Supreme Court Upholds the Constitutional Validity of Insolvency and Bankruptcy Code as a Whole

Supreme Court Upholds the Constitutional Validity of Insolvency and Bankruptcy Code as a Whole

Quashing the petitions challenging the constitutional validity of the Insolvency and Bankruptcy Code 2016 (IBC) on the ground of being discriminatory against operational creditors, the Supreme Court two-judge Bench of Justice RF Nariman and Justice Navin Sinha in a significant judgment today, upheld the validity of the Code ‘in its entirety'.

The court, however, allowed one change stating, that the definition of connected persons would now include persons connected only to the corporate debtor or the defaulting company in order to attract the bar under Section 29A from participating in the resolution process.

Some of the provisions that were under challenge include Sections 3(12), 5(7), 6, 7, 12, 29, 62, 214(f), 231 and 238 of Insolvency and Bankruptcy Code.

The Bench was hearing a batch of petitions filed, challenging various provisions of the Insolvency and bankruptcy Code (IBC), as being arbitrary and biased against operational creditors and promoters.

The petitions submitted that the creditors would fail to recover the true value of assets if not given representation in the resolution proceedings, including a provision for debtors to be heard even when an insolvency proceeding has been initiated by the financial creditor.

Another contention raised by the petitioners was that the code infringes the fundament rights of promoters of a company by barring them from bidding for their own companies. This provision forces the sale of the company to only new bidders.

As per the provisions of the IBC, presently only financial creditors like banks comprise the Committee of Creditors and are empowered to decide what is to be done with an asset.

The Bench, however, rejected all the contentions placed by the petitioners and upheld the constitutional validity of the Code as a whole.


Committee of Creditors (CoCs)
Constitutional Validity
Insolvency and Bankruptcy Code (IBC)

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