This article written by Tinku Singh Deora, in his 5th year of BA.LLB from Jagannath University, Jaipur, during his internship at LeDroit India, about the concept of Insolvency and Bankruptcy Code and its objective in light of the landmark case of Innoventive industries ltd. V. ICICI Bank
ABSTRACT
This article analyses the Supreme Court’s seminal ruling in Innoventive Industries Ltd. v. ICICI Bank (2017), which established the Insolvency and Bankruptcy Code, 2016 as a comprehensive and overriding framework for corporate insolvency in India. By examining the conflict between State-level industrial protection laws and the unified national insolvency regime, the paper highlights the Court’s emphasis on legislative supremacy, uniformity, and timely resolution. The judgment significantly strengthened creditor confidence, reduced procedural uncertainty, and clarified the role of adjudicating authorities, thereby contributing to a more predictable and efficient insolvency landscape.
Keywords: insolvency law, judicial interpretation, creditor rights, legislative conflict, corporate restructuring, economic reform.
INTRODUCTION
The Insolvency and Bankruptcy Code, 2016 marked a paradigm shift in India’s approach to insolvency and restructuring, introducing a unified, time-bound, and creditor-centric model intended to enhance economic efficiency and strengthen credit culture. In the early stages of the Code’s implementation, legal uncertainty emerged regarding its interplay with pre-existing State and Central laws. One of the earliest and most significant judicial attempts to clarify this uncertainty was the Supreme Court’s verdict in Innoventive Industries Ltd. v. ICICI Bank (2017).
As the first comprehensive judicial exposition on the IBC, the case became foundational in establishing the Code’s overriding character, resolving questions of legislative conflict, and setting procedural standards for insolvency adjudication. The judgment not only shaped subsequent insolvency jurisprudence but also played a crucial role in stabilising India’s restructuring ecosystem.
LEGAL FRAMEWORK OF INSOLVENCY AND BANKRUPTCY CODE, 2016 & PRINCIPLE RULES
The Insolvency and Bankruptcy Code, 2016 represents one of the most transformative legislative reforms in India’s commercial law framework. Prior to its enactment, insolvency in India was governed by a fragmented legal regime comprising the Sick Industrial Companies Act (SICA), the Companies Act provisions on winding up, and various debt recovery laws. This multiplicity resulted in prolonged delays, conflicting judicial interpretations, and a near-total erosion of creditor confidence.
The IBC sought to dismantle this system by creating a comprehensive, unified, and time-bound insolvency mechanism. Its primary objectives include ensuring the reorganisation and insolvency resolution of corporate persons in a manner that maximises the value of their assets, promotes entrepreneurship, increases credit availability, and balances stakeholder interests. The Supreme Court in Innoventive Industries reinforced that the IBC is a “complete code,” meaning that it is self-contained, exhaustive, and intended to exclusively govern the field of corporate insolvency, thereby allowing minimal space for extraneous statutory interference.
1.1 Section 7 – Initiation of Insolvency by Financial Creditor
Section 7 of the IBC enables a financial creditor—typically banks and financial institutions—to initiate the Corporate Insolvency Resolution Process (CIRP) upon the occurrence of a default. The provision is critical because it establishes the central mechanism through which creditor-driven insolvency proceedings begin. Under Section 7(5), the National Company Law Tribunal (NCLT) must admit the application if the creditor demonstrates (i) the existence of a financial debt, and (ii) the occurrence of a default. Importantly, the Supreme Court in Innoventive Industries clarified that this inquiry is intentionally narrow and mechanical. The NCLT’s jurisdiction at the admission stage does not extend to examining wider disputes, assessing State legislation, or inquiring into reasons for default.
This interpretation underscores the legislative intent of ensuring speed—a core value within the IBC architecture. Historically, Indian insolvency regimes suffered from strategic litigation and dilatory tactics by debtors seeking to evade creditor enforcement. By constraining the NCLT’s scrutiny only to objective indicators—debt and default—the Court ensured that the admission process remains free from unnecessary complexity or delay. This decision ultimately strengthened the certainty and predictability of India’s insolvency framework.
1.2 Section 238 – Overriding Effect of the IBC
Section 238 grants the IBC overriding authority over all other laws that may be inconsistent with it. This provision plays a decisive role in resolving statutory conflicts. It states that “the provisions of this Code shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”
In Innoventive Industries, this clause became the fulcrum of the Court’s reasoning. The corporate debtor had invoked a State legislation (MRU Act) to shield itself from insolvency proceedings. However, the Supreme Court held that because the MRU Act suspended liabilities and restricted creditor actions—thus directly clashing with the IBC’s framework—Section 238 required that the IBC override the State statute. The Court emphasised that the IBC was enacted later in point of time, was intended to be exhaustive, and possessed a non-obstante clause expressly designed to eliminate inconsistencies. Section 238 thus ensures uniformity across India’s insolvency regime, preventing State-level interventions from undermining the Code’s effectiveness.
- MAHARASHTRA RELIEF UNDERTAKINGS (SPECIAL PROVISIONS) ACT, 1958 (MRU ACT)
The Maharashtra Relief Undertakings (Special Provisions) Act, 1958 is a State legislation created to protect industrial undertakings considered vital for the State’s economy. It allows the State Government to declare any undertaking a “relief undertaking” for a specific period. Once such a declaration is made, the enterprise receives extraordinary statutory protection, including suspension of contractual obligations, immunity from debt enforcement, and a moratorium on legal proceedings. The objective is to provide temporary breathing space to potentially viable industries suffering from financial distress, thereby safeguarding employment and preventing economic dislocation.
In the Innoventive Industries case, the corporate debtor relied heavily on the MRU Act, asserting that the State Government’s declaration prevented initiation of CIRP under the IBC. The debtor argued that the State moratorium should prevail because it was issued before the IBC came into effect. The Supreme Court rejected this reasoning, holding that although the MRU Act once played an important role in State-level industrial policy, it cannot override the IBC’s unified national insolvency framework. The judgment effectively limits the scope of such State legislations in the post-IBC era, emphasising the primacy of the Central statute.
3. ARTICLE 254 OF THE CONSTITUTION OF INDIA
Article 254 solves conflicts arising between Central and State laws enacted on subjects listed in the Concurrent List. It states that where such laws are inconsistent, the Central law will prevail, and the State law will be void to the extent of inconsistency. In Innoventive Industries, the Supreme Court applied Article 254 to resolve the conflict between the IBC (a Central law) and the MRU Act (a State law).
The Court held that both laws address matters concerning insolvency and debt recovery—subjects situated within the Concurrent List. Because the MRU Act imposed suspensions on liabilities and proceedings while the IBC enabled creditors to directly initiate insolvency upon default, the two laws were fundamentally inconsistent. As a result, Article 254 mandated that the IBC supersede the MRU Act. The ruling affirmed a constitutional hierarchy governing Indian commercial law: when national economic legislation like the IBC conflicts with State-specific rescue measures, the national legislation prevails to maintain uniformity.
4. DOCTRINE OF REPUGNANCY
The doctrine of repugnancy arises when two legislative enactments—one by Parliament and the other by a State Legislature—cannot operate simultaneously without contradiction. If compliance with one leads to the violation of the other, the conflict is irreconcilable, and the State law becomes void to the extent of inconsistency.
In this case, the MRU Act prevented creditors from enforcing liabilities while the IBC required immediate admission of a creditor’s application upon default. A creditor could not simultaneously respect the MRU moratorium and pursue proceedings under the IBC. Given this direct conflict, the Supreme Court held that the MRU Act was repugnant to the IBC. The Court’s application of this doctrine exemplifies how insolvency law, by its very nature, cannot accommodate parallel and inconsistent mechanisms.
5. DOCTRINE OF OCCUPIED FIELD
The doctrine of occupied field applies when a Central law is intended to comprehensively regulate a subject, leaving no room for State legislation to operate. The Supreme Court observed that the IBC is a complete code that governs insolvency exhaustively—from initiation of proceedings to resolution and liquidation. This comprehensive design indicates Parliament’s intention to exclusively occupy the legislative field of corporate insolvency.
Consequently, State laws like the MRU Act, which attempt to create alternative or parallel insolvency protections, are not merely inconsistent—they are entirely displaced. The Court’s invocation of this doctrine reinforces the structural integrity of the IBC and prevents fragmentation of the insolvency process across different jurisdictions.
6. PURPOSIVE INTERPRETATION OF THE IBC
In interpreting the IBC, the Supreme Court adopted the purposive interpretation approach, which requires courts to interpret statutes in a manner that furthers their underlying objectives. The IBC was enacted to provide time-bound resolution, uniform legal treatment of insolvency, maximisation of asset value, and minimisation of litigation-induced delays.
Granting primacy to the MRU Act would have defeated these objectives by allowing corporate debtors to evade insolvency through State-imposed moratoria. The Court recognised that delays were the primary problem in India’s earlier insolvency regime. Therefore, the IBC must be interpreted in a manner that eliminates such delays rather than revives them under a new label. The Court’s purposive approach ensured that the IBC remains effective, efficient, and aligned with global best practices.
INNOVENTIVE INDUSTRIES LTD. V. ICICI BANK (2017)
A Foundational Judicial Interpretation of the Insolvency and Bankruptcy Code
I. Facts of the Case
Innoventive Industries Ltd., having borrowed funds from ICICI Bank and other financial institutions, eventually slipped into financial distress and defaulted on its repayment obligations. ICICI Bank invoked Section 7 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP). The corporate debtor resisted the action by relying on the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 (MRU Act), under which the State Government had earlier declared the company a “relief undertaking.”
Such a declaration had the effect of suspending the company’s financial obligations and protecting it from creditor actions. Innoventive argued that this statutory moratorium prevented insolvency proceedings under the IBC and that the NCLT ought to have declined admission of the petition. The NCLT rejected the contention and admitted the petition, a decision the NCLAT upheld. The matter ultimately reached the Supreme Court for final adjudication.
II. Issues Before the Court
The Supreme Court had to determine three core questions. First, whether the MRU Act could override or suspend the operation of the IBC. Second, whether a company declared a relief undertaking under a State Act could use such protection to resist a Section 7 petition filed by a financial creditor. Third, the Court had to clarify the nature and scope of NCLT’s jurisdiction at the admission stage of a Section 7 application, particularly whether the tribunal must only ascertain the existence of debt and default or whether it must also consider additional defences raised by the debtor.
III. Arguments of the Parties
A. Petitioner: Innoventive Industries Ltd.
Innoventive argued that its status as a relief undertaking under the MRU Act resulted in a statutory suspension of liabilities, thereby preventing creditors from initiating any form of enforcement or insolvency proceedings. The company submitted that the State-granted protection existed prior to the enactment of the IBC and should continue to operate until the expiry of the State’s notification. It further argued that the State legislation could not be rendered meaningless simply because a subsequent Central law was enacted, and that the NCLT failed to appreciate the legislative intent behind the MRU Act, which focused on protecting industrial operations and employment.
B. Respondent: ICICI Bank
ICICI Bank countered that the IBC, through Section 238, expressly overrides all inconsistent laws. Being a later, comprehensive Central legislation, it supersedes any repugnant State enactments under Article 254 of the Constitution. The bank further asserted that the NCLT’s role under Section 7 is strictly confined to verifying the existence of a financial debt and the occurrence of a default. The tribunal is neither expected nor permitted to consider State-level moratoria or other extraneous disputes. Allowing State Acts like the MRU Act to obstruct the operation of IBC would defeat the purpose of establishing a uniform national insolvency framework.
IV. Judgment and Reasoning of the Supreme Court
The Supreme Court upheld the decisions of the NCLT and NCLAT and ruled in favour of ICICI Bank. The Court held that the IBC is a later and complete code governing insolvency, and by virtue of its non-obstante clause in Section 238, it overrides the MRU Act. Since both legislations operate in the same field and since their provisions are incompatible, the Central law prevails under Article 254. The Court further clarified that when considering a Section 7 application, the NCLT is required only to determine whether a financial debt exists and whether a default has occurred, based on documentary evidence.
Once these two factual elements are established, the tribunal must admit the application. This limited enquiry is consistent with the IBC’s objective of ensuring time-bound insolvency resolution. The Court emphasised that the IBC was enacted to provide a uniform, efficient, and speedy insolvency mechanism. Allowing State moratoriums to impede the functioning of the Code would fragment the insolvency landscape and undermine the Code’s core objectives of certainty, value maximisation, and creditor protection.
CONCLUSION
The Innoventive Industries decision is widely regarded as a cornerstone of Indian insolvency jurisprudence. Doctrinally, the judgment provides much-needed clarity regarding the supremacy of the IBC over conflicting State legislations. It reaffirms the Code as a self-contained and overriding framework, promoting national uniformity in insolvency resolution. Economically, the decision eliminates the possibility of debtors using State-level moratoriums as tactical shields against creditor actions, thereby strengthening lending confidence and the enforceability of credit contracts. Institutionally, the judgment advances procedural efficiency by limiting the scope of NCLT’s review under Section 7, thereby reducing the likelihood of protracted admission disputes.
However, several concerns accompany this otherwise commendable decision. The rigid threshold established for admission may, in exceptional cases, enable creditors to trigger insolvency proceedings prematurely, particularly in industries experiencing cyclical downturns rather than structural insolvency. Moreover, the judgment significantly restricts the ability of States to deploy industrial-relief legislation for economic or social policy objectives, raising federal considerations that deserve deeper scrutiny. The decision also heavily favours the creditor, creating the need for more nuanced safeguards to protect genuinely viable but temporarily distressed enterprises.
Going forward, the insolvency framework requires balanced reforms. There is a pressing need for preliminary screening mechanisms to deter frivolous insolvency triggers, harmonisation of State laws with the IBC to prevent future conflicts, and enhanced institutional capacity within the NCLTs to ensure timely adjudication. A cooperative framework between the Union and State governments may further help reconcile industrial-relief measures with the Code’s objectives. Ultimately, the Innoventive Industries ruling remains an indispensable guidepost for India’s insolvency regime, shaping its doctrinal evolution and influencing the trajectory of economic reform.
