Supreme Court to pronounce verdict on challenges to IBC on Thursday

Update: 2023-11-08 19:25 IST

Supreme Court of India

New Delhi: The Supreme Court on Wednesday concluded hearing submissions made for and against the constitutionality of the Insolvency and Bankruptcy Code (IBC).

The three-judge bench, headed by CJI D.Y. Chandrachud, will pronounce the complete judgement on the case on Thursday.

While reading a part of the judgment, the bench noted that senior advocate Abhishek Manu Singhvi representing the petitioners submitted: "...all the petitioners pray for is adjudication by a judicial body and discharge functions under sections 7 and 9 of the IBC for the sake of the principles of natural justice. Primarily the petitioner argument postulates that the fundamental aspect is to whether the jurisdiction to entertain an application under chapter 3 of part 3 must be determined at the threshold by an adjudicating authority and the submission is that the determination of the jurisdiction question has to take place first before the appointment of Resolution Professional under section 97(5)".

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The petitioners challenged several provisions of the Insolvency and Bankruptcy Code (IBC) on Tuesday and told the Supreme Court that the provisions not only failed to uphold the principles of natural justice but also infringed upon fundamental rights guaranteed under Articles 21, 14, and 19 (1) (g).

The bench headed by CJI Chandrachud started hearing a batch of petitions challenging the constitutional validity of several provisions of the IBC pertaining to the personal guarantors' Insolvency Resolution Process.

Challenging Sections 95(1), 96(1), 97(5), 99(1), 99(2), 99(4), 99(5), 99(6), and 100 of the IBC the petitioners argued that provisions failed to uphold the principles of natural justice and further alleged absence of due process in the application of these provisions.

Singhvi, appearing for petitioners said that Section 95 which deals with the existence of debt, lacked a formal hearing and initiated the appointment of a Resolution Professional (RP) without allowing the alleged guarantor to present their case.

Telling the top court that there was a need to incorporate the principles of natural justice in Section 95, he also further raised concerns over "intrusive questions" by RPs and threats to individual privacy.

The petitioners have told the court that IBC provisions obstruct the right to livelihood and life guaranteed under Article 21 of the Constitution by imposing moratoriums and insolvency proceedings without a fair opportunity to be heard.

They further alleged that the provisions encroach on an individual's right to practice any profession under Article 19(1)(g). They also said that IBC provisions, discriminate against individuals by imposing restrictions on their economic and professional activities without reasonable grounds or a fair hearing and thus infringe upon Article 14.

Solicitor General Tushar Mehta, appearing on behalf of the Centre and the SBI submitted before the court that a time-bound resolution of insolvency constitutes the heart and soul of the IBC. He argued that a moratorium under Section 96 unlike Section 14 is to the benefit of the guarantor or the debtor as the case may be.

At the stage of application under Section 95, no adjudication takes place nor do any adverse consequences emanate to the debtor as a result of the process followed by the resolution professional, he said, adding that the purpose is to only collate facts.

Section 99 does contemplate sufficient opportunity for the debtor in the process of formulating a recommendation. The process followed by Resolution Professional only results in a report which is a recommendation on whether it should be accepted or rejected and it has no binding effect on adjudicatory authority and the principle of natural justice is read into it, the SG added.

The Centre introduced the IBC in 2016 to fast-track the resolution of insolvencies and tackle the piling of bad loan cases in the country that had hugely impacted the banking system. The code intends to protect the interests of small investors and make the process of doing business less cumbersome. The IBC has 255 sections and 11 Schedules. When a default in repayment occurs, creditors gain control over the debtor’s assets and must make decisions to resolve insolvency. Companies have to complete the entire insolvency exercise within 180 days under the code.

However, the deadline may be extended if the creditors do not raise objections to the extension.

Under the provisions, the debtor and creditor both can start recovery proceedings against each other.

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