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INTRODUCTION

Section 238 of the code enumerates that “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.” Section 238 is a non-obstante provision. It signifies that a clause or provision in the Act has the authority to override any other provision or clause in the Act that conflicts with this or another legislation.

The court addressed the issue of the IBC's predominance over the Income Tax Act in defining the obligations of the Income Tax Authority during liquidation in the case of Leo Edibles & Fats Ltd v. the Income-tax Department. If the assessed company is going through IBC liquidation, the Income Tax Authority is no longer able to assert a priority in regard to the payment of tax debts under the Income Tax Act. The High Court further ruled that the Income Tax Authority will not get a secured creditor interest under the IBC for assets that are subject to attachment, even if they are secured.

INTERFACE BETWEEN SARFASI ACT AND IBC

Banks and other financial institutions are permitted to auction off residential or commercial properties owned by borrowers to recoup loans under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the "SARFAESI Act"). This can be done without going through the courts.

However, the secured creditor's interest has been somewhat undermined since the implementation of IBC. In accordance with the IBC, the Moratorium is applicable to "any action to foreclose, recover, or enforce any security interest created by the corporate debtor with respect to its property, including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002)," once a CIRP has been started. Because of this, any financial institution attempting to enforce its security under SARFAESI has to wary of impeding proceeding under IBC.

The J.M. Financial Asset Reconstruction Company v. Indus Finance Ltd. decision, which was resolved by the NCLT in Bombay, clarifies the legal position mentioned above. JM Financial Asset Reconstruction Company had filed a SARFAESI Act lawsuit against the wrongdoing corporate debtor in the aforementioned case. Under Section 13 of the SARFAESI, the sale of the moveable property pledged as security has begun. The sale had been confirmed in favor of a transferee after the auction sale procedure under Rule 9 of the Security Interest (Enforcement) Rules, 2002, upon payment of 25% of the sale price. The auction sale was halted, nonetheless, because the Tribunal determined that the sale had only been confirmed and not yet been completed. In order to block the SARFAESI procedures, it was asserted in this case—though unsuccessfully—that the corporate debtor had colluded with the financial creditor to file CIRP against itself. However, given that Section 10 of the IBC allows a corporate debtor to request the beginning of CIRP against itself, it is possible that the borrowers may use those proceedings to halt recovery under SARFAESI. 

INTERFACE BETWEEN ARBITRATION ACT AND IBC

IBC is not a recovery mechanism, according to Section 9 (Application by an Operational Creditor). Therefore, an application to commence CIRP is not admitted if there is a "pre-existing dispute" in regard to a "operational debt". An "arbitration proceeding" falls under the definition of "dispute" in Section 5(6) of the IBC. An operational creditor's application under section 9 of the IBC will be denied while arbitration proceedings are pending.

 In K Kishan v. Vijay Nirman Company Pvt Ltd, the Honourable Apex Court also ruled that a challenge to an arbitration ruling under Section 34 of the Arbitration & Conciliation Act, 1996, constitutes the existence of a dispute under IBC. Therefore, unless the challenge to the judgement has been resolved or the window for submitting such a challenge has passed and the award has become final, CIRP cannot be started even after the conclusion of arbitration procedures with respect to the operational debt.

However, if other requirements for admission of application are satisfied, an arbitration clause by itself will not automatically oust the NCLT's jurisdiction under the IBC due to the overriding impact of the IBC. n proceedings over that operational debt are ongoing.

A financial creditor's application under section 7 of the IBC is not eligible for the "pre-existing dispute" argument. The only thing a financial creditor needs to show is "default". This leads to the conclusion that an application made in accordance with Section 7 of the IBC is not preempted by the current arbitration. In addition, the moratorium that goes into force from the day the NCLT admits the application under section 7 of the IBC keeps all other processes pending before any courts or tribunals, including arbitral tribunals.

"Under Section 7 of the IBC there is no bar to initiate CIRP even if arbitration proceedings are pending," the NCLT ruled in Reliance Commercial Finance Limited vs. Ved Cellulose Limited,2017. "However, such a bar exists in respect of claim made by the Operational Creditor under Section 9 of the IBC."

CONCLUSION

The Supreme Court's ruling determines the future scope of Section 238's overriding effect, but previous instances of this effect have weighed more in favor of IBC, so it is simple to assume that the Supreme Court will likely reach the conclusion that IBC prevails over SEBI in recovery proceedings after considering objective factors like faster recovery, quicker resolution, and maximization of asset value with benefits for all.