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Legal Case Shots

Court judgements broken down into the case type, how the decision played out, and the lesson worth remembering, with the full judgement available as a PDF.

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Legal Case Shots is a searchable database of Supreme Court of India judgments, each broken down into the case type, the court's key holding, and a practical lesson learnt, with the full judgment available as a PDF for citation or deeper reading.

Company & Insolvency LawSupreme Court of India

Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors.

Writ Petition (Civil) · 2019 INSC 95Decided 25 Jan 2019
Writ Petition (Civil) No. 99 of 2018
Justice Rohinton Fali Nariman · Justice Navin Sinha

Background

Several companies and promoters challenged the constitutional validity of the Insolvency and Bankruptcy Code, 2016: a major economic reform law that lets creditors push a defaulting company into a time-bound resolution process before an insolvency tribunal (the NCLT). The challengers argued, among other things, that treating "financial creditors" (like banks) more favourably than "operational creditors" (like suppliers) was discriminatory, that the law unfairly barred a company's own promoters from bidding to take it back during insolvency (Section 29A), that the 90%-creditor-approval threshold to allow a settlement/withdrawal (Section 12A) was too high, and that resolution professionals were wrongly being given judge-like powers.

Decision Breakdown

The Supreme Court upheld the Code almost in its entirety as constitutionally valid. It held the distinction between financial and operational creditors has a rational basis tied to how each type of debt affects the economy and was neither discriminatory nor manifestly arbitrary; it upheld Section 12A's 90% threshold for approving withdrawal/settlement as a matter of legislative policy, noting NCLT/NCLAT oversight remains available if a committee of creditors acts unreasonably; it held that a resolution professional exercises only administrative, not adjudicatory or quasi-judicial, functions, so no judicial powers were improperly delegated; and it upheld Section 29A (barring defaulting promoters and related categories of persons from bidding to regain control of the insolvent company), along with the liquidation priority scheme under Section 53. The Court separately confirmed that NCLT/NCLAT member appointments were not unconstitutional, while directing the government to establish NCLAT circuit benches outside Delhi and to move its administrative support to the correct ministry.

Lesson Learnt

For major economic legislation, courts give lawmakers significant leeway to "experiment" and self-correct through amendments, and will only strike down such a law if it is clearly irrational or manifestly arbitrary: merely being tough on defaulting promoters, or imposing a high bar for creditor-approved settlements, does not by itself make an economic law unconstitutional.

Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. – Legal Case Shots | LegalAware