Venture Global Engineering v. Satyam Computer Services Ltd.
- 2022-02-17
The Supreme Court’s decision in Swiss Ribbons v. Union of India upholding the constitutionality of the provisions of the Insolvency and Bankruptcy Code, 2016 is a landmark decision in the development of the Code.
Citation: 2019 SCC OnLine SC 73
Facts: The appellants in the case argued for the validity of various provisions of the IBC Code. The appellant put forth the argument that members appointed to the National Company Law Tribunal (NCLT) and National Company Appellate Law Tribunal (NCLAT) were not in consonance with the provisions of the Constitution. The petition also challenged Section 12A and Section 29A of the code and certain other provisions
Issue: Whether IBC is constitutionally valid?
Judgement: It was held that the difference between operational creditors and financial creditors were based on intelligible differentia and thus not violative of Article 14 of the Constitution. The Supreme Court also upheld the validity of Section 12A.
The distinction between promoters / management and the corporate debtor was also judicially recognised. Displacement of the promoter or the management of a company in default can now be done relatively quickly to protect the company and its assets.
The Supreme Court also concluded that the IBC is a beneficial legislation and is for the benefit of the corporate debtor and therefore the admission of a company into Corporate Insolvency Resolution Process cannot be seen from the traditional lens of adversarial proceedings.
The Supreme Court has also upheld Section 29A in its entirety whilst reading down the list of ‘related parties’ who have to be tested for the disqualification under Section 29A, to those who have a business connection with the Resolution Applicant. This will help in increasing the number of participants. It would also help in moderating the level of diligence required by the Resolution Applicant, the Committee of Creditors and the Resolution Professional in Section 29A compliance as regards ‘connected persons’, thereby reducing the cost and timelines of the CIRP process.
The Supreme Court has strongly endorsed the IBC right from its inception. By upholding the constitutionality of the statute, this judgement has laid the foundation for implementation of the IBC.
