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Gujarat High Court Issues Notice in the Petition Challenging Insolvency and Bankruptcy Code and Ordinance

It has been alleged in the petition that the provisions of the code violates the Article 14 of the constitution. In the petition it has been further submitted that the code does not provide reasonable and intelligible difference between the operational and financial creditor
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Petition challenging the constitutional validity of the Insolvency and Bankruptcy Code, 2016 and the recent ordinance which bars the promoters from submission of resolution plan has been filed before the Gujarat High Court and the notice for the same has been issued by the court.

Accord Industries limited filed the petition in which Chief Justice R. Subhash Reddy and Justice Vipul M. Pancholi issued a notice with the returning date of 22 January, 2018.

The financial creditor of the petitioner i.e., Canbank Factors Ltd. initiated action against the petitioner under the code when the matter between the two with regard to dispute to payment of over Rs 9 crore is already pending before the civil court. 

The petitioner has challenged Sections 5,6,7,12,29, 214(f), 231 and 238 which respectively deals with the definition of financial creditor, persons who may initiate corporate insolvency process, initiation of process by financial creditor, time limit for completion of insolvency process, preparation of information memorandum, obligation of information utility, bar of jurisdiction and code to override other laws under the code.

It has been alleged in the petition that the provisions of the code violates the Article 14 of the constitution. In the petition it has been further submitted that the code does not provide reasonable and intelligible difference between the operational and financial creditor. 

The Petition also challenges Sections 17 and 20 of the code by alleging that these provisions violates the Article 19(1)(g) of the constitution as it put the management of affairs of corporate debtor in the resolution professional who lack experience and expertise in the business of corporate debtor instead of the professionals having expertise such as promoters, directors etc of corporate debtor.Thus, the petition alleges that these provisions of the code places the business of the corporate debtor at a stake.

It was further alleged in the petition that the National Company Law Tribunal (NCLT) is not a court under Section 41 of the Indian Evidence Act and thus through insolvency proceedings is not empowered to take away the legal character of a person. Further, Section 12 of the code which provides for a time limit of 180 days for completion of insolvency process has been challenged on the ground that it is arbitrary and is against any purported corporate debtor.

Recent Ordinance of the Insolvency and Bankruptcy Code has also been challenged by contending that there has been no difference provided in the ordinance between the fraudulent and willful defaulters and genuine promoters.

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Reviewed by:
Mehak Sharma
Published on 26th Dec, 2017
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