9911796707
TMI Blog2024 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (iii) 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; (iv) 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; (v) 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 022, 935/2022, 893/2022, 895/2022, 914/2022, 900/2022, 920/2022, 923/2022, 938/2022, 934/2022, 949/2022, 1121/2022, 822/2022, 1061/2022, 1042/2022, 1041/2022, 1040/2022, W.P.(C) Diary No. 29889/2022, W.P.(C) Nos. 941/2022, 1072/2022, 945/2022, 1043/2022, 947/2022, 1044/2022, 976/2022, 952/2022, 972/2022, 905/2022, 939/2022, 997/2022, 8/2023, 957/2022, 992/2022, 996/2022, 1099/2022, 1048/2022, 5/2023, W.P.(C) Diary No(s). 36132/2022, W.P.(C) Nos. 1003/2022, 1008/2022, 1006/2022, 1007/2022, 1033/2022, 1032/2022, 1083/2022, 11/2023, 1114/2022, 17/2023, 1117/2022, 1118/2022, 1147/2022, 1139/2022, 1149/2022, 94/2023, 13/2023, 81/2023, 127/2023, 73/2023, 46/2023, 92/2023, 91/2023, 61/2023, 72/2023, 70/2023, 111/2023, 120/2023, 109/2023, 96/2023, 110/2023, 114/2023, 117/2023, 134/2023, 145/2023, W.P.(C) Diary No(s). 36130/2022, 40974/2022, 42246/2022, W.P.(C) Nos. 118/2023, 77/2023, 173/2023, 233/2023, 166/2023 W.P.(C) Diary No(s). 4241/2023, 4379/2023, W.P.(C) Nos. 161/2023, 181/2023, 183/2023, 286/2023, 298/2023, 182/2023, 194/2023, 285/2023, 189/2023, 180/2023, 609/2023, 245/2023, 203/2023, 215/2023, 200/2023, 265/2023, 249/2023, 295/2023, 217/2023, 237/2023, 236/2023, 234/2023, 361/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., Mr. Shivam Shukla, Adv., Mr. Shaurya Shyam, Adv., Mr. Nishant Chothani, Adv., Mr. Yash Cheda, Adv., Mr. Archit Jain, Adv., Mr. Shashwat Singh, Adv., Mr. Aditya Sidhra, Adv., Ms. Kamakshi Saigal, Adv., Mr. E. C. Agrawala, AOR, Mr. Nadeem Afroz, Adv., Mr. Rajiv Dutta, Sr. Adv., Mr. Shravan Kumar Yammanur, AOR, Mr. Arvind Kumar Gupta, Adv., Ms. Henna George, AOR, Mr. Vijay K Singh, Adv., Mr. Himanshu Dubey, Adv., Mr. Kumar Shashwat Singh Sawno, Adv., Mr. Prem Prakash, AOR, Ms. Eshna Kumar, Adv., Mr. Masoom Shah, Adv., Mr. Pulkit Deora, Adv., Mr. Nipun Gautam, Adv., Mr. Udit Gupta, Adv., Mr. Anup Jain, Adv., Ms. Prachi Gupta, Adv., Mr. Vyom Chaturvedi, Adv., Ms. Divya Hirawat, Adv., Ms. Nishtha Goel, Adv., Mr. Akshat Maheshwari, Adv., M/S. Udit Kishan And Associates, AOR, Ms. Pooja M Saigal, Adv., Mr. Snehasish Mukherjee, AOR, Mr. Nikhil Sabri, Adv., Mr. Ishank Jha, Adv., Mr. Nipun Gupta, Adv., Mr. Abhimanyu Bhandari, Adv., Mr. Arjun Syal, Adv., Mr. Shreyan Das, Adv., Ms. Anindita Mitra, AOR, Mr. Abhimanyu Bhandari, Adv., Ms. Nattasha Garg, Adv., Mr. Thakur Ankit Singh, Adv., Ms. Rooh-e-hina Dua, AOR, Mrs. Nina R. Nariman, Adv., Mr. Piyush Singh, Adv., Mr. Aditya Parolia, Adv., Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mukta Halbe, Adv., Mr. Anubhav Sharma, Adv., M/S. Pratap And Co., AOR, Mr. Narender Naik, Adv., Mr. Rahul Kumar, Adv., Mr. Debmalya Ganguli, Adv., Mr. Bebmalya Ganguli, Adv., Mr. Gopal Singh, AOR, Mr. Abhishek Agarwal, AOR, Mr. D. Abhinav Rao, AOR, Mr. Devadipta Das, Adv., Mr. Rahul Jajoo, Adv., Ms. Prerna Robin, Adv., Mr. C.S. Gupta, Adv., Mr. Vijay Kumar, Adv., Mr. Shekhar Kumar, AOR, Mr. Gaurav Nair, Adv., Mr. Mriganga Dutta, Adv., Mr. Ishwar Ahuja, Adv., Mr. Rahul Saxena, Adv., Ms. Bhairavi Sn, Adv., Ms. Anne Mathew, AOR, Mr. Anurag Ojha, AOR, Mr. Vipul, Adv., Mr. D N Chaturvedi, Adv., Mr. Keshri Kumar Tiwari, Adv., Ms. Krutika Raghavan, Adv., Ms. Gayatri Gulati, Adv., Mr. Bhairav Kuttaih, Adv., Mr. Bhairav Kuttaiah, Adv., Ms. Sameeksha Patil, Adv., Mr. T. V. S. Raghavendra Sreyas, AOR, Mr. Siddharth Vasudev, Adv., Mr. Ashu Kansal, Adv., Mr. Anando Mukherjee, AOR, Mr. Manish Raghav, AOR, Mr. Rohit Gour, Adv., Mr. Jugnu Bhati, Adv., Mr. Aakarshan Aditya, AOR, Mr. Anshuman Sharma, Adv., Ms. Pallavi Langar, AOR, Ms. Gauri Rishi, Adv., Ms. Srishti Juneja, Adv., Ms. Garima Sehgal, Adv., Mr. Aman Varma, AOR, Mr. Vishesh Kalra, Adv., Ms. Riya Wasade, Adv., Mr. Prashant Katara, Adv., D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apoorv Shukla, AOR, Mr. Manan Verma, AOR, Mr. Rajat Mittal, AOR, Mr. Hemant Chaudhri, Adv., Mr. Parminder Singh Bhullar, AOR, Mr. Arjun Mahajan, Adv., Mr. Davesh Bhatia, Adv., Mr. Raghvendra N Budholiya, Adv., Mr. Piyush Gautam, Adv., Mr. Sumit R. Sharma, AOR, Mr. Anish R. Shah, AOR, Mr. Anuj Tiwari, Adv., Mr. Nikhil Anand, Adv., Mr. Aditya Bharat Manubarwala, Adv., Mr. Saurabh K Mishra, Adv., Ms. Tuhina Mishra, Adv., Mr. Shubham Rajhans, Adv., Ms. Prakhar Shukla, Adv., Mr. Hitesh Kumar Sharma, Adv., Mr. Bharat Thakorlal Manubarwala, AOR, Mr. Sandeep Hirvadekar, Adv., Mr. K. Parameshwar, AOR, Ms. Arti Gupta, Adv., Ms. Kanti, Adv., Mr. Chinmay Kalgaonkar, Adv., Mr. Shikhar Garg, Adv., Mr. Akshat Srivastava, AOR, Mr. Kumar Dushyant Singh, AOR, Mr. Rohit Sharma, Adv., Mr. Nikhil Purohit, Adv., Mr. Jatin Lalwani, Adv., Mr. Vaibhav Sahni, Adv., Ms. Tina Garg, AOR, Mr. Shivam Shukla, Adv., Mr. Anshuman Srivastava, AOR, Mr. Shantanu Sagar, AOR, Mrs. Divya Mishra, Adv., Mr. Prashant Chaudhary, AOR, Ms. Tanu Priya Gupta, AOR, Ms. Bhabna Das, AOR, Mr. Kuriakose Varghese, Adv., Ms. Uttara Babbar, Adv., Mr. V. Shyamohan, Adv., Ms. Aishwarya Hariharan, Adv., Ms. Anshika Bajpai, Adv., M/S. Kmnp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adv., Mr. Anuj P. Agarwala, Adv., Mr. Nishit Dhruva, Adv., Ms. Khushbu Chajjed, Adv., Mr. Yash Dhruva, Adv., Mr. Auritro Mukherjee, Adv., M/S. Pba Legal, AOR, Mr. Raj Kamal, AOR, Mr. Shikhar Sarin, Adv., Mr. Aseem Atwal, Adv., Mr. Kartavya Batra, Adv., Ms. Nupur Kaushik, Adv., Ms. Stuti, Adv., Ms. Aprajita Tyagi, Adv., Ms. Muskan Sidana, Adv., Mr. Sumit Sinha, AOR, Mr. Mandeep Kalra , AOR, Ms. Supriya Juneja, AOR, Ms. Hetu Arora Sethi, AOR, Ms. Lalit Mohini Bhat, Adv., Ms. Saumya Preeti Tandon, Adv., Mr. Rahul Jain, Adv., Mr. Anirudh Bhat, Adv., Mr. Ninad Dogra, AOR, Mr. Balaji Srinivasan, AOR, Mr. G. Vidya Sagar, Adv., Mr. A. Venayagam Balan, AOR, Ms. Soujanya, Adv., Mr. C.M. Sundaram, Adv., Mr. Kiritkumar Govindlal Sheth, Adv., Mr. Gaurav Pal, Adv., Mr. Puneet Thakur, Adv., Mr. Ashray Behura, Adv., Ms. Sujata Kurdukar, AOR, Mr. Abhirup Das Gupta, Adv., Mr. Rahul Gupta, Adv., Ms. Prachi Johri, Adv., Mr. Ishan Duggal, Adv., Ms. Mukta, Adv., Mr. Himanshu Dhawan, Adv., Mr. Shubham Jain, AOR, Ms. Aakashi Lodha, AOR, Ms. Vipasha Singh, AOR, Mr. D. Bharat Kumar, Adv., Mr. Utkarsh Pratap, Adv., Mr. Aman Shukla, Adv., Mr. Raghav Kumar, Adv., Mr. Abhinay Reddy M., Adv., Ms. Achala Siri Dod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwal, AOR, Ms. Anshika Agarwal, Adv., Mr. Shivam Saini, Adv., Mr. Varun Bhatnagar, Adv., Ms. Madhu Yadav, Adv., Ms. Dipti Jain, Adv., Mr. Sidharth Sethi, AOR, Ms. Pragya Chauhan, Adv., Mr. Avinash Das, Adv., Mr. Kuna Saini, Adv., Mr. Pankaj Kumar Mishra, AOR, Mr. Vijay Kumar, Adv., Ms. Rekha Anand, Adv., Mr. Kanchan Kumar Jha, Adv., Mr. Pankaj Kumar Mishra, Adv., Mr. Badri Prasad Singh, AOR, Mr. Palash Singhai, AOR, Mr. Brijesh Kumar Tamber, AOR, Mr. Ritwik Parikh, AOR, Mr. Tushar Garg, Adv., Mr. Gaurav Garg, Adv., Mr. Gaurav Kumar, Adv., Mr. Sanjeev Sagar, Adv., Mr. Shekhar Raj Sharma, Adv., Ms. Akshaya Jebakumar, Adv., Mr. Jinendra Jain, AOR, Mr. Yash Artha Gupta, Adv., Ms. Nishi Chaudhary, Adv., Ms. Manjeet Kirpal, AOR, Mr. Tushar Singh, AOR, Mr. Kunal Tandon, Adv., Ms. Richa Sandilya, Adv., Mr. Shubhankar Singh, Adv., Mr. Ronnie S. Barara, Adv., Ms. Bhavna Vijay, Adv., Mr. Rishi, Adv., Ms. Akshra Arshi, Adv., Mr. Aman Raj Gandhi, AOR, Mr. Krishan Kumar, AOR, Mr. Kuber Dewan, Adv., Ms. Neeharika Aggarwal, Adv., Mr. Kaustubh Srivastava, Adv., Ms. B. Vijayalakshmi Menon, AOR, Mrs. Lalita Kaushik, AOR, Mr. Rohan Batra, AOR, Mr. Prasouk Jain, Adv., Ms. Rabiya Thakur, Adv., Mr. Karan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .................................................................................. 16 II. Scheme of the IBC ................................................................................................ 17 III. Submissions......................................................................................................... 25 A. Submissions on behalf of the Petitioners .............................................. 25 B. Submissions on behalf of the Respondents ......................................... 29 IV. Analysis................................................................................................................ 37 A. Comparative Analysis of Part II and Part III of the IBC.......................... 38 1. Stages under Part II and III .............................................................. 38 2. The Role of the Resolution Professional in Corporate as opposed to Individual Insolvency.................................................................. 39 3. The impact of a moratorium under Section 14 of Part II vis-a-vis interim moratorium under Section 96 of Chapter III of Part ................... 46 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (h) and (i), Sections 239(2)(m) to (zc); Section 239(2)(zn) to (zs) and Section 249. The notification was challenged before this Court. In Lalit Kumar Jain v Union of India [(2021) 9 SCC 321] a two-Judge Bench inter alia, held that the liability of a guarantor is not discharged merely on the discharge of the corporate debtor. 6. By Amending Act 26 of 2018, Parliament introduced amendments inter alia, in Section 60 which provides for the jurisdiction of the adjudicating authority, namely, the National Company Law Tribunal. [ Tribunal ] Among other things, the amendments to Section 60 comprehend the jurisdiction of the Tribunal in matters involving the bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of a corporate debtor. 7. In order to consider the nature of challenge in these proceedings, it would be appropriate to make a brief reference to the provisions of the IBC. II. Scheme of the IBC 8. Part I of the IBC deals with preliminary matters, such as its application and definitions. Part II deals with insolvency resolution and liquidation for corporate persons. Part III deals with insolvency resolution and bankruptcy for individuals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olvency and Bankruptcy Board of India [ Board ] to confirm within seven days that there are no disciplinary proceedings pending against the resolution professional. Thereafter, the Board has to either confirm the appointment of the resolution professional or to reject it and nominate another resolution professional for conducting the resolution process within seven days. Alternatively, where the application has been filed by the debtor or creditor without a resolution professional, the adjudicating authority has to direct the Board within seven days to nominate a resolution professional to conduct the process. The Board then has a period of ten days to make a nomination. Section 97(5) [4] states that the adjudicating authority shall by order appoint the resolution professional recommended under sub-section (2) or as nominated by the Board under subsection (4). The resolution professional, upon appointment, is provided a copy of the application for the insolvency resolution process. 13. Section 98 contains provisions for the replacement of the resolution professional. Section 99 [5] contains provisions for the submission of a report by the resolution professional to the adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort is provided to the debtor or creditor, as the case may be, under sub-section (10). The jurisdiction of the adjudicating authority, upon the submission of the report, is stipulated in Section 100 [6] 18. In terms of Section 100, the adjudicating authority has a time line of fourteen days from the submission of the report to either admit or reject the application for insolvency resolution process. In the event that the adjudicating authority admits an application, it is empowered, on the request of the resolution professional to require that negotiations be conducted between the debtor and the creditor for the purpose of arriving at a repayment plan. The adjudicating authority is required to provide a copy of its order together with the report of the resolution professional and the application to the creditors within seven days from the order. If the application is rejected by the adjudicating authority on the ground that it was made with an intent to defraud the creditors or the resolution professional, the order of the adjudicating authority is to record that the creditor is entitled to file for a bankruptcy under Chapter IV. 19. The interim moratorium under Section 96 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n application under Section 95 without judicial adjudication/intervention, namely: (a) An automatic interim moratorium; (b) The automatic appointment of a resolution professional subject to worthiness; (c) The resolution professional seeking information from the guarantor; and (d) The resolution professional examining the information received and submitting a report; (iv) None of the above steps, once performed, is reversible under Section 100 which is the first stage at which two crucial steps take place (a) it is the first time at which a judicial body adjudicates; and (b) it is the first stage at which the guarantor is furnished with a hearing by the adjudicating authority; (v) The power to seek information not only from a guarantor but also from third parties which is made available to the resolution professional is untrammelled and is being routinely exercised; (vi) Common law consistently provides natural justice unless explicitly prohibited by statute. Any statutory exclusion is subject to review and may be invalidated, except in cases related to special reasons like national security; (vii) All that the petitioners seek is natural justice by a judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged before this Court by Mr Ritin Rai, senior counsel. 28. Mr Ritin Rai argued that: (i) A person as an applicant under Section 95 claims to be a creditor to whom a debt is owed. The existence of a debt which is owed is a jurisdictional fact which has to be determined by the adjudicating authority at the very threshold; (ii) Section 97 (5) postulates that a resolution professional has to be appointed by the adjudicating authority. This being the first interface of the adjudicating authority, it must satisfy itself at that stage of the existence of a creditor-debtor relationship which must be demonstrated to exist. The entire jurisdiction in terms of the entertainment of an application under Part III would depend on the proof of the jurisdictional fact; (iii) The plain consequence of the appointment of a resolution professional under Section 97(5) is that broad powers are given to them in terms of Section 99(4). The appointment of a resolution professional has serious consequences for the debtor besides which the credit worthiness of the debtor is seriously impinged. In many cases, lending documents trigger a default when an insolvency notice is issued as a consequence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicating authority at that very stage itself; (iv) 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; (v) The function of a resolution professional under Section 99 is not of an adjudicatory nature. The purpose of a resolution professional under Part III is only to collate facts. Section 99, in any event, does contemplate a sufficient opportunity to the debtor in the process of formulating the recommendation of the resolution professional to the adjudicatory body. This is evident from the provisions of Section 99(2) in terms of which the resolution professional may require the debtor to prove the payment of debt. Moreover, in terms of sub-section (6), the resolution professional has to examine the application and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A drastic moratorium comes into place; and (c) Following an unsuccessful resolution plan, liquidation follows; (iii) In contrast, in terms of Chapter III of Part III, what is sought in the first instance is a repayment plan which is preceded, therefore, by an examination by the resolution professional as to whether: (a) there is a loan; (b) there is a repayment; and (c) the nature of the repayment plan, if there is a continuing default; (iv) Bearing in mind the distinct statutory features of Part II, on one hand, and Part III, on the other, Chapter III of Part III has contemplated appointment of a resolution professional straightaway preceding the performance of an adjudicatory function by an adjudicatory body; (v) If, as submitted by the petitioners, an adjudicating authority was required to make a threshold determination at the stage when it appoints the resolution professional under Section 97(5), the subsequent stage of Section 99 would be rendered otiose. Parliament has, in a calibrated manner, interposed a resolution professional before the adjudicatory stage under Section 100 bearing in mind the limited role of the resolution professional which is to gat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um under Section 96 does not affect any right of the debtor. Moreover, it has been submitted that the insolvency resolution process under Part III can be instituted either by a creditor or a debtor and the IBC is meant to give equal protection whether it is the debtor or the creditor who has initiated the proceedings. It has been urged that unlike Section 96, Section 101(2)(c) targets the debtor by restraining the alienation of the property at the post adjudication stage. The submission is that the role of the resolution professional is to act as a facilitator for compiling information under Part III, which is distinct from the role of the interim resolution professional in Part II, as defined in Section 5(27) read with Section 17 of the IBC. In contrast, in Part III, it is Section 97 which provides for the appointment of the resolution professional with a limited role to collate information and submit a recommendation to the adjudicating authority. 36. Senior counsel has relied on the report of the Bankruptcy Law Reforms Committee [ BLRC ] and the Board Regulations to support the submission that: (i) The role of the resolution professional is not that of an adjudicator; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in corporate as opposed to individual insolvency; (c) The impact of a moratorium under Section 14 of Part II, on one hand, and an interim-moratorium under Section 96 of Chapter III of Part III, on the other; and (d) The role of the adjudicating authority in applications under Part II, on one hand, and Part III, on the other. 41. Having carried out a functional analysis in the above terms, we propose in Part B of this judgment, to analyse the applicability of the principles of natural justice. Finally, having put together the different strands of thought, we would deal in Part C with the constitutional validity of the statutory provisions of Sections 95 to 100 which are challenged in these proceedings. A. Comparative Analysis of Part II and Part III of the IBC 1. Stages under Part II and III 42. Part II of the IBC provides for insolvency resolution and liquidation for corporate persons. In terms of Section 6, a financial creditor, an operational creditor or the corporate debtor itself may initiate a CIRP in respect of a corporate debtor who commits a default. 43. Section 7 provides for the initiation of a CIRP by a financial creditor either on its own or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be, and to include an interim resolution professional. Part II of the IBC provides in Section 16 for the adjudicating authority to appoint an interim resolution professional on the insolvency commencing date. The insolvency commencing date is defined in Section 5(12) to mean the date of the admission of an application for initiating the CIRP by the adjudicating authority under Sections 7, 9 or Section 10, as the case may be. In other words, upon the admission of an application which has been filed by the operational creditor or the debtor, the provision for the appointment of an interim resolution professional is triggered in terms of Section 16. Since Part II of the IBC deals with the resolution of corporate insolvencies, the statute has implicated the role of the adjudicating authority at the very threshold. 47. Upon the appointment of the interim resolution professional, Section 17 [8] postulates that: (a) The management of the affairs of the corporate debtor shall vest in the interim resolution professional; (b) The powers of the Board of Directors or partners of the corporate debtor shall stand suspended and be exercised by the interim resolution professional; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter III of Part III, the appointment of a resolution professional is contemplated by Section 97. Under sub-section (5) of Section 97, the adjudicating authority has to appoint the resolution professional who is either recommended under sub-section (2) or nominated by the Board under subsection (4). 51. The duties of a resolution professional in a process under Chapter III of Part III are contained in Section 99. The resolution professional is required, firstly, to examine the application within ten days of appointment. Secondly, they may require the debtor to prove that the repayment of the debt which is claimed to be unpaid by the creditor has taken place. The debtor may do so by evidencing an electronic transfer of the unpaid amount from a bank account of the debtor or produce evidence of the encashment of a cheque issued by a debtor or a signed acknowledgement by the creditor of the receipt of the dues. 52. We will deal with the impact of sub-section (3) of Section 99 subsequently. Evidently, the provisions of sub-section (3), operate on the resolution professional alone and cannot be construed to be a bar qua the adjudicatory function of the adjudicating authority under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution professional does not have the kind of power which their counterpart has in Part II. No provision has been made in Part III empowering the resolution professional to take over the assets or the business which is being carried on by the individual or the partnership. The role under Section 99 which is ascribed to the resolution professional is that of a facilitator and is to gather relevant information on the basis of the application which has been submitted under Section 94 or Section 95 and after carrying out the process which is referred to in sub-section (2), sub-section (4) and sub-section (6) of Section 99, to submit a report recommending the acceptance or rejection of the application. Significantly, the statute has used the expression examine the application , ascertain and satisfies the requirements and recommend the acceptance or rejection of the application. The use of these expressions leaves no manner of doubt that the resolution professional is not intended to perform an adjudicatory function or to arrive at binding conclusions on facts. The role of the resolution professional is purely recommendatory in nature and cannot bind the creditor, the debtor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of any debt . These words indicate that the interim-moratorium which is intended to operate by the legislature is primarily in respect of a debt as opposed to a debtor. Clause (b) of sub-section (1) indicates that the purpose of the interim-moratorium is to restrain the initiation or the continuation of legal action or proceedings against the debt. 58. This must be contra-distinguished from the provisions for moratorium which are contained in Section 14 in relation to the CIRP under Part II. Section 14(1)(a) provides that on the insolvency commencement date, the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including proceedings in execution shall stand prohibited by an order of the adjudicating authority. Clause (b) of sub-section (1) of Section 14 empowers the adjudicating authority to declare a moratorium restraining the transfer, encumbrance, alienation or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein. Significantly, the moratorium under Section 14 operates on the order passed by an adjudicating authority. The purpose of the moratorium under Section 96 is protec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice postulates two requirements: firstly, audi alterum partem i.e. an opportunity of being heard to a person who is liable to be affected by an investigation, enquiry, proceeding or action; and secondly, nemo judex in causa sua, which means that the person should not be a judge in their own cause. 63. The principles of natural justice have also been expanded to require that a reasoned order be passed against an individual who is liable to be affected. Though, at one stage, in the evolution of law, a distinction was sought to be drawn between administrative action, on one hand, and judicial or quasi-judicial, on the other, as the law has progressed, that distinction has been substantially watered down, if not obliterated. In other words, the requirement to observe the principles of natural justice arises both in the context of purely judicial or quasijudicial action as well as administrative action which has an adverse impact on the individual or entity against which action is initiated. 64. At the same time, it needs to be noted that the principles of natural justice are not to be construed in a straitjacket. The nature of natural justice is liable to vary with the exigencies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy resolution process is sought to be initiated. Though, the ultimate report of the resolution professional has only a recommendatory value, the legislature has ensured that the recommendation is made after taking into account the information or, as the case may be, the explanation that is furnished by the debtor. Thus, it cannot be said that there is any element of bias in a report submitted by an RP who is nominated by the creditor. In the decision in Ravi Ajit Kulkarni v. State Bank of India [(2021) SCC OnLine NCLAT 641, para 42.] , it has been emphasized that under Section 98 of the IBC, the debtor retains the option to replace the RP appointed under Section 97 by filing an appropriate application with the adjudicating authority. 68. The submission which has been urged on behalf of the petitioners, however, is that Section 97(5) contemplates a role for the adjudicating authority in the appointment of a resolution professional anterior to the stage which is contemplated during the course of adjudication under Section 100. It has been urged that when the adjudicating authority appoints a resolution professional under Section 97(5), the adjudicating authority should be requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess and contributes significantly to its efficiency. Firstly, the resolution professional is only entitled to seek information which is strictly relevant to the examination of the application for IRP; and secondly, regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 read with para 21 of the First Schedule, casts an obligation on the resolution professional to ensure confidentiality of all information relating to the insolvency process. The BLRC also acknowledges the information imbalance between debtors and creditors, necessitating the resolution professional s investigative role in individual insolvency. [The Report of Bankruptcy Law Reforms Committee, Volume I, 2015, Para 6.3.2.] Therefore, Section 99 empowers the resolution professional to seek information. 71. In K.S. Puttaswamy (9 Judge Bench) v Union of India [(2017) 10 SCC 1, para 310.] , this Court laid down the threshold requirements to balance privacy with legitimate state interest emanating from the procedural and content-based mandate of Article 21, as follows - (a) legality, i.e. there must be a law in existence; (b) the pursuit of a legitimate aim; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stions of the nature which have been suggested by the petitioners, namely, on whether there is a subsisting debt or whether the relationship of debtor and creditor subsists, would involve a decision on mixed questions of law and fact. The entire scheme of Sections 99 and 100 implicates time lines which have been laid down by Parliament. The entire process of implementing these time lines would be rendered nugatory if an adjudicatory role were to be read into the provisions of Section 97(5). The final reason which would militate against accepting the submission is that the provisions of Section 99 do not as such implicate any adverse civil consequences particularly if those provisions are read in the manner in which we now propose to elucidate. 3. A right of representation has been provided under Section 99(2) 75. On behalf of the petitioners, it has been submitted that the resolution professional has been empowered to make wide ranging enquiries for the purpose of eliciting information under sub-section (4) of Section 99. In our view, it is necessary to clarify the ambit of sub-section (4) of Section 99. Sub-section (4) is prefaced by the words for the purposes of examini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinguished with the procedure under Section 95 to Section 99. In this, a person is not deemed a debtor but a resolution professional is appointed to ascertain whether the facts substantiate the application for an IRP. An interim-moratorium is placed on legal proceedings concerning the debt to safeguard the debtor from further legal action. However, the interim-moratorium does not act to freeze the assets and legal rights and title of the debtor. Once a recommendation is made, it is not binding on the adjudicating authority. The authority would only decide after looking at the recommendation of the resolution professional and affording full opportunity of hearing to the debtor or the personal guarantor, as the case may be. Consequently, the petitioners' argument lacks merit when assessed against these established legal principles. 77. Rules have been framed in 2019 in pursuance of the provisions of Section 239(2). The Rules, inter alia, provide for the Form (Form A) in which an application under Section 94 has to be submitted; the Form (Form B) in which a demand notice has to be served under Section 95(4) on the guarantor demanding payments; and the Form (Form C) in which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process against them. This includes the provision of a copy of the application and all relevant documents. Although Section 100 of the IBC does not explicitly mention a hearing for a debtor, the requirement of a hearing has to be read into Section 100. In legal interpretation, when a statute is silent on a specific aspect, like a hearing, and there is no explicit prohibition, the courts may imply or read in such a requirement. [Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664; Mangilal v. State of M.P., (2004) 2 SCC 447 and Manohar v. State of Maharashtra, (2012) 13 SCC 14.] The key point is that the lack of explicit mention of a hearing in a provision does not automatically make it unconstitutional because such a requirement can be read into the statute. 80. The legislature has evidently made provisions in Section 99, as we have construed earlier, to allow for the engagement of the debtor with the resolution professional before a report is submitted to the adjudicating authority. The process under Section 100 before the adjudicating authority must be compliant with the principles of natural justice. The adjudicating authority is duty bound to hear the person against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for initiating an IRP. Sub-section (2) provides that in a situation where a creditor has applied under sub-section (1) in relation to a partnership debt, the application may be filed against (a) any one or more partners of the firm; or (b) the firm. The provisions of sub-section (2), in other words, cannot control the ambit of subsection (1) of Section 95. 84. The second incidental submission which was urged is that the provisions of Sections 95 to 100 are retroactive in nature since they would operate in respect of guarantees which may have been executed before the statutory provisions were brought into force. It is a well settled principle that a law is not retrospective in nature merely because some parts of the cause of action on which the law operates has arisen in the past. Prior to the commencement of the IBC, the field was governed by the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920. With the enactment of the IBC, the insolvency resolution process in relation to individuals and partnership firms is governed by Part III of the IBC. The IBC cannot be held as operating in a retroactive manner so as to violate Article 14 of the Constitution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of determining whether to accept or reject the application; (viii) The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and (ix) 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. 87. The writ petitions are accordingly dismissed. 88. Applications for substitution of the name of the Bank/Company are allowed. 89. Pending applications, including the applications for intervention, stand disposed of. [1] 94. Application by debtor to initiate insolvency resolution process. (1) A debtor who commits a default may apply, either personally or through a resolution professional, to the Adjudicating Authority for initiating the insolvency resolution process, by submitting an application. (2) Where the debtor is a partner of a firm, such debtor shall not apply under this Chapter to the Adjudicating Authority in respect of the firm unless all or a majority of the partners of the firm file the application jointly. (3) An application under sub-section (1) shall be submitted only in respect of debts wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) shall be such as may be specified. [3] 96. Interim moratorium. (1) When an application is filed under section 94 or section 95 (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim-moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. [4] 97. Appointment of resolution professional. (1) If the application under section 94 or 95 is filed through a resolution professional, the Adjudicating Authority shall direct the Board within seven da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such further information or explanation in connection with the application as may be required from the debtor or the creditor or any other person who, in the opinion of the resolution professional, may provide such information. (5) The person from whom information or explanation is sought under sub-section (4) shall furnish such information or explanation within seven days of receipt of the request. (6) The resolution professional shall examine the application and ascertain that (a) the application satisfies the requirements set out in section 94 or 95; (b) the applicant has provided information and given explanation sought by the resolution professional under subsection (4). (7) After examination of the application under sub-section (6), he may recommend acceptance or rejection of the application in his report. (8) Where the resolution professional finds that the debtor is eligible for a fresh start under Chapter II, the resolution professional shall submit a report recommending that the application by the debtor under section 94 be treated as an application under section 81 by the Adjudicating Authority. (9) The resolution professional shall record the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to a firm, the moratorium under sub-section (1) shall operate against all the partners of the firm. [8] 17. Management of affairs of corporate debtor by interim resolution professional. (1) From the date of appointment of the interim resolution professional, (a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional; (b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional; (c) the officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional; (d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. (2) The interim resolution professional vested with the management of the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
