Centre Can't Use Power To Notify IBC Sections Only As Regards Personal Guarantors, Salve Argues For Anil Ambani In SC

The Supreme Court on Thursday heard the arguments of Senior Advocate Harish Salve on behalf of Reliance Communications head Anil Ambani on a plea challenging the Central Government notification extending provisions of the insolvency law to personal guarantors."You cannot specify the subject matter as regards which the section comes into force, you can only specify the section" , Salve submitted challenging the Centre's November 15, 2019 notification bringing into effect certain provisions of Part III of the IBC, i.e., Insolvency Resolution and Bankruptcy For Individuals and Partnership Firms, from December 1, 2019 as regards only 'personal guarantors to corporate debtors'. The bench of Justices L. Nageswara Rao and Ravindra Bhat was hearing a batch of 58 matters. The Supreme Court three-judge bench headed by Justice Rao had on October 29, 2020 said it wouldtransfer to itself and decide a host of cases filed in different high courts challenging bankruptcy proceedings initiated against personal guarantors of corporate debtors such as Reliance Communications chairman Anil Ambani. Other, profile individuals facing bankruptcy proceedings as individual guarantors of ailing corporate debtors include Kapil Wadhawan, Sanjay and Arti Singhal, Lalit Jain, Yogesh Mehra, Atul Punj, Bala Chhabra, Ram Mehar Garg, Mahendra Kumar Rajpal, Ajay Mehra, Sabbineni Surendra. Mr. Salve indicated that the impugned notification was issued in exercise of the power under section 1(3) of the IBC which states that the Code shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. "You can't say that the section will apply only so far as this and this is concerned. This is conditional legislation, not delegated legislation", he urged. He took the bench through section 2(e), which provides that the provisions of the Code shall apply to 'personal guarantors to corporate debtors'. He advanced that section 2 extends the application of the Code to the following entities- a) any company incorporated under the Companies Act, 2013 or under any previous company law; (b) any other company governed by any special Act for the time being in force, (c) any Limited Liability Partnership; (d) such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify; (e) personal guarantors to corporate debtors; (f) partnership firms and proprietorship firms; and (g) individuals, other than persons referred to in clause (e). "It is their misunderstanding that section 2(e) is to be read with an implied power that the Centre can extend the provisions of the Code to only 'personal guarantors to corporate debtors', argued Mr Salve. He took the bench through the other provisions which have been brought into force by the impugned notification, beginning with section 78, by virtue of which the applicability of Part III of the Code is extended to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms where the amount of the default is not less than one thousand rupees. He advanced that there is no power in the central government to say that section 78 shall apply to any one class of individuals. It was his argument that this would result in a "criss-cross of problems that the Centre has not realised" – "bankruptcy of individuals goes to the DRT. The resolution also goes to the DRT. They have tried to pick out personal guarantors to corporate entities and place their resolution before the NCLT. If one individual says that he has no money, where is the question of resolution?", he advanced. "By virtue of section 60 (The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal), the adjudication in relation to corporate debtors lies before NCLT. I assume that they have intended that where there are resolution proceedings, the Adjudicating Authority will in that case be the NCLT. But the problem is the language of section 179 – we don't know if 'insolvency' is limited to insolvency resolution or bankruptcy also. If it is so, then an awkward situation will result where one bankruptcy runs in the NCLT and one in the DRT", continued Mr. Salve. Section 179 stipulates that subject to the provisions of section 60, the Adjudicating Authority, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal. "The SBI has filed a detailed affidavit saying that since the expression 'personal guarantor to corporate debtor' is defined, so it is a class in itself and the central government could have notified the Code qua this. I did a word search of the phrase 'personal guarantor to corporate debtor'. It only shows up in section 5(22) (defining 'personal guarantor' as ...

Centre Can't Use Power To Notify IBC Sections Only As Regards Personal Guarantors, Salve Argues For Anil Ambani In SC

Mehal Jain

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