Supreme Court Upholds Amendments to the Insolvency and Bankruptcy Code

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 10.08.2026

Supreme Court Upholds Amendments to the Insolvency and Bankruptcy Code

The Supreme Court of India recently delivered a landmark judgment in the case of Manish Kumar v. Union of India, addressing the constitutional validity of key amendments to the Insolvency and Bankruptcy Code (IBC), 2016. This article provides a comprehensive overview of the case, the challenged amendments, arguments from both sides, and the Court’s reasoning and verdict.

Background: The Amendments in Question

The petitions challenged Sections 3, 4, and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020. These amendments introduced significant changes:

1. Section 3: Amended Section 7(1) of the IBC, requiring that certain financial creditors (notably, allottees in real estate projects and debenture/security holders) must file insolvency applications jointly—by at least 100 creditors or 10% of the total in the same class/project, whichever is less.
2. Section 4: Added an explanation to Section 11, clarifying that a corporate debtor undergoing insolvency can still initiate insolvency proceedings against another corporate debtor.
3. Section 10: Inserted Section 32A, granting immunity to the corporate debtor from prosecution for offences committed prior to the insolvency process, provided there is a change in management.

Who Were the Petitioners?

The majority of petitioners were homebuyers (allottees) in real estate projects, joined by money lenders and other financial creditors. They argued that the new thresholds for initiating insolvency proceedings were arbitrary, discriminatory, and violated their constitutional rights under Articles 14, 19(1)(g), 21, and 300A.

Key Arguments Presented

Petitioners’ Contentions

1. Hostile Discrimination: The amendments created an unjust distinction between different classes of financial creditors, especially disadvantaging homebuyers and small investors.
2. Practical Difficulties: Homebuyers lack access to information about other allottees, making it nearly impossible to meet the new threshold requirements.
3. Retrospective Application: The third proviso required pending applications (filed under the old regime) to comply with the new thresholds within 30 days, or be deemed withdrawn, which was argued to be arbitrary and unfair.
4. Section 32A: Granting immunity to corporate debtors was claimed to undermine remedies for offences and harm creditors’ interests.

Union of India’s Defense

1. Reasonable Classification: The amendments were based on recommendations from an expert committee and aimed to address the unique challenges posed by large numbers and heterogeneity among homebuyers and debenture holders.
2. Preventing Abuse: The threshold was intended to prevent frivolous or speculative insolvency applications by individual allottees, which had led to a surge in cases and burdened the adjudicating authorities.
3. Procedural, Not Substantive: The right to file an application under Section 7 is statutory and can be conditioned by procedural requirements.
4. Section 32A: The immunity was necessary to encourage resolution applicants to take over distressed companies without fear of past liabilities, while still holding previous management accountable.

Supreme Court’s Analysis and Reasoning

On Threshold Requirements (Section 7(1) Provisos)

• The Court recognized the unique position of homebuyers and debenture holders, marked by large numbers and diverse interests, justifying a different procedural threshold.
• The amendments were found to be a reasonable classification, not arbitrary or discriminatory, and aligned with the objectives of the IBC to ensure speedy and collective insolvency resolution.
• The Court noted that even before the amendment, joint applications were permissible, and the new requirements merely formalized a minimum number for certain classes.
• Practical difficulties in gathering information were acknowledged, but the Court held that mechanisms under RERA and the Companies Act provided sufficient means to obtain necessary data.

On Retrospective Application (Third Proviso)

• The Court held that the third proviso, which required pending applications to comply with the new thresholds within 30 days, was a one-time measure and not manifestly arbitrary.
• It clarified that withdrawal of applications under this proviso would not bar fresh applications if the threshold was later met, and directed that court fees need not be paid again for such refiled cases.

On Section 32A (Immunity for Corporate Debtors)

• The Court upheld Section 32A, finding it balanced the need to attract resolution applicants with the imperative to hold previous management accountable for past offences.
• Immunity applied only if there was a genuine change in management and did not extend to individuals responsible for the offences.

Impact and Relief Granted

• The Supreme Court upheld the constitutional validity of the challenged amendments.
• It provided relief to petitioners by exempting them from paying court fees again if they refiled applications after meeting the new thresholds and allowed for condonation of delay in such cases.

Conclusion

The Supreme Court’s judgment in Manish Kumar v. Union of India affirms the validity of the 2020 amendments to the IBC, emphasizing the legislature’s prerogative in economic matters and the need for procedural safeguards to ensure the effective functioning of insolvency law. The decision strikes a balance between protecting the interests of homebuyers and creditors and maintaining the integrity and efficiency of the insolvency resolution process.

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Source: Supreme Court

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