DILIP B. JIWARAJKA V. UNION OF INDIA AND ORS.2023 SCC ONLINE SC 1530
FACTS
A notification was issued on 15 November 2019 by the Union Government in the Ministry of Corporate Affairs. The notification brought into force Section 2(e), Section 78 (except with regard to fresh start process), Section 79, Section 94 to 187, Sections 239(2)(g), (h) and (i), Sections 239(2)(m) to (zc); Section 239(2)(zn) to (zs) and Section 249 of the insolvency and bankruptcy code, 2016. The notification was challenged before this Court.
In Lalit Kumar Jain v Union of Indiaa two-Judge Bench inter alia, held that the liability of a guarantor is not discharged merely on the discharge of the corporate debtor.
384 writ petitions were filed challenging the constitutional validity of sections 95 to 100 of the Insolvency and Bankruptcy Code, 2016.
ISSUE
The petitioners challenge the constitutional validity of Sections 95 to 100 of the Insolvency and Bankruptcy Code 2016
SUBMISSIONS ON BEHALF OF THE PETITIONERS:
Before initiating proceedings for insolvency under the IBC and the appointment of a resolution professional or, at the minimum, before the resolution professional takes any action, there must be a determination by a judicial body of the existence of a debt.
The following ought not to take place automatically after the filing of an application under Section 95 without judicial adjudication/intervention, namely:
An automatic interim moratorium;
The automatic appointment of a resolution professional subject to worthiness;
The resolution professional seeking information from the guarantor; and
The resolution professional examining the information received and submitting a report;
All that the petitioners seek is natural justice by a judicial body at the stage of Section 97(1) similar to the exercise of the adjudicating authority which discharges its functions under Section 7 or 9 of the IBC; and
The IBC follows the same model as sought by the petitioners under Sections 7 and 9 and neither any reasonable distinction nor any qualification exists for denying the right to adjudicatory hearing to a guarantor in the same statute when confronted with the application under Section 95.
That without incorporating a requirement for a hearing before the adjudicating authority prior to the appointment of a resolution professional, the provisions of Sections 95 to 100 would be arbitrary and violative of Article 14. Therefore, it is urged that a judicial application of mind by the adjudicating authority is essential even before the appointment of a resolution professional to avoid such consequences.
SUBMISSIONS ON BEHALF OF THE RESPONDENTS:
The requirement of observing the principles of natural justice arises at the adjudicatory stage under Section 100. The process which is followed by the resolution professional is only for the purpose of collating facts and submitting a report together with recommendations to the adjudicating authority which does not possess the character of a submission which binds the adjudicating authority.
The moratorium under Section 96, unlike Section 14, is for the benefit of the guarantor or, as the case may be, the debtor. At the stage of an application under Section 94 or Section 95, no adjudication takes place. The interim moratorium under Section 96 does not impose an embargo on alienation of assets, legal rights or beneficial interest of the debtor. Hence, the moratorium under Part II under Section 14 is markedly different in its nature and character from the interim-moratorium under Section 96 in Part III.
Consistent with the time lines which are provided by the IBC, it would be inappropriate to read compliance with the principles of natural justice at a stage anterior to Section 100 since it would dislocate the entire scheme of the IBC
HELD
No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;
The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application;
The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise of judicial review;
The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application;
There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional;
The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and
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