The bench passed the judgement on a batch of petitions filed by Congress Vice President Rahul Gandhi, Delhi Chief Minister Arvind Kejriwal, BJP leader Subramanian Swamy and others.
"We have held that penal provisions are constitutionally valid," a bench comprising Justices Dipak Misra and Prafulla C Pant said.
"The right to freedom of speech and expression is not an absolute right," the court said.
The bench directed magistrates across the country to be extremely careful in issuing summons on private complaints on defamation.
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Section 500 deals with the provision of punishment for defamation which entails upto two years imprisonment or fine or both.
The bench said the stay of criminal proceedings granted by it in the trial court on the batch of petitions challenging the issue of summons will continue for eight weeks, during which the petitioners can file their appeal before respective High Courts for seeking reliefs in terms of today's judgement.
The bench said the interim protection given to them will continue for eight weeks.
Sibal wanted the stay to be extended till July 19 but the bench said he can seek the relief by mentioning the matter in the month of July.
The constitutional validity of penal laws on defamation was challenged on the ground that they are "outmoded" and inconsistent with right to freedom of speech and expression.
The pleas had sought setting aside of sections 499 and 500 (defamation) of the IPC and suggested that there is a need to decriminalise penal provision for offence of defamation.
on criminal defamation has chilling effect on right to freedom of speech and expression."
It also observed, "A person's right to freedom of speech has to be balanced with the other person's right to reputation."
Rahul and Swamy have been charged with criminal defamation under sections 499 and 500 of the IPC for their political speeches made in Tamil Nadu and Maharashtra respectively, while Kejriwal is facing cases under the same provisions lodged by BJP's Nitin Gadkari and others.
Like Rahul and Swamy, the Delhi CM suggested that the penal provisions conceived in the British era are now "outmoded" and "over protective" of public servants and inconsistent with democratic discourse.
The Aam Aadmi Party leader had told the bench that there are several grounds to scrap them as the two provisions are violative of fundamental rights under Articles 14, 19(1)(a)(g) and 21 of the Constitution.