Citation – Writ Petition (Civil) NO. 99  OF 2018

FACT 

The petitioner, in this case, the Swiss Ribbons Pvt. Ltd filed a writ in SC challenging the constitutionality of various provisions of insolvency bankruptcy code, 2016, several writ petitions also filed before the Supreme court regarding the same issue by others, since, the judgement dealt only with the question of law, it did not provide individual facts of any case.

ISSUE RAISED 

The issues that were argued by the parties were –

1. The appointment of members of NCLT and NCLAT.

2. Classification into financial creditors and operational creditors is violation of Article 14 of the Constitution.  

3. Constitutionality of section 12A. 

4. The constitutional validity of Section 29A.

5. The NCLT as an appellate court has an only seat in Delhi. 

JUDGEMENT 

The Supreme Court upheld the constitutional validity of the insolvency bankruptcy code, 2016.

KEY POINTS

1. Insolvency Resolution Professional has only administrative and no adjudicatory powers. The bench observed that, under the Code, the resolution professional is given administrative as opposed to quasi-judicial or adjudicatory power.

2. Section 29A of the Code has been held constitutionally Valid: ‘Related Person’ not connected with the business activity of the resolution applicant cannot be disqualified. Related Party Unconnected With The Business of The Activity of The Resolution Applicant The judgment only makes some intervention in the interpretation of Section 29A which defines ‘related party’. The court dealt with the contention that, the mere fact that somebody happens to be a relative of an ineligible person cannot be good enough to oust such person from becoming a resolution applicant if he is otherwise qualified. The court held that, in the absence of showing that such a ‘related person’ is connected with the business of the activity of the resolution applicant, such person could not possibly be disqualified under Section 29A.

3. Section 53 is not in violation of Article 14 of the Constitution of India.

4. Regarding the appointment of the members of the NCLT and the NCALT as per the companies act, 2017, two judicial members are to be appointed and executive members ate to be appointed in NCLT and NCALT. Further, according to the affidavit filed by MCA, earlier appointment were also as per the precedents and the same held valid. Regarding  the  function of NCLT and NCALT, the Supreme Court, relying on its earlier judgement in case of Union of India v. R. Gandhi, President, Madras Bar Association, which provided for administrative support for all Tribunals to be from the Ministry of Law and Justice, directed the Union of India to follow the said judgement both in letter and spirit.

5. Regarding, the question of the branch of NCLT only at Delhi, the Supreme Court directed the Union of India to set up Circuit Benches of the NCLAT within a period of 6 months from the date of the judgement.

PERSONEL COMMENT 

By upholding the constitutional validity of the Code, the Supreme Court conducted an overall analysis of its provisions and looked into the economic aspects behind it as well. The judgement has a significant impact on a number of shareholders in a matter of insolvency resolution. 

(By – Jyoti)