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Swiss Ribbons (P) Ltd. Vs Union of India

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Citations: Swiss Ribbons (P) Ltd. Vs Union of India, (2019) 4 SCC 17

Date of Judgement: 25/01/2019 

Equivalent Citations: (2019) SCC Online SC 73

Case No: Writ Petitions (C) No. 99 of 2018

Case Type: Writ Petition

Petitioner: Swiss Ribbons (P) Ltd and Ors

Respondent: The Union of India and Ors

Bench: Hon’ble Justice R.F. Nariman and Hon’ble Justice Navin Sinha

Statutes Referred:

  • Insolvency and Bankruptcy Code, 2016; Sections 7, 8, 9, 5 (7), 5 (8), 5 (20), 21, 24, 30(2)(b), 31, 12-A, 10, 60, 29-A, 240-A, 53, 18, 28, 214,
  • National Company Law Tribunal Rules, 2016; Sections 11, 34, 37, 4 (3)
  • Micro, Small and Medium Enterprises Development Act, 2006; Sections 7
  • Companies Act, 2013; Section 412

Cases Referred:

  • Madras Bar Association Vs Union of India, (2015) 8 SCC 583;
  • Shayara Bano Vs Union of India, (2017) 9 SCC 1;
  • S.P. Sampath Kumar Vs Union of India, (1987) 1 SCC 124;
  • Subramanian Swamy Vs CBI, (2005) 2 SCC 317;
  • Joseph Shine Vs Union of India, (2019) 3 SCC 39;
  • K.S. Puttaswamy (Adhaar – 5J) Vs Union of India, (2018) 10 SCC 1;
  • Ritesh Agarwal Vs SEBI, (2008) 8 SCC 205;
  • P.D. Aggarwal Vs State of U.P., (1987) 3 SCC 622;
  • Attorney General of India Vs Amratlal Prajivandas, (1994) 5 SCC 54.

Facts:

  • Many petitions were filed assailing the constitutional validity of the Insolvency and Bankruptcy Code, 2016 before the Supreme Court therefore the Hon’ble Supreme Court did not delve into the facts of the various cases and decided upon the questions related to constitutional validity of the code.

Issues Involved:

Is the Insolvency and Bankruptcy Code, 2016 constitutionally valid?

Contention of Petitioner:

The counsel for Petitioners contended that:

  • The members of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) have been appointed against the precedence of the court.
  • The precedence of Madras Bar Association Vs Union of India (2015) 8 SCC 583 also suggested that the tribunals should be under the Ministry of Law and Justice while NCLT and NCLAT were under the Ministry of Corporate Affairs.
  • Making NCLAT an appellate forum whose office was only in Delhi would mean that petitioners would have to travel from Tamil Nadu, Calcutta and Mumbai whereas they could have approached their respective state’s high court.
  • Sections 7, 21 and 24 unjustly discriminate between operational and financial debtors and between operational and financial debtors.
  • Section 12-A now derails the settlement process by requiring the approval of at least ninety per cent of the voting share of the Committee of Creditors. Unbridled power is given to the Committee of Creditors to reject legitimate settlements entered into between creditors and the corporate debtors.
  • Section 29A of the code is contrary to the objective of getting speedy resolution of insolvency and Section 29A(c) puts a blanket ban on participation of all promoters of corporate debtors and sub-section j of the same section barres a relative of the debtor even though they may have no business connection.

Contention of Respondent:

It was contented by the counsel for respondents that –

  • The laws before the IBC had failed and focused on reviving the corporate debtor while the current code focused on reorganizing insolvency resolution of corporate debtors in a time-bound manner to maximize the value of assets of such person.
  • The members of NCLT and NCLAT had been selected by a committee consisting of 2 Supreme Court Judges and two bureaucrats, in which was in conformity with the precedence set by the court.
  • The differentiation between financial and operational creditors is totally reasonable since the former gives loans in huge amounts and numbers are less while in latter’s case the amounts per individual are less.
  • Financial creditors and debtors have a specific repayment schedule knowing better than their operational counter parts about the defaults in repayment and therefore the code takes special care of them.
  • Section 29-A subserves a very important object of the Code, which is to see that undesirable persons who are mentioned in all its clauses are rendered ineligible to submit resolution plans so that such persons may not come into the management of stressed corporate debtors.

Judgement:

  • The Apex court directed the government to establish circuit benches of NCLAT.
  • The court directed the government to follow the precedence that the tribunals should be functioning under the Ministry of Law and Justice and not Ministry of Corporate affairs.

The Hon’ble Supreme Court upheld the Constitutional Validity of the Insolvency and Bankruptcy Code, 2016.

Ratio Decidendi:

  • The precedence that the tribunals should be functioning under Ministry of Law rather than Ministry of corporate affairs came from Madras Bar Association Vs Union of India (2015) 8 SCC 583.
  • The benches were to be established in different places so that the remedy was easily and effectively available to aggrieved people rather than making them come to Delhi every time they had a hearing.
  • The expressions “related party” and “relative” in the definition sections include only those people connected with business activity of resolution applicant.
  • The differentiation between financial creditors and operational creditors is ok because operational creditors are involved only in recovering their amounts while financial creditors are better equipped to access viability of the business of the corporate debtor.

Obiter Dicta:

Justice R.F. Nariman said, The defaulter’s paradise is lost. In its place, the economy’s rightful position has been regained.” while passing judgement in favour of the Insolvency and Bankruptcy Code, 2016.

Conclusion:

The decision by the court paved way for a proper and recognized method for dealing with Insolvents and finding the most economical method for helping creditors gain value from non-performing assets after a lot of crucial experiments to improve economy of the country. The process for checking the most feasible way of using NPAs has been hit and trial which is a never-ending process and will keep improving upon the ashes of the previous method.

Drafted by: Sarwang Mathur (University School of Law and Legal Studies)

Edited by: Aashima Kakkar, Associate Editor, Law Insider

Published On: November 25, 2021 at 20:30 IST