Supreme Court: The three-judge bench of Dr. DY Chandrachud,CJI.,JB Pardiwala and Manoj Misra, JJ. upheld the Constitutionality of the provisions of the Insolvency and Bankruptcy Code (‘IBC’) relating to Personal Guarantors’s Insolvency Resolution (Section 95-Section 100), introduced through the 2019 amendment.
The petitioners argued that the personal guarantor was not provided any opportunity to present his case or dispute the initiation of insolvency resolution process or appointment of the resolution professional as per IBC The Bench said that these provisions cannot be held unconstitutional for not affording an opportunity of hearing to the personal guarantors before the insolvency petition filed by creditors is admitted against them and the moratorium is automatically applied against them as soon as the insolvency petition is filed.
As per the Court, changing the adjudicatory role under these provisions would amount to rewriting the legislative functions. Thus, it held that an adjudicatory role in Section 97 will render Section 99 and Section 100 of the IBC otiose.
The Court said that the Provisions are based on intelligible differentia between the individual debtors, partnerships and corporate debtors. Further, it said that the natural justice principles cannot be applied in a straight-jacket manner, their application could vary depending on the situation.
The Bench said that IBC has sufficient safeguards regarding the functioning of the Resolution Professional. Further, the role under Section 99 which is ascribed to the resolution professional is that of a facilitator.
Moreover, it held that IBC cannot operate in a retroactive manner to hold it violative of the constitution. Thus, the statute does not suffer from the vices of manifest arbitrariness.