The Bombay High Court in the case of Satyanarayan Bankatlal Malu v. Insolvency & Bankruptcy Board of India, [W.P. No. 2592 of 2021, judgment dated February 14, 2022], decides an interesting issue pertaining to the meaning of "Special Court" under the Insolvency & Bankruptcy Code, 2016 ("IBC”) for prosecuting the officers of a corporate debtor for making false representations to creditors or for committing fraud during the corporate insolvency resolution process.
Brief facts
The Bombay High Court while exercising its writ jurisdiction under Article 227 of the Constitution of India read with Section 482 of the Criminal Procedure Code, 1973 quashed the criminal proceedings filed before the Additional Sessions Judge, Mumbai Special Judge, whilst concluding that, the offences under IBC can only be tried by Metropolitan Magistrate of Judicial Magistrate First Class exercising jurisdiction as “Special Court” under the Companies Act, 2013 ("Companies Act").
The respondent i.e. Insolvency & Bankruptcy Board of India ("Insolvency Board"), had filed a complaint before the Additional Sessions Judge, Mumbai Special Judge for an alleged offence under Sections 73(a) and Section 235A of the IBC, as per which, an officer of a corporate debtor, is punishable with imprisonment for a term which shall not be less than 3 (three) years, but may extend to 5 (five) years or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both. Based on the complaint filed by the Insolvency Board, the Additional Sessions Judge, Mumbai issued process against the petitioners.
The petitioners approached the Bombay High Court challenging the impugned order passed by the Additional Sessions Judge, Mumbai, issuing process against them on the sole ground that, the Additional Sessions Judge does not have the jurisdiction to entertain the complaint filed by the Insolvency Board.
Issue
Whether offences under the IBC are to be tried by the “Special Court” comprising Sessions Judge or Additional Sessions Judge or by the “Special Court” comprising Metropolitan Magistrate or Judicial Magistrate First Class?
Relevant provisions of the law
To understand the petitioner's arguments, attention is drawn to the relevant provisions of the IBC and Companies Act.
Section 236(1) of the IBC states that offences under the Code shall be tried by the Special Court established under Chapter 28 of the Companies Act. As per Section 236(3) of the IBC, this Special Court shall be deemed to be a "Court of Session".
Section 435 of the Companies Act empowers the Central Government to establish Special Courts for speedy trial of the offences under the Companies Act. Section 435 of the Companies Act was amended twice; firstly in 2015 and thereafter in 2017 (effective in 2018).
Originally, Section 435 of the Companies Act empowered the Central Government to establish Special Courts for speedy trial of offences, only under the Companies Act and Sessions Judge or Additional Sessions Judge were qualified to be appointed as judges of the Special Court.
After the amendment was made in 2015, Special Courts, established by the Central Government consisting of the Judge holding office of Sessions Judge was empowered to try offences only under the Companies Act, which were punishable with imprisonment of two years or more. Other offences under the Companies Act, punishable with imprisonment less than two years, were triable by Court of Metropolitan Magistrate or Judicial Magistrate First Class.
The 2018 Amendment made it more compatible with the object of "speedy trial of offences". This Amendment empowered the Central Government to create two classes of Courts as Special Courts:
Arguments by the petitioner
By the 2018 amendment to Section 435 of the Companies Act, the Central Government was empowered to establish/ designate two classes of Courts as Special Courts, (i) Special Court consisting of Judge holding office as a Sessions Judge or Additional Sessions Judge; in case of offences punishable "under this Act" with imprisonment of two years or more and (ii) Special Court consisting of Metropolitan Magistrate or Judicial Magistrate First Class, in case of "other offences”.
Based on this new division in Section 435(2) of Companies Act, the petitioners argued that a Judge holding the office as a Sessions Judge is empowered and invested with the jurisdiction to try offences only under the Companies Act, punishable with imprisonment of two years or more.
On the other hand, the expression, “in case of other offences”, used in clause (b) of Section 435(2) of the Companies Act, in contradiction to expression, “under this Act”, in clause (a) of Section 435(2) of the Companies Act would mean, that the Special Courts consisting of Magistrate are invested with the jurisdiction to try offences under other legislations in addition to the offences under the Companies Act, punishable with imprisonment not more than two years.
The petitioners argued that before enactment of the IBC, Special Courts comprising Sessions Judge were established to try offences under the Companies Act, which were punishable with imprisonment with two years or more. As such only one class of Special Court was established i.e., Court of Sessions.
However, after the IBC came into effect, legislature in its wisdom, to avoid burden of cases on the Court of Sessions and for the speedy trial of offences under the IBC, created another class of Special Courts i.e., Court of Magistrate which by fiction of law under Section 236 of IBC shall be ‘deemed to be’ a Court of Sessions.
Therefore, according to the Petitioners, the offences under the IBC are triable by the Special Courts comprising Metropolitan Magistrate or Judicial Magistrate First Class and not by a Special Court comprising a judge holding office as a Session Judge or Additional Sessions Judge.
Arguments by the respondent
The Insolvency Board contended that the plain reading of Section 435 of the Companies Act, as amended by Act of 2017, does not admit the interpretation, as sought to be placed by the petitioners. The harmonious construction of provision of Section 236 of the IBC and amended Section 435 of Companies Act, leads to conclusion that the Court of Session alone has a jurisdiction to entertain the complaint, since offence referred therein, is punishable with imprisonment for more than three years.
Decision by the Court
The Bombay High Court accepted the arguments by the petitioner that the object to create another class of Special Court was to speed up the trial of offences under the IBC. Keeping in mind the said object, legislature thought it fit, not to burden Court of Sessions with trials under the IBC. The Bombay High Court thus observed that, the plain reading of clause (a) of Section 435(2) of the Companies Act in no uncertain terms implies that the phrase ‘under this Act’, only means the offences committed under the Companies Act. Therefore, the offences other than the Companies Act cannot be tried by the Special Court established under clause (a) of Section 435(2).
In view thereof, it would follow that the clear mandate of the legislature is that the “Special Court”, shall be Courts of Magistrate to try “other offences”. The phrase “other offences”, contained in Section 435(2)(b), in contradistinction to Section 435(2)(a) of Companies Act, would include (a) offences under the IBC, and (b) offences under the Companies Act but carrying punishment with imprisonment of less than two years.
Please find attached a copy of the judgment.
This update has been contributed by Prateek Katewa (Principal Associate, Designate).
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