The Supreme Court has decisively affirmed that the Insolvency and Bankruptcy Code, 2016, operates as a special statute with overriding effect over inconsistent provisions of the Companies Act, 1956. A stale, procedurally defective Scheme of Arrangement cannot be invoked to indefinitely stall Corporate Insolvency Resolution Proceedings, especially when statutory timelines have been flagrantly ignored and public financial interests are at stake.
Background & Facts
The Dispute
The dispute arose when Omkara Assets Reconstruction Private Limited, as successor to the Stressed Assets Stabilization Fund of IDBI Bank, initiated Corporate Insolvency Resolution Proceedings (CIRP) under Section 7 of the IBC against Amit Chaturvedi and others, the corporate debtor and its former directors. The bank had disbursed term loans totaling Rs.10.6 crore in 1999 and 2000, with default commencing in 2003. By 2025, the outstanding debt had ballooned to Rs.154.33 crore.
Respondent No.2 resisted the CIRP by invoking a Scheme of Arrangement (SOA) approved under Sections 391 to 394 of the Companies Act, 1956, allegedly sanctioned by the Punjab and Haryana High Court in 2019. The SOA was originally proposed in 2008, based on dues as of that year.
Procedural History
- 2008: Creditors approved SOA at a meeting; Chairperson filed report with High Court on 25.07.2008.
- 2009: Second motion for sanction of SOA was filed, but beyond the 7-day statutory deadline under Rule 78 of the Companies (Court) Rules, 1959.
- 2016: The Companies (Transfer of Pending Proceedings) Rules, 2016 came into force, mandating transfer of pending Company Court proceedings to the NCLT.
- 2019: High Court passed order sanctioning SOA on 23.07.2019, over a decade after the initial meeting.
- 2022: The Stressed Assets Fund moved to recall the 2019 sanction order, which was allowed on 02.08.2022, finding the SOA inoperative.
- 2023: Form INC-28 for filing the SOA with the Registrar was submitted on 06.07.2023 - over four years late.
- 2025: Appellate Tribunal stayed CIRP, citing judicial discipline and pending High Court proceedings.
Relief Sought
The appellant sought to revive the CIRP initiated under Section 7 of the IBC, arguing that the SOA was legally defunct due to non-compliance with statutory timelines, withdrawal of creditor consent, and the overriding mandate of Section 238 of the IBC.
The Legal Issue
The central question was whether Section 238 of the IBC permits initiation of Corporate Insolvency Resolution Proceedings when a stale, non-compliant Scheme of Arrangement under the Companies Act remains pending in court, and whether judicial discipline can override the statutory imperative of corporate revival.
Arguments Presented
For the Appellant
The appellant, represented by Senior Counsel Neeraj Kishan Kaul, argued that the SOA was legally inoperative due to: (1) failure to file the second motion within seven days as mandated by Rule 78 of the Companies (Court) Rules, 1959; (2) withdrawal of creditor consent in 2009; (3) non-filing of the sanction order with the Registrar within 14 days as required by Rule 81; and (4) the passage of over a decade rendering the scheme economically irrelevant. The appellant relied on A. Navinchandra Steels (P) Ltd. v. Srei Equipment Finance Ltd. and Sunil Kumar Sharma v. ICICI Bank Ltd. to establish that Section 238 of the IBC overrides conflicting provisions of the Companies Act, and that Section 7 proceedings are independent and unaffected by pending Company Court matters.
For the Respondent
Ms. Purti Gupta, for the respondents, contended that the High Court’s 2019 sanction order, even if delayed, remained valid and binding. She argued that judicial discipline required the Adjudicating Authority to await the outcome of the pending Company Court proceedings. She distinguished A. Navinchandra Steels on the ground that it involved liquidation, not an approved SOA, and claimed that the IBC should not displace consensual restructuring approved by creditors.
The Court's Analysis
The Court undertook a meticulous review of statutory compliance under the Companies Act and its interaction with the IBC. It emphasized that Section 238 of the IBC provides an explicit overriding effect: "The provisions of this Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
The Court found that the SOA failed on multiple statutory grounds: the second motion was filed years after the 7-day deadline; the sanction order was not filed with the Registrar within 14 days; and creditor consent had been withdrawn in 2009. The 2019 sanction order was held to be jurisdictionally defective, as the Company Court had lost jurisdiction after the 2016 Rules came into force.
"The statutory timelines have not been complied with and at the risk of repetition, we notice various dates... the SOA... would have become completely unenforceable in the year 2019."
The Court further held that the mere pendency of proceedings before the High Court cannot justify halting CIRP, especially when the underlying scheme is legally defunct. Judicial discipline, while important, cannot be weaponized by dilatory litigants to frustrate the IBC’s objective of economic revival.
The Court distinguished Sunil Kumar Sharma by noting that in that case, the SOA was merely pending consideration, whereas here, the SOA was never operational and had become obsolete. It also clarified that while Section 230 of the Companies Act, 2013 permits compromise arrangements during IBC proceedings, such arrangements must be proposed within the IBC framework - not resurrected from a dead, non-compliant scheme.
The Court concluded that the Appellate Tribunal’s order was legally unsustainable. The IBC’s primary objective - to revive corporate debtors and protect public funds - takes precedence over procedural delays that render schemes meaningless.
The Verdict
The appellant won. The Supreme Court held that Section 238 of the IBC overrides non-compliant, defunct Schemes of Arrangement under the Companies Act, and that Section 7 proceedings are independent of stalled Company Court matters. The Appellate Tribunal’s order was set aside, the moratorium was revived, and the Interim Resolution Professional was restored to control of the corporate debtor.
What This Means For Similar Cases
Defunct SOAs Cannot Block IBC Initiation
- Practitioners must now challenge any SOA invoked to stall CIRP by proving non-compliance with statutory timelines under the Companies Act.
- Delay beyond prescribed periods under the Companies (Court) Rules, 1959, or failure to file with the Registrar, renders an SOA legally inoperative.
- Creditors’ withdrawal of consent, even if unrecorded, can be used to demonstrate lack of enforceability.
Section 238 IBC Is a Shield Against Procedural Delays
- The overriding effect of Section 238 of the IBC is not conditional on the nature of the competing proceeding - it applies to all inconsistent laws.
- Courts cannot invoke "judicial discipline" to justify indefinite stays of CIRP when the underlying proceeding is legally dead.
- The mere existence of a pending Company Court application is insufficient to halt IBC proceedings.
Procedural Compliance Is Non-Negotiable in Corporate Restructuring
- All filings under the Companies Act must strictly adhere to timelines: 7 days for second motion, 14 days for Registrar filing.
- Form INC-28 filings made years after the due date are not curative; they are evidence of non-compliance.
- Practitioners initiating CIRP should systematically document: (a) statutory deadlines missed, (b) withdrawal of consent, (c) inflation of debt, and (d) jurisdictional changes post-2016 Rules.
