The 2019 judgment in Essar Steel holds the record of being the only case in which a section of the IBC was struck down on the grounds of unconstitutionality (a time limit for finishing the judicial process was held to be “manifestly arbitrary”). If further evidence were needed of the Supreme Court’s utter unwillingness to strike down provisions of the Insolvency and Bankruptcy Code (and willingness to write long judgments about why they were refusing to do so), one may look no further than the recent case of Manish Kumar v. Union of India. In fact, the following facts, leading up to Manish Kumar, are instructive in themselves:

1. The IBC was comprehensively challenged in the Swiss Ribbons case. The challenge was equally comprehensively rejected, on the basis of what the Court termed the eligibility of the Code, being economic legislation, to a “judicial hands-off”. Incidentally, the judgment was, somewhat unnecessarily, padded with the Court’s own conception of the distinction between financial and operational creditors – that financial creditors, unlike operational creditors, are mainly secured, they are involved with assessing the viability of the corporate debtor from the beginning, they enable the debtor to set up business, and their debts involve large amounts.

• In Pioneer Urban, the Court considered a challenge to the amendment by which real estate allottees were designated as financial creditors. Predictably, the petitioners, who were construction companies, read out chapter and verse of the Court’s own observations in Swiss Ribbons – real estate allottees, it was submitted, did not in the least fulfil the Court’s description of financial creditors. The Court upheld the amendment and accepted (as I would submit, it had to, given its earlier judicial hands-off ruling) the Government’s argument that real estate allottees were financial creditors as they financed the project and got flats in return. To the petitioners’ argument based on Swiss Ribbons, it adopted this time-honoured escape route – “To apply a judgement rendered in a wholly different context to the facts in the present case would itself be an arbitrary exercise.”

• So by this time, we knew that the Supreme Court was willing to shift course abruptly, only to accommodate the latest legislative position on the IBC. After Pioneer Urban, the NCLTs started getting overwhelmed with petitions by disgruntled real estate allottees. Rather than removing real estate allottees from the category of financial creditors, the Government decided that it would make it very, very difficult for such persons to approach the NCLT. The IBC was amended to say that they could only approach the NCLT if ten percent of the allottees of a project, or 100 allottees in total, whichever was lesser, banded together to file an application.

The allottees challenged the new amendment in Manish Kumar. They attacked the shabby treatment they were being given when compared to other financial creditors. How, they wondered, had Parliament reached the Orwellian conclusion that all financial creditors were equal, but some were more equal than others? The SC was unmoved. “It is not for this Court to sit in judgment over the wisdom of such a measure,” it intoned. The Government had produced figures showing that the number of cases filed by allottees had risen sharply. It had determined that rather than derail the scheme of the Code, this high bar was necessary. The Court accepted what the Government said, adding that the filing of multiple individual actions was a “spectre”. 

The petitions, as usual, were dismissed.