Insolvency & Bankruptcy Code : Important Supreme Court Judgments Of 2021

1. Supreme Court Upholds Sections 3, 4 & 10 Of IBC Amendment Act 2020 [Judgment dated: 19.01.2021] [Citation : LL 2021 SC 25] [Bench: Justices R.F. Nariman, Navin Sinha and K.M. Joseph] [Author: Justice K.M. Joseph] In Manish Kumar v. Union of India And Anr., the Supreme Court upheld the constitutional validity of Section 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act 2020. While upholding the threshold imposed on homebuyers' application, the Court emphasised that the amended provisions in no way amount to hostile discrimination or violation of principles of equality guaranteed by Article 14, as had been contended by the petitioner. Referring to the Pioneer case, it clarified that though homebuyers have been declared to be unsecured creditors, they stand on a different footing from other creditors. The Supreme Court observed - "When an allottee invests money in a real estate project, his primary and principal concern is that the project is completed and he gets possession of the apartment or the flat. The problem really arises as there are many stakeholders whose interests are affected" Also Read: Minimum Threshold For Homebuyers' Insolvency Process Against Builder Shields Frivolous & Avoidable Applications : Supreme Court 2. Creditor Will Not Become 'Financial Creditor' Under IBC If A Corporate Debtor Has Only Given Security By Pledging Shares, Without Undertaking To Discharge Borrower's Liability: Supreme Court[Judgment dated: 03.02.2021] [Citation : LL 2021 SC 60][Bench: Justices Ashok Bhushan, R. Subhash Reddy, M.R. Shah] [Author: Justice Ashok Bhushan] In Phoenix Arc Pvt. Ltd. v. Ketulbhai Ramubhai Patel, the Supreme Court held that if a corporate debtor has only offered security by pledging shares, without undertaking to discharge the borrower's liability, then the creditor in such a case could be treated as a 'secured creditor' but not a 'financial creditor' as per the definition in the Insolvency and Bankruptcy Code, 2016 ("IBC"). The Supreme Court noted - "...a person having only security interest over the assets of corporate debtor, even if falling within the description of 'secured creditor' by virtue of collateral security extended by the corporate debtor, would not be covered by the financial creditors as per definitions contained in sub-section (7) and (8) of Section 5." 3. Collusive Commercial Transactions With Corporate Debtor Will Not Constitute 'Financial Debt' Under IBC : Supreme Court [Judgment Dated: 01.02.2021] [Citation :LL 2021 SC 55][Bench: Justices D.Y. Chandrachud, Indu Malhotra and Indira Banerjee] [Author: Justice D.Y. Chandrachud] In Phoenix Arc Private Limited v. Spade Financial Services Limited And Ors., the Supreme Court held that collusive or sham transactions with a corporate debtor will not amount to "financial debt" as defined in the IBC. The Supreme Court observed - "The IBC recognizes that for the success of an insolvency regime, the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors" 4. Bar Under Section 10A IBC Against Initiation Of CIRP Retrospective; Applies To Applications Filed From 25 March 2020 [Judgment Dated: 09.02.2021] [Citation: LL 2021 SC 71] [Bench: Justices D.Y. Chandrachud and M.R. Shah] [Author: Justice D.Y. Chandrachud] In Ramesh Kymal v. M/s. Siemens Gamesa Renewable Power Pvt. Ltd., the Supreme Court held that Section 10A of the IBC (inserted by an amendment), which creates a bar against initiation of the Corporate Insolvency Resolution Process ("CIRP"), would be applicable to a default occurring on or after 25th March, 2020, even when the amendment came into force only on 5th June, 2020. It was clarified that the retrospective bar does not extinguish the debt owed by the corporate debtor or the right of the creditors to recover it. The Supreme Court observed - "We have already clarified that the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated. It must be noted, however, that the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it." 5. Proceedings Under Section 34 Of Arbitration Act Also Covered By Moratorium Under Section 14 IBC: Supreme Court[Judgment dated: 01.03.2021] [ Citation : LL 2021 SC 120][Bench: Justices R.F. Nariman, Navin Sinha and K.M. Joseph] [Author: Justice R.F. Nariman] In P Mohanraj & Ors. v. M/s Shah Brothers Ispat Ltd., the Supreme Court observed that an application under Section 34 of the Arbitration...

Insolvency & Bankruptcy Code : Important Supreme Court Judgments Of 2021

Sohini Chowdhury

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