CITATION –  3 SCR 535
Swiss Ribbons Pvt Ltd. vs Union of India deals with the constitutional validity of the various existing provisions in the Insolvency and Bankruptcy Code, 2016 (hereinafter IBC Code). The case has been finally decided by the Supreme Court on 25 January 2019. Since the enactment of the IBC Code, it is continuously changing and amendments were made many times to add key changes to ease the resolution process. The latest Amendment has been made in 2020. This is the fourth Amendment being made to the Insolvency and Bankruptcy Code, 2016. The Supreme Court, in this case, held the IBC Code to be constitutionally valid in its entirety. The Court takes into consideration various economic factors of the country in order to determine its validity in the present case. The present case comprises many cases transferred from various High Courts like Calcutta and Gujrat.
The Supreme Court considers the Lochner doctrine established in the Lochner case to declare socio-economic legislation unconstitutional if it does not pass judicial scrutiny. On the contrary, the Court relied on the R.K Garg case and held that judicial restraint should be exercised by the Court in considering the Constitutional validity of any Code, as there is no straight formula to solve the economic problems. So far considering that operational creditors should be treated as par with financial creditors, the Supreme Court tries to move away from Binani judgment which provides that both financial and operational creditors should be treated in the same manner. The Supreme Court said Binani judgment has been wrongly interpreted. The Court also relied on the objective of the preamble of the Code as interpreted in the decision of Innoventive Industries Ltd case to achieve corporate resolution of the debtor and toavoid liquidation. On the issue that adjudicating authority should function under the Ministry of Law and Justice, the Court accepted the view that the functioning of the adjudicating authority under the Ministry of Corporate Affairs is contrary to the jurisprudence laid down in the R Gandhi case. But, the Supreme Court at the same time accepted the argument put forth by the petitioner that allocation of rules of business among various ministries is mandatorily decided in the Delhi International Airport case. Thus, finally, the Court came to the conclusion that NCLT and NCLAT should continue to function under the Ministry of Corporate Affairs.
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