Section 238 of the Insolvency and Bankruptcy Code, 2016, which is termed as a non-obstante clause is once again came into picture in the case of Power Grid Corporation of India Ltd.  Vs Jyoti Structures Ltd, after its detailed analysis made by judiciary in the matter of Innoventive Industries Ltd Vs. ICICI Bank & Anr. and Steamline Industries Ltd Vs. Tecpro Systems Ltd.

‘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.

Sec. 238 of the Code states as follows
“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.”

In the matter of Innoventive, question raised and answered against the Corporate Debtor was whether Financial Creditor can invoke Insolvency proceedings against Corporate Debtor when the Corporate Debtor is already enjoying a relief by way of exemption from repayment of debts and liabilities for the specified period provided by the Government under the Maharashtra Relief Undertaking (Special Provisions) Act (Bombay Act XCVI of 1958). Similarly, in the matter of Steamline, NCLAT upheld the same spirit of law stating that civil suits against the Corporate Debtor pending before the Delhi High Court can’t be proceed in view of moratorium declared by Adjudicating Authority U/s 13 read with section 14 of the Code.

Soon the time it is becoming perception in the mind of stakeholders that IBC will prevail over any other law becoming hindrance in the implementation of its provisions. Delhi High Court in the matter of   Power Grid Corporation of India Ltd. held that the proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the arbitral award in favour of the Corporate Debtor will not be set aside merely because moratorium declared by Adjudicating Authority under section 14 of the Code. Here, if the Arbitration proceedings were stayed, the Corporate Debtor would be unable to execute the award given in its favour for an extended period till the moratorium exists under the Code and would be unable to recover its dues thereby further impeding its financial condition.

The object of the Code as enumerated in the case of Power Grid Corporation of India is to provide relief to the Corporate Debtor through standstill period during which its assets are protected from dissipation or diminishment, and as a corollary, during which it can strengthen its financial position, extending of the non-executability of the award would rather prevent the Corporate Debtor from recovering money due to it and adding to its financial corpus. Such a consequence would in fact be directly contrary to the object of the Code.

It was also stated in Power Grid Corporation of India case that considering the object behind the moratorium, Section 14 of the Code would not apply to the proceedings which are in the benefit of the Corporate Debtor, like the one before this court in as much these proceedings are not a debt recovery action and its conclusion would not endanger, diminish, dissipate or impact the assets of the Corporate Debtor in any manner whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the Corporate Debtor’s assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company may continue as a going concern.

From the above decision, it is clear that Section 238 of the Code should be interpreted in a way that it does not hamper recovery of dues or enhance the value of assets of Corporate Debtor. Only in the case when because of the provisions of any other law, particular creditor gets undue advantage over other creditors, then Section 238 of the Code is to be strictly applied.

Author's Bio: 

M&A Critique is the only magazine, published from India which gives News, Deals and Analysis of Merger & Acquisitions, Restructuring, Takeovers and Joint Ventures.