Supreme Court Dismisses Challenges To IBC Provisions
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
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By Sunil Garodia
First publised on 2021-01-21 01:47:26
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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
View all posts by this Author
The Supreme Court upheld the validity of amendments to sections 3, 4, 10 and section 32A of the Insolvency and Bankruptcy Code (IBC) and dismissed all petitions challenging the sections.
In the first case, a batch of petitions came up for hearing where the minimum requirement of either 100 or 10 percent of total homebuyers to initiate bankruptcy proceedings against a builder was taken up. Earlier, even a single aggrieved homebuyer could initiate such proceedings. But the same was amended to specify the minimum requirement of 10 percent or 100 homebuyers.
The rule was amended to prevent a single or few homebuyers who could be aggrieved due to misunderstandings or any other minor reason to start proceedings under the IBC and adversely affect the interests of other homebuyers. It is a valid reason that if a good enough number is not aggrieved, the interest of the majority needs to be protected. While upholding the validity of the amendments, the court said "it is, as if, the legislature intended to apply its brakes in the form of asking the applicants to obtain the consensus of a minimum number of similar stakeholders, before the applications could be further processed". This will go a long way in preventing applications arising out of grudge or misunderstanding.
The apex court also upheld the constitutional validity of section 32A of the IBC. Under this section, if a corporate debtor committed an offence prior to the commencement of the corporate insolvency resolution process, its liability would cease and it would not be prosecuted for such an offence from the date the resolution plan is approved by the Adjudicating Authority under Section 31 of the IBC. Many would think that this provision would grant immunity to a corporate debtor for committing an offence, but the court was clear in its view that if it helped the interests of all stakeholders, then there was nothing wrong in granting this immunity.
The court said that "the wisdom of the legislation is not open to judicial review". It also said that "having regard to the object of the Code (and) the interests of all stakeholders including the imperative need to attract resolution applicants who would not shy away from offering reasonable value" is the main concern. It recognized that the legislature had its reasons for inserting the section. It said that "the provision is well thought out. It is not as if the wrongdoers are allowed to get away".
