The Preamble to the IBC expressly recognizes the shift in the law, with respect to ordering priority of claims, especially with respect to government dues:
The Preamble of the I&B Code, 2016 reads as follows:
"An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Sixty-seventh Year of the Republic of India."
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The Objectives of the I&B Code, 2016
1). NCLAT (2025.04.16) in Shitanshu Bipin Vora vs Shree Hari Yarns Pvt. Ltd. and Anr. [(2025) ibclaw.in 271 NCLAT, Company Appeal (AT) (Insolvency) No. 2204 of 2024] held that;
# 49. It is also contended that the Respondent is attempting to misuse the provisions of the code to initiate CIRP against the Appellant, which is a healthy and insolvent company and is regularly meeting all its obligation. In its support the Appellant has relied on various judgments wherein it has been held that the primary objective of the code is resolution and not recovery. Some of these are extracted as below:
49.1 Binani Industries Limited vs Bank of Baroda (supra) wherein it was held that the first order objective of the Code is resolution. The second order objective is maximisation of value of assets of the firm and the third order objective is to promote entrepreneurship, availability of credit and to balance the interests of the stakeholders. The relevant extracts of the judgment are reproduced below:
“2. The objective of the ‘I & B Code’ is Resolution. The Purpose of Resolution is for maximisation of value of assets of the ‘Corporate Debtor’ and thereby for all creditors. It is not maximisation of value for a ‘stakeholder’ or ‘a set of stakeholders’ such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective is “resolution.” The second order objective is “maximisation of value of assets of the ‘Corporate Debtor’ and the third order objective is ‘promoting entrepreneurship, availability of credit and balancing the interests.’ This order of objective is sacrosanct.” [emphasis supplied]
49.2 Swiss Ribbons Pvt Ltd vs Union of India (supra): The focus on maximising the value of the Debtor’s assets was further reiterated wherein the Supreme Court recorded the following observations.
“..As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is affected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme – workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment.” [emphasis supplied]
49.3 M/s SS Engineers vs Hindustan Petroleum Corporation Ltd and Ors (supra) wherein it was held that;
“31. The NCLT, exercising powers under Section 7 or Section 9 of IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor.” [emphasis supplied]
49.4 Transmission Corporation of Andhra Pradesh Limited vs Equipment Conductors and Cables Limited, and Mobilox Innovations (supra): Hon’ble Supreme Court has held that the Code is not intended to be a substitute to a recovery forum and the object of the Code is efficient resolution of corporate debtor and to bring the company out of distress.
# 50. Further we are also inclined to agree with the submission of the Appellant that IBC aims at resolution and not recovery and cannot be used to push a healthy and solvent company into CIRP. The appeal of the Respondent No 1 clearly runs contrary to the object and purpose of the Code, which mandates reorganisation of the Corporate Debtor and maximisation of its assets. We are inclined to agree with the submissions of the Appellant in the light of the fact that the Appellant is a solvent company and discharging its debt obligation and also willing to pay the principal amount to the Respondent No.1.
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2). Hon’ble Supreme Court (2021.09.15) in the matter of K. N. Rajkumar Vs V. Nagarajan & Ors. [CIVIL APPEAL NO. 1792 OF 2021] has held that :-
“16. It could thus be seen that one of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.”
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3). Hon’ble Supreme Court (2019.01.25) in Swiss Ribbon Pvt Ltd v. union of India [(2019) 4 SCC 17, Writ Petition (Civil) No. 99 of 2018] has held that:
Para 9…….The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.
Para 10 – The Preamble of the Code states as follows: ―An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.
Para 12. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor‘s assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.
“Para 28. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor’s business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code.” (Emphasis Added)
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