Supreme Court upholds constitutional validity of IBC

The Supreme Court, while deciding the constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016 (code), in the case of Swiss Ribbons Pvt Ltd v Union of India, upheld the mandate of section 29A with minor distinctions. Section 29A of the code lists persons or entities not eligible to submit a resolution application in insolvency proceedings before the National Company Law Tribunal.

The challenge to the constitutional validity of section 29A, more particularly clause (c), was made on the grounds that it restricts the speedy disposal of a resolution process, and as such is contrary to the object of the code. Clause (c) of section 29A provides that a person who exercises control and management over a corporate debtor’s non-performing asset (NPA) account or who is a promoter of the corporate debtor, and at least one year has elapsed from the date on which such account was classified as NPA. is not qualified to be a resolution applicant.

A proviso to the provision makes exceptions in casesc where (1) the applicant discharges their debt under the said NPA accounts, (2) the applicant is a financial entity and is not a related party to the corporate debtor, and (3) the applicant has the control and management of the NPA accounts and is a promoter of the corporate debtor pursuant to a resolution plan approved under the code.

Abhishek Dutta is the founder and managing partner of Aureus Law Partners. Vineet Shrivastava is a partner and Manish Parmar is a senior associate at the firm.

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