Section 238 IBC: Overriding Effect over Other Laws

An insolvency process touches almost every other branch of law: tax, property, labour, contracts, regulation and recovery. If each of these could stall or override the process, the Code's timelines and priorities would collapse. Section 238 prevents this by giving the Code precedence over inconsistent laws. This note explains the provision, how courts apply it when other laws contain their own overriding clauses, the leading cases and the limits of the overriding effect.

1. The Provision

• Text. The provisions of the 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.
• Inconsistency required. Section 238 operates only where there is a real inconsistency; where the Code and another law can be read together, both apply.
• Instruments. It overrides not only statutes but also instruments having effect under them, such as contracts, schemes and notifications, to the extent of inconsistency.
• Specific provisions. The Code also contains specific overriding clauses, such as those in sections 14, 31, 53 and 60(5), that reinforce section 238 in particular contexts.

Figure 1: Laws over which the Code has been held to prevail

2. Two Non Obstante Clauses

Figure 2: Applying section 238

Many special laws contain their own non obstante clauses. When two such laws conflict, courts generally give effect to the later law, especially where it is the more specific one for the subject in hand, and they look to the purpose of each statute and try to harmonise them before declaring one to prevail. Since the Code is a later, comprehensive law on insolvency, it has usually prevailed over earlier laws that would otherwise delay or defeat the insolvency process. A State law that conflicts with the Code on a concurrent subject also yields under Article 254 of the Constitution.

3. The Leading Cases

• Innoventive Industries v ICICI Bank, 2017. The Supreme Court held that a suspension of liabilities under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 could not bar a CIRP; the State law was repugnant to the Code, a later Parliamentary law on the same concurrent subject, and gave way under Article 254.
• Pr. Commissioner of Income Tax v Monnet Ispat, 2018. The Supreme Court held that the Code, by section 238, overrides anything inconsistent in the Income Tax Act.
• Duncans Industries v A.J. Agrochem, 2019. The requirement of the Central Government's consent under the Tea Act, 1953 for certain proceedings against tea undertakings did not apply to a CIRP, as the Code is a later and special law with an overriding clause.
• Pioneer Urban Land v Union of India, 2019. Remedies under RERA and the Code are concurrent; but where they conflict, the Code prevails by section 238, RERA's own provision describing it as in addition to other laws.
• Sundaresh Bhatt v CBIC, 2022. Customs authorities cannot sell the goods of a corporate debtor in moratorium; they can only file a claim, as the Code prevails over the Customs Act.
• Paschimanchal Vidyut v Raman Ispat, 2023. In liquidation, dues claimed under other statutes cannot obtain priority outside section 53, read with section 238 (Topic 43)

4. The Limits of Section 238

Figure 3: Where the overriding effect applies and where it stops

• Constitution. Section 238 operates on other laws, not on the Constitution; fundamental rights and constitutional remedies remain available.
• Public law. Decisions of governments and statutory authorities in the exercise of public law powers, such as the grant or renewal of licences and leases, are not brought within the NCLT's jurisdiction merely because the Code overrides other laws (Embassy Property, 2019; Topic 72)
• Criminal liability. The Code does not override the criminal liability of individuals; the immunity in section 32A is confined to the corporate debtor and its property in specified conditions (Topic 46)
• No inconsistency, no override. Where the other law can operate alongside the Code, as with many regulatory requirements after a plan is approved, it continues to apply; plans must also comply with all laws under section 30(2)(e)

5. Related Provisions

• Section 238A. The Limitation Act, 1963 applies to proceedings before the NCLT, the NCLAT, the DRT and the DRAT under the Code, so far as may be (Topic 18)
• Section 231. No civil court has jurisdiction over matters on which the Adjudicating Authority is empowered under the Code.
• Section 31. An approved plan binds the Central Government, State Governments and local authorities, giving practical effect to the Code's priority over statutory claims (Topic 42)

6. Frequently Asked Questions

Can a State law suspending the liabilities of sick undertakings stop a CIRP?

No. In Innoventive Industries (2017), the Supreme Court held that such a law was repugnant to the Code, a later Parliamentary law, and could not prevent the CIRP.

Can a homebuyer pursue both RERA and the Code against a builder?

Yes. Pioneer Urban (2019) held that the remedies are concurrent, but in case of conflict the Code prevails under section 238.

Does section 238 let the NCLT direct a State to renew a lease?

No. Public law decisions of statutory authorities are outside the NCLT's jurisdiction, as held in Embassy Property (2019).

Does section 238 apply to contracts?

Yes, to the extent that an instrument having effect under any law is inconsistent with the Code, such as a contractual term that would defeat the moratorium or the order of priority.

7. Related Topics

• Topic 43: Government Dues. Rainbow Papers and after.
• Topic 72: Adjudicating Authority. Section 60 and 60(5)
• Topic 79: IBC and Arbitration. Another interface.