SC upholds validity of Insolvency and Bankruptcy Code in its entirety
New Delhi:The Supreme Court on Friday upheld the Insolvency and Bankruptcy Code (IBC) in its entirety, dismissing all petitions by operational creditors who had challenged the validity of the code.
The only change, the top court said, would be that the definition of connected persons would now include persons connected only to the corporate debtor or the defaulting company.
A detailed copy of the judgment is awaited
Companies like Swiss Ribbons, Shivam Water Treaters, and Ganesh Prasad Pandey, an individual petitioner, had challenged various provisions of the IBC, such as Sections 7, 12 and 29. The petitioners had listed discriminatory treatment given to a certain classes of operational creditors and alleged that the IBC was unfair as it was protecting the rights of only financial creditors.
Section 7 of the IBC deals with the initiation of the corporate insolvency resolution process of a company based on a petition moved by the financial creditor.
It mandates that the adjudicating authority shall, within 14 days of the receipt of such an application moved by the financial creditor, ascertain the existence of default, either from publicly available data or from evidence furnished by the petitioner.
Section 12 of the IBC prescribes a time limit for the completion of insolvency process and mandates that the insolvency process of a company shall be completed within 180 days from the date of admission of application to initiate the process.
Section 29, which defines related persons and companies, is perhaps the biggest bone of contention for petitioners. This provision of the IBC, brought in by the government through an amendment made in January this year, defines persons not eligible to be resolution applicants.
Among other things, the provision says that a resolution applicant shall be eligible to bid for a company or person undergoing insolvency only if the person is an undischarged insolvent, a wilful defaulter under the Reserve Bank of India guidelines, is a promoter or a party related to the promoter, and has been convicted by a court of law for any offence punishable with imprisonment of two years or more.