TaxTMI 
TaxTMI 
2021 (5) TMI 743
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....tor, Adv Mr. Sahil Monga, Adv. Mr. Arvind Kumar Gupta Adv. Dr. Anindita Pujari, AOR Ms. Purti Gupta, Adv Ms. Henna George Adv. Mr. Om Narayan Adv. Ms. Harpreet Kaur Adv. Mr. Arjun Syal, Adv Mr. Shreyan Das, Adv Mr. Zeeshan Hashmi, Adv. Mr. Salman Hashmi, Adv. Mr. Mithu Jain, AOR Mr. Alok Dhir, Adv. Ms. Jayashree Shukla Dasgupta, Adv. Ms. Varsha Banerjee, Adv. Mr. Ashu Kansal, Adv. Ms. Swati Sharma, Adv. Mr. Ashish Pyasi, Adv. Mr. Milan Singh Negi, Adv. Mr. Karan Batura, AOR Mr. Harish Salve, Sr. Adv. Mr. Sudipto Sarkar, Sr. Adv. Mr. P. S. Narsimha, Sr. Adv. Mr. Mahesh Agarwal, Adv Ms. Shally Bhasin, Adv Mr. Ankur Saigal, Adv Mr. Kamaldeep Dayal, Adv Mr. Prateek Gupta, Adv Ms. Madhavi Agrawal, Adv Mr. Ankit Banati, Adv Ms. Saloni Mahajan, Adv Mr. E. C. Agrawala, AOR Mr. Sandeep S Ladda, Adv. Mr. Soumik Ghosal, AOR Mr. Gaurav Singh, Adv. Mr. Abhay Anand Jena, AOR Mr. Deepayan Mandal, AOR Mr. S.R. Raghunathan, Adv. Mr. S. Santanam Swaminadhan,Adv Ms. Abhilasha Shrawat, Adv Mrs. Aarthi Rajan, AOR Mr. Vikram Pooserla, Adv. Mr. Tadimalla Bhaskar Gowtham, Adv. Mr. Abhinay Reddy M. Adv. Mr. Nitish Bandary, Adv. Mr. Jeevan Kumar Nandam, Adv Mr. Keertivardhan....
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....Ms. Somya Yadava Adv. Ms. Drishti Harpalani Adv. Mr. Uday Arora Adv. Mr. G. N. Reddy, AOR Mr. Deepayan Mandal, AOR Mr. Sandeep Singh, AOR Mr. M. P. Vinod, AOR Mr. Vinod Kumar, Adv. Mr. M.D. Srinivasan, Adv. Ms. Avni Sharma, Adv. Mr. Dheeraj Nair, AOR Mr. Dheeraj Nair, AOR Ms. Anjali Anchayil, Adv. Ms. Avni Sharma, Adv. Ms. Vishrutyi Sahni, Adv. Mr. Vinam Gupta, AOR Mr. R. Sudhinder, Adv Mr. Nikhil Singh, Adv Mr. Rahul Dev, Adv Mr. Ranjit Shetty, Adv Mr. Ashok Mathur, AOR Mr. Vikas Mehta, AOR Mr. D. Bharat Kumar, Adv Mr. Aman Shukla, Adv Mr. Hathindra Manda, Adv Mr. Gopal Jha, AOR Ms. Misha, Adv Mr. Vaijayant Paliwal, Adv Ms. Charu Bansal, Adv Ms. Jasveen Kaur, Adv Mr. S. S. Shroff, AOR Ms. Misha, Adv. Mr. Anoop Rawat, Adv. Ms. Mahima Sareen, Adv. Ms. Moulshree Shukla, Adv. Ms. Prabh Simran Kaur, Adv. Mr. Shardul S. Shroff, AOR. Ms. Praveena Gautam, AOR Mr. Pawan Shukla, Adv. Ms. Sweety Pandey, Adv. Mr. Raja Ram, Adv. Mr. Vivek Sarin, Adv. Ms Astha Sehgal, Adv. Mr Satish C. Kaushik, Adv Mr. Aakarshan Aditya, AOR M/S. Cyril Amarchand Mangaldas, AOR Mr. Arun Aggarwal, AOR Ms. Anshika Aggarwal, Adv Ms. Ekjot Bhasin, Adv. Mr. Mritunjay Kumar Sinha, AOR Mr. Ankit, Ad....
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....o. 1285/2020, T.P.(C) No. 1325/2020, W.P.(C) No. 1364/2020, T.C.(C) No. 257/2020, W.P.(C) No. 1434/2020, W.P.(C) No. 38/2021, W.P.(C) No. 1419/2020, T.P.(C) No. 1202/2020, T.P.(C) No. 1220/2020, T.P.(C) No. 1203/2020, T.P.(C) No. 1193/2020, T.P.(C) No. 1196/2020, T.P.(C) No. 1289/2020, T.P.(C) No. 1323/2020, T.P.(C) No. 1333/2020, T.P.(C) No. 1292/2020, T.P.(C) No. 1299/2020, T.P.(C) No. 1331/2020, W.P. (C) No. 1342/2020, T.P.(C) No. 1339/2020, W.P.(C) No. 1348/2020, W.P.(C) No. 1344/2020, W.P.(C) No. 1343/2020, T.C.(C) No. 250/2020, T.C.(C) No. 251/2020, T.C. (C) No. 247/2020, T.C.(C) No. 253/2020, T.C.(C) No. 252/2020, T.C.(C) No. 248/2020, T.C.(C) No. 254/2020, T.C.(C) No. 246/2020, T.C.(C) No. 256/2020, T.C.(C) No. 249/2020, T.C.(C) No. 255/2020, W.P.(C) No. 62/2021, W.P.(C) No. 32/2021, W.P.(C) No. 106/2021, W.P.(C) No. 97/2021, W.P.(C) No. 142/2021, W.P.(C) No. 135/2021, W.P.(C) No. 131/2021, W.P.(C) No. 122/2021, W.P.(C) No. 138/2021, W.P.(C) No. 146/2021, W.P. (C) No. 207/2021, W.P.(C) No. 160/2021, W.P.(C) No. 168/2021, W.P.(C) No. 205/2021, W.P.(C) No. 209/2021, W.P.(C) No. 194/2021, W.P.(C) No. 187/2021, W.P.(C) No. 180/2021, W.P.(C) No. 182/2021, W.P.(C) No. 203/2021, W....
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....dings and later insolvency proceedings were initiated. The insolvency proceedings are at different stages and the resolution plans are at the stage of finalization. In a few cases, the resolution plans have not yet been approved by the adjudicating authority and in some cases, the approvals granted are subject to attack before the appellate tribunal. 4. All the writ petitioners challenged the impugned notification as having been issued in excess of the authority conferred upon the Union of India (through the Ministry of Corporate Affairs) which has been arrayed in all these proceedings as parties. The petitioners contend that the power conferred upon the Union under Section 1(3) of the Insolvency and Bankruptcy Code, 2016 (hereafter referred to as "the Code") could not have been resorted to in the manner as to extend the provisions of the Code only as far as they relate to personal guarantors of corporate debtors. The impugned notification brought into force Section 2(e), Section 78 (except with regard to fresh start process), Sections 79, 94-187 (both inclusive); Section 239(2)(g), (h) & (i); Section 239(2)(m) to (zc); Section 239 (2)(zn) to (zs) and Section 249. 5. After pu....
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....eal with individuals and partnership firms. It is urged that from a plain reading of the provisions, it is not possible to carve out a limited application of the provisions only in relation to personal guarantors to corporate debtors. The Central Government's move to enforce Sections 78, 79, 94 to 187, etc. only in relation to personal guarantors to corporate debtors is an exercise of legislative power wholly impermissible in law and amounts to an unconstitutional usurpation of legislative power by the executive. The petitioners argue that the impugned notification, to the extent it brings into force Section 2 (e) of the Code with effect from 01.12.2019 is hit by non-application of mind. It is argued that Section 2(e) of the Code, as amended by Act 8 of 2018, came into force with retrospective effect from23.11.2017. This is duly noted by this court in the case of State Bank of India v. V. Ramakrishnan (2018) 17 SCC 394, which observed that: "Though the original Section 2(e) did not come into force at all, the substituted Section 2(e) has come into force w.e.f. 23.11.2017." It is urged that this court should, therefore, set aside the impugned notification. 9. The peti....
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....s to corporate debtors. The impugned notification which provides to the contrary, is ultra vires. It is further contended that provisions of the Code brought into effect by the impugned notification [Clause (e) of Section 2, Section 78 (except with regard to fresh start process), Section 79, Section 94 to 187 (both inclusive), Clause (g) to Clause (l) of sub-section (2) of Section 239, Clause (m) to (zc) of sub-section (2) of Section 239, Clause (zn) to Clause (zs) of Sub-section (2) of Section 239 and Section 249] when enforced only in respect of personal guarantors to corporate debtors, are manifestly arbitrary; they are also discriminatory because: (i) There is no intelligible differentia or rational basis on which personal guarantors to corporate debtors have been singled out for being covered by the impugned provisions, particularly when the provisions of the Code do not separately apply to one sub-category of individuals, i.e., personal guarantors to corporate debtors. Rather, Part III of the Code does not apply to personal guarantors to corporate debtors at all. (ii) the provisions of Part III of the Code, which are partly brought into effect by the impugne....
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....inction of all claims against the principal debtor, except to the extent admitted in the insolvency resolution process itself. This is clear from Section 31 of the Code, which makes the resolution plan approved by the Adjudicating Authority binding on the corporate debtor, its creditors and guarantors. The petitioners also contend that the impugned notification allows creditors to unjustly enrich themselves by claiming in the insolvency process of the guarantor without accounting for the amount realized by them in the corporate insolvency resolution process of the corporate debtor under Part II of the Code. It is therefore, untenable. 15. It is argued that the impugned notification has resulted in clothing authorities, the Committee of Creditors (CoC) and Resolution Professionals (RPs) with powers beyond the enacted statute. They have defined the term "guarantor" as a debtor who is a personal guarantor to a corporate debtor and in respect of whom guarantee has been invoked by the creditor and remains unpaid in full or part. The parent statute does not define "guarantor". It is pointed out that though Section 239(1) of the Code empowers the Insolvency Board to make rules to carry....
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....ode or its provisions should come into force. 17. It is argued that Part III of the Code does not create any distinction between an individual and a personal guarantor to a corporate debtor. Part III provides for "Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms", and thereafter refers to these two categories of persons simply as debtors. The impugned notification in substance modifies the text of the actual sections of Part III, despite the absence of any element of legislation/legislative authority having been conferred upon the Central Government. The words "only in so far as they relate to personal guarantors to corporate debtors" forming a part of the impugned notification are attempted to be added like a rider to each of the sections mentioned in the impugned notification, clearly rendering such an exercise completely outside the scope and powers conferred under Section 1(3) of the Code. 18. It was argued further by Mr. Salve, that the impugned notification is ex facie in violation of the principles of delegation, inasmuch as the Central Government has effected a classification of individuals- and sought to ensure that insolvency issues of one ....
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....class of persons, without any substantive legislative provision or guidance. The impugned notification has the effect of amending the statutory scheme in the manner it applies them to personal guarantors and is therefore, ultra vires the Code. 20. Mr. P.S. Narasimha, learned senior counsel, who argued next, contended further that in several judgments, this court has ruled that conditional legislation is one where a legislative exercise is complete in itself, and the only power and/or function to be delegated to the authority (in this case the Central Government), is to apply the law to a specific area or to determine the time and manner of carrying into effect such law. He cited the decision in State of Bombay v. Narothamdas Jethabhai 1951 2 SCR51, at para 37. in which this court observed as follows: "......The section does not empower the Provincial Government to enact a law as regards the pecuniary jurisdiction of the new court and it can in no sense be held to be legislation conferring legislative power on the Provincial Government" Mr. Narasimha also cited Sardar Inder Singh v. State of Rajasthan 1957 SCR 605 at para 10. and Hamdard Dawakhana v. Union of India 19....
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.... Union of India &Ors., (2019) 4 SCC 17, at para 28; and Babulal Vardharji Gurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. and Anr. (2020) 15 SCC 1, at paras 21, 21.1. are relied upon for this purpose. 24. It was submitted that Parliament undoubtedly amended the Code in 2018, defining "personal guarantor" as a species of individuals to whom the law applied. However, the manner of its application continued to be the same, i.e. to all individuals. Therefore, the resort to conditional legislation power under Section 1(3) to bring into force certain provisions selectively, in respect of some individuals, i.e. personal guarantors and not all individuals, is ultra vires, and contrary to the power conferred on Parliament. Illustratively, it is pointed out that the application of the law itself is limited- for instance in the case of Section 78 which applies to fresh start of insolvency proceedings- the Code is limited then, in its application to one sub category of individuals (all of whom are covered by the chapter, which is opened by Section 78) i.e., personal guarantors. This selective application is naked classification exercised by the government conferred with conditional legi....
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.... 27. The other counsel, viz. Mr. Rohit Sharma, Ms. Pruthi Gupta, Mr. Rishi Raj Sharma, and Mr. Manish Paliwal too, argued for other petitioners. Pointing to the distinction between provisions in Part II of the Code and those in Part III, it is argued that the procedure for initiation of insolvency resolution against personal guarantors to corporate debtors is the same as in relation to other individuals. The only difference is that the forum to decide this would be the National Company Law Tribunal (NCLT). In all other respects, in terms of Part III, the recovery process for debt realization is identical for personal guarantors to corporate debtors, as in the case of individuals. By separating the process in an artificial manner, and subjecting the insolvency process of personal guarantors who are also individuals, to adjudication by the NCLT, and furthermore, virtually directing that the two proceedings, i.e. in relation to the corporate debtor on the one hand, and the personal guarantor, on the other hand, to be clubbed, is, in effect, a legislative exercise, unsupported by any express provision of the Code. It is also submitted that the object of the Code is to ensure a revival ....
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....on applicant starts running the business of the corporate debtor on a fresh slate ... All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate ". Counsel therefore argued that an approved resolution plan in respect of a corporate debtor amounts to extinction of all outstanding claims against that debtor; consequently, the liability of the guarantor, which is co-extensive with that of the corporate debtor, would also be extinguished. 29. It was further argued that the resolution plans, duly approved by the Committee of Creditors would propose to extinguish and discharge the liability of the principal borrower to the financial creditor. Therefore, the petitioners' liability as guarantors under the personal guarantee would stand completely discharged. Reliance is placed on the judgment of the Punjab and Haryana High Court in Kundanlal Dabriwala v. Haryana Financial Corporation (2012) 171 Comp Cas 94., which ruled that: "on a ....
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....ution of issues and disputes concerning corporate resolution processes, as well as bankruptcy and insolvency processes in relation to personal guarantors to corporate debtors. 32. It was argued that Parliament felt compelled to separate personal guarantors from other individuals such as partnership firms, proprietorships and individuals. It was felt that if this separation, achieved through the amendment of 2018 were not realized, the insolvency resolution process of corporate debtors would have to be dealt with separately and independently of its promoters, managing directors, and directors who had furnished their personal guarantees to secure debts of corporate debtors. If insolvency resolution proceedings against corporate debtors were continued without this amendment, and without the unification, (of the adjudicatory body) on the default of the corporate debtor to a debt owed to a financial creditor, the entire machinery of the Code relating to the corporate debtor would work itself out, to the exclusion of personal guarantors. This presented a peculiar problem, in that the resolution applicant, wishing to bid for takeover of the corporate debtor and operate it as a running ....
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....ke a haircut or forego the interest amounts so as to enable an equitable settlement of the corporate debt, as well as that of the personal guarantor. This would result in maximizing the value of assets and promoting entrepreneurship, which is one of the main purposes of the Code. 34. The learned Attorney General submitted that the expression "provision" has been defined in Black's Law Dictionary (10th edition at page 1420) as, "a clause in a statute, contract or other legal instrument"/ He also relied upon the judgment in Chettian Veettil Amman v. Taluk Land Board (1980) 1 SCC 499. to the effect that: "A provision is therefore a distinct rule or principle of law in a statute which governs the situation covered by it. So an incomplete idea, even though stated in the form of a section of a statute, cannot be said to be a provision for, by its incompleteness, it cannot really be said to provide a whole rule or principle for observance by those concerned. A provision of law cannot therefore be said to exist if it is incomplete, for then it provides nothing." He therefore urged that Section 2(e) being complete and distinct is a provision within the meaning of Section ....
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....fault by the corporate debtor above a threshold limit prescribed in the Code triggers an insolvency resolution process enabling a creditor to demand repayment. Heavy emphasis is placed by the Code on attempting resolution of the corporate debtor to maximize the value of the company and ensure that it continues as the going concern in the interests of the economy. It was keeping in mind these objectives that the impugned notification was issued appointing 1st of December 2019 as the date on which certain provisions of the IBC were to come into force, only so far as they relate to personal guarantors to corporate debtors. The submission that the impugned notification creates a classification was refuted. He stated that it only brought into force sections in Part III of the Code and Section 2(e) of the Code, from 1st December 2019. From that date, proceedings could be filed against personal guarantors to corporate debtors under the Code. The proceedings would be initiated before the NCLT, which would also be seized of resolution proceedings against the corporate debtors. 38. The Attorney General submitted that the Amendment Act brought about a classification after detailed delibera....
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....o Section 60". It was argued that common oversight of insolvency processes of the corporate debtor, its corporate guarantor, and personal guarantors, through one forum, under the Code, (which, by reason of Section 238, overrides all other laws), was the objective of the amendment of 2018 and the impugned notification. The learned Attorney General also pointed out to Section 30, which enacts that an Adjudicatory authority approved resolution plan binds all stakeholders. However, at the same time, in the event a resolution plan permits creditors to continue proceedings against the personal guarantor, then such personal guarantors would continue to be liable to discharge the debts owed to the creditor by the corporate debtor, which would be limited of course to the extent of debt that did not get repaid under the resolution plan. The Attorney General also relied on Embassy Property Developments (P) Ltd. v. State of Karnataka (2020)13 SCC 308. where this court had examined and dealt with the interplay between Sections 5(22), 60 and 179 of the Code. 40. Mr. Tushar Mehta, Solicitor General of India, supported the submissions of the Attorney General. He too stressed that different prov....
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....ncy resolution. This statutory mechanism could not be applied to individuals as there is no question of "take over" of individuals. Individuals, who stand guarantee to corporate debtors and whose liability is co-terminus with such corporate debtors were therefore, outside the field of the Code. This resulted in an anomaly inasmuch as one set of guarantors to corporate debtors, i.e. individuals or personal guarantors were outside the purview of the Code whereas other set of guarantors, i.e. corporate guarantors were subjected to the provisions of the Code and could also be proceeded against in Part-II. As a result, a conscious decision was taken to enforce Part-III and operationalize the mechanism suitably for a class of individuals, i.e. personal guarantors. This decision was implemented through the impugned notification. 42. Apart from reiterating the submission of the Attorney General with regard to the flexibility in respect of notifying parts of the Code on different dates, having regard to the difference in subject matter and those governed by it, the learned Solicitor General also relied upon the decision reported as J. Mitra and Co. Pvt. Ltd. v. Assistant Controller of Pa....
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....ity of a principal debtor and a surety is co-extensive, unless provided to the contrary in the contract. The word "co-extensive" is an objective for the word 'extent' and it can relate only to the quantum of the principal debt. The Solicitor General relied on certain decisions in this regard Gopilal J Nichani v. Trac Inds. and Components Ltd, AIR 1978 Mad. 134. It is stated that the creditor also has the liberty to proceed against the principal borrower and all sureties simultaneously; in this regard, he cited Bank of Bihar Ltd. v. Dr. Damodar Prasad & Anr. AIR 1969 (1) SCR 620. It is submitted that no court or co-surety can limit such a right. For this proposition, reliance was placed on State Bank of India v. Index port Registered AIR 1992 SC 1740. and Industrial Investment Bank of India v. Biswanath Jhunjhunwala (2009) 9 SCC 478. Counsel also submitted that a surety cannot alter or defer such a right of the creditor. Hence, until the debt is paid off to the creditor in entirety, the guarantor is not absolved of its joint and several liability to make payment of the amounts outstanding in favour of the creditor. 44. The Solicitor General submitted that neither the guar....
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....ipal borrower in terms of a resolution plan, is "statutorily" presumed to be consented by the guarantors in question. Therefore, by way of approval of a resolution plan, any release/discharge secured by the principal borrower or entering into a composition with the principal borrower (reference to Section 135 of the Contract Act) cannot discharge the guarantor in any manner what so ever. The judgment of this court in State Bank of India v. V. Ramakrishnan & Ors. 2018(17) SCC 394. too was relied on, where the court recognized that a guarantor cannot seek a discharge of its liability on account of approval of a resolution plan, and the terms of such a plan can provide for the continuation of the debt of the guarantors. It was submitted that the continuation of a financial creditor's claim against a guarantor would not lead to double recovery of a claim as the financial creditor would be able to recover only the balance debt which remains outstanding and unrecovered from the principal borrower. There are enough safeguards against double recovery as provided under (a) the settled principle of contract law that simultaneous remedy against the co-obligors does not permit the creditor....
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....rporate debtors. It is urged that the submission that Section 1(3) does not confer the power of modification on the Central Government is presented by characterizing Section 1(3) as conditional legislation. He submits that Section 1(3) has two distinct dimensions. Parliament firstly conferred on the Central Government not only the power to determine the date on which the Code will come into force, but also empowers it to appoint different dates for different provisions of the Code. It was intended that all the provisions of the Code may not be enforced at once. Given the width of impact and with an eye on the objectives set out in the statement of objects and reasons and preamble, a staggered enforcement was anticipated. 47. Mr. Dwivedi stated that nothing much depends on the characterization of Section 1(3) as conditional or delegated legislation. Even conditional legislation involves a delegation of legislative power to the authority concerned. Under Section 1(3), the Central Government is only a delegate of the Parliament. In some cases, such provisions or provisions of broadly similar nature have been described by this court as conditional legislation, but equally in some ca....
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....rachalam v. Mandal Revenue Officer (1996) 6 SCC 634., where the power to exempt any class of nonagricultural land and was upheld saying: "the power to bring an Act into force as well as the power to grant exemption are both treated, without a doubt, as belonging to the category of conditional legislation". Learned counsel therefore urged that the line of demarcation between conditional and delegated legislation at times gets blurred. 49. While judging the validity of the legislations, this Court has examined the sufficiency of the guidance afforded by the legislative policy indicated in the relevant statute. For this, reliance was placed on Edward Mills v. State of Ajmer (1955) I SCR 735. All these establish that diverse provisions apart from those which empower the executive to enforce the Act or provisions of the Act have been characterized as conditional legislation and their validity and scope has been determined in the light of the text, context and purpose of the Act. 50. Learned counsel stated that a schematic, structural and purposive construction of Section 1(3) of the Code needs to be adopted to determine the scope of the power conferred on the Central G....
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....9. and Swiss Ribbons (supra) were relied on. 52. Mr. Dwivedi stated that the impugned notification does not modify any provisions of the Code. By enforcing certain provisions of the Code by its seven clauses" only in so far as they relate to personal guarantors to corporate debtors", the notification does not modify any legislative provision. It merely carries out the Parliamentary intention as expressed by the scheme, structure and purpose of the Code. Section 1(3), Section 2, Section 3(23), Section 5(5)(a) and (22), Section 14(3), Section 31(1) and in particular, Section 60 and Section 179 are indicative of the fact that the scheme and structure of the Code involves a parliamentary hybridization and legislative fusion of the provisions of Part III, in so far as personal guarantors of corporate debtors are concerned. The object of this hybridization is to empower the NCLT to deal with the insolvency resolution and bankruptcy process of the corporate debtor along with the corporate guarantor and personal guarantor of the corporate debtor. Parliament is conscious of the fact that personal guarantors to corporate debtors are generally promoters or close relatives of corporate debt....
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....er Section 14. In this regard, reliance is placed on V. Ramakrishnan (supra). It is contended that the hybridization achieved by the impugned notification does not create any anomaly or problem in enforcement. 54. It was lastly contended that Section 78 is declaratory and states that Part III applies to individuals and partnership firms. It is made applicable to the various categories of individuals and partnership firms. Both Sections 2 and 78 carry the margin caption of "application". Section 2 commences with "the provisions of this Code shall apply" to the six categories and Section 78 also declares that "Part III shall apply" to the mentioned categories. Section 2 embraces the whole Code including Section 78 and other provisions enforced by the impugned notification, which clearly appoints the date of enforcement for Section 2(e) and other provisions, and Chapter III of Part III. There is no vivisection or dissection involved in the impugned notification. 55. Mr. K.V. Vishwanathan, learned senior counsel appearing for some respondents, argued that an overall reading of the provisions of the Code would show that personal guarantors to corporate debtors are a distinct class....
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.... enforce provisions of a new law, together, at all places, in respect of all that it seeks to cover. IV The Provisions of the Code and the Impugned Notification 58. On 28th May, 2016, the Code was published in the official gazette after its passage in Parliament. It has been hailed as a major economic measure, aimed at aligning insolvency laws with international standards. Parliament's previous attempts to ensure recovery of public debt, (through the Recovery of Debts due to Banks or Financial Institutions Act, 1993, hereafter "RDBFI Act") securitization (by the Securitization and Reconstruction and Enforcement of Security Interests Act, 2002 hereafter "SARFESI") deal with certain facets of corporate insolvency. These did not result in the desired consequences. The aim of the Code is to a) promote entrepreneurship and availability of credit; b) ensure the balanced interests of all stakeholders and c) promote time-bound resolution of insolvency in case of corporate persons, partnership firms and individuals. The relevant provisions of the code are extracted below: "1. Short title, extent and commencement - (1) This Code may be ca....
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....includes- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India; *** 4. Application. - (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one crore rupees.^9 Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees. 5. Definitions. - In this part, unless the context otherwise requires - (1) "Adjudicating Authority", for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); *** (5) "corporate applicant" means- (a) corporate debtor; or (b) a member or partner of the corporate debtor who is authorised to make an application for the corporate insolvency resolution process under the constitutional doc....
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....able a time bound and formal resolution of insolvency. The major features of the Code include a twostep process -insolvency resolution for corporate debtors where the minimum amount of the default is Rs.1,00,00,000/-. Two processes are proposed by the Code: a) Insolvency resolution process (Sections 6 to 32 of the Code) - In this, the creditors play a crucial role in evaluating and ultimately determining whether the debtor's business can be continued and if so, what are the choices for its revival; and b) Liquidation [Sections 33-54 Code] - If revival fails or is not a feasible option, then creditors can resolve to wind up the company. Upon winding up, assets of the debtor are to be distributed. 61. The insolvency resolution process under Section 6 can be initiated by the financial creditor [Section 7 of the Code] or operational creditor [subject to issuing a demand notice to the corporate debtor stating the amount involved in the default, under Section 8, of the Code] against the corporate debtor in the NCLT. Voluntary insolvency proceedings may also be initiated by the defaulting company, its employees or shareholders [Section 10 of the Code]. Once the re....
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....tions issued on different dates. The impugned notification issued in the Gazette of India Extraordinary, by the Ministry of Corporate Affairs, reads as follows: "NOTIFICATION New Delhi. the 15th November, 2019 S.O. 4126(E).- ln exercise of the powers conferred by sub-section (3) of section I of the Insolvency and Bankruptcy Code. 2016 (31 of 2016). the Central Government hereby appoints the 1st day of December,2019 as the date on which the following provisions of the said Code only in so far as they relate to personal guarantors to corporate debtors. shall come into force: (1) clause (e) of section 2; (2) section 78 (except with regard to fresh start process) and section 79; (3) sections 94 to 187 (both inclusive); (4) clause (g) to clause (i) of sub-section (2) of section 239; (5) clause (m) to clause (zc) of sub-section (2) of section 239; (6) clause (zn) to clause (zs) of' sub-section (2) of section 240; and (7) Section 249. [F. No. 30/21/2018-Insolvency Section] GYANESHWAR KUMAR SINGH, Jt. Secy." V Analysis and conclusions 64. The principal ground of attack in all these proceedings has....
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....wn commencement, but leaves that to be done by an external authority, may with quite as much reason he called incomplete; as that which does not itself immediately determine the whole area to which it is to be applied, but leaves this to be done by the same external authority. If it is an act of legislation on the part of the external authority so trusted to enlarge the area within which a law actually in operation is to be applied, it would seem à fortiori to be an act of legislation to bring the law originally into operation by fixing the time for its commencement....." It was also observed that: "Their Lordships agree that the Governor-General in Council could not, by any form of enactment, create in India, and arm with general legislative authority, a new legislative Power, not created or authorized by the Councils Act. Nothing of that kind has, in their Lordships' opinion, been done or attempted in the present case." 66. The next case cited was Jatindra Nath Gupta where the validity of Section 1(3) of the Bihar Maintenance of Public Order Act, 1948 was challenged on the ground that it empowered the Provincial Government to extend the life of the Act for ....
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....ith it the power of delegation (as claimed by the Attorney-General), the question is whether Section 2 of the Part 'C' States (Laws) Act is valid or not. By that section the Parliament has given power to the Central Government by notification to extend to any part of such State (Part 'C' State), with such restrictions and modifications as it thinks fit, any enactment which is in force in Part A State at the date of the notification. The section although framed on the lines of the Delhi Laws Act and the Ajmer-Merwara Act is restricted in its scope as the executive Government is empowered to extend only an Act which is in force in any of the Part A States. For the reasons I have considered certain parts of the two sections covered by Questions 1 and 2 ultra vires, that part of Section 2 of the Part 'C' States (Laws) Act, 1950, which empowers the Central Government to extend laws passed by any legislature of Part A State, will also be ultra vires. To the extent the Central Legislature or Parliament has passed Acts which are applicable to Part A States, there can be no objection to the Central Government extending, if necessary, the operation of those Acts to the Province of Delhi, bec....
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....latures in India under the Constitution Act of 1935 qua Delhi constitutionally stood on no better footing than the legislatures of Timbuctoo and Soviet Russia though geographically and politically they were in a different situation. ************ 271. For reasons given for answering Questions 1 and 2 that the enactments mentioned therein are ultra vires the constitution in the particulars stated, this question is also answered similarly. It might, however, be observed that in this case express power to repeal or amend laws already applicable in Part-C States has been conferred on the Central Government. Power to repeal or amend laws is a power which can only be exercised by an authority that has the power to enact laws. It is a power coordinate and coextensive with the power of the legislature itself. In bestowing on the Central Government and clothing it with the same capacity as is possessed by the legislature itself the Parliament has acted unconstitutionally." B.K. Mukherjea, J, held as follows: "342. It will be noticed that the powers conferred by this section upon the Central Government are far in excess of those conferred by the other two legisla....
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....ct, in respect of Part C states) as well as the power to repeal, was held to be legislative in content. Therefore, the court held such power to be ultra vires. This is evident from the following Opinion of the court, recorded as a result of the majority judgment: "OPINION OF THE COURT 357. The Court held by a majority that the provisions contained in Questions 1 and 2 are not ultra vires the legislatures which passed the Act containing those provisions. As regards the section mentioned on Question 3, the first part was held to be intra vires, but the second portion, which is in the following terms: "provision may be made in any enactment so extended, for the repeal or amendment of any corresponding law (other than a Central Act) which is for the time being applicable to that Part-C State", is ultra vires the Indian Parliament which passed the Act." 69. In Narottamdas Jethabhai (supra) three issues were involved; one of them concerned the question of empowering the executive to designate a court to exercise jurisdiction upto Rs. 25,000/-, i.e. Section 4 of the Bombay City Civil Courts Act. The contention successfully raised before the High Court was tha....
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....it was to the effect that initially its pecuniary jurisdiction will be limited to Rs. 10,000 and that in future if circumstances make it desirable - and this was left to the determination of the Provincial Government - it could be given jurisdiction to hear cases up to the value of Rs. 25,000. It was also determined that the extension of the pecuniary jurisdiction of the new court will be subject to the provisions contained in the exceptions to Section 3. I am therefore of the opinion that the learned Chief Justice was not right in saying that the legislative mind was never applied as to the conditions subject to which and as to the amount up to which the new court could have pecuniary jurisdiction. All that was left to the discretion of the Provincial Government was the determination of the circumstances under which the new court would be clothed with enhanced pecuniary jurisdiction. The vital matters of policy having been determined, the actual execution of that policy was left to the Provincial Government and to such conditional legislation no exception could be taken." Again, the court upheld the exercise of executive discretion on the ground that there was proper legislativ....
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....[1951] S.C.R. 747), reveal a sharp conflict of opinion does not arise for consideration, and we reserve our opinion thereon. It is next contended that the notification dated June 20, 1953, is bad, because after the Constitution came into force, the Rajpramukh derived his authority to legislate from Article 385, and that under that Article his authority ceased when the Legislature of the State was constituted, which was in the present case, on March 29, 1952. This argument proceeds on a misconception as to the true character of a notification issued under Section 3 of the Ordinance. It was not an independent piece of legislation such as could be enacted only by the then competent legislative (1).authority of the State, but merely an exercise of a power conferred by a statute which had been previously enacted by the appropriate legislative authority. The exercise of such a power is referable not to the legislative competence of the Rajpramukh but to Ordinance No- IX of 1949, and provided Section 3 is valid, the validity of the notification is co- extensive with that of the Ordinance. If the Ordinance did not come to an end by reason of the fact that the authority of the Rajp....
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...."The question for decision then is, is the delegation constitutional in that the administrative authority has been supplied with proper guidance. In our view the words impugned are vague. Parliament has established no criteria, no standards and has not prescribed any principle on which a particular disease or condition is to be specified in the Schedule. It is not stated what facts or circumstances are to be taken into consideration to include a particular- condition or disease. The power of specifying diseases and conditions as given in s. 3(d) must therefore be held to be going beyond permissible boundaries of valid delegation. As a consequence the Schedule in the rules must be struck down." 72. In Sabanayagam (supra) the vires of a notification issued under Section 36 of the Payment of Bonus Act, exempting the concerned statutory board from its coverage, was in issue. This court interpreted the notification as one operating from the date of its issue, thus resulting in the application of the Payment of Bonus Act for previous accounting years. As to the nature of the power (to exempt), this court, after considering various previous decisions, held that there are three broad ca....
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....ise admittedly governed by the Act. When such a power by way of conditional legislation is to be exercised by the delegate a question may arise as to how the said power can be exercised. In such an eventuality if the satisfaction regarding the existence of condition precedent to the exercise of such power depends upon pure subjective satisfaction of the delegate and if such an exercise is not required to be based on the prima face proof of factual data for ad against such an exercise and if such an exercise to uniformly apply in future to a given common class of subjects to be governed by such an exercise and when such an exercise is not to be confined to individual cases only, then even in such category of cases while exercising conditional legislative powers the delegate may not be required to have an objective assessment after considering rival versions on the data placed before it for being taken into consideration by it in exercise of such power of conditional legislation. For example if a tariff is fixed under the Act and exemption power is conferred on the delegate whether to grant full exemption or partial exemption from the tariff rate it may involve such an exercise of co....
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....ract these formalities and not because the determination is legislative in character. There may also be situations where the persons affected are unidentifiable class of persons or where public interest or interests of State etc. preclude observations of such a procedure. (....)" 73. In another decision, Vasu Dev Singh, the court had to decide upon the validity of a notification issued by the Administrator of Chandigarh dated 7.11.2002, directing that the provision of the East Punjab Urban Rent Restriction Act, 1949, (which was extended by Parliament to Chandigarh by the East Punjab Urban Rent Restriction Act (Extension to Chandigarh) Act 1974) was not applicable to buildings and rented lands whose monthly rent exceeded Rs. 1500. The Administrator justified the notification as an instance of conditional legislation since the power under Section 3 enabled him to exempt provisions of the Act to classes of buildings.^11 This court disagreed with the contention that the exemption was in the exercise of conditional legislative power: "16. We, at the outset, would like to express our disagreement with the contentions raised before us by the learned counsel appearing on behalf....
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....t be accepted for more than one reason. Firstly, the respondent proceeded on the basis that the said notification has been issued with a view to give effect to the National Policy i.e. amendments must be carried out until a new Rent Act is enacted. Whether the Act would be enacted or not is a matter of surmises and conjectures. It would be again a matter of legislative policy which was not within the domain of the Administrator. Secondly, the Administrator in following the National Policy proceeded on the basis that the provisions of the Act must ultimately be repealed. When steps are taken to repeal the Act either wholly or in part, the intention becomes clear i.e. the same is not meant to be given a temporary effect. When the repealed provisions are sought to be brought back to the statute-book, it has to be done by way of fresh legislation. (...) What can be done in future by another authority cannot be a ground for upholding an executive act." 74. A close reading of the decisions cited on behalf of the petitioners would reveal that the power to extend laws has been upheld. As B.K. Mukherjea observed, in In re Delhi Laws Act, 1912 (supra): "it is quite an intelligibl....
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....on of particular instances in the schedule, leaving it to the executive government to decide the issue, in what could be an arbitrary manner. Vasu Dev Singh (supra)was a case where the court held that the power to exclude from application of the enactment, based on the quantum of rent, was premised on the Administrator's opinion that the legislation would be repealed, having regard to a National Policy. Moreover, the notification excluded the application of the Act in relation to premises based on rent and had a permanent character. This court held that the notification was an instance of impermissible legislation by the executive. It is evident that the court ruled in Jitendra Nath Gupta, In re Delhi Laws Act and Vasu Dev Singh that the exercise of extending an enactment beyond the time of its designated application by the legislature; the power of extension, modification and repeal of laws made by other legislative bodies; and the limiting the application of an enactment based on a quantification (an amount of rent) were legislative exercises, beyond the powers conferred. They stricto sensu fall in the category of "general legislative authority, a new legislative Power, not creat....
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....nment to apply the provisions of the Act by notification, confers on the Central Government absolute discretion, the exercise of which is not guided by any legislative provision and is, therefore, invalid. The Act does not prescribe any considerations in the light of which the Central Government can proceed to act under Section 1(3) and such un-canalised power conferred on the Central Government must be treated as invalid. We are not impressed by this argument. Section 1(3) is really not an illustration of delegated legislation at all; it is what can be properly described as conditional legislation. The Act has prescribed a self-contained Code in regard to the insurance of the employees covered by it; several remedial measures which the legislature thought it necessary to enforce in regard to such workmen have been specifically dealt with and appropriate provisions have been made to carry out the policy of the Act as laid down in its relevant sections. Section 3(1) of the Act purports to authorise the Central Government to establish a Corporation for the administration of the scheme of Employees' State Insurance by a notification. In other words, when the notification should be....
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....ation' as the Federal Court termed it in Choitram v. C. I. T., Bihar, or 'subsidiary legislation' as Kania, C. J. Styled it, or whether you camouflage it under the veiling name of 'administrative or quasi-legislative power' - as Professor Cushman and other authorities have done it - necessary for bringing into operation and effect an enactment, the fact remains that it has a content, howsoever small and restricted, of the lawmaking power itself. There is ample authority in support of the proposition that the power to extend and carry into operation an enactment with necessary modifications and adaptations is in truth and reality in the nature of a power of delegated legislation." After these observations, this court held that the power of modification could not have been exercised by the Government in the manner that it did, and observed as follows: "60. The power given by Section 2 exhausts itself on extension of the enactment; it cannot be exercised repeatedly or subsequently to such extension. It can be exercised only one, simultaneously with the extension of the enactment. This is one dimension of the statutory limits which circumscribe the power. The second is that....
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....bsection (1) and clause (zt) of sub-section (2) of section 240, sections 241 and 242 3. 01.11.2016 S.O.3355(E) Clause (2) to clause(4), clause (6) to clause (21), clause (23) to clause (25), clause (27)clause (29) to clause (36) of section 3, sections 196, 197 and 223, clause(ze) to clause (zh),clause (zl) to clause (zm) of sub-section (2) of section 239, clause (a) to clause (zm),clause (zu) to clause (zzzc) of sub-section (2) of section240, section 244, section 246 to section 248 (both inclusive), sections 250 and 252 4. 15.11.2016 S.O.3453(E) Section 199 to section 207 (both inclusive), clause (c)and clause (e) of sub-section (1)of section 208, sub-section (2) of section 208, section 217 to section 220 (both inclusive)sections 251, 253, 254 and 255 5. Came into force on 01.12.2016 vide S.O. dated 30.11.2016 S.O.3594(E) Clause (a) to clause (d) of section 2 (except with regard to voluntary liquidation or Bankruptcy section 4 to section 32 (both inclusive), section 60 to section 77(both inclusive), section 198, section 231, section 236 to section 238 (both inclusive) and clause (a) to clause (f)of subsection (2) of section 239 6. S.O. date....
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....ial Act, LLPs and other bodies incorporated under any law which the Central Government could by notification specify. These provisions triggered the application of the Code to corporate debtors as well as LLPs and other companies and corporations. Significantly, provisions with regard to voluntary liquidation or bankruptcy were excluded from application by this notification. Those provisions were brought into force by the eighth notification dated 01.04.2017, with effect from 15.05.2017. In the meanwhile, the notification dated 09.12.2016 with effect from 15.12.2016, operationalized Sections 33 to 44 which deal with the liquidation process. 81. It is quite evident that the method adopted by the Central Government to bring into force different provisions of the Act had a specific design: to fulfill the objectives underlying the Code, having regard to its priorities. Plainly, the Central Government was concerned with triggering the insolvency mechanism processes in relation to corporate persons at the earliest. Therefore, by the first three notifications, the necessary mechanism such as setting up of the regulatory body, provisions relating to its functions, powers and the operati....
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....ct of 2018 provided the necessary statutory backing for the Central Government to apply the Code, in such a manner as to achieve the objective of the amendment, i.e. to ensure that adjudicating body dealing with insolvency of corporate debtors also had before it the insolvency proceedings of personal guarantors to such corporate debtors. 83. The amendment of 2018 also altered Section 60 in that insolvency and bankruptcy processes relating to liquidation and bankruptcy in respect of three categories, i.e. corporate debtors, corporate guarantors of corporate debtors and personal guarantors to corporate debtors were to be considered by the same forum, i.e. NCLT. 84. Section 2, i.e., (application provision of the Code, in relation to different entities), as originally enacted, did not contain a separate category of personal guarantors to corporate debtors. Instead, personal guarantors were part of a category or group of individuals, to whom the Code applied (i.e. individuals, proprietorship and partnership firms, per Section 2(e) which stated "partnership firms and individuals"). The Code envisioned that the insolvency process outlined in provisions of Part III was to apply to th....
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....plication relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor shall be filed before the National Company Law Tribunal" 87. The amendment inserted the expression "or liquidation" before the words "or bankruptcy" and also inserted the expression "of a corporate guarantor... as the case may be, of" such corporate debtor. The interpretation of this expression has to be contextual. There is no question of liquidation of a personal guarantor, an individual. In such cases, this court has ruled that the principle behind the maxim "reddendo singular singulis" applies. This court had, in Koteswar Vittal Kamath v. K. Rangappa Baliga & Co (1969) 1 SCC 255. quoted Black's Interpretation of Laws, to explain the meaning of that maxim: "Where a sentence in a statute contains several antecedents and several consequences, they are to be read distributively, that is to say, each phrase or expression is to be referred to its appropriate object." Koteswar Vittal Kamath was concerned with the interpretation of the proviso to Article 304(b) of the Constitution of India which prov....
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....ra Kumar Gupta) this court had held that the power to extend the law, existing or future, that had not been enacted by the competent legislature, and the power of repeal, as well as the power to extend the life of the law, were instances of excessive delegation of legislative power. In Narottamdas Jethabhai (supra), this court upheld the extension of pecuniary jurisdiction of city civil courts beyond the statutorily prescribed limit, because there was a provision enabling it, and the executive confined the exercise of its power to extend the jurisdiction, within the limits enacted. Hamdard Dawakhana was an instance of grant of un-canalized power (without legislative guidance) of inclusion in the schedule to the Act, acts falling within its application; it was clearly a case of excessive delegation. In Lachmi Narain (supra), this court held that the power of modification cannot be used at any time, but has to be resorted to initially by the executive, at the time a law is extended and applied. The observations in Bishwambhar Singh and Basant Kumar Sarkar (supra) reveal that the executive is tasked with implementing the Act in stages, as it "would have been impossible for the legisla....
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....debtor, mostly the guarantee would contain a covenant that as between the guarantor and the financial creditor, the guarantor is also a principal debtor, notwithstanding that he is guarantor to a corporate debtor." (Emphasis supplied) 92. As noticed earlier, Section 60 had previously, under the original Code, designated the NCLT as the adjudicating authority in relation to two categories: corporate debtors and personal guarantors to corporate debtors. The 2018 amendment added another category: corporate guarantors to corporate debtors. The amendment seen in the background of the report, as indeed the scheme of the Code (i.e., Section 2 (e), Section 5 (22), Section 29A, and Section 60), clearly show that all matters that were likely to impact, or have a bearing on a corporate debtor's insolvency process, were sought to be clubbed together and brought before the same forum. Section 5 (22) which is found in Part II (insolvency process provisions in respect of corporate debtors) as it was originally, defined personal guarantor to say that it "means an individual who is the surety in a contract of guarantee to a corporate debtor." There are two more provisions relevant for the pur....
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....olution and bankruptcy for individuals before the Adjudicating Authority. (2) Section 94 to 187 outline the entire structure regarding initiation of the resolution process for individuals before the Adjudicating Authority. 95. The impugned notification authorises the Central Government and the Board to frame rules and regulations on how to allow the pending actions against a personal guarantor to a corporate debtor before the Adjudicating Authority. The intent of the notification, facially, is to allow for pending proceedings to be adjudicated in terms of the Code. Section 243, which provides for the repeal of the personal insolvency laws has not as yet been notified. Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with the concerned NCLT seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be the NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the g....
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....ction 60 of the Code, in sub-section (1) thereof, refers to insolvency resolution and liquidation for both corporate debtors and personal guarantors, the adjudicating authority for which shall be the National Company Law Tribunal, having territorial jurisdiction over the place where the registered office of the corporate person is located. This sub-section is only important in that it locates the Tribunal which has territorial jurisdiction in insolvency resolution processes against corporate debtors. So far as personal guarantors are concerned, we have seen that Part III has not been brought into force, and neither has Section 243, which repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. The net result of this is that so far as individual personal guarantors are concerned, they will continue to be proceeded against under the aforesaid two Insolvency Acts and not under the Code. Indeed, by a Press Release dated 28-8-2017, the Government of India, through the Ministry of Finance, cautioned that Section 243 of the Code, which provides for the repeal of the said enactments, has not been notified till date, and further, that the provisions relatin....
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....ividuals under Section 179 of the Code, as the said Section has not yet been brought into force. Also, we have seen that Section 249, dealing with the consequential amendment of the Recovery of Debts Act to empower Debts Recovery Tribunals to try such proceedings, has also not been brought into force. It is thus clear that Section 2(e), which was brought into force on 23-11-2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpose contained in Sections 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018." 98. This court was clearly cognizant of the fact that the amendment, in so far as it inserted Section 2(e) and altered Section 60(2), was aimed at strengthening the corporate insolvency process. At the same time, since the Code was not made applicable to individuals (including personal guarantors), the court had no occasion to consider what would be the effect of exercise of power under Section 1(3) of the Code, bringing into force such provisions in relation to personal guar....
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....eparate species of individuals, for whom the Adjudicating authority was common with the corporate debtor to whom they had stood guarantee. The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to corporate debtors, set out in Part II is to be applied to such corporate persons, does not lead to incongruity. On the other hand, there appear to be sound reasons why the forum for adjudicating insolvency processes - the provisions of which are disparate- is to be common, i.e through the NCLT. As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor's insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors' dues from personal guarantors. 101. In view of the above discussion, it is held that the impugned notification is not an instance of legislative exercise, or amounting to impermissible and selective application of provisions of the Code. There is no compulsion in the Code that it should, at the ....
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...., members, creditors, guarantors and other stakeholders involved in the resolution plan." The relevant provisions of the Indian Contract Act are extracted below: "128. Surety's liability.-The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract. 129. "Continuing guarantee".-A guarantee which extends to a series of transactions, is called a "continuing guarantee". 130.Revocation of continuing guarantee.-A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor. 131.Revocation of continuing guarantee by surety's death.-The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions. 133.Discharge of surety by variance in terms of contract.-Any variance, made without the surety's consent, in the terms of the contract between the principal 1 [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance. 134.Discharge of surety by release or discharge of principal debtor.-....
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....ing down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. The regulations also make it clear that these persons are vitally interested in resolution plans as they affect them" 106. The rationale for allowing directors to participate in meetings of the CoC is that the directors' liability as personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated by this court, in V. Ramakrishnan where it was observed that the language of Section 31 makes it clear that the approved plan is binding on the guarantor, to avoid any attempt to escape liability under the provisions of the Contract Act. It was observed that: "25. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, m....
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....e a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act. This court observed as follows: "7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rs. 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the supplier of goods i.e. the Company in liq....
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....t of Defendant 2?' The trial court as well as the High Court, both came to the conclusion that in view of the provisions of Section 29 of the Act, the suit of the appellant was not maintainable. We have gone through the provisions of the said Act and in our opinion the decision of the courts below is not correct. Section 5 of the said Act provides for the owner to be liable for certain prior liabilities and Section 29 states that the said Act will have an overriding effect over all other enactments. This Act only deals with the liabilities of a company which is nationalized and there is no provision therein which in any way affects the liability of a guarantor who is bound by the deed of guarantee executed by it. The High Court has referred to a decision of this Court in Maharashtra SEB v. Official Liquidator, High Court, Ernakulam [(1982) 3 SCC 358 : AIR 1982 SC 1497] where the liability of the guarantor in a case where liability of the principal debtor was discharged under the insolvency law or the company law, was considered. It was held in this case that in view of the unequivocal guarantee such liability of the guarantor continues and the creditor can realize....
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.... liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract. 112. For the foregoing reasons, it is held that the impugned notification is legal and valid. It is also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors). The writ petitions, transferred cases and transfer petitions are accordingly dismissed in the above terms, without order on costs. ---------------- Notes: 1. Madhya Pradesh, Telengana, Delhi, etc. 2. S.O. 4126 (E) issued by the Ministry of Corporation Affairs, Central Government 3. "95. Application by creditor to initiate insolvency resolution process. (1) A creditor may apply either by himself, or jointly with other creditors, or through resolution professional to the Adjudicating Authority fo....
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....ends that provisions in all existing law that deals with insolvency of registered entities be removed and replaced by this Code. This has two distinct advantages in improving the insolvency and bankruptcy framework in India. The first is that all the provisions in one Code will allow for higher legal clarity when there arises any question of insolvency or bankruptcy. The second is that a common insolvency and bankruptcy framework for individual and enterprise will enable more coherent policies when the two interact. For example, it is common practice that Indian bank stake a personal guarantee from the firm's promoter when they enter into a loan with the firm. At present, there are a separate set of provisions that guide recovery on the loan to the firm and on the personal guarantee to the promoter. Under a common Code, the resolution can be synchronous, less costly and help more efficient recovery." "6.1 The applicability of the Code The Committee considers the following categories of entities to whom the individual insolvency and bankruptcy provisions shall apply: * Sole proprietorships where the legal personality of the proprietorship is n....