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SC affirms key provisions of Insolvency and Bankruptcy Code
A bench led by CJI Chandrachud held that the impugned provisions are bereft of any illegality and augur well with the legislative intent of IBC, 2016
Supreme Court on Thursday affirmed key provisions of the Insolvency and Bankruptcy Code, (IBC) 2016, relating to the appointment of resolution professional (RP), adjudicatory process and interim moratorium, holding that the legislature has “carefully calibrated” the role of an RP and other procedure contemplated under the law.
Deciding a clutch of over 200 petitions challenging a set of IBC provisions on the ground of alleged breach of principles of natural justice and due process, a bench led by Chief Justice of India (CJI) Dhananjaya Y Chandrachud held that the impugned provisions are bereft of any illegality and augur well with the legislative intent of the IBC.
The provisions under challenge before the bench, which also included justices JB Pardiwala and Manoj Misra, included sections 95 (application by creditor to initiate insolvency resolution process), 96 (interim moratorium), 97 (appointment of resolution professional), 99 (submission of report by resolution professional), 100 (admission or rejection of application) of the 2016 Code.
The petitions primarily challenged the operation of the law allowing lenders to initiate insolvency proceedings against personal guarantors and promoters without giving them the opportunity to present their stand. They contended the set of IBC provisions vested unfettered powers in the RP to be a judge in his own cause while a personal guarantor was left remediless and at the RP’s mercy.
Various industrialists and promoters, including Anil Ambani, Venugopal Dhoot, Sanjay Singal and Kishore Biyani, were petitioners in the case.
Rejecting the challenge, the top court held that the statute does not suffer from any manifest arbitrariness or was violative of Article 14 (equality and equal protection of law) of the Constitution, and added that the statute cannot be held to be operating in a retroactive manner.
The bench shot down the petitioner’s plea that there ought to be some form of an adjudicatory process before the appointment of a RP under Section 97 of the IBC so that the corporate debtor is also heard.
“We are of the view that the argument that an adjudicatory role be imposed before Section 97 cannot be accepted ... We have come to the conclusion that reading an adjudicatory role in section 97 will render Section 99 and Section 100 of the IBC otiose,” ruled the bench.
It would be “impermissible” for the court to accept an argument regarding an an element of adjudication at the stage of appointment of an RP by the adjudicating authority, it added.
“True adjudication only begins at the stage of Section 100 (admission or rejection of application) of the IBC. For the court to enter here will be to rewrite the statute. What is described as a jurisdiction question is not a simple matter of law to be decided as urged by the petitioner,” held the bench, adding the timelines made part of the Code will be rendered nugatory if an adjudicatory role is read into Section 97 of the IBC.
Yogendra Aldak, partner at Lakshmikumaran & Sridharan Attorneys, emphasised that the Supreme Court, by establishing an intelligible differentia between corporate insolvency and that of individual and partnerships, has now substantiated the need for the imposition of an immediate interim moratorium.
“Moreover, the Hon’ble Court has clarified and established the role of the Resolution Professional under Section 99 as that of a facilitator thereby barring any exercise of powers in an adjudicatory nature. This judgement is a keystone in the rapidly evolving jurisprudence of the IBC,” added Aldak.
