SC judgment on IBC will bring much needed clarity over insolvency proceedings

The Supreme Court's ruling on Friday upholding the constitutional validity of the Insolvency and Bankruptcy Code (IBC) has brought the much needed clarity over the corporate insolvency resolution process and will end all conflicts over its procedures, according to legal experts.

Bringing clarity over the IBC will help boost investors confidence and will help in quick revival of ailing companies, they said.

"Supreme Court's upholding of IBC will add necessary certainty by way of long term clarity for all stakeholders. It should significantly boost investor confidence, and effectively enhance participation," said Cyril Amarchand Mangaldas Managing Partner Cyril Shroff.

The Supreme Court Friday upheld the constitutional validity of the Insolvency and Bankruptcy Code (IBC) in its entirety.

According to Trilegal Partner Shankh Sengupta: "Upholding the constitutional validity of the Insolvency and Bankruptcy Code is laudable and a step in the right direction. The judgement will go a long way in ensuring quick revival of ailing companies through the IBC process and avoiding "corporate death by liquidation".

Khaitan & Co Partner Ashwin said: "These crucial course corrections and clarifications are important milestones in the journey of an economic legislation which has already come far and will go a long way in cementing the insolvency and bankruptcy code as a key economic reform in India which will facilitate upward mobility for India in the World Bank ease of doing business rankings." The top court in its ruling lauded the working of the IBC and said the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid.

Lakshmikumaran & Sridharan Executive Partner Punit Dutt Tyagi said the judgement has also provided the much needed clarity on the role of the resolution professional and the liquidators appointed by NCLT.

"The court in detail also assessed the validity of section 12A and section 29A and held them valid as well," he said.

Tyagi added: "Regarding section 29A, the Court may have put a close the Arcelor issue. Besides adjudicating on the above core issues, the Court also directed that Circuit Benches of the National Company Law Appellate Tribunal (NCLAT) be set-up within the coming 6 months." Section 29A deals with persons not eligible to be resolution applicant to bid for a company going under resolution process.

Echoing views, Ashwin said: "In doing so the Supreme Court has read down Section 29A by requiring that the related parties bear connection to the bidder who does not meet the criteria of section 29A." However, Sengupta said: "It needs to be seen how this would pan out practically." Passing a judgement on Friday, a two member bench headed by Justice R F Nariman upheld the constitutional validity of IBC Code.

The IBC, which came into force on December 2016, provides for market-determined and time-bound insolvency resolution process.

In the order, the apex court has also ended challenge to section section 53 of the IBC Code, which priortise financial debts over operational debts.

"The Supreme Court has rightfully recognised that there exists intelligible differentia between financial creditors and operational creditors and upheld the distinction between the treatment of the two under the Bankruptcy Code," said Ashwin.

"Besides adjudicating on the above core issues, the Court also directed that Circuit Benches of the National Company Law Appellate Tribunal (NCLAT) be set up within the coming 6 months," said Tyagi.

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