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The Supreme Court on Friday upheld the constitutional validity of the Insolvency and Bankruptcy Code 2016 in its "entirety". A law that bars founders of loan-defaulting companies from buying back stressed assets put up for sale.
Supreme Court upholds Insolvency and Bankruptcy Code (IBC) in “entirety”. pic.twitter.com/oElKUgD0qy— ANI (@ANI) January 25, 2019
A bench headed by Justice R.F. Nariman said a provision of the bankruptcy law that prevents founders from regaining control of delinquent companies was legally valid. The verdict is a setback for founders of companies including Essar Steel Ltd. who had offered to clear all dues to regain control.
Essar founders Shashi and Ravi Ruia’s bid was against Steel tycoon Lakshmi Mittal’s ArcelorMittal’s Rs 42,000 crore ($5.9 billion) offer to banks and a further Rs 8,000 crore of capital infusion into the company.
The petitioners had listed discriminatory treatment given to a certain class of operational creditors and alleged that the IBC was unfair as it was protecting the rights of only financial creditors.
Companies like Swiss Ribbons, Shivam Water Treaters, and Ganesh Prasad Pandey, an individual petitioner, had challenged various provisions of the IBC, such as Sections 7, 12 and 29.
The court, however, said that related parties in the Act should mean a person connected with the business.
Among other things, the provision says that a resolution applicant shall be eligible to bid for a company or person undergoing insolvency only if the person is an undischarged insolvent, a wilful defaulter under the Reserve Bank of India guidelines, is a promoter or a party related to the promoter, and has been convicted by a court of law for any offense punishable with imprisonment of two years or more.
The Bench disposed of a batch of pleas filed by companies challenging various provisions of the IBC.