Contributed By – Krishnkant Sharma ( BBA.LLB )
INTRODUCTION
The Indian banking sector has, over the years, witnessed a significant rise in non-performing assets (NPAs), compelling financial institutions to actively pursue legal mechanisms for recovery of dues. To address this issue, the legislature has provided multiple statutory frameworks such as the Recovery of Debts and Bankruptcy Act, 1993, the SARFAESI Act, 2002 and the Insolvency and Bankruptcy Code, 2016. While each of these enactments serves a distinct purpose, their simultaneous availability often creates practical and legal complications.
In practice, financial creditors often invoke more than one recovery mechanism, which raises questions of jurisdictional overlap and legislative supremacy. Conflicts commonly arise when parallel proceedings are initiated before different fora under these statutes against the same corporate debtor. This overlap has resulted in considerable judicial scrutiny.
This article seeks to examine the interplay between the IBC, the SARFAESI Act and the RDB Act, analyse the circumstances in which one statute prevails over the others, and critically evaluate the judicial approach adopted to resolve such conflicts.
BRIEF OVERVIEW OF THE THREE STATUTES
(A) Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 was enacted with the primary objective of resolving insolvency in a time-bound manner rather than merely facilitating recovery for individual creditors. The Code introduces a collective process wherein the interests of all stakeholders are considered through the Corporate Insolvency Resolution Process (CIRP). Once insolvency proceedings are admitted, the management of the corporate debtor shifts and a resolution professional takes charge, ensuring that the process remains creditor-driven and structured. The presence of a non-obstante clause under Section 238 further indicates the legislature’s intent to give the Code an overriding effect over other laws.
The statute primarily focuses on revival and value maximisation of the corporate debtor instead of piecemeal recovery.
(B) SARFAESI Act, 2002
The SARFAESI Act empowers secured creditors to enforce their security interest without the need for court intervention at the initial stage. It is essentially a self-help mechanism that allows banks and financial institutions to take possession of secured assets and proceed with their sale upon default. The Act is designed to provide speed and efficiency in recovery, particularly where the security is identifiable and enforceable. Proceedings under SARFAESI are largely creditor-centric and are aimed at minimising procedural delays.
The statute primarily focuses on enabling secured creditors to realise their dues through enforcement of security interest.
(C) Recovery of Debts and Bankruptcy Act, 1993
The RDB Act establishes specialised tribunals, namely the Debt Recovery Tribunals (DRTs), for adjudication of claims by banks and financial institutions. Recovery proceedings under this Act culminate in the issuance of a Recovery Certificate, which is then executed for realisation of dues. Unlike the IBC, the RDB Act operates on an individual creditor basis and does not contemplate a collective resolution framework.
The statute primarily focuses on adjudicatory recovery through a tribunal-based mechanism.
WHY CONFLICT ARISES BETWEEN THESE LAWS
The conflict between the IBC, the SARFAESI Act and the RDB Act arises primarily due to their concurrent applicability to the same factual situation. In most cases, the debtor is common, the default is identical, and the outstanding liability arises from the same lending transaction. However, the remedies available to creditors under these statutes are pursued before different forums, including the National Company Law Tribunal, the Debt Recovery Tribunal and, in certain cases, the Chief Metropolitan Magistrate.
This multiplicity of forums often results in parallel proceedings being initiated against the same corporate debtor. While one creditor may seek enforcement of security interest under the SARFAESI Act, another may choose to approach the DRT under the RDB Act for issuance of a recovery certificate. Simultaneously, insolvency proceedings may also be triggered under the IBC. It is not uncommon for a secured creditor to initiate SARFAESI proceedings while another financial creditor files an application under Section 7 of the IBC. Such parallel actions create uncertainty regarding jurisdiction, priority of claims and the continuation of proceedings, thereby necessitating judicial intervention to determine legislative precedence.
NON-OBSTANTE CLAUSES AND LEGISLATIVE INTENT
An important aspect contributing to the conflict between the IBC, the SARFAESI Act and the RDB Act is the presence of non-obstante clauses in all three legislations. Section 238 of the Insolvency and Bankruptcy Code provides that the provisions of the Code shall have effect notwithstanding anything inconsistent contained in any other law. Similarly, Section 35 of the SARFAESI Act and Section 34 of the RDB Act also contain overriding clauses within their respective statutory frameworks. On a plain reading, each enactment appears to assert supremacy over other laws, thereby creating an apparent legislative deadlock.
The resolution of this conflict, however, does not lie in a literal comparison of overriding clauses alone. Courts have consistently relied on established principles of statutory interpretation to ascertain legislative intent. One such principle is that a later enactment prevails over earlier laws in cases of inconsistency. The IBC, being a subsequent and comprehensive legislation, was introduced to address insolvency in a holistic manner, unlike SARFAESI and the RDB Act which primarily deal with individual recovery.
Further, the IBC is treated as a special statute governing insolvency resolution, with a distinct objective of collective action and value maximisation. A purpose-oriented interpretation of the Code indicates that once insolvency proceedings are initiated, individual recovery mechanisms must give way to the broader insolvency framework. This approach reflects the legislative intent to prioritise resolution over fragmented enforcement and forms the basis for judicial preference in favour of the IBC.
JUDICIAL PRONOUNCEMENTS: SETTLING THE CONFLICT
The conflict between the IBC, the SARFAESI Act and the RDB Act has been substantially addressed through judicial interpretation, particularly by the Supreme Court, which has played a decisive role in clarifying legislative precedence.
In Innoventive Industries Ltd. v. ICICI Bank, the Supreme Court firmly established the supremacy of the Insolvency and Bankruptcy Code. The Court observed that once insolvency proceedings are admitted, the non-obstante clause under Section 238 of the IBC gives it an overriding effect over all other inconsistent laws. The judgment made it clear that the Code was intended to operate as a complete and exhaustive framework for insolvency resolution, thereby limiting the scope of parallel recovery proceedings.
This position was further reinforced in Principal Commissioner of Income Tax v. Monnet Ispat and Energy Ltd., where the Court categorically held that the IBC would prevail over all other statutes, including those relating to tax and recovery. The ruling underscored the legislative intent behind the Code, emphasising that insolvency resolution cannot be disrupted by competing claims under different laws.
In Swiss Ribbons v. Union of India, the Supreme Court elaborated on the underlying philosophy of the IBC. The Court distinguished between recovery proceedings and insolvency resolution, observing that the primary objective of the Code is not mere recovery, but revival of the corporate debtor through a collective process. This judgment provided the conceptual foundation for prioritising the IBC over individual enforcement mechanisms.
On the other hand, in Transcore v. Union of India, decided prior to the enactment of the IBC, the Court held that proceedings under the SARFAESI Act and the RDB Act could be pursued simultaneously, as they were complementary in nature. However, this judgment must be understood in its pre-IBC context and does not dilute the overriding effect accorded to the IBC once insolvency proceedings are initiated.
WHICH LAW PREVAILS AND IN WHAT SCENARIO
Scenario I: Prior to Initiation of CIRP
Before the initiation of the Corporate Insolvency Resolution Process, creditors are free to avail remedies under the SARFAESI Act and the RDB Act. At this stage, there is no statutory bar on pursuing recovery proceedings, and secured creditors may enforce their security interest or approach the DRT for adjudication of claims. Since insolvency proceedings have not yet been triggered, the question of legislative supremacy does not arise. Both statutes are permitted to operate independently and, in certain situations, even simultaneously.
Scenario II: After Admission of CIRP and Imposition of Moratorium
The legal position undergoes a complete shift once an application under the IBC is admitted and the moratorium under Section 14 comes into effect. From this point onwards, the IBC prevails absolutely. All recovery actions, including proceedings under the SARFAESI Act and before the DRT, are required to be stayed. The moratorium is intended to preserve the corporate debtor as a going concern and prevent depletion of its assets during the resolution process. Any continuation of individual enforcement proceedings would defeat the collective nature of insolvency resolution.
Scenario III: Secured Creditor Enforcing Security Outside Liquidation
During liquidation, the IBC permits a secured creditor to realise its security interest outside the liquidation process in terms of Section 52 of the Code. In such cases, the relevance of the SARFAESI Act resurfaces, as the creditor may choose to enforce its security in accordance with applicable law. However, this enforcement remains subject to the framework and priorities laid down under the IBC, ensuring that the liquidation process is not undermined.
CRITICAL ANALYSIS
The judicial preference accorded to the Insolvency and Bankruptcy Code over individual recovery mechanisms is largely justified, given the Code’s objective of ensuring an orderly and collective resolution process. Prioritising insolvency proceedings prevents fragmented enforcement actions and promotes value maximisation for all stakeholders. In this sense, the overriding effect of the IBC serves a clear and rational legislative purpose.
However, practical challenges continue to persist. Delays in completion of the CIRP, often extending beyond the prescribed timelines, have a direct impact on financial creditors, particularly banks, whose recovery remains uncertain during prolonged resolution processes. In such situations, the suspension of individual enforcement mechanisms may result in additional financial stress.
Therefore, while the primacy of the IBC is necessary to preserve the integrity of the insolvency framework, a balanced approach is required. Strengthening procedural efficiency and reducing delays would help reconcile the collective objectives of insolvency resolution with the legitimate recovery interests of individual creditors.
CONCLUSION
The coexistence of the IBC, the SARFAESI Act and the RDB Act reflects the legislature’s attempt to provide multiple remedies for addressing financial distress and debt recovery. While the SARFAESI and RDB Act continue to play a significant role in enabling creditors to enforce their claims, their operation is necessarily curtailed once insolvency proceedings are set in motion. The Insolvency and Bankruptcy Code has clearly emerged as the dominant legislative framework in such situations.
Judicial interpretation has consistently favoured the IBC, recognising its objective of collective resolution, value maximisation and equitable treatment of stakeholders. By granting overriding effect to the Code, courts have sought to prevent fragmented enforcement actions that could undermine the insolvency process. The prevailing legal position thus reflects a conscious shift from individual recovery towards a structured and comprehensive insolvency regime, reinforcing the IBC’s central role in India’s evolving financial and commercial landscape.