Supreme Court upholds Vires of Insolvency and Bankruptcy Code [Read Judgment]

ICSI Deduction - Supreme Court of India - Taxscan

The Supreme Court, on Friday, upheld the constitutional validity of the Insolvency and Bankruptcy Code, 2016.

The two-judge bench headed by Justice Rohinton Nariman was hearing several petitions assailing the constitutional validity of various provisions of the Code. While dismissing these petitions, the bench also upheld the ban on promoters’ bids for the defaulting company undergoing the insolvency process and refused pleas to allow operational creditors’ parity with financial creditors.

Last April, the Allahabad High Court declined to give private power companies any interim relief on the February 12 Reserve Bank of India (RBI) circular, which tightened bad loan norms from August 27 (the deadline for finalizing resolution plans for stressed assets). It also mandated insolvency proceedings by lenders against defaulting power projects.

RBI’s February 12 circular said defaulters have to be admitted to the National Company Law Tribunal (NCLT) within 180 days. Power companies had sought a relaxation on this as had the government, while the banking regulator had sought a transfer of all cases filed in various high courts to the SC.

Also Read: IBBI forms Working Group on Group Insolvency 

Operational creditors, usually suppliers of products and services to bankrupt companies, don’t have much of a say as such as they are excluded from the Committees of Creditors (CoCs) that comprise financial creditors like banks. Since they do not have voting rights, so have no control over any CoC decision on the bankrupt asset.

One of the cases implored the apex court to make a provision for debtors to be heard during insolvency proceedings.

“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,” the bench said.

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