Supreme Court upholds Insolvency and Bankruptcy Code in its entirety

Supreme Court upholding the IBC will speed up recovery of NPAs

The Supreme Court has dismissed a bunch of petitions and upheld the Insolvency and Bankruptcy Code in its “entirety”. Today a bench of Justices Rohinton Nariman and Navin Sinha ruled that the code is constitutionally valid.

The petitions had challenged the IBC on the ground that it discriminates against Operational Creditors and their interests with respect to Financial Creditors. The petitioners had argued that their fundamental rights as promoters were being violated as the law barred them from bidding for their own companies.

The two-judge bench of the Court headed by Justice Nariman concluded that the provision of the law that prevented founders from bidding for their own defaulting companies was legally valid.

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The petition to permit promoters to bid for their own companies was initially filed by the promoters of Bhushan Power & Steel. Later, the Court had merged similar petitions filed by operational creditors of Binani Cement.

The specific provision of the IBC bars willful defaulters, their parent company and even related persons from buying back the assets at rock bottom prices. The consequences of and motivations behind the provision have been duly explained here.

The IBC has motivated numerous companies to hurry up and clear their dues. In May last year, it was reported that fearing government crackdown, 2100 companies had rushed to clear their dues to the tune of Rs. 83000 crores.

In November last year, it was reported that the IBC led to the recovery of Rs. 3 lakh crore since it became fully operational two years earlier.

The Insolvency and Bankruptcy Code (IBC) 2016, is a bankruptcy law in India brought by the Narendra Modi led NDA government seeking to consolidate the existing framework by creating a single Law for Insolvency and Bankruptcy. The Code provides a time-bound process for resolving insolvency in companies and among individuals resulting in much-needed impetus to solving the problem of stressed assets and NPAs in the financial sector of the country.


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