LEGALLY SPEAKING

November, 2019

Rights of Owner of the Property

will prevail over the Non-Obstante
clause - Judgment of the Hon’ble
Supreme Court in the case of
M.C.G.M. v. Abhilash Lal & Ors.
Civil Appeal No. 6350 of 2019

Author Raghav Shekhar, Advocate

Vetted by Omprakash Jha, Advocate
 SECTION 238 OF IBC WILL ONLY COME INTO PLAY WHEN THE
ADJUDICATING AUTHORITY HAS TO DECIDED THE ISSUE PERTAINING TO
PROPERTIES AND ASSETS OF THE CORPORATE DEBTOR AND NOT A
THIRD PARTY

INTRODUCTION

Section 238 of the Insolvency and Bankruptcy Code, 2016 has been time and again interpreated by
various Court and Tribunals including the Hon’ble Supreme Court. Section 238 of the IBC is a non-
obstante clause which stipulates that the provisions of the Code shall have an over-riding effect over
anything inconsistent therewith in any other law. The said provision has been applied by the National
Company Law Tribunals established under IBC at the stage of Corporate Insolvency Resolution
Process and even at the stage of approval of Resolution Plan.

Our Courts and Tribunals and also the Hon’ble Supreme Court have time and again considered that
the applicability of any legislation ought to be determined based on the object and purport of the
concerned legislation in accordance with the date on which the Act came into force.

A similar issue with respect to the overriding effect of Section 238 came to be cconsidered by the
Hon’ble Supreme Court in the case of the M.C.G.M. v. Abhilash Lal & Ors. Civil Appeal No. 6350 of
2019 wherein the Hon’ble Supreme Court considered the violation of Section 92 read with Section
92A of Municipal Corporation of Greater Mumbai Act, 1888 in the Resolution Plan submitted by the
successful Resolution Applicant.

BRIEF FACTS

MCGM owns a certain plot of land in village Marol, Andheri East, Mumbai which was being
developed by SevenHills Healthcare (P.) Ltd. under an agreement entered between MCGM and
SevenHills Healthcare (P.) Ltd. The said development was required to be completed within a period
of 60 months however, the same was not completed. Under the said agreement a lease deed was to be
executed between MCGM and SevenHills Healthcare (P.) Ltd. however, the same was not executed as
the project was not completed. Accordingly, the agreement came to be terminated by MCGM and
SevenHills Healthcare (P.) Ltd. was liable to pay outstanding rent to MCGM.

SevenHills Healthcare (P.) Ltd. on the strength of the aforesaid contract borrowed money from banks
and financial institutions and created mortgage on the said land belonging to MCGM. In view of the
inability to repay the money borrowed, Axis Bank Ltd. initiated insolvency proceedings before the
National Company Law Tribunal against SevenHills Healthcare (P.) Ltd. The said proceeding came to
be admitted and a Resolution Plan submitted by Dr. Shetty’s New Medical Centre came to be
approved by the Committee of Creditors.

MCGM filed an application before the National Company Law Tribunal objecting to the approval of
the said plan as it was in contradiction of Section 92 read with Section 92A of the
Municipal Corporation of Greater Mumbai Act, 1888. The said objection came to be rejected by the
National Company Law Tribunal and also by National Company Law Appellate Tribunal in appeal.
The said order came to be challenged by MCGM before the Hon’ble Supreme Court.
 FINDINGS OF THE HON’BLE SUPREME COURT
The Hon’ble Supreme Court while dealing with the aforesaid issue came to a finding that Section 92
read with Section 92A of Municipal Corporation of Greater Mumbai Act, 1888 mandates and
prescribes the manner in which disposal of land belonging to MCGM would take place. However, the
Resolution Plan submitted by Dr. Shetty’s New Medical Centre failed to consider the same.

Also, the permission of MCGM was not sought for in the Resolution Plan with respect to the manner
in which the properties shall be dealt pursuant to the approval of the Resolution Plan which was
imperative under Section 92 read with Section 92A of Municipal Corporation of Greater Mumbai Act,
1888.

The Hon’ble Supreme Court while relying on the decision in the case of Ram Singh Vijay Pal Singh &
Ors. v. State of U.P. & Ors. (2007) 6 SCC 44 and also of Essar Bulk Terminal Limited & Anr. V. State
of Gujarat & Ors. (2018) 3 SCC 750 held that is a statute requires a ting to be done in a particular
manner, it should be done in that manner only which has not been done in the present case. Thus, the
alienation or creation of any interest in respect of MCGM’s properties can only be done as per Section
92 read with Section 92A of Municipal Corporation of Greater Mumbai Act, 1888 which has not been
complied with in the Resolution Plan submitted by Dr. Shetty’s New Medical Centre.

Even though Section 238 of IBC has an overriding effect, the Hon’ble Supreme Court went on to hold
that Section 238 cannot be read as overriding the MCGM’s right to control and regulate how its
properties are to be dealt with as the properties in the present case belong to MCGM and not the
Corporate Debtor i.e. SevenHills Healthcare (P.) Ltd.

Therefore, the Supreme Court while setting aside the order passed by National Company Law
Tribunal and National Company Law Appellate Tribunal held that in absence of approval in terms of
Section 92 read with Section 92A of Municipal Corporation of Greater Mumbai Act, 1888, the
objections of MCGM could not be overridden.

CONCLUSION
The judgment as passed by the Hon’ble Supreme Court is a step in right direction as it restricts the
blanket overriding effect that Section 238 of IBC enjoys. The National Company Law Tribunal while
approving a Resolution Plan under Section 31 of IBC has to consider without fail the objections raised
by parties under Section 30(2) of IBC.

The judgement, in effect, clarifies the law in relation to the interpretation of the Code vis a vis other
special legislations. In our opinion, the instant case provided an occasion wherein the application of
section 238 was not warranted on account of a sperarte procedure precribed under a separate
legislation i.e. Municipal Corporation of Greater Mumbai Act, 1888.

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