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SC upholds constitutional validity of Insolvency laws

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New Delhi, Jan 26

Supreme Court has upheld the Insolvency & Bankruptcy Code, IBC’s constitutional validity in its ‘entirety’ and rejected petitions challenging the bankruptcy laws. The decision is a setback to defaulting promoters hoping for a chance to remain in control of their firms.

A bench of Justices R F Nariman and Navin Sinha refused to tweak any of the provisions of the IBC, which was challenged in a batch of petitions filed by several companies. Justice Nariman, who penned the verdict, said the experiment contained in the Code passes constitutional muster. Lauding the working of IBC, the court said the economy’s rightful position has been regained and the defaulters’ paradise is lost by the IBC.

The top court said, the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid. It said the working of the Code is being monitored by an expert committee of the central government and in a short period, amendments have been carried out by involving all stakeholders.

The bench also upheld the classification between the financial creditor and operational creditor in IBC and said it is neither discriminatory nor arbitrary and non-violative of Article 14 of the Constitution.

Union Minister Arun Jaitley has welcomed the Supreme Court’s decision to uphold the validity of the Insolvency and Bankruptcy Code. In a tweet, Mr Jaitley warned that defaulters cannot get away for long. Mr. Jaitley said the upholding of the provisions that bar the defaulting promoters from bidding is both ethical and proper. He said, otherwise the defaulter will continue to manage the company with only the banks taking a haircut.



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