The Hon’ble Supreme Court of India on 16.06.2020 issued notice in a Writ Petition challenging the validity of Section 3 and 10 of the Insolvency and Bankruptcy (Amendment) Act, 2020.
The said notice was issued by the Hon’ble Apex Court in a writ petition filed under Article 32 of the Constitution of India by several members of the Association of Karvy Investors, a registered society under Karnataka Societies Registration Act, 1960. The Plea challenged the validity of Section 3 and Section 10 of the Insolvency and Bankruptcy (Amendment) Act, 2020, terming the sections to be arbitrary and violative of Article 14 of the Constitution.
The individual members of the Petitioner Association, viz. Association of Karvy Investors, had filed petitions in May 2019 under Section 7 of the Insolvency and Bankruptcy (Amendment) Act 2020 before different benches of the National Company Law Tribunal (NCLT) in India, due to the non-payment of their dues by private companies.
As per the Writ Petition, the Respondent had basically imposed a stringent and onerous condition on the right of an individual financial creditor to file an application to initiate corporate insolvency resolution process under Section 7 of the Insolvency and Bankruptcy (Amendment) Act 2020. The said condition provides that the Hon’ble National Company Law Tribunal shall allow an application under Section 7 of the Insolvency and Bankruptcy (Amendment) Act 2020 only if 100 members of individual investors or a group of individual investors that represent 10% of such a class have jointly preferred the said application and that Section 3 of the Insolvency and Bankruptcy (Amendment) Act 2020 is retrospective in nature. Therefore, the Petitioner called Section 3 of the Insolvency and Bankruptcy Act 2020 to be prejudicial to the interests of the Petitioner Association.
The primary issue in the Petition is that a Section 7 petition was earlier permitted to be filed by any Financial Creditor in its individual capacity. But now, this statutory right has been unreasonably burdened by requiring them to:
- a) Figure out the total pool of people; and
- b) Get in touch with 10% of that number.
It was further submitted by the Petitioner that rather than strengthening the Insolvency and Bankruptcy (Amendment) Act 2020 Section 3 acts contrary to the objective behind enactment of the same, since it weakens the rights of every lender other than financial institutions and banks and is therefore, violative of Article 14 of the Indian Constitution.
The Petitioners also referred to the Supreme Court judgement in the matter of Roop Chand Adlakha v. DDA (1989) Supp (1) SCC 116 where it was held that the process of classification is in itself productive of inequality and in that sense antithetical of equality.
The plea stated that the government has “failed to appreciate” that the individual investors of a company are not necessarily localised and are spread out across the country.
Highlighting the “logistical nightmare” brought forth by Sections 3 and 10 of the Insolvency and Bankruptcy (Amendment) Act 2020, the plea states that the contact details of the investors of the company are also not available publicly.
The Petitioners finally prayed to the Hon’ble Supreme Court issue an appropriate writ declaring both the Sections, i.e. Section 3 and Section 10 of the Insolvency and Bankruptcy Act (Amendment) 2020 as violative of Article 14 of the Indian Constitution and if considered to be valid, the said Sections shall only be applicable to petitions preferred after the commencement of the Act i.e. 28.12.2019. It was further prayed to the Hon’ble Apex Court to issue Rule Nisi in terms of declaring the said sections either violative or being applicable to petitions after the commencement of the act.
The Hon’ble Supreme Court of India on 16.06.2020 in the present matter finally issued notice to the Centre and asked for status quo to be maintained in pending applications, implying that the earlier protection granted for applications under the IBC Ordinance now stands extended to the Amendment Act as well.