Vol 17 (2020) - Issue 2

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Tussle over Jurisdictional Primacy: IBC v SEBI

Synopsis

The Insolvency and Bankruptcy Code, 2016 ('IBC') has brought a paradigm shift, in particular in how debt recovery actions are initiated against the insolvent corporate entities. It is regarded as the exhaustive code in itself – overhauling the archaic legal regime pertaining to insolvency of debt-ridden companies. Despite that, the jurisprudence of the Code still remains heavily contested. In this context, recently, the Securities and Exchange Board of India (SEBI) approached the Supreme Court of India to adjudicate on an interesting issue, arising out of the interpretation of the Code. Pertinently, in SEBI v Rohit Sehgal & Ors., SEBI challenged the National Company Law Tribunal (NCLT) order in Bhanu Ram v HBN Dairies & Allied Limited ('HBN Dairies'). In HBN Dairies, the NCLT ruled that in case of conflict arising between the IBC and the SEBI Act, the IBC overrides. Now, SEBI has contended before the Supreme Court, that the IBC cannot be invoked to usurp its jurisdiction under the SEBI Act, 1992, as both are special legislation, and thus one cannot trump the other.

Against this backdrop, this article critiques the NCLT's decision in HBN Dairies, and advances three primary arguments. First, it argues that the NCLT erred in holding that the provisions of the SEBI Act and the IBC are in ‘direct conflict’ with each other. In this regard, it submits that there exists no operational conflict between the two statutes – and thus contrary to the NCLT’s view, compliance with one law will not lead to defiance of other. Secondly, it argues that the IBC is a special law vis-à-vis SEBI Act in matters pertaining to only debt recovery actions. Thus, to that extent of inconsistency existing only, the IBC overrides. This is because the non-obstante clause contained in Section 238 of the IBC covers the subject-matter of debt-recovery actions – and is not the overarching provision to be invoked to strike down the effect of other laws. Thirdly, it argues that applying the 'conflict of purpose' test to resolve the inconsistency between these two laws leads to an inescapable conclusion, that, in the realm of insolvency disputes, where the legislature expressly intended the IBC to be the single exhaustive Code dealing with debt recovery proceedings, the IBC must prevail over the SEBI Act, even while each law is paramount in its own sphere.