Swiss Ribbons Pvt. Ltd. & Anr. v. Union Of India & Ors. (Supreme Court)
“The defaulter’s paradise is lost. In its place, the economy’s rightful position has been regained”, this is how the Supreme Court summed up the judgment upholding the constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016 (herein referred to as “Code”). The Code paves way for a consolidated and un-bifurcated exhaustive law for insolvencies and bankruptcies applicable to corporate persons, firms and individuals. The amalgamated provisions of the current legislative framework forms a common forum for debtors and creditors of all classes to resolve insolvency. The paradigm shift from the“inability to pay debts”to “determining default”has led to a transitional reformation with respect to assessing the viability of the business or to render it as a“bad asset”.
The experiment contained in the Code, judged by the generality of its provisions and not by so called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. The Apex Court, on 25th January, 2019 in the case of Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. has upheld the constitutional validity of ‘The Insolvency and Bankruptcy Code 2016’ in its “entirety” eliminating all the ambivalence. The bench comprising of Justices R F Nariman and Navin Sinha had reserved orders on January 15, 2019 on the various petitions including that of High Courts of Calcutta and Gujrat, thereby by way of transfer, challenging the validity of the Code. The bunch of petitions were moved primarily contending that the three year old law was being discriminatory, unfair, and arbitrary to operational creditors as compared to financial creditors.
Synopsis Of The Judgement:
The major issues and observations in the present case are enumerated below:
1. Differential treatment of class of creditors justified: Intelligible Differentia Between Financial Creditor And Operational Creditor.
The court held that financial creditors are clearly differentiated from operational creditors and therefore, there is an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code.
The bench explained and examined the contrast between financial creditor and operational creditor. It said: “A perusal of the definition of financial creditor and financial debt makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, and ‘operational debt’ would include a claim in respect of the provision of goods or services, including employment, or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority.”
The following observations which were made by the bench, introspecting the positions of both the classes of creditors:
