Writ petition filed in Bombay HC challenging the Insolvency Code

A writ petition has been filed in the Bombay High Court challenging the constitutional validity of the Insolvency & Bankruptcy Code, more particularly, Section 7 of the Code..Section 7 allows the initiation of a corporate insolvency resolution process by a ‘financial creditor’, that could be ‘any person’ to whom a debt is owed. This is a departure from the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), which provides qualifications for initiation of proceedings..Similar to winding up proceedings, here also, once the process is initiated by the creditor, a Resolution Professional is appointed by the NCLT to take over the management of the corporate borrower and operate its business as a going concern under the broad directions of a committee of creditors..The writ petition has been filed by Innoventive, following the National Company Law Tribunal’s order admitting ICICI’s application for initiation of corporate insolvency resolution process..ICICI had last year made an application to the NCLT under Section 7 of the Code, requesting for initiation of a insolvency resolution process against Innoventive, following an outstanding debt of ₹1,019,177,034. This order, admitting the application, is in fact expected to serve as a primer for future suits that follow..As reported earlier, Ravi Kadam, briefed by Crawford Bayley, had appeared for Innoventive before the NCLT. He had asked for a detailed order from the NCLT, hinting at an intention to challenge the validity of the said provisions, for “non-service of notice upon debtor”..In the Bombay High Court, the matter came up for admission before Chief Justice Manjula Chellur yesterday, and was heard three times, intermittently..Kadam argued before the Chief that an order of this nature (i.e. the admission of application by the NCLT), would have far-reaching consequences, akin to a winding up petition; all this without affording the debtor an opportunity of hearing..He further argued that such an order will allow the appointed Resolution Professional to take over the management of the company. It appears that Kadam was seeking an interim order staying the NCLT order, in order to avoid handing over the management to the Resolution Professional, while the Supreme Court’s verdict in the case of Maruti Cotex vs. JM Financial is pending..In Maruti Cotex, which has also been taken up by Crawford Bayley, the Bombay High Court had held that provisions of the SARFAESI Act will apply irrespective of the notification issued under the Maharashtra Relief Undertaking (Special Provisions) Act, 1958. It is a case heavily relied on by ICICI Bank for getting its application admitted at the NCLT. A Special Leave Petition has been filed in the Supreme Court against the said Bombay High Court judgment..Yesterday, although ASG Anil Singh appeared on behalf of the State, Zal Andhyarujina, who was the counsel for ICICI before the NCLT, did much of the heavy lifting here as well. It was his case that the insolvency resolution process had already begun and that any stay on the NCLT order would amount to a “stay on the Code itself”, since the Code is in force and provides for a 180-day period for completion of the insolvency resolution process..Justice Chellur finally did not pass any interim order and said that any action taken until then will be subject to the final judgment, arguments for which will be heard on Monday.