Provisions of IBC was having overriding effect over other State Acts

Dreams Infra India Pvt. Ltd Vs Competent Authority Dreamz Infra India Pvt. Ltd (Karnataka High Court)

Conclusion:  Provisions of the IBC was having overriding effect over other laws and the same would prevail in view of Section 238 of the Code. Hence, the proceedings initiated against assessee under Section 7(1) of the Act, 2004 was quashed.

Held:  Assessee-company was a real estate Company involved in the development of various housing and apartment projects, and had floated multiple projects since its inception in 2012. It had executed an agreement of sale and memorandum of understanding with thousands of homebuyers for sale of apartments in these under construction projects. As per the agreement, the homebuyers were asked to pay certain amount as advance money or earnest in lieu of booking their apartments in the said projects. The apartments were not handed over after collecting advance money from the home buyers. Respondent was a Constituted Authority, appointed by the Government of Karnataka under Section 5(1). Consequently, the respondent had initiated section 7(1) against assessee and the same had been admitted by the Principal City Civil and Sessions Judge (Special Judge), Metropolitan Area, Bengaluru. Hence, assessee contended that the respondent-Authority owing to various complaints lodged against the promoters and directors of assessee-company invoked the Act, 2004 and attached all the properties of assessee-Company since 2018. Respondent-Authority on the understanding of law that, assessee-company fell under the scope and ambit of the Act, 2004 initiated action before Principal City Civil and Sessions Judge (Spl. Judge), Metropolitan Area, Bengaluru stating that assessee had accepted the deposits from 3668 depositors to the tune of Rs. 385 Crores. Since various complaints lodged against assessee- company, three homebuyers being aggrieved by the actions of assessee-company moved a petition before the Hon’ble National Company Law Tribunal under Section 7 of Insolvency and Bankruptcy Act, 2016 seeking to declare the assessee-company as insolvent. Assessee vehemently contended that the State had no right to invoke the Act, 2004. The provisions of Sections 14 and 238 of the IBC had overriding effect and as such the said provisions would prevail over the State Act. There could not be two parallel proceedings against assessee herein when the matter was ceased before the NCLT. It was held that IBC prevailed over the State enactment. In the case on hand, already the matter had been seized before the NCLT before initiating the present proceedings. The Apex Court recently in J.Manivannan’s case held that there could not be any other civil proceedings when the matter had been ceased and already some homebuyers had approached the NCLT and so also the Resolution Professional was also appointed. Thus,  the provisions of the IBC was having overriding effect over other laws and the same would prevail in view of Section 238 of the Code. Hence, assessee had made out grounds to quash the proceedings initiated against assessee under Section 7(1) of the Act, 2004 and the respondent authority could also proceed in accordance with law after the disposal of the matter pending before NCLT, if need arose.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

This petition is filed under Articles 226 and 227 of the Constitution of India read with Section 482 of Cr.P.C. praying this Court to issue a writ of certiorari to quash the proceedings initiated against the petitioner in Miscellaneous No. 2/2020 dated 02.01.2020 pending on the file of the Principal City Civil and Sessions Judge (Special Judge), Metropolitan Area, Bengaluru and direct the respondent to handover the properties to Sri. Ashok Kriplani, Resolution Professional vide order dated 20.08.2019 passed by the Hon’ble National Company Law Tribunal (NCLT), Bengaluru and to issue such other writ or grant such other order or relief as this Hon’ble Court deems fit in the facts and circumstances of the case.

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