Shot in the arm (Supreme Court and the IBC)

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 Shot in the arm (Supreme Court and the IBC)

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• IBC upheld by S.C. : That the Supreme Court has upheld the validity of the Insolvency and Bankruptcy Code (IBC) 2016, in 2019, in its "entirety" is a major economic decision with potential long-lasting impact.
• The journey so far : The IBC is a very strong law, that aims at taking over existing businesses and assets from defaulters and then empowers the lenders (to those businesses) to change the management. Naturally, many initial hiccups and loopholes are bound to creep in. The first 2 years saw a lot of legal challenges, and the govt. consequently plugged the loopholes.
• Borrowers challenged it : Since they would lose a lot, many legal challenges were put up, in courts and tribunals. Now that the highest court has given a go-ahead to IBC in its "entirety" (the entire Code), the Central govt. would be relieved to see a good initiative saved.
• Key challenge : The IBC faced one big hurdle - the operational creditors (who are owed money in day-to-day operations, by a company) questioned the payment waterfall hierarchy. It says that in the event of liquidation of a company (or sale to some other firm), the order of payments will be financial creditors, workmen, employees and then operational creditors.
• The Essar Steel case : Many big cases are stuck at the NCLT (National Company Law Tribunal) level, including that of Essar Steel, due to operational creditors seeking equal treatment with financial creditors. The S.C. has closed that gap by saying that there are “intelligible differentia” between operational and financial creditors.
• Why a difference? Repayment of financial debt allows the lenders to re-lend that money to some other entrepreneurs, thereby aiding economic activity (as per S.C.).
• Relationship with ineligible person : The Court said that a mere relationship with an ineligible person cannot disqualify someone from becoming a bidder for a troubled asset. It needs to be proved that such a person is "connected" with the business activity of applicant.
• Deafulter paradise is lost : The Court was happy to see a strong code in operation.
• A change of theme : So finally, the seal of the highest court of the land should give the IBC the much needed impetus now. 
• Summary : The Insolvency and Bankruptcy Code (IBC) has received the much-needed boost as the Supreme Court has given its seal of approval on aspects that were being litigated in courts, and holding IBC back.

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