Akshay Jhunjhunwala & Anr. Vs. Union of India through the Ministry of Corporate Affairs & Ors. [W.P. No. 672 of 2017] - Synopsis
Team SoOLEGAL 21 Jan 2021

In this case, Akshay Jhunjhunwala & Anr. Vs. Union of India through the Ministry of Corporate Affairs & Ors. [W.P. No. 672 of 2017], according to the petitioner, the differentiation between a financial creditor and an operational creditor in favour of a corporate debtor would not have a logical and intelligible foundation. Being the distinction between the two groups of creditors is incomprehensible and unreasonable, the provisions of Sections 7, 8, and 9 of the Insolvency and Bankruptcy Code, 2016 should be removed. It was alleged that an unfair preference had been issued to the financial creditor. A financial creditor has the right to be in the Committee of Creditors of a corporate debtor in an insolvency proceeding. The Insolvency and Bankruptcy Code, 2016   does not empower the adjudicating authority to dig closely at the legitimacy of the argument of the financial creditor. However, a more in-depth review of the argument of the operational creditor is carried out. The claims of the financial creditor should be tested in the same manner as the claims of the operational creditor are reviewed. According to the respondent, claims by financial creditors are indisputable in essence, unlike claims by operational creditors which could need further adjudication.
The Court had held that a financial creditor is a creditor whose claim arises from a liquidity deal that the creditor has entered into with the firm, while the operational creditor, is a creditor whose claim arises from a regular business transaction that the creditor might have had with the legal entity. The justification for providing preferential treatment to a financial creditor in the insolvency proceedings of a company pursuant to the Insolvency and Bankruptcy Code 2016, cannot be said to constitute an offence against any clause of the Constitution of India. The Court also had held that a secured or unsecured or contractual borrower shall be reclassified as a financial or operational creditor in compliance with the Code. When a borrower of a company engages in the insolvency process of that company under the Code, he or she does not surrender the character of being a secured or unsecured creditor or a statutory creditor of that company as the case may be. The operational creditor shall not be expelled from the Committee of Creditors in its entirety. The operational creditor does not have the right to vote.


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