IBC : Supreme Court Upholds Validity Of Insolvency & Bankruptcy Code

The Supreme Court today upheld the constitutional validity of the Insolvency and Bankruptcy Code 2016 in its “entirety”. The Court however held that to attract the bar under Section 29A from participating in resolution process, “related person” should be a person connected to the defaulting entity. The bench of Justices R F Nariman and Navin Sinha had reserved orders on January 15 on the petitions challenging the validity of IBC.

The bunch of petitions were moved primarily contending that IBC was discriminatory and unfair to operational creditors as compared to financial creditors. The apex court had transferred to it similar petitions filed in various High Courts. During the hearing, Justice Nariman had expressed the need to have circuit benches of NCLAT in metros. From the batch of petitions challenging IBC, the bench had split up the petitions challenging the circular issued by RBI on February 12, which had directed lenders to initiate IBC proceedings against defaulters in the sectors of power, steel and textiles.Private power companies challenged the circular saying it is ultra vires the RBI Act as it affected banks’ discretion to decide on the action against non performing assets. The Court said that challenge to RBI Circular will be dealt with separately.

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