SWISS RIBBONS PVT. LTD. V UNION OF INDIA
Soumya Patel , Student, Hidayatullah National Law University, Raipur
Facts of the Case:
The Insolvency and Bankruptcy Code, 2016 (IBC) and its constitutionality were the main issues in the 2019 case Swiss Ribbons Pvt. Ltd. vs. Union of India. The case explicitly addressed a number of the Code’s clauses that were under attack. Together with other petitioners, Swiss Ribbons Pvt. Ltd. contested the constitutionality of the Insolvency and Bankruptcy Code, 2016, pointing out specific clauses that they claimed infringed upon the fundamental rights of both persons and businesses. The petitioners argued that the IBC’s provisions were capricious, illegal, and in violation of Article 14 of the Indian Constitution’s guarantees of equality and natural justice.
Issues Raised:
The IBC’s Section 29A prohibited some groups of people from submitting a resolution plan, including individuals having a criminal record, a history of default, or a history of engaging in fraudulent activity. This clause, according to the petitioners, was arbitrary and unduly wide.
Procedure under the IBC: The petitioners also questioned the way the corporate bankruptcy resolution process was being conducted, namely the potential hardships it could bring to corporate debtors and the way the Committee of Creditors (CoC) held the decision-making authority.
Arguments:
Petitioner: The learned counsel argues that there is no discernible difference between financial and operational creditors with regard to the goals the Code seeks to accomplish, and in fact, this distinction has never been made anywhere in the world. The logic behind the distinction between financial and operational creditors is presented in the BLRC Report. Although the Code allows both kinds of creditors to initiate the IRP, the evidence needed to do so differs. Financial creditors can easily verify the indisputable occurrence of default on any financial credit contract by using the electronic records of the liabilities recorded in the Information Utilities of Section 4.3. Since all operational creditors may or may not have electronic filings of the debtor’s liability, the evidence of default that the debtor submits to the operational creditor may be in the form of either physical or electronic documents. Financial creditors may create default in a similar way to operational creditors unless information utilities are widely available.
Respondent: In Delhi International Airport Limited v. International Lease Finance Corporation and Ors., (2015) 8 SCC 446, the learned Attorney General cited Article 77(3) of the Indian Constitution, which states that once business rules are distributed among different Ministries, the distribution is mandatory. He asserts that since the Ministry of Corporate Affairs has been given responsibility for issues arising under the Insolvency Code, business regulations are obligatory and must be adhered to.
Any sum collected from an allottee as part of a real estate project will be considered to have the same commercial impact as a loan; and
The Tribunal will immediately proceed ex-parte to dispose of the application after giving the respondent a reasonable opportunity if the respondent fails to appear on the date indicated in the notice.
Judgement:
The Supreme Court upheld the constitutional validity of the Insolvency and Bankruptcy Code, 2016, stating that its provisions were in the public interest and aligned with the larger goal of addressing Non-Performing Assets (NPAs) and promoting the ease of doing business. The Court rejected the argument that Section 29A, which disqualifies certain individuals or entities from submitting resolution plans if they have defaulted on loans, are facing criminal charges, or have been involved in fraudulent practices, was arbitrary or discriminatory. The Court also upheld the role of the Committee of Creditors (CoC), noting that creditors, particularly financial creditors, are entitled to have a significant say in the decision-making process. The Court dismissed petitions challenging the constitutional validity of the IBC and its provisions, stating that it was a necessary and comprehensive law designed to facilitate the timely and efficient resolution of insolvency cases, safeguarding the economy, financial institutions, and public interest.
Legal Principle established:
Several legal principles were established in different fields such as the Constitutionality of the Insolvency and Bankruptcy Code, 2016, certain parts of the Indian Constitution (such as Articles 14 and 19 of the Fundamental Rights, Article 300A), Rights of corporate debtors. These legal precepts strengthen the IBC’s position as a vital tool for resolving insolvency and bankruptcy in India, encouraging responsibility, safeguarding creditors, and fostering financial stability.
Reasonable classification for disqualification: The Court determined that Section 29A of the IBC’s disqualification provisions, which prohibit specific people or organizations from submitting a resolution plan due to a history of default, criminal charges, or fraudulent activity, do not infringe upon Article 14 (Right to Equality). In order to guarantee that only reliable people and organizations can take over troubled businesses, the Court noted that the division of parties into eligible and ineligible groups is reasonable and founded on a justifiable goal. As a result, the clauses passed constitutional examination and were not arbitrary.
Reasonable limitations on business rights: The Court made it clear that, in the public interest, reasonable limitations may be placed on the freedom to conduct business under Article 19(1)(g). Because they were designed to safeguard creditors and guarantee the efficient and open settlement of insolvency cases, the limitations established by the IBC, including those in Section 29A, were deemed to be fair.
Analysis:
A significant ruling about the constitutionality of the Insolvency and Bankruptcy Code, 2016 (IBC) was rendered in the 2019 case of Swiss Ribbons Pvt. Ltd. vs. Union of India. The Supreme Court’s ruling in this case is noteworthy for a number of reasons, and its reasoning can be comprehended from the viewpoints of corporate governance, economic policy, and constitutional law. .
All things considered, the case has strengthened investor trust in the Indian economic system and is a strong support of India’s attempts to expedite corporate insolvency and bankruptcy settlement.
Conclusion:
The Supreme Court dismissed the petitions contesting the constitutionality of the IBC and its provisions. It maintained the framework established by the Insolvency and Bankruptcy Code, arguing that it was an essential and all-encompassing regulation created to enable the prompt and effective settlement of insolvency cases, protecting the public interest, financial institutions, and the economy. .
The Court further reaffirmed that the Code’s focus on expeditiously resolving insolvency while maintaining openness and equity was consistent with constitutional norms.
The ruling was essentially a major confirmation of the IBC as a thorough legal instrument for addressing bankruptcy and insolvency matters in India, encouraging fiscal restraint, and safeguarding the rights of creditors. .
References:
- AIR (2019) 4 SCC 17
- The Insolvency and Bankruptcy Code, 2016, Acts of Parliament, 2016