SC upholds insolvency code, setback for operational creditors and promoters

The Supreme Court on Friday upheld the constitutional validity of the Insolvency and Bankruptcy Code 2016 (IBC) in its entirety, causing a setback to operational creditors who include suppliers, customers and contractors who wanted to be treated at par with secured financial creditors.

A bench of Justice Rohinton F. Nariman and Justice Navin Sinha also shut doors on the promoters of the companies facing proceedings under the IBC seeking to participate in the resolution plan and bid to regain the control of for their financially beleaguered company.

The court rejected the plea by operational creditors' seeking parity with secured financial creditors at the time inviting bids for the corporate resolution plan under the IBC including status of voting members in the Committee of Creditors of the lenders banks seeking the recovery of their loans from a company under default.

 

The court pointed out that in the original Insolvency and Bankruptcy Code there was no provision for the operational creditors to attend the Committee of Creditors of the lender banks and the same was modified later on the suggestion of Joint Parliamentary Committee that had vetted the proposed law.

Having said this, the court said, "We don't find that operational creditors are discriminated against or that Article 14 has been infracted either on the ground of equals being treated unequally or on the grounds of manifest arbitrariness", the judgment said.

"Operational debts also tend to be recurring in nature and the possibility of genuine disputes in case of operational debts is much higher compared to financial debts", the court said, pointing out there could be dispute over the goods and services that are supplied by operational creditor may be substandard or they may not have been supplied at all.

The court held that the appointment of the members of the NCLT and NCLAT was not contrary to an earlier judgment of the top court as it was made on the recommendation of a committee in 2017 that comprised then Justice Ranjan Gogoi, Justice N. V. Ramana and secretary Ministry of Corporate Affairs and the Ministry of Law and Justice.

The court directed the setting up of the circuit branches of the National Company Law Appellate TribunalA within a period of six months so that people from other metropolis need not travel to Delhi for the adjudication of issues by the NCLAT.

--IANS

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