Object Vs Process: The Big Conundrum

The Code has to maintain balance among the objectives by consistently ensuring maximization of value, promotion of entrepreneurship, availability of credit and balancing the stakeholders’ interests within a transparent and time-bound manner

- Varun Karve, Harshit Gadiya & Saloni Jain

As far as adoption of new legislation in India goes, the Insolvency and Bankruptcy Code, 2016 (the “Code”) has had a good run since its inception. The Code has, in little more than two and a half years, truly showed that debtors and promoters can be stripped off of control, priority to government dues can be altered, and insolvent body corporates can be turned around in a very short period of time.

Albeit the multiple challenges encountered in the adoption of the Code (which is common for any new legislation in India), the judiciary has speedily dealt with the same, thereby demonstrating it to be justly effective and efficient towards the efficacy of the objectives, as laid down in the Code. The industry, at large, is seemingly in cheer with the functioning of the Code and its outcomes. Lately, like other legislations, few contradictions have surfaced regarding the letter of the Code. While in the legislative sense this is warranted on account of the Code’s infancy, it suffers commercial insinuations. At the outset, industries by and large prefer clear understanding and concrete foresight into the governing laws, rules and regulations, as any kind of quandary can affect, at varied degrees, the commercial viability of such industries.

Any new legislative enactment is bound to bring with it ambiguity as to its true purpose. The letter of the law often contains conflicting provisions or even grey areas which are capable of bearing many modes of constructions. In such cases, the judiciary gives a purposeful and contextual interpretation to the statute while interpreting the law in line with the object sought to be achieved. This article seeks to discuss such an interpretational issue recently faced by the judiciary, that is, the conflict between the fundamental objectives of the Code and the process which is to be adhered to, to attain the objectives.