The three-judge Bench of Justices Rohinton Nariman, Navin Sinha and BR Gavai issued notice in a plea challenging the constitutional validity of Sections 3 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020.
The protection to all such petitions filed under Section 7 of the Insolvency and Bankruptcy Code Amendment Act is also extended that do not meet the 10% requirement as introduced by the amendment.
Association of Karvy Investors( Petitioners), had filed petitions under Section 7 of the IBC Act before different benches of the National Company Law Tribunal (NCLT) in India, due the non-payment of their dues by private companies.
The plea challenged the Amendment Act by stating that Section 3 “has 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 IBC”. The plea also stated that an application under Section 3 of the Amendment Act shall be retrospective, thereby “directly prejudicing the members of the Petitioner Association”.
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The plea filed by Advocates Srijan Sinha, Aishwarya Sinha and Himanshu Chaubey makes the case that Section 3 of the Amendment Act is violative of the right to equality and thus “should be struck down.”
The plea stated,
‘Section 3 of the Impugned Act along with the other provisions of the Insolvency and Bankruptcy Code makes it clear that even though no difference exists between different classes of Financial Creditors under the IBC, the Impugned Act, seeks to differentiate between the Creditors as referred to under Sub Section 6A and those referred to under Sub Section 6, without any substantial difference existing in law. As a consequence thereof Section 3 of the Impugned Act is violative of Article 14 of the Constitution of India and is liable to be struck down.”
The Bench has 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.
Read the petition here: