In Brief
The Supreme Court rejected a constitutional challenge to Section 327(7) of the Companies Act, 2013, which excludes the application of preferential payment sections in insolvencies under the Insolvency and Bankruptcy Code (IBC). Workmen unions sought to strike down provisions capping their dues at 24 months and ranking them pari passu with secured creditors in IBC liquidations, arguing this violated Articles 14 and 21. The Court held that the IBC represents a comprehensive, evolutionarily developed regime distinct from the Companies Act, designed to maximize asset value and balance stakeholder interests. Though workmen's protections differ from the prior regime, the exclusion of pension/gratuity funds from liquidation assets and the 24-month protection are rational legislative choices. Economic legislation receives greater judicial deference; the waterfall mechanism is neither manifestly arbitrary nor unconstitutional.
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