New Delhi: India's top court upheld the Insolvency and Bankruptcy Code (IBC) 2016 in its entirety, striking down the petitions challenging the insolvency rules on January 25. Under the law, wilful defaulters are classified as individuals or firms owning large businesses who deliberately avoided repayments. India introduced the IBC in May 2016, but there is an accumulation of unresolved cases, with owners of bankrupt companies reluctant to give up control.

Justice RF Nariman headed the two-judge bench which heard a batch of petitions that challenged the validity of different aspects of the IBC. "We have upheld the insolvency code in its entirety," the bench said.

What did the other side contend?

Promoters of companies and operational creditors that have defaulted on their debts were looking to see certain provisions quashed in the code regarding voting rights, and an option to bid for companies by promoters of companies in debt default.

Former Attorney General Mukul Rohatgi had told the court that the IBC offered no recuperation in the way operational creditors and promoters were treated.

"Operational creditors are also owed money but they do not have a say in the current scheme of things. Their fate rests at the mercy of the committee of creditors (CoC). By virtue of Section 29A, the promoter is barred and cannot bid," Rohatgi said.

It was also alleged that unlike the Companies Act, 1956 and 2013, the insolvency law sought to "arbitrarily and unfairly discriminate and divide" unsecured creditors into two classes — unsecured financial creditors and operational creditors.

Among the petitions were those challenging Sections 3 (12), 5 (7), 6, 7, 12, 29, 62, 214 (f), 231 and 238 of the IBC.