SC Affirms Validity of Insolvency Resolution Process for Individuals and Partnership Firms Under Sections 95-100 of IBC

LI Network

Published on: November 27, 2023 at 12:16 IST

The Supreme Court has upheld the constitutional validity of the insolvency resolution process for individuals and partnership firms under Sections 95-100 of the Insolvency and Bankruptcy Code, 2016.

A Bench comprising Chief Justice Dr. DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra heard a batch of 384 writ petitions under Article 32 of the Indian Constitution challenging the constitutional validity of Sections 95 to 100 of the IBC.

The Court affirmed that “The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.”

Key Observations by the Supreme Court:

1. No judicial adjudication is involved in the stages outlined in Sections 95 to Section 99 of the IBC.
2. The resolution professional appointed under Section 97 plays a facilitative role, collating relevant facts for the examination of the insolvency resolution process application. The report is recommendatory on whether to accept or reject the application.
3. The argument for a hearing by the adjudicatory authority to determine ‘jurisdictional facts’ when appointing a resolution professional under Section 97(5) was rejected. No adjudicatory function is envisaged at that stage.
4. The resolution professional may use the powers under Section 99(4) to examine the application for insolvency resolution and seek information relevant to the application.
5. No violation of natural justice occurs under Sections 95 to 100 of the IBC as the debtor has the opportunity to participate in the examination process by the resolution professional.
6. Judicial determination occurs only when the adjudicating authority decides under Section 100 whether to accept or reject the application. The resolution professional’s report is recommendatory and not binding.
7. The adjudicatory authority must observe natural justice principles under Section 100 to determine whether to accept or reject the application.
8. The interim-moratorium under Section 96 aims to shield the debtor from further legal proceedings.
9. Sections 95 to 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.

Consequently, the petitions were dismissed.

Case Title: Dilip B Jiwrajka vs Union of India & Ors

Also Read: Crucial Insights into India’s Corporate Insolvency Resolution Process