11 February 2019
The Hon’ble Supreme Court Upholds the Constitutional Validity of key provisions of the Insolvency and Bankruptcy Code in its Swiss Ribbons Judgment
The main challenge to the significant provisions of the Code and the Code itself were constitutional challenges to:
(a) The differential treatment of 'financial creditors' and 'operational creditors' vis-a-vis various sections;
(b) Section 29A disqualifiers, which was primarily intended to prevent defaulting promoters from misusing the Code in order to rig the system; and
(c) Section 12A, which permits the ring master promoters described in Section 29A to attempt to win / buy back their shares in the companies.
The Hon’ble Supreme Court while stating that the Code does have its flaws, it is an economic / financial legislation that will face challenges and amendments but as a legislation has been enacted with an intent to improve overall financial health of the nation and is thus good enough to pass the Constitutional muster. The concluding remark of the Hon’ble Supreme Court is given below-
"The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, 'trial' having led to repeated errors, ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster."