OVERRIDING NATURE OF INSOLVENCY & BANKRUPTCY CODE, 2016

Section 238 of Insolvency & Bankruptcy Code, 2016:

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.

1. Introduction:

Insolvency & Bankruptcy Code, 2016 (hereinafter “code”) by virtue of section 238 tends to override all
other legislations or any other instrument having effect by virtue of any such legislation coming in
conflict with the code.1 However, it took multiple judgments and a cohesive interpretation of the code
which established, time and again, the supremacy of the code. As it has been made ample clear that the
code shall override any inconsistent law or any instrument as aforesaid, it is imperative to understand the
effect of the overriding nature of the code.

The effect of section 238 of the code is directly linked with application of moratorium upon
initiation of Corporate Insolvency Resolution Process (hereinafter “CIRP”) under section 14 of code.
Section 14 of the code, in pith and substance interdicts any proceeding so initiated for seeking recovery
of monies from the corporate debtor, thereby prohibiting any dissipation to assets of the said corporate
debtor. The supremacy of the code has been upheld multiple times, wherein the court was first seized of
such an opportunity to interpret Section 238 of the code, was in the case where it came in conflict with
the Income Tax Act 1961 and the recent one being the Prevention of Money Laundering Act, 2002.

This paper aims to analyze the instances wherein various legislations came into direct conflict with the
code.

2. Insolvency & Bankruptcy Code, 2016 vis-à-vis Income Tax Act, 1961:

The code has been very dynamic in nature, it has evolved in such a short span of time owing to
somewhat a commercially viable interpretation of the same. In July 2018, the code was indirectly in
conflict with the Income Tax authorities, in the case of
……………………………………………………..

3. Insolvency & Bankruptcy Code, 2016 vis-à-vis Prevention of Money Laundering Act, 2002:

National Company Law Tribunal (hereinafter “NCLT”) was faced with such a challenge in the case of
SREI Infrastructure, wherein it was held that IBC overrides PML Act, relying on the case of Solidaire
India Ltd. v. Fairgrowth Financial Services Pvt. Ltd.2 held that later statute would prevail over the
previous one as the legislators were aware of existence of the previous legislation while enacting the
subsequent and recent law. Hence, IBC overrides PML Act. However, this was just the beginning of the
war between both the laws.

Later in July last year, National Company Law Appellate Tribunal (Hereinafter “NCLAT”) was seized
of such an opportunity when the code came in direct conflict with Prevention of Money Laundering Act,
1
Section 238, Insolvency & Bankruptcy Code, 2016.
2
2001 case
2002 (hereinafter “PML Act”). The NCLAT opined that as PML Act operates on altogether a different
legal paradigm of penal action, it was held that section 14 of the code does not interdict proceedings
initiated under PML Act.3 Also, it is pertinent to mention herein that the said attachment of assets of
corporate debtor was made prior to initiation of CIRP.

Furthermore, it was held that, both the statutes operate simultaneously. The Appellate Authority relying
on the case of Varrsana Ispat Ltd. v. ED4, held that moratorium is not applicable on proceedings under
PML Act.

()5 PMLA-AT [Appellate Tribunal] held that IBC shall override PML Act as the security interest in the
assets so seized by the PML Authorities was created much prior to the alleged commission of the
offence under PML Act, thereby not making the said assets, proceeds of crime. Hence, the PML
authorities were directed to detach the assets of the corporate debtor.

3
Anil Goel, Liquidator, Rotomac Global (P.) Ltd. vs. Directorate of Enforcement, (NCLAT), dated 02.07.2019.
4
Company Appeal No. 493 of 2018.
5
Calcutta High Court judgment is yet to be included in this section.