Swiss Ribbons Pvt. Ltd. v. Union of India

Facts

A batch of writ petitions challenged the constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016. Petitioners attacked the differential treatment of financial and operational creditors, the bar on certain persons (notably defaulting promoters) bidding under Section 29A, the constitution of NCLT/NCLAT, and the withdrawal mechanism. The Code had displaced the older winding-up and SICA regimes for corporate insolvency. The Court heard the challenge as a comprehensive test of the new insolvency framework.

Issues

• Whether the classification between financial creditors and operational creditors violates Article 14
• Whether Section 29A (disqualification of certain resolution applicants, including defaulting promoters) is arbitrary or violative of Article 14
• Whether the overall scheme of the IBC, including the role of the Committee of Creditors and resolution professional, is constitutionally valid

Arguments

Petitioners argued the Code was arbitrary in privileging financial creditors, that operational creditors had no vote, and that Section 29A unfairly excluded promoters and was retrospective; the resolution professional wielded quasi-judicial power without safeguards. The Union argued the classification was founded on an intelligible differentia bearing rational nexus to the object of timely resolution, that Section 29A protected the corporate debtor from those who had run it aground, and that adequate safeguards existed.

Held

The Supreme Court upheld the IBC in its entirety. It held that the differentia between financial and operational creditors is intelligible and rationally connected to the Code's object of corporate revival, as financial creditors are better placed to assess viability and restructuring. Section 29A was upheld as a salutary provision aimed at keeping out persons responsible for the debtor's downfall, and 'related party' was read down to mean a connection with the business activity of the resolution applicant. The Court read Section 12A's 90% CoC threshold for withdrawal as workable and clarified the role of the resolution professional as administrative, not adjudicatory.

Ratio decidendi

The IBC is a beneficial legislation whose creditor classifications and disqualifications rest on an intelligible differentia with rational nexus to timely insolvency resolution and maximisation of asset value, and are therefore not violative of Articles 14 or 21.

Significance

The foundational judgment affirming the constitutional bedrock of India's insolvency regime, decisively replacing the old winding-up/SICA paradigm with a creditor-in-control, time-bound resolution model; consistently relied upon in all subsequent IBC jurisprudence.

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