On January 25, the Gujarat High Court was directed to keep
bay from any debate relating to the validity of the Insolvency and Bankruptcy
Code, 2016 or the constitutional validity of the National Company Law Tribunal,
by ten Supreme Court.
A petition regarding a pending matter in the Gujarat High
Court was being heard by the Bench of Chief Justice Dipak Misra and Justices A M
Khanwilkar and D Y Chandrachud. The petition is not debarred from challenging
the validity of composition of the National Company Law Tribunal and the
validity or the constitutionality of the Insolvency and Bankruptcy Code, 2016
in front of the Supreme Court under Article 32 of the Constitution, as ordered
by the bench.
Earlier in December, 2017, notice was issued by the Gujarat
High Court in another petition challenging constitutional validity of the
Insolvency and Bankruptcy Code, 2016 and the recent ordinance barring Promoters
from submitting a resolution plan.
Post the initiation of action by the petitioner against its financial
creditor Canbank Factors Ltd., it approached the High Court under the Code while
a payment of an amount over Rs. 9 crore was pending before a Civil Court, was
up for debate.
It has challenged Sections 5(7) (definition of financial
creditor), 6 (persons who may initiate corporate insolvency resolution
process), 7 (initiation of process by financial creditor), 12 (time-limit for
completion of insolvency resolution process), 29 (preparation of information
memorandum), 214(f) (obligation of information utility), 231 (bar of
jurisdiction) and 238 (Code to override other laws) of the Code.
Arguing that there exists no intelligible differentia in the
classification of a financial credit and operational creditor in the Article 14
of the Constitution of India, the petition points out the difference in
mechanism prescribed for the two creditors.
The petitioners also argues that it is clear that barring
willful defaulters is unfair as the process of deciding who a willful defaulter
is, rests completely with bankers who are biased in the matter as their
interest lies in the recovery of the loan amount.
No difference between defaulters and willful defaulters is
made by the IBC, it punishes both equally.
challenges Sections 17 and 20, stating that these place the management of
affairs of the corporate debtor in the resolution professional, who “would
have no expertise or experience in the business of the corporate debtor, which
solely vests with the promoters, directors, etc. of the corporate debtor, and
thereby putting the entire business of the corporate debtor at stake”.
It states that this violates Article 19(1) (g) of the
Constitution of India, which guarantees freedom of occupation, trade or