Introduction

The decision of the Supreme Court of Swiss Ribbons v. The Union of India[1] which supports constitutional compliance with the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC or Code) is a milestone in the development of the Code.IBC is a significant departure from the former non-payment regimes in India, and some of its key features are novels even internationally. The key features of the IBC classification (compared to other advanced authorities) are:

1. Acceptance limit is low – based on default darkness without insolvency testing.

2. There are no sectional rights – the constitution of a single credit union consisting of only safe and unsecured lenders and creditors who are equally treated to vote.

3. Refusal of certain applicants to participate in the resolution process.

The government was able to find in the Supreme Court that these factors worked and led to significant results in the early years of the law. An important factor in measuring the observance of the law was the Government’s strong commitment to tackling the problem of intangible assets (NPA) through the implementation of the IBC and the fact that the Government was living in crisis and amending the law to suit the needs of the state.

The main consequences of the Supreme Court decision are as follows:

(a) The distinction between promoters/managers and lending to companies has been recognized by law. The removal of the promoter or the automatic management of the company can now be done very quickly to protect the company and its assets.

(b) Acknowledging that the default is not in conflict with the entity’s debt. The Supreme Court concluded that IBC is a lucrative law and benefits the debtor to companies and therefore the company’s acceptance of the Corporate Insolvency Resolution Process (CIRP) cannot be seen in the traditional line of opposing procedures.

High Court

(c) The High Court has introduced the fair and equitable treatment of active creditors as a requirement for the approval of remedial measures. This is largely due to amendments to the rules that stipulate that active lenders need to be paid in advance of those who are lending money (not to mention the amount that needs to be repaid). This also enhances the law imposed by the National Company Law Appellate Tribunal (NCLAT) at Binani Industries[2] where it was held that lenders could not be discriminated against. As the decision of Binani Industries was described (improperly) as a requirement for the management of financial and equity lenders, the Supreme Court has provided much-needed clarity on the expectations of active lenders. The rules of decommissioning of other authorities also consider fair and equitable treatment.

(d) In addition to the provision of a withdrawal under Section 12A, the withdrawal of a debtor from the CIRP is allowed until such time as the Lending Committee is approved by the National Company Law Tribunal (NCLT). Significantly, however, the Supreme Court used Rule 11 of the NCLT Rules (which provides natural powers) to allow for withdrawal after submission but before the constitution of the Lenders Committee. The adoption of the natural power of the NCLT may initiate flexibility in the IBC process in situations not considered by the Code. In addition, if the Credit Provider Committee rejects an application for payment, an appeal may be lodge before the NCLT and thereafter, NCLAT.

Section 29A

(e) The High Court also fully supported Section 29A while reading the list of related parties’ to be audit under Section 29A, for those who have a business relationship with the Applicant. This will help increase the number of participants. It will also help to balance the level of effort required by the Decision Permit, Lender Committee, and Resolution Professional in accordance with Section 29A in relation to ‘connected persons’, thereby reducing the costs and duration of the CIRP process.

Summary of the case: Current appeals attack the constitutional legitimacy of various provisions of the Insolvency and Bankruptcy Code, 2016. Since the Supreme Court ruled only on questions about constitutional validity, the Honourable Court did not enter into individual facts in any case.

Issues

1. Whether members appointed by the National Company Law Tribunal (NCLT) and the National Company Appellate Law Tribunal (NCLAT) do not comply with the provisions of the Constitution.

2. Although NCLAT should have benches in other provinces and currently has a seat only in New Delhi.

3. Whether the High Court’s power to decide IBC matters can intervene in NCLAT / NCLT matters

4. Whether the distinction between financial and financial creditors violates Article 14 of the Constitution. In addition, Section 12A of the Code requires at least 90% of the total credit union (COC) voting committee approval before initiating the payment process between creditors and corporate debtors, the unlimited power granted to COC may allow them to misuse it.

Cases appealed[3]:

Madras Bar Association v. Union of India, (2015) 8 SCC 583
P Uttara Foods and Feeds Pvt. Ltd. v. Mona Pharmachem, Civil Appeal No. 18520/2017 [determined on 13.11.2017]
Union of India v. R. Gandhi, President, Madras Bar Association (2010) 11 SCC 1
R.K. Garg v. Union of India, (1981) 4 SCC 675 (section 8 of current judgment)
Bhavesh D. Parish v. Union of India, (2000) 5 SCC 471
DG of Foreign Trade v. Kanak Exports, (2016) 2 SCC 226 [section 109: Balco Employees ’Union v. Union of India, (2002) 2 SCC 333)]
S.P. Sampath Kumar v. Union of India, (1987) 1 SCC 124: (1987) 2 ATC 82]

L. Chandra Kumar v. Union of India, (1997) 3 SCC 261: 1997 SCC (L&S) 577]

Shayara Bano Case (para 95: McDowell [State of A.P. v. McDowell and Co. (1996) 3 SCC 709], Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722 : 1981 SCC (L&S) 258]
Subramanian Swamy v. CBI [Subramanian Swamy v. CBI, (2014) 8 SCC 682 : (2014) 6 SCC (Cri) 42
Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311]
Malpe Vishwanath Acharya v. State of Maharashtra, (1998) 2 SCC 1]
McDowell [State of A.P. v. McDowell and Co., (1996) 3 SCC 709]
Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC 641
Navtej Singh Johar and Ors. v. Union of India, (2018) 10 SCC 1 ( para 253, 353, 411, 637.9)

Lok Prahari v. State of Uttar Pradesh and Ors., (2018) 6 SCC 1 ( para 35)

Nikesh Tarachand Shah v. Union of India and Ors., (2018) 11 SCC 1 (para 23)
Lokhandwala Kataria Construction Pvt. Ltd. v. Ninus Finance & Investment Manager LLP, Civil Appeal No. 9279 of 2017
Mothers Pride Dairy India Private Limited v. Portrait Advertising and Marketing Private Limited, Civil Appeal No. 9286/2017
State Bank‘s Staff Union (Madras Circle) v. Union of India and Ors., (2005) 7 SCC 584 (para 21)
Ram Pal Singh and Anr., 1992 Supp (1) SCC 191 (at paragraph 35)
Pyare Lal Sharma v. Managing Director and Ors., (1989) 3 SCC 448 ( para21)
P.D. Aggarwal and Ors. v. State of U.P. and Ors., (1987) 3 SCC 622 (para18)
Govind Das and Ors. v. Income Tax Officer and Anr., (1976) 1 SCC 906 ( para 6 and 11)
Lochner v. New York, 198 U. S. 45 (1905)

Decision

The Supreme Court considers Lochner’s doctrine established in Lochner’s case to declare that social and economic law is unconstitutional if it does not pass the legal examination. On the contrary, the Court relie on the case of RK Garg and held that legal restrictions should be apply by the Court in view of the application of the Constitution of any Code, as there is no direct way to resolve economic problems.

The Court also relied on the intent of the Code’s introduction as it was interpreted in the decision of Innoventive Industries Ltd to achieve the debtor’s company settlement and avoid liquidation. In the case of the jurisdiction of the judiciary, the Court accepted the view that the jurisdiction of the jurisdictional jurisdiction of the Department of Corporations is contrary to the law laid down in the case of R Gandhi. But the Supreme Court at the same time accepted the argument filed by the applicant that the allocation of business rules between the various departments was determined by authorization in the case of Delhi International Airport. The Supreme Court concluded that the NCLT and NCLAT should continue to operate under the auspices of the United Nations.