Shubham Budhiraja
2 August 2020 4:40 PM



Sec. 238 of the Insolvency and Bankruptcy Code (IBC) 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.”

 Section 238 of IBC outlines the Non-obstante features of the code. The Non-obstante clause of any act 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.

Further, the judiciary has always been the evident of interpreting the Non-obstante clause of an act and no single test has been evolved yet. However, Section 238 of the Code is designed in such a way as to attain the ultimate objective of not to 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.

It is also important to note that Section 238 of IBC has been designed in order to support the moratorium manuals outlined under section 14 of said code.

The Insolvency and Bankruptcy Code, 2016 (IBC) came into force on December 1, 2016.  However, the First rival story started in matter of M/s Innoventive Industries Ltd. vs. ICICI Bank.

The Hon’ble Supreme court of India in matter of M/s Innoventive Industries Ltd. vs. ICICI Bank via very detailed judgment has mentioned that the:

Non-obstante clause of IBC will prevail over the non-obstante clause in the (Maharashtra Relief Undertaking (Special Provisions Act) 1958MRUA. Further, it was also held that on account of the non-obstante clause in the IBC, any right of the corporate debtor under any other law cannot come in the way of the IBC.


However, Hon’ble Delhi High Court in matter of Power Grid Corporation of India Ltd. vs Jyoti Structures Ltd while observing taking a different view for moratorium, has ruled that Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as the ‘IBC’) would not apply to proceedings which are beneficial to the corporate debtor. Proceedings’ under Section 14 (1) (a) do not mean ‘all proceedings’ and Continuation of proceedings under Section 34 of the Arbitration Act which do not result in endangering, diminishing, dissipating or adversely impacting the assets of the corporate debtor are not prohibited under Section 14(1)(a) of the code. The continuation of these proceedings shall cause no harm to the rights of either party to seek determination of issues under Section 34 of the Act and object of the code shall be preserved rather than defeated.



 Further, Hon’ble Supreme court of India in matter of, Pr. Commissioner Of Income Tax vs Monnet Ispat And Energy Ltd

Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act.


We may also refer in this Connection to Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. & Ors. (2000) 5 SCC 694 and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.



Hon’ble National Company Law Appellate Tribunal, while rejecting the appeal brought against NCLT order for CIRP while confirming the view taken by NCLT has held that the provisions of IBC would override the provisions of SEBI act, relied upon its own judgment in Anju Agarwal versus Bombay stock exchange and ors.






The Hon’ble NCLAT in Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd., held that amounts raised by developers under assured return schemes had the “commercial effect of a borrowing”, which became clear from the developers annual returns in which the amount raised was shown as “commitment charges” under the head “financial costs”. As a result, such allottees were held to be “financial creditors within the meaning of Section 5(7) of the Code.




The Hon’ble Supreme court of India in Chitra Sharma & Ors. v. Union of India (Writ Petition (Civil) No.744 of 2017) in the case of Jaypee Infratech Ltd. appointing a representative of the home buyers, i.e. the allottees to participate in meetings of the Committee of Creditors in order that their interests be protected.




Bikram Chatterji v. Union of India (Writ Petition (Civil) No.940 of 2017) substantially on the same lines as the order passed in Chitra Sharma (supra). During proceedings before this Hon’ble Court in Chitra Sharma (supra), this Court, vide order dated 21st March, 2018, recorded that it was only concerned with those home buyers who intend to obtain a refund of amounts advanced by them, being 8% of the total home buyers/allottees in Jaypee’s case.




The Insolvency Committee Report suggested that amendments be made in the Code seeking to clarify, as a matter of law, that allottees of real estate projects are financial creditors.


Three amendments to the code inserted via 2018 Ordinance:


1.      Explanation to Section 5(8)(f):


In this part, unless the context otherwise requires, – (8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration

for the time value of money and includes- (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;


Explanation. - For the purposes of this sub clause,-

(i)     any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and


(ii)   the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);”



2. Section 21(6A)(b)


“Committee of creditors (6A) Where a financial debt- (b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority

prior to the first meeting of the committee of creditors; […] and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.”


3. Section 25A


Rights and duties of authorized representatives of financial creditors

(1) The authorised representative under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such

creditors obtained through physical or electronic means. (2) It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents. The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior

instructions: Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share: Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor.

(4) The authorised representative shall file with the Committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be. Explanation For the purposes of this section, the “electronic means” shall be such as may be specified.”


 The Hon’ble Supreme court of India while dealing with the challenge to said amendment act of 2018 in matter of Pioneer Urban Land and Infrastructure  Limited & Anr. versus Union of India & Ors. has held that the:


i.        Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India.


ii.      The RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code.


iii.    Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.


Further, the Court also observed that there is no provision similar to that of Section 88 of RERA in the Code, which is meant to be a complete and exhaustive statement of the law insofar as its subject matter is concerned. Also, the non-obstante clause of RERA came into force on 1st May, 2016, as opposed to the non-obstante clause of the Code which came into force on 1st December, 2016. Further, the amendment with which we are concerned has come into force only on 6th June, 2018. Given these circumstances, it is a little difficult to accede to arguments made on behalf of learned senior counsel for the Petitioners, that RERA is a special enactment which deals with real estate development projects and must, therefore, be given precedence over the Code, which is only a general enactment dealing with insolvency generally.



Swiss Ribbons vs. Union of India”, the Hon’ble Supreme Court has upheld the constitutional validity of the Code. We are happy to note that in the working of the Code, the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid. igures show that the experiment conducted in enacting the Code is proving to be largely successful. The defaulter‘s paradise is lost. In its place, the economy‘s rightful position has been regained.



The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of the Indian government. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of any Indian government State.