NEW DELHI: The Supreme Court upheld the Insolvency and Bankruptcy Code (IBC), backing the government’s efforts to deal with the bad-debt burden of banks and rejecting challenges by the promoters of defaulting companies barred by the law from regaining control of their firms. The court said the IBC was working and had led to rising credit flows.

“We are happy to note that in the working of the code, the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid,” said the bench comprising justices RF Nariman and Navin Sinha.

The top court commended the IBC for bolstering the recovery of bad debt, saying a “defaulters’ paradise” had been ended. Several provisions, such as preferential treatment to financial creditors over operational ones (suppliers of goods) had been questioned by the petitioners.

Impact on Big Insolvency Cases

They had also disputed the broad sweep of Section 29A, which barred not just promoters but any individual or entity “related” to them from seeking to take over the ailing entity.

Among the promoters contesting the IBC was Sanjay Singal of Bhushan Power and Steel, represented by senior advocate Mukul Rohatgi and lawyer Mahesh Agarwal.

The court rejected all challenges, except to clarify that the related entities should have been connected with the business of the promoter to be barred from bidding. Defaulters who repay the debt within a year of them being classified as non-performing assets (NPAs) can submit resolution plans for assets as can promoters if they clear debt with interest.

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