CASE LAW ANALYSIS – ASSIGNMENT FOR INSOLVENCY & BANKRUPCY LAW

- By Aryan Srivastava | Semester IX [Section A] | 191301065

1. Title
Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. [WRIT PETITION (CIVIL) NO. 99
OF 2018]

2. Bench & Quorum

Division Bench; Quorum – 2 Judges [R. F. Nariman & Navin Chawla] – Full

3. Procedural History of the case

This writ petition was clubbed with other writ petitions of same nature (civil writ petitions &
SLP) namely: WRIT PETITION (CIVIL) NO. 100 OF 2018, WRIT PETITION (CIVIL) NO. 115
OF 2018, WRIT PETITION (CIVIL) NO. 459 OF 2018, WRIT PETITION (CIVIL) NO. 598 OF
2018, WRIT PETITION (CIVIL) NO. 775 OF 2018, WRIT PETITION (CIVIL) NO. 822 OF
2018, WRIT PETITION (CIVIL) NO. 849 OF 2018, WRIT PETITION (CIVIL) NO. 1221 OF
2018 and SPECIAL LEAVE PETITION (CIVIL) NO. 28623 OF 2018

4. Facts of the Case

In 2018, the constitutional legitimacy of the IBC was called into question. An SLP under Article
136 of the Constitution along with 10 other civil writ petitions had been filed with the Honorable
Supreme Court of India challenging the validity of the Bankruptcy Code. The petition alleges that
Sections 7, 12A, 29A and 53 of the Code failed the test of legitimacy and thus constituted a
violation of Article 14 of the Constitution.

5. Issues
 Whether operational creditors are obliged to give demand notice to operational debtor to
initiate insolvency proceedings as specified under Sec. 8(4) of the Code?
 Whether Sec. 29A & Sec. 53 of the IBC constitutionally valid?
 Whether 90% threshold of voting shares in favour of committee of creditors for withdrawal of
application from adjudicatory authority provided under Sec. 12A of the Code admissible?
 Whether members of NCLT and NCLAT have been appointed as per precedent of the court?
 Whether restrictions laid by the Code on certain parties to act as resolution professionals
justifiable?

6. Arguments
Petitioners: The petitioner's complaint concerns the procedure for appointing members of the
National Company Law Tribunal and the National Company Law Appellate Tribunal, alleging
that it opposes the court's precedent. IUs have been challenged because they are inherently
 unregulated, which jeopardizes the authenticity of the information they provide. Sections 7, 21,
24, and 53 of the IBC make an unfair distinction between financial and operational creditors and
creditors, respectively, and violates Art. 14 of the Constitution. The appellant added that s. 29A
violated the code's goal of achieving a speedy resolution of insolvency, and its clause C restricted
the participation of all promoters of corporate debtors.

Respondents: Respondents argued that the laws prior to the IBC failed because they were focused
solely on reviving indebted companies, which in turn lacked the fundamentals of asset value
maximization. Regarding the nomination, they argued that after a committee review, the members
of the NCLT and the NCLAT were selected. The committee is composed of two Supreme Court
justices and two officials who keep in mind the prerogative to obey in such matters. In response
to Sec. 29A, an important purpose of the code is to be to bypass the fact that undesirables
mentioned in all its provisions are no longer eligible to submit a settlement plan. This will limit
their access to managing troubled companies.

7. Laws Applied
Primary law applied was Article 14 of the Constitution of India to check validity of the sections
of IBC challenged. Article 14 states “No person shall be deprived of his life or liberty except
according to procedure established by law, nor shall any person be denied equality before the law
or the equal protection of the law within the territory of India.”

Further, two case laws have been referred as precedents for the case namely: Madras Bar
Association v. Union of India, [AIR (2015) 8 SCC 583] and R.K. Garg & Ors. v. Union of India,
[AIR (1981) 4 SCC 675].

8. Judgement of the Court

The Supreme Court found that the two creditors differed from each other based on the rule set
forth in the art. 14 of the Indian Constitution. While addressing the question of the difference
between financial and operational creditors, the Court made a notable opinion by emphasizing
that the object of the code was to protect the social debtor such as there is a growing concern to
ensure maximum recovery for all creditors. In the Madras Bar Association v. Union of India,
various issues including the establishment of NCLT and NCLAT and qualifications of members
with technical knowledge were considered by the Supreme Court.

9. Rationale
While solving the problem against Sec. 12A and how 90% of the lender's board allows
withdrawals, the Court clarified that the reasoning behind imposing such a high limit was clearly
mentioned in the loss status reports. the Insolvency Law Committee said so, because every
moneylender must concentrate while authorizing such withdrawal. While addressing the
constitutionality of Sec. 53 of the Code, in the case of company liquidation, the court has ruled
that it is the active creditors who are in the minimum stage to achieve anything, since they are
below all other creditors, including unstable tenants posing as money lenders.
10. Critical Analysis
This case is believed to have a significant impact on the way the Code is interpreted. As of now,
there was a lack of insecurity that could be seen in investors and bidders with regard to
acquisition of assets. IBC thereby strives to improve the flow of funds in the Indian commercial
market. The judgement aims to provide clarity on the duties of Resolution Professionals and
brings a balance between their roles and responsibilities keeping in mind that they are in charge
of administrative functions and subject to judicial supervision. By highlighting various
distinctions between operational and financial creditors, the Code ensures that legislative goals of
the economy are secure and that chances of bad debts comes down. The contribution of Supreme
Court in a much-awaited economic law proves that it is way ahead of its international coequals.