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Case Commentary on Swiss Ribbons Pvt. Ltd. V/s Union of India, 25 January, 2019

Supreme Court Of India - Swiss Ribbons Pvt. Ltd. v/s. Union of India - Writ Petition (Civil) No. 99 of 2018 - Judgment Delivered On 25 January, 2019


Swiss Ribbons Pvt. Ltd. Vs Union of India along with other similar petitions assail the constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016 [Code]. The Bankruptcy Law Reforms Committee [BLRC] in its Report dated 04.11.2015 discussed the following primary reasons for the enactment of the Code:
  1. Fragmented Insolvency Laws:
    In the erstwhile legislations such as the Presidency Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, etc. the rights of the Creditors and Debtors were separately dealt with and separate judicial fora such as the 'High Courts', the 'Board for Industrial and Financial Reconstruction' [BIFR] established under the Sick Industrial Companies [SICA] Act, 1985 , the 'Debt Recovery Tribunal' [DRT] under the Recovery of Debts Due to Banks & Financial Institutions [RDDBFI] Act, 1993 & Securitization & Reconstruction of Financial Assets & Enforcement of Security Interests [SARFAESI] Act, 2002, the 'National Company Law Tribunal' [NCLT] under the Companies Act [CA], 2013, etc. had jurisdictions to construe and execute the various aforementioned laws pertaining to the Creditors and Debtors. For instance, one forum was empowered to preside over Creditor's rights and another forum was entrusted with the function of protecting Debtor's rights.

    There was both legislative and judicial ambiguity and uncertainty. Their decrees were predominantly appealed against due to egregious perplexion in the Insolvency Laws regime and either stayed or overturned by the Appellate authority. This led to myriad technical snarls. Hence, a need for a single forum for greater consistency and efficiency qua Insolvency laws was felt.

  2. Delays and Extensions:
    A good realization can generally be obtained if the firm is sold as a going concern. Hence, when delays induce liquidation, there is value destruction. The realization is lower when there are delays. Delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay. Focus of the law on resolution and not on liquidation was indispensable. In simple words, expeditious disposal of the insolvency resolution process was the need of the hour.

Facts Of The Case/Background
The judgment does not deal with the facts of the case. It comprehensively studies the Statement of Objects and Preamble of the Code. The Supreme Court discusses inter alia, the following cases to show uncertainty in the legal framework of Insolvency laws before the enactment of the Code:
  1. Madras Petrochem Ltd. and Anr. v. Board for Industrial and Financial Reconstruction and Ors., (2016) 4 SCC 1;
  2. R.K. Garg v. Union of India, (1981) 4 SCC 675,
  3. Bhavesh D. Parish v. Union of India, (2000) 5 SCC 471;
  4. DG of Foreign trade v. Kanak Exports, (2016) 2 SCC 226;

Thereafter, the Court deals with the core issues of the case. It primarily delves into the Constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016. The judgment finds its reasoning, by and large from the Bankruptcy Law Committee Report, 2015 and the Insolvency Law Committee Report [ILCR], 2018 particularly, in matters where the Code's provisions were scoffed at being arbitrary and discriminatory. The legislative intent is looked into at every step for understanding the rationale behind the provisions' formulation.

Sr. No. Issues
1 Whether appointment of members of the NCLT and the NCLAT is contrary to the Supreme Courts Judgments: in Madras Bar Association v. Union of India, (2015) 8 SCC 583 [Madras Bar association (III)]?
2 Whether the NCLAT, as an appellate forum, being constituted at New Delhi under Section 5 of the Code will have the same convenience and expediency as existed prior to appeals going to the NCLAT after the powers of the High Court are taken away?
3 Whether the simultaneous control of two ministries viz., Ministry of Law and Justice and Ministry of Corporate Affairs over the NCLT and NCLAT is constitutionally valid or in contravention of Madras Bar Association (III)?
4 Whether Sections 7, 8 and 9 of the Code stand arbitrary and discriminatory and constitutionally invalid given that it confers different sets of rights to the Financial Creditor/Debtor and the Operational Creditor/Debtor?
5 Whether Sections 21 and 24 of the Code are discriminatory and manifestly arbitrary in that operational creditors do not have even a single vote in the Committee of Creditors [CoCs] in the Corporate Insolvency Resolution Process [CIRP] unless they constitute10% of the aggregate amount of debt owed by the Corporate Debtor?
6 Whether the Certification of Information Utilities [IUs] set up under Section 210 of the Code is reliable and valid?
7 Whether the Interim Resolution Professional [IRP] has been vested with the Adjudicatory powers or Administrative powers?
8 8.1��Whether the vested rights of erstwhile promoters to participate in the recovery process of a Corporate Debtor have been impaired by retrospective application of Section 29A (c)?

8.2��Whether a blanket ban on participation of all promoters of Corporate Debtors under Section 29A(c) without any mechanism to weed out those who are unscrupulous would amount to treating unequal as equal?

8.3 Whether Section 29A is contrary to the goal of the maximization of value of assets as an erstwhile promoter, who may outbid all other applicants and may have the best resolution plan, would be kept out at the threshold, thereby impairing the object of maximization of value of assets?
9 Whether classifying a person's account as a non-performing asset [NPA] in accordance with the guidelines of the Reserve Bank of India [RBI], despite him not being a wilful defaulter and the period of one year referred to in clause (c) is wholly arbitrary and without any basis either in rationality or in law?
10 Whether the law under Section 29A(j) rendering the persons who may be related parties (to the promoter) ineligible to partake in the CIRP is unreasonable?
11 Whether exemption granted to the promoters of Micro, Small and Medium Enterprises [MSMEs] to bid/participate in MSMEs CIRP from Section 29A is arbitrary?
12 Whether Section 53 of the Code discriminates against the Operational Creditor when it comes to distribution of assets after liquidation in order of priority?

Ratio decidendi

  • As to issue 1:
    The Apex Court observes that in compliance with the Madras Bar Association (III) judgment vide Order dated 27.07.2015:
    1. Justice Gogoi (as he then was),
    2. Justice Ramana,
    3. Secretary, Department of Legal Affairs, Ministry of Law and Justice, and
    4. Secretary, Corporate Affairs, were constituted as the Selection Committee to appoint the members of NCLT and NCLAT.

    After the Company Law Amendment Act, 2017, Section 412 of the Company Law was amended and the same Selection Committee was reconstituted on 22.02.2017 to make further appointments. Hence, the plea raised by the Petitioner's Counsel does not hold water as the same is factually incorrect.

  • As to issue 2:
    The Court finds it to be imperative for the legislature to ensure that redress should be available with the same convenience and expediency as it was prior to the introduction of the newly created court/tribunal. The appeal against the NCLAT's order lies before the Supreme Court within 45 days from the date of the Order passed and not before the High Court. It directed the Respondents (Union of India) to set up Circuit Benches of the NCLAT within a period of 6 months from 25 January, 2019.

  • As to issue 3:
    Under the Government of India (Transaction of Business) Rules, 1961, the government business is divided amongst the ministers and specific functions are reallocated to different ministries. Each ministry can therefore issue orders or notifications in respect of the functions which have been allocated to it under the Rules of Business[1]. When the Respondent's Counsel argues that the President under Article 77(3) of the Constitution of India has powers to make rules for the convenient transaction and allocation of business to the ministries and the same being mandatory in nature the Central Government has no escape but to comply with that, the Court observes that the Court is bound by the Constitution Bench judgment in Madras Bar Association (III). It emphasises that eight years have elapsed since the judgment was pronounced. It is high time that the Union of India follow, both in letter and spirit, the judgment of this Court.

  • As to issue 4:
    The Court takes notice of several important judgments. According to it, it is clear that most financial creditors, particularly banks and financial institutions, are secured creditors whereas most operational creditors are unsecured, payments for goods and services as well as payments to workers not being secured by mortgaged documents and the like. Apart from the above, the nature of loan agreements with financial creditors is different from contracts with operational creditors for supplying goods and services.

    Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other hand, contracts with operational creditors are relatable to supply of goods and services in the operation of business. Financial contracts generally involve large sums of money. By way of contrast, operational contracts have dues whose quantum is generally less. In the running of a business, operational creditors can be many as opposed to financial creditors, who lend finance for the set up or working of business.

    Also, financial creditors have specified repayment schedules, and defaults entitle financial creditors to recall a loan in totality. Contracts with operational creditors do not have any such stipulations. Also, the forum in which dispute resolution takes place is completely different. Contracts with operational creditors can and do have arbitration clauses where dispute resolution is done privately. Operational debts also tend to be recurring in nature and the possibility of genuine disputes in case of operational debts is much higher when compared to financial debts. A simple example will suffice. Goods that are supplied may be substandard. Services that are provided may be substandard. Goods may not have been supplied at all. All these qua operational debts are matters to be proved in arbitration or in the courts of law. On the other hand, financial debts made to banks and financial institutions are well-documented and defaults made are easily verifiable.

    Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code.

  • As to issue 5:
    Section 12A was inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from 06.06.2018 which requires ninety per cent voting share of the CoCs for the withdrawal of application admitted under Sections 7, 9 and 10. This practice was deliberated in light of the objective of the Code as encapsulated in the BLRC Report, that the design of the Code is based on ensuring that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution.

    Thus, it was agreed that once the CIRP is initiated, it is no longer a proceeding only between the applicant creditor and the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. It is clear, that under Section 60 of the Code, the CoCs do not have the last word on the subject. If the committee of creditors arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT, and thereafter, the NCLAT can always set aside such decision under Section 60 of the Code. For all these reasons, the Court is of the view that Section 12A also passes constitutional muster.

  • As to issue 6:
    The BLRC envisions a competitive industry of information utilities who hold an array of information about all firms at all times. When the IRP commences, within less than a day, undisputed and complete information would become available to all persons involved in the IRP and thus address this source of delay. The Information Utilities Regulations, in particular Regulations 20 and 21, make it clear that on receipt of information of default, an information utility shall expeditiously undertake the process of authentication and verification of information. This being the case, coupled with the fact that such evidence, as has been conceded by the learned Attorney General, is only prima facie evidence of default, which is rebuttable by the corporate debtor, makes it clear that the challenge based on this ground must also fail.

  • As to issue 7:
    The Resolution Professional is given administrative as opposed to quasi-judicial powers. In fact, even when the Resolution Professional is to make a determination under Regulation 35A, he is only to apply to the Adjudicating Authority for appropriate relief based on the determination made. Whereas the liquidator, in liquidation proceedings under the Code, has to consolidate and verify the claims, and either admit or reject such claims under Sections 38 to 40 of the Code. Unlike the liquidator, the Resolution Professional cannot act in a number of matters without the approval of the committee of creditors under Section 28 of the Code, which can, by a two-thirds majority, replace one resolution professional with another, in case they are unhappy with his performance. Thus, the Resolution Professional is really a facilitator of the resolution process, whose administrative functions are overseen by the committee of creditors and by the Adjudicating Authority.

  • As to issue 8:
    8.1 Section 29A does not disturb any vested or existing rights, as a resolution applicant does not have any vested or existing rights that can be disturbed, as has been held in Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Ors., Civil Appeal Nos. 9402-9405/2018. The Court observes that since a Resolution Applicant who applies under Section 29A(c) has no vested right to apply for being considered as a resolution applicant, this point is of no avail.

    8.2 Persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible. The provisions of Section 29A are intended to ensure that among others, persons responsible for insolvency of the corporate debtor do not participate in the resolution process. The Court must bear in mind that Section 29A has been enacted in the larger public interest and to facilitate effective corporate governance. Parliament rectified a loophole in the Act which allowed a back- door entry to erstwhile managements in the CIRP.

    8.3 The same rationale that has been provided earlier in this judgment will apply to this as well. There is no vested right in an erstwhile promoter of a corporate debtor to bid for the immovable and movable property of the corporate debtor in liquidation. Further, given the categories of persons who are ineligible under Section 29A, which includes persons who are malfeasant, or persons who have fallen foul of the law in some way, and persons who are unable to pay their debts in the grace period allowed, are further, by this proviso, interdicted from purchasing assets of the corporate debtor whose debts they have either wilfully not paid or have been unable to pay. The legislative purpose which permeates Section 29A continues to permeate the Section when it applies not merely to resolution applicants, but to liquidation also. Consequently, this plea is also rejected.

  • As to issue 9:
    The Court observes that a person who cannot service a debt for the aforesaid period is obviously a person who is ailing itself. The saying of Jesus comes to mind if the blind leads the blind, both shall fall into the ditch. The legislative policy, therefore, is that a person who is unable to service its own debt beyond the grace period referred to above, is unfit to be eligible to become a resolution applicant. This policy cannot be found fault with. Neither can the period of one year be found fault with, as this is a policy matter decided by the RBI and which emerges from its Master Circular, as during this period, an NPA is classified as a substandard asset. The ineligibility attaches only after this one-year period is over as the NPA now gets classified as a doubtful asset.

  • As to issue 10:
    The Court observes that there ought to be the connecting link between the properties and the convict/detenu, the burden of disproving which, as mentioned above, is upon the relative/associate. In this view of the matter, the apprehension and contention of the petitioners in this behalf must be held to be based upon a mistaken premise. The bringing in of the relatives and associates or of the persons mentioned in clause (e) of Section 2(2) is thus neither discriminatory nor incompetent apart from the protection of Article 31-B. It is of the view that persons who act jointly or in concert with others are connected with the business activity of the resolution applicant. Similarly, all the categories of persons mentioned in Section 5(24A) show that such persons must be connected with the resolution applicant within the meaning of Section 29A(j).

    This being the case, the said categories of persons who are collectively mentioned under the caption relative obviously need to have a connection with the business activity of the resolution applicant. In the absence of showing that such person is connected with the business of the activity of the resolution applicant, such person cannot possibly be disqualified under Section 29A(j). All the categories in Section 29A(j) deal with persons, natural as well as artificial, who are connected with the business activity of the resolution applicant.

    The expression related party, therefore, and relative contained in the definition Sections must be read noscitur a sociis with the categories of persons mentioned in Explanation I, and so read, would include only persons who are connected with the business activity of the resolution applicant. This contention also needs to be repelled as Explanation I seeks to make it clear that if a person is otherwise covered as a connected person, this provision would also cover a person who is in management or control of the business of the corporate debtor during the implementation of a resolution plan. Therefore, any such person is not indeterminate at all, but is a person who is in the saddle of the business of the corporate debtor either at an anterior point of time or even during implementation of the resolution plan. This disposes of all the contentions raising questions as to the constitutional validity of Section 29A(j).

  • As to issue 11:
    The Court takes into consideration the ILCR, 2018. It focuses on the following rationale propounded by the ILC. the Committee sought it fit to explicitly grant exemptions to corporate debtors which are MSMEs by permitting a promoter who is not a wilful defaulter, to bid for the MSME in insolvency. The rationale for this relaxation is that a business of an MSME attracts interest primarily from a promoter of an MSME and may not be of interest to other resolution applicants. Thus, the rationale for excluding such industries from the eligibility criteria laid down in Section 29A(c) and 29A(h) is because qua such industries, other resolution applicants may not be forthcoming, which then will inevitably lead not to resolution, but to liquidation.

  • As to issue 12:
    On perusal of BLCR 2015, the Court reasons it will be seen that the reason for differentiating between financial debts, which are secured, and operational debts, which are unsecured, is in the relative importance of the two types of debts when it comes to the object sought to be achieved by the Insolvency Code. We have already seen that repayment of financial debts infuses capital into the economy inasmuch as banks and financial institutions are able, with the money that has been paid back, to further lend such money to other entrepreneurs for their businesses.

    This rationale creates an intelligible differentia between financial debts and operational debts, which are unsecured, which is directly related to the object sought to be achieved by the Code. In any case, workmen dues, which are also unsecured debts, have traditionally been placed above most other debts. Thus, it can be seen that unsecured debts are of various kinds, and so long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 does not get infracted. For these reasons, the challenge to Section 53 of the Code must also fail.

After having discussed the judgment at length, I conclude that the judgment succeeded in addressing the issues rightly to a greater degree. However, some additional points ought to have been explored by the Court which I would like to propose in the form of my opinions on each issue separately as under:

  • As to issue 1
    The Petitioner's Counsel raised the objection based on his surmises and conjectures for he said that the Appointment Committee comprised of two judicial members and three bureaucrats being against the Constitution Bench decision. When in fact, there were 2 members from each sector. Therefore, the first issue passed the test effortlessly.

  • As to issue 2
    According to me, the Supreme Court's direction to the Central Government to establish Circuit Benches of NCLAT in every State as is done in case of Central Administrative Tribunals shows that it has taken into consideration the hassle of people residing far-flung. Hence, this issue is appropriately addressed by the Court for the retention of convenience and expediency persisted prior to the establishment of NCLAT.

  • As to issue 3
    The Court urges that admittable it is that the Executives were obliged to perform their duties but the Court is also under no less obligation to abide by the Constitutional Bench Judgment and hence, it proposes the Central Government to follow the Madras Bar Association (III) judgment which was passed eight years ago directing that the administrative support for all Tribunals should be from the Ministry of Law and Justice, in its letter and spirit. However, if the control of two ministries over the tribunals is leading to intractable inevasible imbroglios, in addition to the above proposal, the Court ought to have recommended the Central Government that if the President wishes to vary the rules framed by it, it is within its authority to do so for the Constitution would never fetter the President from altering rules made by it for convenience and expediency, if they are later proved to cause vexation in the practicalities and for that matter if the President needs assistance to comprehend the technicalities associated with this aspect, then it may obtain the Apex Court's opinion under Article 143 of the Constitution and get this prolonging perplexion to a termination.

  • As to issue 4
    The object sought to be achieved by the Code is revival of the Corporate Debtor and maximization of the value of assets. If we see both the contracts i.e. the Financial Creditor's and Operational Creditor's Contracts, we get exposed to multiple technicalities that differentiate the former from the latter. For instance, the regime of secured creditorship, nature of the agreements between the parties i.e. term loan related and goods and services related, quantum of dues, the substantial rift in the populousness of both the Creditors, the systematic framework of repayment, the possibility of redressal of the claims in different fora, documentation and verification and assessment of the viability of the corporate debtor to restructure the loan and reorganize the Corporate Debtor are the factors conducive for the materialization of the aim of the Code for they set the criteria based on which a notch better error-free Corporate Insolvency Resolution Process (CIRP) framework can be created. Now these factors are systematic in case of Financial Creditors than that of Operational Creditors, hence intelligible classification between the two is affordable for attaining that which the erstwhile legislations failed to attain. The classification is remarkable to do away with the technical barriers crept in during the execution of the previous regime. Thus, this issue is aptly reasoned by the Supreme Court to justify the classification as being non-arbitrary.

  • As to issue 5
    There the Court merely justified the ninety percent requirement of the financial creditors for the withdrawal of application after admission under Section 7, 9 or 10. There was no need to unnecessarily explain the rationale behind the statutory call for the participation of such a significant digit of Creditors for withdrawal for it is fathomable that that is a collective proceeding or proceeding in rem and no individual creditor should be met with an injustice. But the SC is silent on why the Operational the operational creditors have no say in the withdrawal application. Why they are left at the mercy of the Financial Creditors.

    It may seem reasonable that the Operational Creditors will have a role to play when their dues amount to 10% of the aggregate amount of the total debts owed. But unless they amount to 10% of the aggregate of the amount of debt owed, they have no voice in the committee of creditors. For the sake of convenience and facilitation of the insolvency resolution process, the legislature may have required to take the assistance of the minority for the betterment of both minority and majority even if that called for bereaving the majority of some of their rights for a temporary period. So, this issue as per my intellect is not countered properly.

  • As to issue 6
    I don't see any harm in taking the support of such extraneous institutions as Information Utilities in the CIRP. They rather expedite the process by verifying the complete undisputed information of default and producing the same within a day from the commencement of the IRP. This no way acts prejudicial to the interest of the Corporate Debtor. The Certification from such Information Utilities aids the Adjudicating Authorities in moving ahead with the CIRP with some authentic substantial information in hand and to take some stand prima facie. Hence, this issue too wins the test of validity.

  • As to issue 7
    As regards the functions of the Interim Resolution Professional (IRP), a bare reading of the Code evinces him to be possessing merely administrative powers. He is subject to the decision of the Adjudicatory Authority. Moreover, the Committee of Creditors (CoCs) is also empowered to replace the IRP by a two-thirds majority if they are dissatisfied with his performance. Nevertheless, the Supreme Court distinguished his powers from that of the Liquidator for a greater understanding of the administrative nature of his powers. Therefore, this issue too passes the test.

  • As to issue 8.1
    The promoters have no vested right in the CIRP. In fact, nobody including the resolution applicants has vested right in it. So, no question of its violation arises. Hence, this concept is also non-discriminatory.

  • As to issue 8.2
    The provisions of Section 29A are intended to ensure that among others, persons responsible for insolvency of the corporate debtor do not participate in the resolution process. By playing the trumpet of separate legal entity, the promoters cannot be allowed to take advantage of the situation and put the liability only on the company and stealthily segregate itself from it and then partake in the CIRP. This will defeat the purpose of the Code and its process if genuine claims are not satisfied and unscrupulous claims are placed at par with them. Parliament rectified a loophole in the Act which allowed a back- door entry to erstwhile managements in the CIRP. So, it goes that unequal cannot be treated as equal. Their qualifications are different which make them eligible for their claim's redressal. The law cannot permit the promoters to change their roles that is at the time of taking debt be the Company itself and at the time of recovering debt be the Creditor, when in fact the moment of recovery itself befalls due to no one other than them.

  • As to issue 8.3
    When in the first place, the unscrupulous minded promoters are disqualified ab initio from partaking in the CIRP owing to the afore-enumerated reasons, the exercise of justifying that they may come up with the best resolution plan and outbid all other applicants stands futile. There may be thousands of people on this globe who may design the best workable plan but they are not eligible under Section 29A to put forth their plans so by drawing an analogy with this, the case of erstwhile promoters can be better understood. Eligibility is the sole criterion.

  • As to issue 9
    The legislative policy is that a person who is unable to service its own debt beyond the grace period of one year, is unfit to be eligible to become a resolution applicant. This means that an insolvent cannot ask another insolvent to repay the former's debts owed to him. In that case, he becomes an undischarged insolvent under Section 29A (a). This policy cannot be said to be faltered as the person is given an opportunity to discharge all his dues within one year and then he can produce his resolution plan. On the other hand, if he is not a wilful defaulter, then also the treatment is same.

    The Finance Minister while moving the Amendment Bill stated as follows:
    And, there is also a disqualification in clause (c) with regard to those who are corporate debtors and who, as on the date of the application making a bid, do not operationalize the account by paying the interest itself, i.e., you cannot say that I have an NPA. I am not making the account operational.

    The accounts will continue to be NPAs and yet I am going to apply for this. Effectively, this clause will mean that those, who are in management and on account of whom this insolvent or the non-performing asset has arisen, will now try and say, I do not discharge any of the outstanding debts in terms of making the accounts operational, and yet I would like to apply and get the same enterprise back at a discounted value, for this is not the object of this particular Act itself. So, clause 5 has been brought in with that purpose in mind. In light of this explanation, I feel that the issue is rightly answered.

  • As to issue 10
    As far as Section 29A(j) is concerned, all the categories in this Section deal with persons, natural as well as artificial, who are connected with the business activity of the Resolution Applicant. Nowhere, it is said that the relatives of the promoters are barred from being the Resolution Applicants. Only when they are in anyway connected with the business activity of the Corporate Debtor or promoter, then they are disqualified. Hence, the formation of this issue is itself baseless and without any application of mind because a careful reading of this Section connotes the explanation given above. It seems that the Petitioner has not read the explanation of the term related party with an open mind.

  • As to issue 11
    The Court's reliance on the reason given by the BLCR that if the small promoters of small MSMEs are not allowed to bid then it would lead to liquidation and not resolution is good. It seeks to achieve the revival of the Corporate debtor. So, this exemption is no way arbitrary.

  • As to issue 12
    The distribution of assets is just and fair under Section 53. The Operational Creditors' interests have also been taken care of while framing this provision. The preference is given to the Financial Creditors because they are the source of capital in the Indian Economy. If they have money, then others in the society can take money from them so it is like ultimately a larger public interest is subserved. It is I think founded on the legal principle expressed by this Latin maxim Salus Populi Est Suprema Lex, which means that an individual's life, property and liberty shall, under certain circumstances, be placed in jeopardy or even sacrificed for the public good. The good of the individual ought to yield to that of the community. Hence, it does not undermine the interest of anyone rather it distributes the assets justly, fairly and with equity.


  1. Delhi International Airport Limited v. International Lease Finance Corporation and Ors., (2015) 8 SCC 446

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