The Insolvency and Bankruptcy Code, 2016 (IBC) is a game-changing law in India that brings together and updates rules for handling insolvency for companies, partnerships, and individuals. Managed by the Insolvency and Bankruptcy Board of India (IBBI), the IBC focuses on resolving insolvency issues quickly, maximizing the value of assets, and fairly balancing the interests of everyone involved, such as creditors and debtors. Since it was introduced, the Supreme Court of India has made several important rulings that have clarified the law, cleared up confusion, and strengthened how the IBC works. This article explains the Insolvency and Bankruptcy Code judgements in a clear and straightforward way, covering case details, legal principles, and their impact on India’s insolvency system.
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Key Landmark Judgments Under the IBC
Before the IBC, India’s insolvency laws were scattered across different regulations, making the process slow and inefficient. The IBC changed this by creating a single, unified system that prioritizes resolving financial troubles over simply liquidating (selling off) a company’s assets. It puts creditors in charge of the process, with the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) acting as the main authorities to handle cases. The Supreme Court’s rulings have been crucial in shaping how the IBC is applied, addressing issues like starting the Corporate Insolvency Resolution Process (CIRP), pausing legal actions during insolvency (moratorium), approving resolution plans, distributing assets, and tackling new challenges like group insolvency or cross-border cases. Below, we dive into some of the most significant Supreme Court judgments under the IBC, explaining each case, its legal principles and how it has shaped the insolvency process.
1. Welspun Steel Resources Pvt Ltd (Civil Appeal No. 7722 of 2020)
Case Details: This case dealt with how a liquidator (the person in charge of selling assets of a company during liquidation) can decide to sell assets, either through a public auction or a private sale. The appellants (those challenging the decision) argued that the liquidator’s choice of a private sale was not transparent.
Legal Principle: The Supreme Court ruled that liquidators have the freedom to make business decisions, like choosing how to sell assets, based on their judgment of what will get the best value. Courts should not interfere unless the decision breaks the law or is clearly unreasonable.
Impact: This decision gave liquidators more flexibility to sell assets in a way that maximizes their value, as allowed under the IBBI (Liquidation Process) Regulations, 2016. It reduced court involvement in liquidation decisions, making the process faster and more efficient.
2. Essar Steel Case (Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, 2020)
Case Details: The Essar Steel case was a major insolvency case with disputes over the resolution plan approved by the Committee of Creditors (CoC). Operational creditors (like suppliers) and the company’s promoters challenged the plan, and the NCLAT changed it, leading to an appeal to the Supreme Court.
Legal Principle: The Court emphasized that the CoC’s decisions on resolution plans (plans to save or restructure a company) are final, as long as they follow the IBC’s rules. The NCLT and NCLAT can only check if the process was followed correctly, not question the CoC’s business judgment. The Court also supported changes to Section 30 of IBC, which gives the power to CoC over how assets are distributed.
Impact: This ruling strengthened the authority of CoC, reduced court interference and ensured faster resolutions. It also clarified that the creditors in the same category should be treated equally, which also influenced how future resolution plans are designed.
3. Union of India v. Infrastructure Leasing & Financial Services Ltd. (2020)
Case Details: The IL&FS case involved a major financial crisis for a company critical to India’s economy. The government asked for a special restructuring process outside the IBC, including a moratorium (a pause on legal actions), which creditors challenged.
Legal Principle: The Supreme Court applied IBC principles, such as putting stay on legal actions and coordinating creditors, to the IL&FS restructuring, even though it wasn’t a standard IBC case, which showed that IBC concepts could apply to other situations.
Impact: This decision highlighted the flexibility of IBC in handling large and complex financial problems. It influenced other restructurings outside the IBC and showed the need for special rules for companies that are critical to the economy.
4. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021)
Case Details: Gujarat Urja wanted to cancel a Power Purchase Agreement (PPA) with a company in CIRP because of unpaid bills. The company argued that canceling the contract would destroy its ability to survive.
Legal Principle: The Court ruled that the NCLT can stop contract cancellations triggered by insolvency (called “ipso facto” clauses) under Section 14 of the IBC if the contract is vital to keeping the company running. This balances the creditor’s rights with the company’s need to stay operational.
Impact: This decision protected companies in CIRP by ensuring that they could keep essential contracts, which improved their chances of resolution. It set a standard for protecting critical agreements during insolvency.
5. State Tax Officer v. Rainbow Papers Ltd. (2022)
Case Details: In the Rainbow Papers case, the resolution plan placed government dues (like VAT taxes) below other creditors. The State Tax Officer argued that these dues should have priority as a “secured creditor.”
Legal Principle: The Court ruled that government dues backed by laws (like the Gujarat VAT Act) count as secured debts under Section 53 of IBC, putting them on the same level as other secured creditors.
Impact: This clarified how government dues are prioritized in insolvency, but it raised concerns about reducing what other secured creditors receive. It led to calls for clearer laws to avoid confusion.
6. Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022)
Case Details: Axis Bank started CIRP against Vidarbha Industries for unpaid debts. The company argued that it was financially healthy and the CIRP should be rejected, despite the default.
Legal Principle: The Court said that the NCLT has some flexibility under Section 7 of the IBC to reject a CIRP application, even if there’s a clear default, if the company is viable or there are special circumstances.
Impact: This ruling caused debate because it went against the usual rule that a default automatically triggers CIRP (set by the Innoventive Industries case). Later cases, like M. Suresh Kumar Reddy, clarified that this flexibility is rare, restoring predictability.
7. Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs (Civil Appeal No. 7667 of 2022)
Case Details: The Customs Authority wanted to sell goods it controlled during ABG Shipyard’s liquidation, claiming priority under the Customs Act. The liquidator argued that the IBC should take precedence.
Legal Principle: The Court ruled that the IBC overrides the Customs Act during liquidation, so the Customs Authority couldn’t sell goods without the liquidator’s approval.
Impact: This decision confirmed that the IBC takes priority over other laws, giving liquidators more control over assets and ensuring a centralized process during liquidation.
8. Perfect Day Inc. v. Ms. Mamta Binani (2022)
Case Details: In this case, the liquidator wanted to sell the company as a “going concern” (a working business) during liquidation, which involved canceling its share capital. Creditors challenged this by questioning the approach.
Legal Principle: The Court supported selling a company as a going concern under the IBBI (Liquidation Process) Regulations, 2016, treating it similarly to a CIRP and allowing actions like canceling share capital.
Impact: This expanded options for liquidation, helping preserve business value and jobs. It aligned liquidation with the IBC’s goal of resolution, making the process more effective.
9. M. Suresh Kumar Reddy v. Canara Bank & Ors (2023)
Case Details: Canara Bank filed for CIRP due to a payment default, but the NCLT rejected it citing the flexibility from the Vidarbha case. The bank appealed by asking for strict adherence to Section 7 of IBC.
Legal Principle: The Court clarified that the Vidarbha ruling is an exception and the NCLT has limited flexibility to reject a CIRP if the debt and default are proven, aligning with the Innoventive Industries case.
Impact: This case restored the certainty in CIRP admissions for financial creditors along with reducing delays and reinforcing the focus of the Code on timely resolutions.
10. Tottempudi Salalith v. State Bank of India & Ors (2023)
Case Details: The State Bank of India started CIRP based on a recovery certificate. The debtor argued that the petition was filed too late, citing time limits.
Legal Principle: The Court ruled that CIRP must start within 3 years of the recovery certificate’s date (treated like a court decree), but claims can be filed within 12 years.
Impact: This case clarified time limits for financial creditors and also prevented the outdated claims, and ensured fairness in the process.
Summary
The decisions of the Supreme Court from 2018 to 2023 have strengthened the Insolvency and Bankruptcy Code, 2016 by addressing gaps and clarifying issues. Cases like Innoventive Industries and K. Sashidhar set the foundation for a predictable, creditor-driven process. Recent judgments have clarified how CIRP starts, the rights of creditors, the scope of the moratorium, how resolution plans work, and how assets are distributed. These rulings have also tackled new areas, like group insolvency (multiple related companies) and cross-border insolvency (cases involving other countries), showing how the IBC is evolving.
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Insolvency and Bankruptcy Code Judgements: FAQs
Q1. How long does insolvency last in India?
For companies, the Corporate Insolvency Resolution Process (CIRP) lasts up to 180 days, with a possible extension of 90 days (total of 270 days). If no resolution is reached, liquidation begins, and the time varies by case. For individuals, insolvency typically takes 6–12 months, depending on the situation.
Q2. What is the impact of the Insolvency and Bankruptcy Code?
The IBC has made insolvency faster and more effective. By 2023, it helped recover about 32% of creditor claims, reduced resolution time to under a year, and resolved over 5,000 cases. It has also improved India’s ranking in the World Bank’s Ease of Doing Business index.
Q3. What are the benefits of the Insolvency and Bankruptcy Code?
The IBC speeds up resolutions, increases creditor recoveries, encourages entrepreneurship, strengthens creditor rights, and improves India’s global business reputation.
Q4. Can I get a loan after insolvency?
Yes, but it’s challenging because insolvency lowers your credit score. Lenders may offer loans with higher interest rates or stricter terms after a recovery period.
