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Swiss Ribbons Pvt. Ltd. & Anr. Vs UOI 25.01.2019.pdf

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  1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL/APPELLATE JURISDICTION WRIT PETITION (CIVIL) NO. 99 OF 2018 Swiss Ribbons Pvt. Ltd. & Anr. …..Petitioners  VERSUS Union of India & Ors. …..Respondents   WITH WRIT PETITION (CIVIL) NO. 100 OF 2018 WRIT PETITION (CIVIL) NO. 115 OF 2018 WRIT PETITION (CIVIL) NO. 459 OF 2018 WRIT PETITION (CIVIL) NO. 598 OF 2018 WRIT PETITION (CIVIL) NO. 775 OF 2018 WRIT PETITION (CIVIL) NO. 822 OF 2018 WRIT PETITION (CIVIL) NO. 849 OF 2018 WRIT PETITION (CIVIL) NO. 1221 OF 2018 SPECIAL LEAVE PETITION (CIVIL) NO. 28623 OF 2018 WRIT PETITION (CIVIL) NO. 37 OF 2019   Digitally signed by RNATARAJANDate: 2019.01.2512:26:58 ISTReason:Signature Not Verified  2 J U D G M E N T R.F. Nariman, J.   1. The present petitions assail the constitutional validity of various provisions of the Insolvency and Bankruptcy Code, 2016 [― Insolvency   Code ‖  or ― Code ‖] . Since we are deciding only questions relating to the constitutional validity of the Code, we are not going into the individual facts of any case. 2. Shri Mukul Rohatgi, learned Senior Advocate, appearing in Writ Petition (Civil) No. 99 of 2018, has first and foremost argued that the members of the National Company Law Tribunal [ ― NCLT ‖ ] and certain members of the National Company Law Appellate Tribunal [ ― NCLAT ‖ ], apart from the President, have been appointed contrary to this Court‘ s  judgment in Madras Bar Association v. Union of India , (2015) 8 SCC 583 [― Madras Bar Association (III) ‖] , and that therefore, this being so, all orders that are passed by such members, being passed contrary to the judgment of this Court in the aforesaid case, ought to be set aside. In any case, even assuming that the de facto   doctrine would apply to save such orders, it is clear that such members ought to be restrained from passing any orders in future. In any case, until a  3 properly constituted committee, in accordance with the aforesaid  judgment, reappoints them, they ought not to be allowed to function. He also argued that the administrative support for all tribunals should be from the Ministry of Law and Justice. However, even today, NCLT and NCLAT are functioning under the Ministry of Corporate Affairs. This again needs to be corrected immediately. A further technical violation also exists in that if the powers of the High Court are taken away, the NCLAT, as an appellate forum, should have the same convenience and expediency as existed prior to appeals going to the NCLAT. Since the NCLAT, as an appellate court, has a seat only at New Delhi, this would render the remedy inefficacious inasmuch as persons would have to travel from Tamil Nadu, Calcutta, and Bombay to New Delhi, whereas earlier, they could have approached the respective High Courts in their States. This again is directly contrary to Madras Bar Association v. Union of India , (2014) 10 SCC 1 [― Madras Bar Association (II) ‖] , and to paragraph 123 in particular. Apart from the aforesaid technical objection, Shri Rohatgi assailed the legislative scheme that is contained in Section 7 of the Code, stating that there is no real difference between financial creditors and operational creditors. According to him, both types of creditors would  4 give either money in terms of loans or money‘s  worth in terms of goods and services. Thus, there is no intelligible differentia between the two types of creditors, regard being had to the object sought to be achieved by the Code, namely, insolvency resolution, and if that is not possible, then ultimately, liquidation. Relying upon Shayara Bano v. Union of India , (2017) 9 SCC 1 [― Shayara Bano ‖] , he argued that such classification will not only be discriminatory, but also manifestly arbitrary, as under Sections 8 and 9 of the Code, an operational debtor is not only given notice of default, but is entitled to dispute the genuineness of the claim. In the case of a financial debtor, on the other hand, no notice is given and the financial debtor is not entitled to dispute the claim of the financial creditor. It is enough that a default as defined occurs, after which, even if the claim is disputed and even if there be a set-off and counterclaim, yet, the Code gets triggered at the behest of a financial creditor, without the corporate debtor being able to justify the fact that a genuine dispute is raised, which ought to be left for adjudication before ordinary courts and/or tribunals. Shri Rohatgi then argued that assuming that a valid distinction exists between financial and operational creditors, there is hostile discrimination against operational creditors. First and foremost, unless they amount
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