .

Section 238 of the Insolvency and Bankruptcy Code, 2016, which is termed as a non-obstante clause states :

“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.”

‘Non-obstante’ is a Latin word which means ‘notwithstanding anything contained’. That means this clause empowers the legislation or a provision in which it contains, to override the effects of any other legal provisions contrary to this under the same law or any other laws.

If you read the opening paragraph and Section 238 of Insolvency and Bankruptcy Code 2016 it seems like all cases under the Code will be very easily resolved and all everything will happen in a time bound manner. If you go by plain interpretation of the clause all cases referred under IBC 2016 will be smoothly handled by the Resolution Professionals and assets of the Corporate Debtor would be smoothly handed over to the Corporate Applicant who qualifies all the conditions as laid down and is approved by Committee of Creditors and then approved by National Company Law Tribunal (NCLT).

But when you look at reality so far most of the cases have been moving to and fro NCLT/NCLAT and Supreme Court to seek clarifications on various legal matters and the cases remain undecided for more than 3-4 years which is against the basic principle of IBC which was mainly brought in to expedite the matters and get the cases resolved in a time bound manner.

Most of the cases where the appeals have been made in the Supreme Court are also the case of non-obstante’ where provisions of the other law have been shown to be given priority over the provisions of IBC  2016. The latest to be hit is Bhushan Power & Steel  where JSW  Steel is a Corporate Applicant and the resolution plan submitted by JSW has been approved by NCLT.

The dispute this time is about non obstante clause of PMLA and non obstante clause of IBC 2016. Earlier there have been decisions by various authorities where in some cases IBC has been held to prevail over PMLA and in some cases both have been given same status.

However this type of disputes again and again create problems and affect the potential bidders and will work as a barrier in resolution of insolvency cases. It is also pertinent to note that the more time it takes in resolving the legal disputes the more unproductive it becomes for the financial creditors, operational creditors, bidders and consequently affects the economy on macro level and also affects the ease of doing business in the country.

Moreover offences such as PMLA offences etc should be handled with the original promoters of the company and not with the company as such so that the bidders know well beforehand that such offences if any found will not affect their ownership rights after takeover and will in no way affect the working of the company after they have taken over the company.

It is high time the Government sets up a committee to iron out all such differences vis-à-vis Insolvency and Bankruptcy Code 2016 so that the process of corporate insolvency can be smoothened out and the bidders can properly make their plans and implement to bring back the assets into production and help achieve the efficiencies in the production and help in GDP of the nation. This will also help improve image of the Indian economy in the world.

Author Bio

Qualification: CA in Practice
Company: Kishore K Pahuja & Co
Location: UDAIPUR, Rajasthan, IN
Member Since: 19 Aug 2019 | Total Posts: 5
Chartered Accountant in Practice at Udaipur. Have worked ealier in Industry in India and Singapore., View Full Profile

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October 2021