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[Srujan Sangai is a V year B.A. LLB student at National Law School of India University, Bengaluru]
The Supreme Court of India has been invoking Article 142 of the Constitution to settle insolvency disputes in the recent past. From 2016 until 2024, the Supreme Court has invoked Article 142 in 36 cases to adjudicate insolvency matters. More recently, in Kalyani Transco v. Bhushan Power & Steel the Court set aside the insolvency proceedings citing procedural lapses among other reasons, and in State Bank of India v. The Consortium of Murali Jalan (the “Jet Airways Case”) it invoked its inherent and equitable powers to order liquidation of Jet Airways. The invocation of such inherent powers raises fundamental questions about the bankruptcy process and on whether “equity” is a consideration to be taken into account in bankruptcy proceedings as a decisive factor and whether judges should be allowed to decide a matter on equitable considerations that otherwise fall outside the scope of the Insolvency and Bankruptcy Code, 2016 (IBC).
In this analysis, I contend that the Supreme Court’s inherent powers are insufficient to supersede the IBC. The subsequent sections of this post are structured as follows: first, I will delineate the objectives and purpose of the IBC, arguing that its core tenets prioritize predictability, expediency, and economic efficiency over equitable considerations. Second, I will demonstrate, through established judicial precedent, that Article 142 of the Constitution cannot be legitimately employed to override statutory provisions. Third, I will illustrate instances wherein the Supreme Court has invoked Article 142 in bankruptcy proceedings in a manner inconsistent with its own prior rulings. Finally, I will present a conceptual framework elucidating the interplay between equity and insolvency, proposing a nuanced understanding of bankruptcy and delineating the specific circumstances under which equitable remedies may be appropriately invoked.
Architecture of the IBC: A Framework for Economic Efficiency and Predictability
The IBC is fundamentally designed for the time-bound resolution of disputes, with its concept of fairness intrinsically linked to and derived from the provisions of the statute itself. This premise is supported by three reasons. First, the legislative intent behind the IBC, as extensively detailed in the Bankruptcy Law Reforms Committee (BLRC) Report (Volume I: Rationale and Design), was to create a framework that emphasizes speed and predictability in insolvency proceedings. The BLRC stressed that “the most important objective in designing a legal framework for dealing with firm failure is the need for speed”. It highlighted that “delays cause value destruction” and that “achieving a high recovery rate is primarily about identifying and combating the sources of delay”. The report underscored the necessity of a “clear, predictable framework” to mitigate the “economic costs of delays”.
Second, the IBC aims to maximize the value of assets through timely resolution and a clear creditor-driven process, with certainty embedded in its structure. The IBC empowers the committee of creditors (CoC) to make commercial decisions, reflecting a “creditor-in-control” principle, as “only the creditors should make it”. These same objectives are reiterated by the preamble of the Code. The BLRC’s vision for equity within the IBC was primarily procedural fairness and adherence to the Code’s distributional hierarchy, not abstract corrective justice that could override the Code’s provisions. While section 30(2)(b) of the IBC addresses “fair and equitable” treatment for certain creditors, this is within the specific parameters of a resolution plan and the Code.
Third, the nature of the IBC as a special and self-contained code reinforces its focus on its own codified procedures and timelines, limiting the scope for external equitable interventions that could cause delays. Thus, the IBC’s architecture and focus is on time-bound and efficient resolution rather than fairness or equity. As I argue later in this post, equity is not completely ousted but is to be read within the confines of the statute.
The Dual Mandate of Article 142: Pursuing “Complete Justice” Within Statutory Bounds
Equity, in a rudimentary sense can be understood as a distinct body of legal principles and doctrines that originated and developed in the English Court of Chancery. Its primary purpose was to provide remedies and achieve justice in situations where the strict application of the common law (the body of law developed through court decisions) would lead to harsh or unfair outcomes. Equity can also be understood as a form of statutory interpretation, wherein if the statute is unclear or possess multiple interpretations, the interpretation which furthers the objective or purpose of the statute would be adopted. This discretion is a result of equitable statutory interpretation. Equity allows courts to choose from those possible meanings that are inherent in the statutory text. Article 142 is understood to be an equitable remedy or an embodiment of the phrase “justice, equity and good conscience” which displays a preference for equity over law. However, as I will argue, even Article 142 can only be used to supplement existing legal frameworks and not override them.
Article 142 of the Indian Constitution empowers the Supreme Court to do “complete justice” in cases pending before it. The provision has been interpreted for its scope in a slew of cases starting from Prem Chand Garg v. Excise Commissioner to Union Carbide v. Union of India. I will not discuss the inconsistencies in these judgements which have been subject of much academic debate. I maintain that the prevailing notion of the law follows a “harmonious” approach on Article 142 as laid down in Supreme Court Bar Association v. Union of India and subsequently followed in various judgements. The Court held that “Article 142, even with the width of its amplitude, cannot be used to build a new edifice where none existed earlier, by ignoring express statutory provisions dealing with a subject and thereby to achieve something indirectly which cannot be achieved directly.” Thus, Article 142 cannot override or negate express statutory provisions. However, as Kumar argues, “the apex court has left the power under article 142 ‘undefined and uncatalogued, so that ‘it remains elastic enough to be moulded to suit the given situation”.
We can precisely see this unmoulded and unrestrained power being employed in bankruptcy cases. Thus, I argue that Article 142 should not be used in bankruptcy proceedings given its “exceptionalist” nature. An unconstrained or inconsistent application of Article 142 gives rise to the potential creation of what Jonathan M. Seymour, in the context of the United States legal system, has characterized as “bankruptcy exceptionalism” and the remedy is a “atextual remedy”. This phenomenon pertains to a circumstance wherein bankruptcy courts—or, by analogy, the Supreme Court when exercising its powers under Article 142 in relation to IBC proceedings—perceive their adjudicative mission as inherently distinct, thereby necessitating an exceptional approach. Such an approach is frequently predicated upon expansive notions of equity that may diverge from established canons of statutory interpretation and the specific mandates articulated within the insolvency statute.
It is important to take note of a provision in the subordinate legislation under the IBC which can be compared to Article 142. Rule 11 of the National Company Law Tribunal (NCLT) Rules, 2016, which saves the inherent powers of the NCLT, is designed to empower the tribunal “to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.” The Supreme Court has clarified that while tribunals possess inherent powers under rule 11, these cannot be wielded to contravene statutory procedures laid down in the IBC, such as those for withdrawal of applications under section 12A. Thus, the Court itself has held that equitable powers such as rule 11 cannot contradict the provisions of the IBC as such. However, it has been using Article 142 to do so.
Inconsistent Jurisprudence of the Supreme Court on Article 142 in Insolvency Cases
In the recent Jet Airways Case, the Supreme Court deliberated on the question whether it could exercise its plenary power under Article 142 to direct the corporate debtor to be taken in liquidation. The Court differentiated and interpreted the decisions in Glas Trust v. BYJUS (the “Byjus Case”) and Ebix Singapore v. CoC (the “Ebix Case”) to hold that these cases cannot be read in a manner that restricts the plenary powers under Article 142 while deviating from the statutory framework of IBC if such deviation is necessary. It finally answered the question in the affirmative and directed the liquidation of Jet Airways. There are two issues with the judgement and its reasoning. First, the Supreme Court clearly fails to recognize the principle laid down in the Ebix Case. The Court in that case ruled on Article 142 that judges creating new legal remedies not found in the IBC would violate the separation of powers and negatively impact the corporate insolvency resolution process (CIRP), the economy, and workers and allied parties who are impacted by the resolution of liquidation of corporate debtor. This resonates with the Article 142 jurisprudence following Supreme Court Bar Association (the harmonious approach). Further in the Byjus Case, the Court holds that “the court must be circumspect in invoking its ‘inherent powers’ to deviate from the prescribed procedure.” It further holds that “in a consistent line of precedent, this Court has held that ‘inherent powers’ may be exercised in cases where there is no express provision under the legal framework. However, such powers cannot be exercised in contravention of, conflict with or in ignorance of express provisions of law.” Thus, the deviation is limited to procedure and not substantive statutory procedure.
Second, the Supreme Court sought to differentiate the Ebix Case and the Bjyus Case. The Court, in contrast with the Byjus Case, holds that “deviating from the statutory procedure and framework of the IBC, 2016 or the rules and regulations thereunder, if such deviation is very much necessary”. It conflates deviation from procedural requirements with deviation from statutory mandates. The Court is not ignoring procedural requirements, rather the statute itself (section 33) citing the objective of IBC. The implication here is that following the very own statute of IBC would defeat the purpose of IBC.
This proclivity of Supreme Court to ignore statutory limitations is not new. In Bank of Baroda v. MBL Infrastructures Ltd., there was a resolution applicant who proposed to take over an insolvent company that was statutorily barred. The Court observed how condoning the statutory ineligibility would “achieve the ultimate object of [insolvency] law”, which was the resolution of the company. It is interesting to see that the Supreme Court in this case fails to cite any precedent for interpreting the scope and use of Article 142. In one of the paragraphs, the Court claims that the case required “substantial and complete justice”. What does substantial justice mean? Article 142 only refers to complete justice. Is substantial justice is any different from complete justice? If so, how? These questions arise in the natural course of interpretation. The Court cannot read into a new standard of “substantial” justice in Article 142 without authority.
Another recent example of misuse of Article 142 can be seen in Kalyani Transco where the Court declared JSW’s resolution plan illegal due to the inclusion of optionally convertible debentures (OCDs) alongside equity, deeming it a violation of section 30(2) of the IBC; the Court also noted procedural lapses by JSW Steel in the plan’s implementation between 2019 and 2021. Invoking Article 142, the Court ordered liquidation of the corporate debtor, effectively nullifying a consummated deal. This decision starkly contrasts with earlier Supreme Court rulings, such as in K. Sashidhar v. Indian Overseas Bank and Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta, which upheld the commercial wisdom of the CoC as paramount and generally not subject to judicial review if procedural requirements (like section 30(2) of the IBC) were met. In the Kalyani Transco, the Court critiqued an extension of time for the resolution plan’s implementation, even though this extension was granted by the CoC based on enabling provisions within the plan itself. In the present case, the Court does not even make the effort to explain the exceptional circumstances due to which it invoked Article 142.
Despite obtaining approval from the CoC and subsequently the NCLT and the National Company Law Appellate Tribunal (NCLAT), resolution plans might still face judicial scrutiny at any stage. This uncertainty is compounded by existing delays and infrastructural insufficiencies in the IBC’s implementation. The decision to liquidate the corporate debtor in Kalyani Transco is also questioned because liquidation is generally understood to destroy asset value. This outcome appears to contradict the IBC’s core objectives: maximizing asset value, ensuring credit availability, and balancing the interests of all stakeholders, including employees. Furthermore, the ruling seems to disregard the principle articulated in Delhi State Electricity Board vs BSES Yamuna Power Ltd, which cautioned against unscrambling already integrated deals, highlighting the economic disruption such reversals can cause.
[to be continued]
– Srujan Sangai
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