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Supreme Court Issues Notice On Plea Challenging Constitutionality Of IBC Provisions Relating To Personal Guarantors

10 May 2022 7:26 AM GMT
Supreme Court Issues Notice On Plea Challenging Constitutionality Of IBC Provisions Relating To Personal Guarantors

The Supreme Court has issued notice on a petition filed by a personal guarantor which raises a constitutional challenge to the personal insolvency provisions under the Insolvency & Bankruptcy Code, 2016 ("Code"). Since a similar issue is pending, the Court has directed to tag the present case along with the pending Special Leave Petition No. 16464 of 2021( Surendra B. Jiwrajka Vs Omkara Assets reconstruction Pvt. Ltd)

The personal guarantor has filed a writ petition under Article 32 before the Supreme Court contending that the impugned provisions do not provide for the personal guarantor's right to be heard before entertaining the insolvency petition filed by the creditor and appointment of a resolution professional, thus violating the fundamental right to natural justice. The Petitioner contends that as a personal guarantor he is entitled to notice and hearing by the Adjudicating Authority before appointment of resolution professional and initiation of interim moratorium under sections 95, 96 and 97 of the Code.

A bench comprising Justices Vineet Siran and JK Maheshwari, as an interim relief, restrained the resolution professional in the personal guarantor's insolvency proceedings from submitting the statutory report before the adjudicating authority while issuing notice in the writ petition. The Court also directed that the Petitioner shall not transfer, alienate,encumber or dispose of any of his assets or his legal rights or beneficial interest therein.

The constitutional vires of Section 95, 96, 97, 99 & 100 of the Code has been challenged, inter alia, on the following grounds:

  • No opportunity of being heard by the Adjudicating Authority has been provided in favour of the affected party before the initiation of the insolvency process.
  • The impugned provisions denude the personal guarantors of the opportunity to raise objections on jurisdictional issues such as double dipping, period of limitation, inconsistent, illegal & false claims, quantum, suppression of facts, etc. at the very threshold.

The case will have considerable significance for personal guarantors since the matter will require the Court to examine the issue of right to personal hearing, privacy and other related issues.

Mr. Naveen R. Nath, Senior Advocate was instructed by Mr. Deepak Joshi, Mr. Viren Sibal, Ms. Lalit Mohini Bhat, Ms. Hetu Arora Sethi AOR), Mr. Anirudh Bhat & Ms. Saumya Tandon.

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