Insolvency and Bankruptcy Code Provisions relating to Personal Guarantors - All Writ Petitions transferred to SC

CS Peer mehboob , Last updated: 04 November 2020
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Background:

The Ministry of Corporate Affairs(MCA) vide its notification dated 15th November 2019[1] brought into force the provisions of the Insolvency and Bankruptcy Code, 2016 in so far as they relate to ‘personal guarantors to corporate debtors' with effect from 01st December 2019.

Accordingly, by way of a notification dated 15th November 2019, the Central Government appointed December 1, 2019, as the date on which certain provisions of the IBC, in so far as they relate to personal guarantors to Corporate Debtors, would come into force. The Central Government has issued the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019[2] and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019[3] detailing the process of initiating insolvency and bankruptcy processes against personal guarantors.

Insolvency and Bankruptcy Code Provisions relating to Personal Guarantors - All Writ Petitions transferred to SC

Writ petitions before the High Courts:

Several writ petitions were filed in Delhi High Court and other High Courts challenging the notification dated 15th November 2019 and also the rules notified by the Central Government providing the process of insolvency resolution and bankruptcy process of personal guarantors to the corporate debtors. The writ petitions also challenged the constitutional validity of section 95, 96, 99, 100, 101 under Part III of the Insolvency and Bankruptcy Code, 2016 in so far as they apply to personal guarantors of corporate debtors.

In the matter of IBBI vs. Lalit Kumar Jain & Ors [4]:

In IBBI vs. Lalit Kumar Jain & Ors., Transfer Petition (Civil) No. (s). 1034 of 2020 (SC), the Insolvency and Bankruptcy Board of India (IBBI) filed Transfer Petition before the Honorable Supreme Court, seeking transfer of the writ petitions filed before High Courts to Supreme Court.

IBBI contended that several writ petitions have been filed in the High Courts challenging the IBC provisions in so far as brought in force for the process of insolvency resolution and bankruptcy of personal guarantors to corporate debtors. IBBI requested to transfer these writ petitions to avoid the confusion caused by the possible divergence of opinions expressed by the respective High Courts. Further, the dispute pertaining to the validity of the notification dated 15.11.2019 needs to be decided expeditiously. Hence, the best course would be to transfer the cases to the Apex Court where the dispute can be finally resolved.

Honorable Supreme Court's Order:

On 29th October 2020, the Honorable Supreme Court in the matter allowed the petition of IBBI and stated that transfer of writ petitions to this Court would avoid conflicting decisions by the High Courts and held that:

“The Insolvency and Bankruptcy Code is a nascent stage and it is better than the interpretation of the provisions of the Code is taken up by this Court to avoid any confusion, and to authoritatively settle the law. Considering the importance of the issues raised in the writ petitions which need finality of judicial determination at the earliest, it is just and proper that the writ petitions are transferred from the High Courts to this Court.”

Vide above order, Apex Court also directed that no further writ petitions involving the challenge to the notification dated 15.11.2019 by which Part-III of the Insolvency and Bankruptcy Code, 2016 and other provisions in so far as they relate to personal guarantors to corporate debtors have been brought into force, shall be entertained by any High Court.