LI Network
Published on: November 09, 2023 at 14:48 IST
The Supreme Court of India has upheld the constitutionality of provisions within the Insolvency and Bankruptcy Code (IBC) pertaining to the insolvency resolution of personal guarantors.
These provisions, introduced through amendments in 2019, had been challenged for not providing an opportunity for personal guarantors to be heard before insolvency proceedings are initiated.
The Supreme Court, in its decision, affirmed that the IBC’s provisions, specifically Sections 95 to 100, do not violate Article 14 of the Constitution, which guarantees the right to equality before the law.
The Court declined to introduce the requirement of an opportunity for hearing, emphasizing that it cannot alter the legislative wording.
The bench, comprising Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra, clarified that these provisions do not confer an adjudicatory role but instead function to recommend reports.
The true adjudicatory function commences under Section 100, following the submission of the report by the Resolution Professional (RP). The Court emphasized that accepting the petitioners’ submissions would render Sections 99 and 100 of the IBC meaningless.
The Court further highlighted the importance of recognizing the differences between the insolvency of corporates and that of individuals and partnership firms.
It emphasized that the role of the Resolution Professional is that of a facilitator who gathers relevant information and recommends the acceptance or rejection of an application.
The Supreme Court’s ruling in this case has significant implications for the insolvency resolution process of personal guarantors, affirming the constitutionality of the existing provisions while clarifying the role of the Resolution Professional and the absence of the requirement for an opportunity of hearing in the early stages of the process.
This decision sets a legal precedent that will guide future cases related to insolvency proceedings involving personal guarantors.
