IBC Leading Cases I: Validity, Initiation and Limitation

A small number of Supreme Court decisions shaped how the Code works in practice. This is the first of three revision notes compiling them. It covers the cases on the Code's constitutional validity, how a CIRP may be initiated by financial and operational creditors, limitation and the interface with arbitration. For each case, it gives the core holding and why it matters, and notes where a later amendment has changed the position. Detailed treatment is in the topic notes cited.

Figure 1: The cases in this note, by year

1. Constitutional Validity

• Swiss Ribbons v Union of India, 2019. The Supreme Court upheld the Code against challenges under Articles 14, 19 and 21: the distinction between financial and operational creditors rests on intelligible differentia; section 29A is valid as a measure to keep defaulting promoters out; the resolution professional has no adjudicatory powers; and the Code is beneficial legislation aimed at resolution, not recovery (Topic 3)
• Pioneer Urban Land and Infrastructure v Union of India, 2019. Upheld the 2018 amendment deeming homebuyers financial creditors, holding that amounts raised from allottees have the commercial effect of borrowing; RERA and the Code operate concurrently, and the Code prevails in case of conflict (Topic 8)
• Manish Kumar v Union of India, 2021. Decided on 19 January 2021, it upheld the 2020 amendments, including the threshold of 100 allottees or 10 per cent for section 7 applications by homebuyers and the immunity of the corporate debtor in section 32A (Topic 46)

Figure 2: The cases grouped by theme

2. Initiation by Creditors

• Innoventive Industries v ICICI Bank, 2017. The first major decision on the Code: in a section 7 application, the NCLT need only be satisfied that a financial debt exists and is in default; a suspension of liabilities under the Maharashtra Relief Undertakings Act could not bar the CIRP, as that State law was repugnant to the Code under Article 254 (Topics 11 and 77)
• Mobilox Innovations v Kirusa Software, 2017. A section 9 application must be rejected if the corporate debtor shows a plausible pre-existing dispute; the NCLT must reject a spurious defence but need not be satisfied that the defence will succeed (Topic 13)
• Macquarie Bank v Shilpi Cable Technologies, 2017. A demand notice under section 8 may be issued by a lawyer on behalf of the operational creditor, and the bank certificate under section 9(3)(c) is not a mandatory condition (Topic 90)
• Vidarbha Industries v Axis Bank, 2022. Read the word may in section 7(5)(a) as giving the NCLT a discretion to decline admission despite a default in exceptional circumstances; the 2026 Amendment now requires admission where the conditions are met (Topic 11)

3. Limitation

Figure 3: Principles of the leading cases

• B.K. Educational Services v Parag Gupta, 2018. The Limitation Act has applied to applications under sections 7 and 9 from the inception of the Code; Article 137 prescribes three years from the date of default, not from the commencement of the Code (Topic 18)
• Laxmi Pat Surana v Union Bank of India, 2021. A section 7 application may be filed against a corporate guarantor on the principal borrower's default; acknowledgements of liability under section 18 of the Limitation Act extend limitation in proceedings under the Code.
• Dena Bank v C. Shivakumar Reddy, 2021. Entries in balance sheets may amount to acknowledgements, and a recovery certificate issued by a DRT gives a fresh cause of action for a section 7 application.
• Kotak Mahindra Bank v A. Balakrishnan, 2022. Decided on 30 May 2022 by three judges, it held that liability under a recovery certificate is a financial debt and its holder a financial creditor, approving Dena Bank (Topic 86)

4. Arbitration

• Indus Biotech v Kotak India Venture Fund, 2021. Decided on 26 March 2021 by three judges, it held that insolvency proceedings become in rem only on admission; where a section 7 application and a section 8 application under the Arbitration Act are both pending, the NCLT must first decide whether there is a default, and an admitted section 7 application cannot be referred to arbitration (Topic 79)

5. Frequently Asked Questions

Which case first held that only debt and default matter in a section 7 application?

Innoventive Industries v ICICI Bank (2017), the Supreme Court's first major decision under the Code.

Is Vidarbha Industries still good law on admission under section 7?

Its reading of section 7(5) as discretionary has been displaced by the 2026 Amendment, which requires the NCLT to admit an application where a default is proved and the application is complete.

Which case is the authority for the constitutional validity of the Code?

Swiss Ribbons v Union of India (2019), supplemented by Pioneer Urban (2019) on homebuyers and Manish Kumar (2021) on the 2020 amendments.

6. Related Topics

• Topic 92: Leading Cases II. Process and resolution plans.
• Topic 93: Leading Cases III. Liquidation, guarantors and other laws.
• Topic 96: Revision Chart. The Code at a glance.