A three-judge bench comprising of Chief Justice of India D.Y. Chandrachud and Justices J.B. Pardiwala and Manoj Misra, in the matter of Dilip B Jiwrajka v. Union of India, the hon’ble Supreme Court of India (Supreme Court) upheld the constitutional validity of the provisions under part-III, chapter-III of the Insolvency and Bankruptcy Code, 2016 (IBC) pertaining to the insolvency process of individuals and personal guarantors.
The said judgment is a result of numerous petitions, wherein the petitioners inter alia contested on the grounds that the said provisions violated the principles of natural justice, as no opportunity was granted to the individual against whom the proceedings are being initiated, only until after the Resolution Professional filed the report. It was further contested that the provisions under challenge granted Resolution Professional unfettered powers to seek information including personal information of the guarantors.
While upholding the constitutional validity, the Supreme Court clarified that application of the principles of natural justice is not a straight-jacket formula and the IBC entails sufficient provisions to protect the rights of the individuals falling under the purview of part-III of the IBC. Thus, not granting a personal hearing at the time of filing of petition seeking initiation of insolvency proceeding, was not in violation of the same. In view thereof, since there was no manifest arbitrariness in the law, the Supreme Court would not attempt to rewrite a clear legislative mandate.
Elaborating further, the Supreme Court was of the opinion that the role of the Resolution Professional is only that of a ‘facilitator’ and not an ‘adjudicator’. Hence, the report by the Resolution Professional is not the conclusive factor to decide upon the initiation of the insolvency process, and it is the Adjudicating Authority that ultimately decides whether to initiate the insolvency process or not. Thus, the Supreme Court, while observing the above, upheld the relevant provisions of the IBC.
The said judgment, in essence, seems to have brought in the much-needed clarity that remained in question regarding the process seeking the initiation of insolvency. Significantly, the said judgment would bring extensive relief to the lenders whose petitions for insolvency of personal guarantors were often getting stuck and delayed because all the personal guarantors were filing applications at inception itself seeking opportunity for hearing before any recommendation was made by the Resolution Professional. That said, the judgment may discourage the promoters of even solvent companies from giving person guarantees, which may result in causing difficulty in raising finance for the company where needed.