Today, the Supreme Court has passed an order upholding the Insolvency and Bankruptcy Code, 2016 (IBC) [Modi’s Government key-reform agenda] in the case of Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. [Writ Petition (Civil) No. 99 of 2018 and other petitions, decided on 25-1-2019].
Summary of Legal Issues decided
- Appointment of members of the NCLT and the NCLAT valid
- NCLAT bench was only at Delhi. The Govt admitted that new benches would be set up. Accordingly, the Court directed the Union of India to set up Circuit Benches of the NCLAT within a period of 6 months from today.
- The tribunals are functioning under the wrong ministry; they should function under Ministry of Law & Justice and not under Ministry of Corporate Affairs
- Classification between financial creditor and operational creditor neither discriminatory, nor arbitrary, nor violative of article 14 of the constitution of India. Therefore, provisions giving special powers only to financial creditors are valid.
- Provisions for notice, hearing, and set-off or counterclaim qua financial debts are valid provisions
- Sections 21 and 24 and article 14 : operational creditors have no vote in the committee of creditors; the provisions are valid
- Section 12A permitting withdrawal of already-admitted applications is not violative of article 14
- Evidence provided by private information utilities is only prima facie evidence of default and therefore, same cannot be challenged as arbitrary.
- Resolution professional has no adjudicatory powers; the powers of determination/adjudication are vested only in liquidator, whose order is quasi-judicial
- Section 29A providing Persons not eligible to be resolution applicant and whereby ‘promoters and connected persons’ cannot be resolution applicants, is constitutionally valid
- Section 53 relating to ‘Distribution of assets’ of the code does not violate article 14
Supreme Court in all praise for IBC (paras 85 & 86)
85. 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. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code is being monitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate legislation made under it. This process is an ongoing process which involves all stakeholders, including the petitioners.
86. We are happy to note that in the working of the Code, the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid. Approximately 3300 cases have been disposed of by the Adjudicating Authority based on out-of-court settlements between corporate debtors and creditors which themselves involved claims amounting to over INR 1,20,390 crores. Eighty cases have since been resolved by resolution plans being accepted. Of these eighty cases, the liquidation value of sixty-three such cases is INR 29,788.07 crores. However, the amount realized from the resolution process is in the region of INR 60,000 crores, which is over 202% of the liquidation value. As a result of this, the Reserve Bank of India has come out with figures which reflect these results. Thus, credit that has been given by banks and financial institutions to the commercial sector (other than food) has jumped up from INR 4952.24 crores in 2016-2017, to INR 9161.09 crores in 2017-2018, and to INR 13195.20 crores for the first six months of 2018-2019. Equally, credit flow from non-banks has gone up from INR 6819.93 crores in 2016-2017, to INR 4718 crores for the first six months of 2018-2019. Ultimately, the total flow of resources to the commercial sector in India, both bank and non-bank, and domestic and foreign (relatable to the non-food sector) has gone up from a total of INR 14530.47 crores in 2016-2017, to INR 18469.25 crores in 2017-2018, and to INR 18798.20 crores in the first six months of 2018-2019. These figures show that the experiment conducted in enacting the Code is proving to be largely successful. The defaulter‘s paradise is lost. In its place, the economy‘s rightful position has been regained.