The IBC's non-obstante clause (Section 238) gives it overriding effect over all prior legislation — state or central — that conflicts with its provisions.

The Legal Question Before the Court

Innoventive Industries Ltd. was subject to insolvency proceedings initiated by ICICI Bank under the Insolvency and Bankruptcy Code, 2016 (IBC). The company sought protection under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 — a state legislation that enabled the state government to declare a company a "relief undertaking" and thereby give it immunity from recovery proceedings. The question was whether the IBC proceedings could continue notwithstanding the state government's protection order under the Maharashtra Act.

The Court's Decision

The court held that the IBC has overriding effect over the Maharashtra Relief Undertakings Act by virtue of Section 238 of the IBC, which provides that the Code's provisions shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force or any instrument having effect by virtue of any such law. This is a plenary non-obstante clause covering all prior legislation — central and state.

The court also provided an important analytical framework: for a financial creditor to succeed in having a Corporate Insolvency Resolution Process (CIRP) admitted by the NCLT, it must prove: (a) that a debt exists; (b) that a default has occurred; and (c) that the application is otherwise complete. The inquiry at the admission stage is limited — the NCLT does not investigate the merits of the underlying transaction.

The Court's Reasoning

The bench examined the constitutional basis for the IBC: Parliament enacted it under Entry 9 (bankruptcy and insolvency) of the Concurrent List (List III) of the Seventh Schedule to the Constitution. When Parliament legislates under the Concurrent List and the state legislation is repugnant to it, the Parliamentary legislation prevails by virtue of Article 254 of the Constitution. The IBC's non-obstante clause reinforces this position.

The court noted the transformative legislative intent of the IBC: to create a time-bound, market-oriented insolvency resolution process that places the commercial wisdom of creditors above judicial intervention, and that displaces all prior ad hoc, fragmented insolvency frameworks — including state-specific relief and rehabilitation schemes.

Practical Implications — What This Means Today

Innoventive Industries is the foundational IBC admission ruling. It established that a financial creditor — a bank, NBFC, or debenture holder — with a debt and default has a near-absolute right to initiate CIRP under Section 7. The debtor company cannot use state legislation, contractual arrangements, or pending civil litigation to resist admission.

For businesses in Kerala and across India, this ruling clarifies the irreversible nature of IBC proceedings once admitted. A company that allows a debt to remain unpaid without resolution faces the prospect of CIRP, which transfers control of the company to an Interim Resolution Professional and ultimately to the Committee of Creditors. Once admitted, only a settlement — not a state protection order — can halt the process.

Relevant Statutory Provisions

  • Section 7, Insolvency and Bankruptcy Code, 2016 — Financial creditor's application to initiate CIRP
  • Section 238, Insolvency and Bankruptcy Code, 2016 — Provisions of IBC to override other laws — plenary non-obstante clause
  • Article 254, Constitution of India — Repugnancy between central and state laws — central law prevails

Analysis by Vinode V. Luka, Advocate | Published: May 2026 | Last reviewed: May 2026