Insolvency & Bankruptcy Code, 2016 | Rajasthan High Court Rejected a Plea Seeking To Declare Section 7 Of the Act “Unconstitutional”

Insolvency & Bankruptcy Code

JAIPUR: In the matter of Vishnu Oil Mill Private Ltd. v. Union Of India & Ors., Rajashtan High Court rejected a plea moved by a petitioner to declare Section 7 of Insolvency & Bankruptcy Code, 2016 as “Unconstitutional”

The Petitioner moved to Rajasthan High Court, Jaipur after National Company Law Tribunal, Jaipur Bench passed the Orders. The Bench comprises of Justice Sandeep Mehta and Justice Kuldeep Mathur, observed that –

“Having considered the entirety of the facts and circumstances as available on record and after appreciating the arguments advanced at bar, we are of the firm view that the statute i.e., Section 7 of the IBC as amended vide Gazette Notification dated 05.06.2020, admits no other interpretation except that a group of financial creditors can converge and join hands to touch the financial limit of Rs.1 crore stipulated under Section 7 so as to initiate a CIRP under the IBC.”

The Court observed that there is no need to delete/amend the said section and there is no ambiguity in Section 7 which requires any interpretation other than what is conveyed in its literary sense.

Further, Court observed that the section clearly stipulates that the application for triggering CIRP may be initiated by a financial creditor either individually or jointly with other financial creditors. Previously the threshold default limit for filing the CIRP application was only Rs.1 lakh and it has been drastically increased to Rs.1 crore vide Gazette Notification dated 24.03.2020, added the court.

Further, the division bench also stated,

“At the outset, we may state here that validity of Section 7 of the IBC was examined by Hon’ble the Supreme Court in the case of Swiss Ribbons Pvt. Ltd. (supra) and the same was found to be compliant to the Constitution of India and the challenge to the validity of the statute was repelled by Hon’ble the Supreme Court in unequivocal terms. Despite that, the petitioner has ventured into questioning the validity of Section 7 of the IBC claiming that the challenge so laid is on a totally different proposition i.e., permissibility of a group of financial creditors jointly triggering CIRP without adhering to the requirement of default threshold of Rs.1 crore in individual capacity.”

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