As the Indian Parliament contemplates amendments to the Insolvency and Bankruptcy Code 2016 (IBC), five critical cases await resolution in the Indian Supreme Court, bearing significant implications for the country’s credit market. In-depth analysis of these cases is provided by Ashwin Bishnoi, a Partner at the prestigious corporate law firm Khaitan & Co.

1. Jag Mohan Daga v. Mr. Bimal Kanti Chowdhary

The Supreme Court’s Vidarbha Industries case set a precedent, granting National Company Law Tribunals (NCLTs) the discretion to initiate insolvency proceedings even when clear debt and default exceeding INR 10,000,000 are proven. This decision led to subjective grounds for rejecting insolvency petitions and substantial delays in court. However, a subsequent case of Suresh Kumar Reddy reaffirmed that NCLTs should have no discretion once debt and default are proven. An amendment to the IBC to remove this discretion is recommended in the January 2023 Ministry of Corporate Affairs discussion paper.

2. Rainbow Papers Case

In Rainbow Papers, the Supreme Court ruled that statutory debt with statutory liens takes precedence over secured creditors, defying the IBC’s order of priority of government dues. The MCA Discussion Paper aims to clarify that only “transactional” liens, not statutory liens, top the insolvency waterfall. The Supreme Court’s review of this case will hopefully align with the MCA’s stance.

3. Technology Development Board Case

This case challenges the NCLAT’s decision that insolvency disregards senior-junior charges over common collateral. The NCLAT’s stance contradicts the Supreme Court’s pre-IBC decision recognizing senior-junior rankings. While the Supreme Court’s interim stay provides limited relief, it raises questions about senior-junior structures.

4. Dr. Vishnu Kumar Agarwal vs. M/s. Piramal Enterprises Ltd

The NCLAT’s ruling that a financial creditor can’t file simultaneous insolvency petitions against corporate guarantors for the same debt once one insolvency is opened has consequences for creditors. This decision’s impact is being reviewed by the Supreme Court.

5. Ashok Kumar Sarawagi vs the Enforcement Directorate

This case involves the interplay between the IBC and enforcement directorate’s attachment of debtor’s assets. Lower courts have ruled in favor of attachment, potentially affecting the IBC’s Section 32A whitewash provision. The outcome will be closely watched.

These cases hold significant sway over India’s credit market and will shape the landscape for insolvency proceedings.

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