CASE STUDY OF TWO

LANDMARK JUDGEMENTS
PASSED BY THE SUPREME
COURT
TUHINA CHAKRAVERTY
2K20/UMBA/45
DIVESTMENT OF
CBI’S DIRECTOR
ALOK VERMA VS UNION OF INDIA
IMPORTANT DEFINITIONS TO UNDERSTAND THE
CASE
• Divestment means to take (something) away from (someone or something else) : to cause
(someone or something) to lose or give up (something).
• The Central Bureau of Investigation (CBI) is the premier investigating agency of India.
Operating under the jurisdiction of the Ministry of Home Affairs (India), Originally set up to
investigate bribery and governmental corruption, in 1965 it received expanded jurisdiction to
investigate breaches of central laws enforceable by the Government of India, multi-state
organised crime, multi-agency or international cases.
• Central Vigilance Commission (CVC) is an apex Indian governmental body created in 1964 to
address governmental corruption. In 2003, the Parliament enacted a law
conferring statutory status on the CVC. It has the status of an autonomous body, free of
control from any executive authority, charged with monitoring all vigilance activity under the
Central Government of India, advising various authorities in central Government
organizations in planning, executing, reviewing and reforming their vigilance work.
• Department of Personnel and Training (DOPT) is concerned with the formulation of policy
and the watchdog of the Government ensuring that certain accepted standards and norms, as
laid down by it, are followed by all ministries/departments in the recruitment, regulation of
service conditions and posting transfers and deputation of personnel as well as other related
issues.
• THE DELHI SPECIAL POLICE ESTABLISHMENT ACT, 1946 (DSPE)- An Act to
make provision for the constitution of a special police force 2 [in Delhi for the
investigation of certain offences in 3 [the Union territories] for the superintendence and
administration of the said force and for the extension to other areas of the powers and
jurisdiction of members of the said force in regard to the investigation of the said
offences.
ROLE OF DSPE IN THE DIVESTMENT OF ALOK
VERMA
• Section 4A, DSPE Act
The Centre can only appoint a CBI Director on the recommendation of a 3-member
Selection Committee: Prime Minister, Chief Justice and Leader of the Opposition
• Section 4B, DSPE Act
(1) – CBI Director guaranteed a minimum 2-year tenure
(2) – CBI Director cannot be transferred without the consent of the Selection Committee
(4A)
Issue
Did the Centre violate the 2-
year min tenure provision
[4B(1)], when it divested Dir.
Verma of his
responsibilities?
Did the Centre “transfer”
Verma, when it divested him
of his responsibilities?
Must appointment under
S.4(A) be broadly
understood to include
divestment of
responsibilities?
Does the CVC have the
power to investigate the CBI
Director himself?*
Petitioner
Yes: divestment of powers &
resp. equates to
removal/transfer.
Yes: Divestment is in-effect
“transfer”. Interim Dir. has
taken over. Centre violated
4B(2).
Yes: The aim of the S.4(A) is
to insulate the CBI Dir. from
executive influence.
Divestment requires
Sel.Com. approval under
S.4(A).
No: The CVC is limited to
supervising on-going CBI
cases & not investigate CBI
personnel.
Respondent
No: Verma is still the CBI
Director.
No: Verma is still the CBI
Director & still enjoys his
official accommodation.
No: S.4(A) to be read
literally. Sel.Com. only
involved in appointment and
not ancillary matters.
Yes: The CVC has the power
to investigate the CBI
Director.
Judgment Likelihood
No: Security of tenure not Very Likely
violated.
No: transfer must be Very Likely
understood in literal
technical sense. Retains
accommodation, retains
designation, etc. No consent
of Sel. Com. required.
No: S.4(A) definitively limits Likely
role of Sel.Com. to
appointments.
Yes: Supervision includes Uncertain
investigation of CBI
personnel.
*On 23rd October, the Central Government ordered the CVC to investigate the corruption
charges raised Dir. Alok Verma and Spcl. Dir. Rakesh Asthana. The CVC has submitted a
status report of its investigation in a sealed cover to the Court. The Court declared that it
will only evaluate the content of the report, only after is has determined whether the CVC
has the power to investigate Dir. Verma.
PARTIES INVOLVED

• Petitioner :Alok Verma; Common Cause

• Respondent :Union of India
• Intervenor :Mallikarjun Kharge; AK Bassi
LAWYERS INVOLVED

• Petitioner :Fali Narman; Prashant Bhushan; Dushyant Dave; Gopal Sankaranarayanan

• Respondent :K.K. Venugopal
• Intervenor :Kapil Sibal; Rajeev Dhavan
ISSUES

• Whether the CVC and the centre had the competence to divest verma of his powers as
CBI director?
• Whether the reasons for doing so were sufficient and adequate?
FACTS

• Central government order divesting Alok Verma of his powers as director of the Central
Bureau of Investigation (CBI) while doing so, the court also directed the high power
committee to consider the matter afresh and held that alok verma shall cease and desist
from taking any major policy decision pending the committees consideration.
• The court has also set aside the order asking CBI joint director Nageshwar Rao to take
over the duties of the CBI director.
• The verdict was delivered by a bench of chief justice of India Ranjan Gogoi and justice
Sanjay Kishan Kaul and K.M. Joseph. As CJI Gogoi was unavailable that day justice
Kaul pronounced the verdict in court no 12. Pronouncing the verdict authored by CJI
Ranjan
Gogoi the court held that it cannot be oblivious to the directions contained in Vineet narain
and ors v union of india. The intent of bringing the direction of vineet narain into the statute
book was to ensure complete insultation of the CBI director the court held.
• It was also held that the word 'transfer' cannot be given its normal meaning and that it has
to be understood as encompassing acts affecting the functioning of CBI director.
• This case reached supreme court in october 2018 after centre sent Alok Verma on leave,
affectively divesting him of his powers as the director of the CBI. The DOPT and the
CVC issued notice in a midnight move on october 29 announcing this decision. Through
the same notice the centre also divested CBI special director Rakesh Asthana of his powers.
• This unprecedented move cane in the wake of infighting between Verma and Asthana.
The agency under verma had registered an FIR against Asthana in a bribery case based on
a whistle blower’s account. The concerned case involved the meat exporter Moin
Qureshi. However, in the same case Asthana had alleged bribery on Verma’s part prior to
the lodging the FIR. Asthana approached the delhi high court for quashing of the FIR
against him. This was immediately followed by the centre’s decision of ousting both
Verma and Asthana which came to be challenged in the supreme court by verma. The
supreme court
after hearing all the parties had reserved its judgement on dec 6th.
• Two petitions, one filed by Alok Verma (CBI Director) and one by the NGO Common
Cause challenged the Centre's order which had divested Director Verma of his powers.
The petitioners argued that the Central Government’s actions against Verma violated the
provisions of the DSPE (Delhi Special Police Establishment) Act and the Supreme Court
guidelines issued in Vineet Narain, 1997.
JUDGEMENT

• On dec 5th, attorney general K.K. Venugopal tells a bench headed by chief justice Ranjan
Gogoi that the fight between the two officers impacted the image of CBI. The centre's
main aim was to see that confidence of the public in this premier institution CBI is
restored.
• On dec 6th, extraordinary situations need extraordinary remedies the CVC tells the
supreme court during the hearing of CBI director Alok Verma's plea against the centre's
decision to divest him of powers and send him on leave.
• On dec 7th, the supreme court reserves the judgement on the petition moved by CBI
director Alok verma challenging the centre's decision to divest him of all powers and
sending him on leave.
• On dec 8th, a delhi court grants bail to manoj prasad an alleged middle man arrested in
connection with bribery allegations involving the agency's special director Rakesh
Asthana.
• On jan 4th 2019 ; minutes after the transfer director V. Murugesan is reported CBI issues
a fresh order stating that he would continue to be incharge of the probe against special
director Rakesh Asthana. The agency has issued an order transferring Murugesan from
the anti –corruption wing which was probing the case against Asthana to the economic
offences wing. The agency issues a subsequent order stating that the Murugesan will
continue to supervise the case against Rakesh Asthana.
• In jan 8th, supreme court is scheduled to pronounce on tuesday its verdict on CBI
director Alok kumar verma's plea against the centre's decision to divest him of powers
and sending him on leave. A three judge supreme court bench led by chief justice Ranjan
Gogoi on tuesday ruled in favour of deposed central Bureau of Investigation, CBI
director Alok Verma . The court ordered the government to reinstate him in his position as
CBI director. The apex court said,"statute would have spelt out if interim measures
against CBI".
• The court made it explicit that Alok Verma’s role as the Director, CBI during the
interregnum and in terms of this order will be confined only to exercise of the ongoing
routine functions without any fresh initiative, having no major policy or institutional
implications.
CONSTITUTIONAL
VALIDITY OF IBC
SWISS RIBBONS PVT. LTD. VS UNION OF INDIA
IMPORTANT DEFINITIONS TO UNDERSTAND THE
CASE
• Insolvency is the state of being unable to pay the debts, by a person or company (debtor),
at maturity; those in a state of insolvency are said to be insolvent.
• Bankruptcy is a legal process through which people or other entities who cannot repay
debts to creditors may seek relief from some or all of their debts. In most jurisdictions,
bankruptcy is imposed by a court order, often initiated by the debtor. Bankrupt is not the
only legal status that an insolvent person may have, and the term bankruptcy is therefore
not a synonym for insolvency.
• The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which
seeks to consolidate the existing framework by creating a single law for insolvency
and bankruptcy. The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha
December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11
May 2016. The Code received the assent of the President of India on 28 May 2016. The
bankruptcy code is a one stop solution for resolving insolvencies which previously was a
long process that did not offer an economically viable arrangement. The code aims to
protect the interests of small investors and make the process of doing business less
cumbersome.
• The National Company Law Tribunal is a quasi-judicial body in India that adjudicates
issues relating to Indian companies. The tribunal was established under the Companies
Act 2013 and was constituted on 1 June 2016 by the government of India and is based on
the recommendation of the V. Balakrishna Eradi committee on law relating to the
insolvency and the winding up of companies.
• The National Company Law Appellate Tribunal (NCLAT) is a tribunal which was formed
by the Central Government of India under Section 410 of the Companies Act, 2013. The
tribunal is responsible for hearing appeals from the orders of National Company Law
Tribunal(s) (NCLT), starting on 1 June 2016.
PARTIES INVOLVED

• Petitioner: Swiss Ribbons Pvt. Ltd. & Anr.

• Respondent: Union of India & Ors.
• Intervenor: Reserve Bank of India
LAWYERS INVOLVED

Petitioner: Mukul Rohatgi

Respondent: K.K. Venugopal; Tushar Mehta

• Intervenor: Rakesh Dwivedi
ISSUES

• The issues that were argued by the parties were respect to the preamble and
approach of the Code, about NCLT and NCLAT, classification into financial
creditors and operational creditors, notice, hearing, set off or
counterclaim qua financial debts, operational creditors and committee of creditors,
Section 12A vis-à-vis Article 14, information utilities, power of Resolution
Professional, constitutional validity of Section 29A, addressing hardship arising
from and monitoring the working of the Code, Section 53 vis-à-vis Article 14,
constitutional validity of the Code and working of the Code. 
INTRODUCTION OF THE CASE

• Swiss Ribbons Pvt Ltd. vs Union of India deals with the constitutional validity of the
various existing provisions in the Insolvency and Bankruptcy Code, 2016 (hereinafter
IBC Code). The case has been finally decided by the Supreme Court on 25 January 2019.
Since the enactment of the IBC Code, it is continuously changing and amendments were
made many times to add key changes to ease the resolution process. The latest
Amendment (which is the fourth one made to the IBC,2016) has been made in 2020.  The
Supreme Court, in this case, held the IBC Code to be constitutionally valid in its entirety.
The Court takes into consideration various economic factors of the country in order to
determine its validity in the present case.
HIGHLIGHTS OF THE CASE

• Difference between Financial Creditors and Operational creditor- The Legislative scheme
that is contained under Section 7 of the Code was challenged for the fact that there is no
intelligible differentia between the financial and the operational creditor in Code, regard
being had to the object sought to be achieved by the Code, namely, insolvency resolution, if
that is possible, then ultimately, liquidation.  As, only the financial creditor have the place in
the Committee of creditors (“COC”) and hence it was contented that this legislative design
amounted to discrimination under Article 14 of the Constitution of India. The Supreme
Court upheld the Constitution validity stating in Para 28 of the judgment which also tried to
resolve the dichotomy between the Financial creditor and the Operational Creditor.
• Constitutionality of Section 12A- Constitutionality of Section 12A of the Code was challenged in
the present case stating that the threshold of 90% of the COC for allowing the withdrawal of
application is unreasonable. However, Supreme Court upheld the Constitutionality of the said
section, while discussing the ILC report that explained the reason for this high threshold the Apex
Court was of the view that they did not see any difficulty in the need for such high threshold for
the withdrawal as the proceeding under the code is the collective proceedings. Supreme Court in
Para 53 of the case held that the COC do not have the last word on the subject. As, under Section
60 of the Code if the COC arbitrarily rejects the withdrawal claim the NCLT/NCLAT can always
set aside such decision. And thus Section 12A passes the Constitutionality.
• Constitutional Validity of Section 29A-
a) Retrospective Effect- Constitutionality of Section 29A of the Code was also
challenged. Section 29A list down the person who are not eligible to be a resolution
applicants. The First issue which came into picture was whether there was a
Retrospective Application of the Section 29A. it was contented that Section 29A of the
Code had retrospectively violate the rights of the erstwhile promoters to participate in
the recovery process for the Corporate Debtor. A resolution applicant who applies
under Section 29A(c) has no vested right to apply for being considered as a resolution
applicant and thereby holding that Section 29A is not retrospective in nature .
b) Section 29A(c) Not Restricted To Malfeasance- It was also challenged on the basis that
it treats unequal with equals and thus it violates Article 14 of the Constitution. It was
contended that a good erstwhile manager cannot be lumped with a bad erstwhile
manager in the case where an erstwhile manager is not guilty of malfeasance or of
acting contrary to the interest of the corporate debtor, there is no reason why he should
not be permitted to take part in the resolution process. The Supreme Court held that
there is no vested right in an erstwhile promoter of a corporate debtor to bid for the
immovable/movable property of the Corporate Debtor in liquidation. 
c) Related Party- Constitutionality of Section 29A (j) read with definition of “Related
party” under section 5 (24A) of the Code was challenged. It was contended that mere
fact that somebody happens to be a relative of an ineligible person cannot be a good
enough reason to oust such person from becoming a resolution applicant, if he is
otherwise qualified. The Supreme Court held that the expression “Related Party”,
therefore, and “relative” would include only person who are connected with the
business activity of the resolution applicant.  The Court held that in the absence of
showing that such person is connected with the business of the resolution applicant
cannot disqualify such person under Section 29A (j).
FINAL JUDGEMENT & CONCLUSION

• The Swiss case decision by the Supreme Court in 2019 is the landmark development in

the Insolvency regime of India. The Court relied on the statistics of the resolutions and
settlement happens post-IBC Code. The IBC Code has proven in tackling non-performing
crises as well as continuous amendments made in the Code helps in improving ease of
doing business ranking. The Court recognized that it is a beneficial piece of legislation
and thus cannot be set aside. In order to reach the conclusion, the court had taken into
consideration the pre-Insolvency code which fails in many aspects.
• Further, in a very short span of time many amendments have been introduced by the
government to keep pace with changing investment. This judgment shows that the
Supreme Court should intervene only in cases where the exercise of any legislative
enactment prima facie seems to be arbitrary. The intention of the legislature behind the
enactment of the Insolvency Code and primary objective should be taken into consideration.
The Court tries to hold its constitutional validity by giving economic reasons. The Court
relies on the fact that if various provisions held to be unconstitutional then the same have a
drastic impact on the overall Code. This judgment gives the much-needed relief to the
investors, creditors and other stakeholders involved in the insolvency process.
THANK YOU