Karnataka High Court Issues Notice On Plea Challenging Constitutionality Of Sections 99 & 100 Of IBC

A division bench of Chief Justice Ritu Raj Awasthi and Justice Sachin Shankar Magadum issued the notice and posted the matter for further hearing on March 29, 2022. The petition filed by one Babu A Dhammanagi also seeks to declare section 95 (1) of the IBC as unconstitutional to the extent of permitting filing of application through resolution professional.

The plea states that section 95, 99, 100 of IBC are arbitrary, discriminatory and violative of Article 14. It states that, "The procedure prescribed thereunder authorises the Resolution Professional to sit in judgement of his own application. The same is against one of the basic tenets of natural justice."

Further it is said the provisions favour the creditors and resolution professionals affording no fair opportunity to the personal guarantors to present their case before a neutral adjudicating authority. It is also claimed that the entire process prescribed under section 95, 99 and 100 are absurd and the adjudicating authority has no role rather the entire power to decide on the claim of the creditor is vested with the IRP. Thus a trial is allowed to be conducted by IRP to pass a judgement and decree for accepting and rejecting the claim made in its own application.

The plea also states that NCLT's authority under IBC is name sake and no more than a clerical role as IRP is obliged to decree the claim which the adjudicating authority having no choice has to admit. Such arbitrary and ubridled powers of IRP is draconian and totally one sided favouring big money lenders.

Case background:

Respondent 3 (Mr Jayesh Natvaralal Sangharjka) filed an application under section 95 (1) of IBC before the NLCT, against the petitioners who are founder directors of corporate debtor M/s Dhammanagi Developers Private Limited, for initiating corporate insolvency on behalf of respondent no 2 (M/s Piramal Capital And Housing Finance Limited).

NCLT Bengaluru has issued notice to the petitioners and they filed their objections in the matter raising serious disputes against the alleged claims made by the respondent 3. The NCLT without considering the objections and disputes raised by the petitioners  passed an order of interim moratorium against the petitioners and appointed respondent 3 as the resolution professional under section 97 of the IBC.

Case Title: Babu A Dhammanagi v. Union Of India

Case No: WP 21626/2021