TaxTMI 
TaxTMI 
2024 (1) TMI 33
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....22, 729/2022, 663/2022, 726/2022, 666/2022, 670/2022, 776/2022, 760/2022, 696/2022, 707/2022, 736/2022, 887/2022, 885/2022, 766/2022, 683/2022, 791/2022, 794/2022, 700/2022, 716/2022, 717/2022, 733/2022, 720/2022, 724/2022, 773/2022, 816/2022, 752/2022, 789/2022, 759/2022, 754/2022, 781/2022, 785/2022, 803/2022, 784/2022, 807/2022, 800/2022, 834/2022, 821/2022, 832/2022, 858/2022, 835/2022, 837/2022, 863/2022, 894/2022, 1084/2022, 839/2022, 830/2022, 886/2022, 854/2022, 868/2022, 842/2022, 862/2022, 884/2022, 870/2022, 873/2022, 909/2022, 849/2022, 831/2022, 843/2022, 901/2022, 907/2022, 917/2022, 916/2022, 845/2022, 889/2022, 922/2022, 924/2022, 921/2022, 935/2022, 893/2022, 895/2022, 914/2022, 900/2022, 920/2022, 923/2022, 938/2022, 934/2022, 949/2022, 1121/2022, 822/2022, 1061/2022, 1042/2022, 1041/2022, 1040/2022, W.P.(C) Diary No. 29889/2022, W.P.(C) Nos. 941/2022, 1072/2022, 945/2022, 1043/2022, 947/2022, 1044/2022, 976/2022, 952/2022, 972/2022, 905/2022, 939/2022, 997/2022, 8/2023, 957/2022, 992/2022, 996/2022, 1099/2022, 1048/2022, 5/2023, W.P.(C) Diary No(s). 36132/2022, W.P.(C) Nos. 1003/2022, 1008/2022, 1006/2022, 1007/2022, 1033/2022, 1032/2022, 1083/2022, 11/2023, 1114....
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....mad B. F., AOR, Ms. Gunjan Mathur, Adv., Mr. Vaibhav Choudhary, Adv., Ms. Ayesha Zaidi, Adv., Mr. Rajdeep Saraf, Adv., Mr. Sidharth Kaushik, Adv., Mr. Prateek Sekseria, Sr. Adv., Mr. Rajat Sehgal, AOR, Mrs. Vandana Anand, Adv., Mr. Samyak Jain, Adv., Mr. Prateek Seksaria, Sr. Adv., Mr. Siddhath Bhatnagar, Sr. Adv., Mr. Sumesh Dhawan, Adv., Mr. Ankur Saigal, Adv., Mr. Mahesh Agarwal, Adv., Mr. Rohan Dakshni, Adv., Mr. Vatsala Kak, Adv., Ms. Geetika Sharma, Adv., Mr. Ankur Saigal, Adv., Mr. Pranjit Bhattacharya, Adv., Mr. Vishesh Malviya, Adv., Ms. Pracheta Kar, Adv., Ms. Kamakshi Sehgal, Adv., Mr. Divyanshu Srivastava, Adv., Ms. Pooja Vasandani, Adv., Mr. Shivam Shukla, Adv., Mr. Shaurya Shyam, Adv., Mr. Nishant Chothani, Adv., Mr. Yash Cheda, Adv., Mr. Archit Jain, Adv., Mr. Shashwat Singh, Adv., Mr. Aditya Sidhra, Adv., Ms. Kamakshi Saigal, Adv., Mr. E. C. Agrawala, AOR, Mr. Nadeem Afroz, Adv., Mr. Rajiv Dutta, Sr. Adv., Mr. Shravan Kumar Yammanur, AOR, Mr. Arvind Kumar Gupta, Adv., Ms. Henna George, AOR, Mr. Vijay K Singh, Adv., Mr. Himanshu Dubey, Adv., Mr. Kumar Shashwat Singh Sawno, Adv., Mr. Prem Prakash, AOR, Ms. Eshna Kumar, Adv., Mr. Masoom Shah, Adv., Mr. Pulkit Deora, Ad....
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...., Adv., Mr. Kushal Dube, Adv., Mr. P. Ashok, Adv., Mr. Siddhartha Chowdhury, AOR, Ms. Ritwika Nanda, Adv., Mr. Gaichangpou Gangmei, Adv., Ms. Lothungbeni T. Lotha, Adv., Mr. Yimyanger Longkumer, Adv., For M/S. Trust Legal, AOR, Mr. Ashutosh Thakur, AOR, Mr. Dhruva Vig, Adv., Mr. Chandra Pratap, Adv., Ms. Shruti Goyal, Adv., Mr. Gaurav, AOR, M/S. Mitter & Mitter Co., AOR, Mr. S.K. Gandhi, Adv., Mr. Raman Tomar, Adv., Ms. Nidhi Jaswal, AOR, Mr. Nakul Mohta, Adv., Ms. Misha Rohatgi, AOR, Ms. Alina Merin Mathew, Adv., Mr. Aviral Kumar Mishra, Adv., Ms. Bhavana Duhoon, AOR, Mr. Abhirup Dasgupta, Adv., Mr. Mohit D. Ram, AOR, Mr. Ishaan Duggal, Adv., Ms. Mukta Halbe, Adv., Mr. Anubhav Sharma, Adv., M/S. Pratap And Co., AOR, Mr. Narender Naik, Adv., Mr. Rahul Kumar, Adv., Mr. Debmalya Ganguli, Adv., Mr. Bebmalya Ganguli, Adv., Mr. Gopal Singh, AOR, Mr. Abhishek Agarwal, AOR, Mr. D. Abhinav Rao, AOR, Mr. Devadipta Das, Adv., Mr. Rahul Jajoo, Adv., Ms. Prerna Robin, Adv., Mr. C.S. Gupta, Adv., Mr. Vijay Kumar, Adv., Mr. Shekhar Kumar, AOR, Mr. Gaurav Nair, Adv., Mr. Mriganga Dutta, Adv., Mr. Ishwar Ahuja, Adv., Mr. Rahul Saxena, Adv., Ms. Bhairavi Sn, Adv., Ms. Anne Mathew, AOR, Mr. Anurag O....
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...., Mrs. Shikha Bhargava, Adv., Mr. Chand Qureshi, AOR, Mr. Rajiv K Virmani, Adv., Mr. Gaurav Jain, Adv., Mr. Atul Malhotra, Adv., Mr. Abhinav Agrawal, AOR, Ms. Swati Bhardwaj, Adv., Mr. Kartik Sharma, Adv., Mr. Soumik Ghosal, AOR, Mr. Sandeep S. Ladda, Adv., Mr. Soumik Ghosal, Adv., Mr. Gaurav Singh, Adv., Mr. Adnan A. Ansari, Adv., Ms. Niharika Ahluwalia, AOR, Mr. Arpit Sharma, Adv., Mr. Pranjit Bhattacharya, Adv., Mr. Vaibhav Niti, AOR, Ms. Raj Sarit Khare, Adv., Ms. Madhavi Agrawal, Adv., Mr. Divyanshu Agrawal, Adv., Mr. B. Srinivas, Adv., Mr. Madhur Mahajan, Adv., Ms. Anindita Pujari, AOR, Mr. Anant Prakash, AOR, Mr. Anand Dilip Landge, AOR, Mr. Apoorv Shukla, AOR, Mr. Manan Verma, AOR, Mr. Rajat Mittal, AOR, Mr. Hemant Chaudhri, Adv., Mr. Parminder Singh Bhullar, AOR, Mr. Arjun Mahajan, Adv., Mr. Davesh Bhatia, Adv., Mr. Raghvendra N Budholiya, Adv., Mr. Piyush Gautam, Adv., Mr. Sumit R. Sharma, AOR, Mr. Anish R. Shah, AOR, Mr. Anuj Tiwari, Adv., Mr. Nikhil Anand, Adv., Mr. Aditya Bharat Manubarwala, Adv., Mr. Saurabh K Mishra, Adv., Ms. Tuhina Mishra, Adv., Mr. Shubham Rajhans, Adv., Ms. Prakhar Shukla, Adv., Mr. Hitesh Kumar Sharma, Adv., Mr. Bharat Thakorlal Manubarwala, AOR....
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....mudi, AOR, Mr. M Gireesh Kumar, Adv., Mr. Ankur S. Kulkarni, AOR, Ms. Priya Bhalerao, Adv., Mr. Varun Kanwal, Adv., Mr. Kaushik Laik, AOR, Mr. S. Ram Babu, Adv., Mr. Angad Mehta, Adv., Mr. Ashay Kaushik, Adv., Mr. Shashank Tiwari, Adv., Mr. Aditya Soni, AOR, Mr. Jose Abraham, AOR, Ms. Vismai Rao, AOR, Mr. Harsh, Adv., Mr. Sameer Abhyankar, AOR, Mr. Rahul Kumar, Adv., Mr. Naman Jain, Adv., Mr. Aman Malik, AOR, Mr. Anish Maheswari, Adv., Mr. Vijay Kumar Maurya, Adv., Ms. Naazish Khan, Adv., Mr. Debesh Panda, AOR, Mr. Kaushik Poddar, AOR, Mr. Saurabh Jain, Adv., Mr. Ankur Sood, AOR, Mr. Soayib Qureshi, AOR, Mr. Nitin Mishra, AOR, Mr. Aayush Agarwala, Adv., Mr. Anuj P. Agarwala, Adv., Mr. Nishit Dhruva, Adv., Ms. Khushbu Chajjed, Adv., Mr. Yash Dhruva, Adv., Mr. Auritro Mukherjee, Adv., M/S. Pba Legal, AOR, Mr. Raj Kamal, AOR, Mr. Shikhar Sarin, Adv., Mr. Aseem Atwal, Adv., Mr. Kartavya Batra, Adv., Ms. Nupur Kaushik, Adv., Ms. Stuti, Adv., Ms. Aprajita Tyagi, Adv., Ms. Muskan Sidana, Adv., Mr. Sumit Sinha, AOR, Mr. Mandeep Kalra , AOR, Ms. Supriya Juneja, AOR, Ms. Hetu Arora Sethi, AOR, Ms. Lalit Mohini Bhat, Adv., Ms. Saumya Preeti Tandon, Adv., Mr. Rahul Jain, Adv., Mr. Anirudh Bhat....
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....yshwarya Chander, Adv., Mr. Mayank Mishra, Adv., Ms. Sushmita Gandhi, Adv., Mr. Amit Jajoo, Adv., Ms. Anamika, Adv., Ms. Nasrin, Adv., Ms. Tushita Ghosh, AOR, Mr. Rohit Anil Rathi, AOR, Mr. Radhey Agrawal, Adv., Mr. Yashas Rk, Adv., M/S. Cyril Amarchand Mangaldas Aor, AOR, Mr. R. Gopalakrishnan, AOR, Mr. R Sudhinder, Adv., Ms. Ekta Basin, Adv., Mr. Sanidhya Sonthalia, Adv., Mr. Rajesh Kumar Gautam, AOR, Mr. Anant Gautam, Adv., Ms. Shivani Sagar, Adv., Mr. Dinesh Sharma, Adv., Mr. Shamik Shirishbhai Sanjanwala, AOR, Mr. Shantanu Parmar, Adv., Mr. Ateev Mathur, Adv., Mr. Gagan Gupta, AOR, Mr. Amol Sharma, Adv., Ms. Megha Karnwal, AOR, Mr. Arun Aggarwal, AOR, Ms. Anshika Agarwal, Adv., Mr. Shivam Saini, Adv., Mr. Varun Bhatnagar, Adv., Ms. Madhu Yadav, Adv., Ms. Dipti Jain, Adv., Mr. Sidharth Sethi, AOR, Ms. Pragya Chauhan, Adv., Mr. Avinash Das, Adv., Mr. Kuna Saini, Adv., Mr. Pankaj Kumar Mishra, AOR, Mr. Vijay Kumar, Adv., Ms. Rekha Anand, Adv., Mr. Kanchan Kumar Jha, Adv., Mr. Pankaj Kumar Mishra, Adv., Mr. Badri Prasad Singh, AOR, Mr. Palash Singhai, AOR, Mr. Brijesh Kumar Tamber, AOR, Mr. Ritwik Parikh, AOR, Mr. Tushar Garg, Adv., Mr. Gaurav Garg, Adv., Mr. Gaurav Kumar, Adv., M....
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....lisa Kosaria, AOR, Mr. B. Shravanth Shanker, Adv., Mr. Venancio Dcosta, Adv., Ms. Astha Ojha, Adv., Ms. Gauri Goel, Adv., Mr. Faisal Sherwani, AOR, Mr. Vikas Mehta, AOR, Mr. Vinayak Sharma, Adv., Mr. Shakti Kanta Pattanaik, AOR, Mr. Santosh Kumar, Adv., Mr. Shantanu Sagar, AOR, Mr. Aayush Agarwala, Adv., Mr. Anuj P Agarwala, Adv., Mr. Nishit Dhruva, Adv., Ms. Khushbu Chajjed, Adv., Mr. Yash Dhruva, Adv., Mr. Auritro Mukherjee, Adv., M/S. PBA Legal, AOR, Ms. Charu Mathur, AOR, Ms. Hetu Arora Sethi, AOR, Mr. Yogesh Jagia, Adv. JUDGMENT Dr Dhananjaya Y Chandrachud, CJI Table of Contents I. Background ........................................................................................................... 16 II. Scheme of the IBC ................................................................................................ 17 III. Submissions......................................................................................................... 25 A. Submissions on behalf of the Petitioners .............................................. 25 B. Submissions on behalf of the Respondents ...........................................
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....lution Process" ("IRP") comprises of Sections 94 to 120. Prior to the introduction of the IBC, insolvency in relation to individuals was governed by the provisions of the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920, both of which stand repealed. 5. The provisions of the IBC apply to personal guarantors to corporate debtors. [Section 2(e), IBC as amended by the Amending Act 8 of 2018] In exercise of the power conferred by Section 1(3), a notification was issued on 15 November 2019 by the Union Government in the Ministry of Corporate Affairs. The notification brought into force Section 2(e), Section 78 (except with regard to fresh start process), Section 79, Section 94 to 187, Sections 239(2)(g), (h) and (i), Sections 239(2)(m) to (zc); Section 239(2)(zn) to (zs) and Section 249. The notification was challenged before this Court. In Lalit Kumar Jain v Union of India [(2021) 9 SCC 321] a two-Judge Bench inter alia, held that the liability of a guarantor is not discharged merely on the discharge of the corporate debtor. 6. By Amending Act 26 of 2018, Parliament introduced amendments inter alia, in Section 60 which provides for the jurisdiction of t....
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....r more partners of the firm; or the firm. Section 95(4) stipulates the requirements of an application made by a creditor for the initiation of the insolvency resolution process. The application is governed by the form and manner as prescribed by Rules framed by the Central Government under Section 239. A copy of the application has to be furnished to the debtor. Immediately on the filing of an application under Section 94 or Section 95, an interim moratorium operates by virtue of the statutory provisions of Section 96[3] and the adjudicating authority is required to appoint a resolution professional. 12. Where the application has been filed through a resolution professional, the adjudicating authority has to direct the Insolvency and Bankruptcy Board of India ["Board"] to confirm within seven days that there are no disciplinary proceedings pending against the resolution professional. Thereafter, the Board has to either confirm the appointment of the resolution professional or to reject it and nominate another resolution professional for conducting the resolution process within seven days. Alternatively, where the application has been filed by the debtor or creditor without ....
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.... required from the debtor or the creditor or any other person for the purposes of examining the application. The person from whom such a request is made is under an obligation to supply it within seven days. Sub-section (6) clarifies the limited ambit entrusted to the resolution professional. In terms of the provision, the resolution professional has to examine the application and ascertain that: (i) The application satisfies the requirement of Section 94 or Section 95; and (ii) The applicant has provided information and furnished an explanation which has been sought from him under sub-section (4). 17. After carrying out this process, the resolution professional may recommend the acceptance or rejection of the application in a reasoned report. A copy of the report is provided to the debtor or creditor, as the case may be, under sub-section (10). The jurisdiction of the adjudicating authority, upon the submission of the report, is stipulated in Section 100[6] 18. In terms of Section 100, the adjudicating authority has a time line of fourteen days from the submission of the report to either admit or reject the application for insolvency resolution process. In ....
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.... under Sections 94 and 95. III. Submissions 23. Now, it is in this backdrop that it would become necessary to analyse the submissions made on behalf of the parties. A. Submissions on behalf of the Petitioners 24. Dr Abhishek Manu Singhvi, senior counsel has set forth the following propositions for determination by the Court: (i) The IBC is an invasive in rem proceeding and is highly prejudicial against the respondent; (ii) Before initiating proceedings for insolvency under the IBC and the appointment of a resolution professional or, at the minimum, before the resolution professional takes any action, there must be a determination by a judicial body of the existence of a debt; (iii) The following ought not to take place automatically after the filing of an application under Section 95 without judicial adjudication/intervention, namely: (a) An automatic interim moratorium; (b) The automatic appointment of a resolution professional subject to worthiness; (c) The resolution professional seeking information from the guarantor; and (d) The resolution professional examining the information received and submitting a....
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....ional under Section 97(5), wide-ranging powers are granted by Section 99(4) to demand information not only from the debtor but also from third parties. As a result, the submission emphasizes the need for a judicial determination by the adjudicating authority before the stage outlined in Section 100. Senior counsel argues that without incorporating a requirement for a hearing before the adjudicating authority prior to the appointment of a resolution professional, the provisions of Sections 95 to 100 would be arbitrary and violative of Article 14. Therefore, it is urged that a judicial application of mind by the adjudicating authority is essential even before the appointment of a resolution professional to avoid such consequences. 27. The submission which has been urged by Dr Singhvi has been buttressed further in the course of the submissions urged before this Court by Mr Ritin Rai, senior counsel. 28. Mr Ritin Rai argued that: (i) A person as an applicant under Section 95 claims to be a creditor to whom a debt is owed. The existence of a debt which is owed is a jurisdictional fact which has to be determined by the adjudicating authority at the very threshold; ....
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....the resolution of corporate insolvency and Part III which deals with the resolution and bankruptcy of individuals and partnership firms contains distinct provisions; (iii) Under Sections 7 and 9 which deals with an application for initiation of corporate insolvency resolution process ["CIRP"] by a financial creditor and the operational creditor respectively, the admission of the application itself triggers the CIRP. Thereupon, by an operation of the statute, a moratorium comes into operation under the provisions of Section 14. Such a moratorium, inter alia, has a direct impact on the corporate debtor who is prevented from transferring, encumbering, alienating or disposing of any of its assets. Consequently, the admission of an application under Section 7 or Section 9 triggers serious consequences as a result of which the legislature has mandated the involvement of the adjudicating authority at that very stage itself; (iv) The moratorium under Section 96, unlike Section 14, is for the benefit of the guarantor or, as the case may be, the debtor. At the stage of an application under Section 94 or Section 95, no adjudication takes place. The interim moratorium under S....
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....d sufficient engagement for the debtor with the resolution professional; (iv) The imposition of a moratorium under Section 96 is intended to insulate the debtor and, unlike the moratorium under Section 14 or 101, is of no prejudice to the debtor; and (v) Consistent with the time lines which are provided by the IBC, it would be inappropriate to read compliance with the principles of natural justice at a stage anterior to Section 100 since it would dislocate the entire scheme of the IBC. 32. Mr Rakesh Dwivedi, senior counsel appearing on behalf of the State Bank of India, has urged that: (i) The concept of natural justice is flexible in nature which has to be tailored to the needs of a given situation; (ii) The object of CIRP in Part II and in Chapter III of Part III is entirely distinct: (a) Part II envisages the exclusion of the existing management from the affairs of the corporate debtor; (b) A drastic moratorium comes into place; and (c) Following an unsuccessful resolution plan, liquidation follows; (iii) In contrast, in terms of Chapter III of Part III, what is sought in the first instance is a repayment....
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....uence on a debtor or personal guarantor before the stage of adjudication under Section 100. Therefore, there is no breach of natural justice under Chapter III of Part III of the IBC; and (ii) The procedure outlined under Chapter III serves the avowed purpose of the IBC to work towards rehabilitation. Liquidation (of a corporate debtor) or bankruptcy (of an individual debtor or partnership) is only a last resort if rehabilitation fails. 34. Buttressing the above submissions Mr Dewan urged that prior to the notification of 15 November 2019, this Court had to determine whether insolvency proceedings could continue against a guarantor notwithstanding the discharge of a corporate debtor. This, it was urged, has been answered in the negative. 35. Mr Dewan has sought to draw a distinction between a moratorium under Section 14, on one hand, and an interim-moratorium under Section 96, submitting that the latter operates on the debt and not on the debtor. Consequently, the issuance of an interim-moratorium under Section 96 does not affect any right of the debtor. Moreover, it has been submitted that the insolvency resolution process under Part III can be instituted either by a....
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....d result in the dislocation of the very scheme of the IBC; (iii) In view of the provisions of Section 96, once a moratorium has taken effect, it would not be open to the bank to take action in the meantime. Hence, the time lines which have been set out in the statute must be looked at with a degree of strictness; (iv) There has been no challenge to the provisions of Section 94 of the IBC by any of the petitioners; and (v) The legislature has provided in Section 95(4) with the details of the documents which are to be provided to the resolution professional and, hence, the submission that the resolution professional is left into an uncharted discretion would be lacking in substance. IV. Analysis 40. While assessing the merits of the rival submissions, we propose to divide this judgment into three distinct parts. In the course of Part A, we propose to conduct a functional analysis comprising of: (a) A comparison between the stages of Part II and Part III of the IBC; (b) The role of the resolution professional in corporate as opposed to individual insolvency; (c) The impact of a moratorium under Section 14 of Part II, on one h....
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....h a resolution professional as well. 45. The fundamental aspect which needs to be noticed is that Part II of the IBC, on one hand, and Part III, on the other, deal with distinct processes for the resolution of insolvencies. The former deals with resolution of insolvencies of corporate entities, whereas the latter deals with the resolution of insolvencies of individuals and partnership firms. 2. The Role of the Resolution Professional in Corporate as opposed to Individual Insolvency 46. In the above backdrop, it would now be necessary to advert to the role which is ascribed to the resolution professional in Part II and Part III. While both the Parts use the expression "resolution professional", notably, the provisions of Part II contain a material difference from those of Part III relating to the role and functions of a resolution professional. Section 5(27) provides that a resolution professional, for the purposes of Part II, means an insolvency professional appointed to conduct the CIRP or the pre-packaged insolvency resolution process, as the case may be, and to include an interim resolution professional. Part II of the IBC provides in Section 16 for the adjudicating aut....
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....e initiation of liquidation broadly in situations where the resolution plan has not been received or the resolution plan is rejected by the adjudicating authority for non-compliance of the requirements specified for approval of the resolution plan in Section 31. These provisions elicit the vital role which is entrusted to the interim resolution professional initially and later to the resolution professional in cases involving corporate insolvencies. This role has to be contra-distinguished from the role which is ascribed to a resolution professional in Part III, who is appointed for the purpose of resolving insolvencies and bankruptcies for individuals and partnership firms. Sections 94 and 95, as we have noticed, provide for applications by the debtor or the creditor for the initiation of the insolvency resolution process in relation to these entities. The appointment of a resolution professional takes place under Section 97. In Part II, as we have noticed earlier, the adjudicating authority is contemplated to have an adjudicatory role right at the threshold. In contrast, in Chapter III of Part III, the appointment of a resolution professional is contemplated by Section 97. Under ....
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....t has to be furnished to the debtor or the creditor, as the case may be. The role of the resolution professional prior to the adjudication process by the adjudicating authority comes to a conclusion with the submission of a report. Upon the submission of the report, the matter then lies within the jurisdiction of the adjudicating authority. This is evident from the fact that Section 100(1) stipulates that the adjudicating authority has to pass an order either admitting or rejecting the application within fourteen days from the date of the submission of the report under Section 99. 54. The salient aspect which emerges from the above analysis is that the resolution professional does not possess an adjudicatory function in terms of the provisions of Section 99. In Chapter III of Part III, the legislature has dealt with the resolution of individual or partnership insolvencies and bankruptcies. Therefore, the legislature considered it appropriate to interpose the resolution professional before the adjudicatory function of the adjudicating authority commences under Section 100. The resolution professional does not have the kind of power which their counterpart has in Part II. No provi....
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....n the impact of the moratorium which is imposed under Section 96. 3. The impact of a moratorium under Section 14 of Part II vis-a-vis interim moratorium under Section 96 of Chapter III of Part III 57. Section 96, as its marginal note indicates, deals with an "interim-moratorium". In terms of Section 96, the interim moratorium takes effect on the date of the application. In other words, the very submission of an application under Section 94 or Section 95 triggers the interim moratorium which then ceases to have effect on the date of the admission of the application (under Section 100). The consequences which flow from an interim moratorium are specified in clause (b) of sub-section (1) of Section 96. The impact of the interim-moratorium under Section 96 is that a legal action or proceeding pending in respect of any debt is deemed to have been stayed and the creditors or the debtors shall not initiate any legal action or proceedings in respect of any debt. The crucial words which are used both in clause (b)(i) and clause (b)(ii) of sub-section (1) of Section 96 are "in respect of any debt". These words indicate that the interim-moratorium which is intended to operate by the leg....
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....n 100. 60. This analysis would indicate that the adjudicatory function of the adjudicating authority commences, under Part III, after the submission of a recommendatory report by the resolution professional. Evidently, bearing in mind the clear differences between the CIRP under Part II and insolvency resolution process for individuals and partnership under Part III, the legislature has carefully calibrated: (i) The role of the resolution professional; (ii) The imposition of the moratorium; and (iii) The stage at which the adjudicating authority steps in under Part II, on one hand, and Part III, on the other. 61. This is based on an intelligible differentia between the nature of the insolvency resolution process in the case of a corporate debtor, on one hand, and individuals or partnerships, on the other. B. Applicability of the Principles of Natural Justice 62. Having thus analysed the provisions of Part III of Chapter II, we shall now analyse the impact of the requirements of natural justice. It is a well settled principle of law that natural justice postulates two requirements: firstly, audi alterum partem i.e. an opportunity of being heard....
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....(4) of Section 99 empowers the resolution professional, in the course of carrying out an examination of an application to seek further information or explanation in connection with the application from the debtor or the creditor. The expression "in connection with the application" indicates that Parliament has not contemplated a roving enquiry by the resolution professional but an enquiry for the purpose of making the ultimate recommendation in the report on the nature of the application itself. The resolution professional, after carrying out the process which is evidenced in sub-sections (2) and (4), in particular, is then required to make an ascertainment in terms of sub-section (6). It is thereafter that the resolution professional would submit a report either recommending the acceptance or rejection of the application together with the reasons in support of the report. 67. The provisions of Section 99 thus leave no manner of doubt that the process which takes place before the resolution professional is not an ex parte process in the absence of a debtor against whom the insolvency resolution process is sought to be initiated. Though, the ultimate report of the resolution prof....
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.... Para 48.] underscores the non-adjudicatory nature of the resolution professional's role. Further support for the administrative role of the resolution professional is drawn from the BLRC's drafting instructions, affirming that the resolution professional's role is primarily administrative for information and documentation collation and verification of the creditor's claim under Section 95 of the IBC. [The Report of the Bankruptcy Laws Reforms Committee, Volume I, 4 November 2015, at 115-118.] 70. We would also like to deal with the submission that the resolution professional is empowered to direct the personal guarantor and others to disclose sensitive personal information without a prior hearing. This demand for information, lacking an opportunity for the personal guarantor to be heard, raises (according to the petitioners) concerns about violating the right to privacy. We are of the considered view that the resolution professional, operating under the regulatory oversight of the Board, plays a vital role in the effective functioning of the insolvency process and contributes significantly to its efficiency. Firstly, the resolution professional is only entitled to s....
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....s of receiving the report, either admitting or rejecting the application filed under Sections 94 or 95, depending on the circumstances. Importantly, the adjudicating authority does not mechanically accept or reject applications based solely on the resolution professional's report. Instead, it must actively engage in a fair process, affording the debtor a fair opportunity to present their case. The adjudicating authority arrives at its determination by considering arguments supported by relevant material particulars. In essence, the adjudicating authority conducts an independent assessment, not solely relying on the resolution professional's report, to decide the fate of applications under Section 94 or 95 of the IBC. 74. The true adjudicatory function of the authority commences under Section 100 after the submission of the report. Another reason why we are not inclined to accept the submission is that what is described as a jurisdictional question by the petitioners may not be a simple matter to be decided as a question of law. The jurisdictional questions of the nature which have been suggested by the petitioners, namely, on whether there is a subsisting debt or whether....
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....ions where its inclusion would obstruct the entire process. In that case, the court specifically addressed the duties of banking authorities, emphasizing the obligation to adopt fair procedures and afford borrowers a hearing before classifying their accounts as fraud accounts, given the serious penal and civil consequences. The court further held that reasoned orders must be passed when categorizing an account as a fraud account. It then clarified that no hearing is required before lodging an FIR. In other words, it held that the principles of audi alteram partem must be read into the Circular issued by the Reserve Bank of India on the classification of bank accounts as fraud accounts. However, a crucial distinction is made here, signifying that the circumstances of this case are distinct from those considered in Rajesh Agarwal (supra). The classification of the borrowers account as fraud without giving any opportunity of being head entailed significant material consequences, including the disability on accessing institutional finance. That may be contra-distinguished with the procedure under Section 95 to Section 99. In this, a person is not deemed a debtor but a resolution profes....
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....ebtor shall not be entitled to dispute the validity of the debt. This provision in subsection (3) operates only in relation to the recommendatory function of the resolution professional. That provision cannot operate to bind the adjudicatory function of the adjudicating authority when it exercises its jurisdiction under Section 100. C. Challenge to the constitutional validity 79. In view of the above analysis, it now becomes necessary to analyse as to whether there is any substance in the challenge to the constitutional validity of the provisions of Sections 95 to 100. We have already indicated that the function of the resolution professional under Section 99 is purely facilitative. The task before the resolution professional is not to adjudicate but to collate and collect information on the application under Section 94 or Section 95 before submitting a report to the adjudicating authority. When interpreting Part II of the IBC, the Courts have inferred the necessity of granting an opportunity to a debtor before initiating the insolvency resolution process against them. This includes the provision of a copy of the application and all relevant documents. Although Section 100 of....
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....the impugned provisions are compliant with Article 14 of the Constitution. Therefore, we hold that Sections 95 to 100 of the IBC are not unconstitutional. 82. For the reasons which we have already indicated, we have come to the conclusion that an adjudicatory decision-making process of the nature which has been suggested by the petitioners would not be implicated under Section 97(5). To accept the submission of the petitioners would render the provisions of Sections 99 and 100 otiose. 83. Before concluding, it would be necessary to deal with two incidental submissions which were heard during the course of the hearing. It is sought to be urged that sub-section (2) of Section 95 indicates that an application under sub-section (1) can be initiated only in respect of a partnership debt which is owed to the creditor. We are of the view that this is not a correct reading of Section 95. Subsection (1) indicates that a creditor may apply either by themselves or jointly with other creditors or through a resolution professional to the adjudicating authority for initiating an IRP. Sub-section (2) provides that in a situation where a creditor has applied under sub-section (1) in relation....
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.... of judicial review; (iv) The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application; (v) There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional; (vi) No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100; (vii) The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application; (viii) The purpose of th....
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.... been made against one partner in a firm, any other application against another partner in the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned application is pending for adjudication and such Adjudicating Authority may give such directions for consolidating the proceedings under the applications as it thinks just. (4) An application under sub-section (1) shall be accompanied with details and documents relating to- (a) the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application; (b) the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and (c) relevant evidence of such default or non-repayment of debt. (5) The creditor shall also provide a copy of the application made under sub-section (1) to the debtor. (6) The application referred to in sub-section (1) shall be in such form and manner and accompanied by such fee as may be prescribed. (7) The details and documents required to be submitted under sub-section (4) shall be such as may be speci....
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....ted by the Adjudicating Authority under sub-section (5) shall be provided a copy of the application for insolvency resolution process. [5] "99. Submission of report by resolution professional.-(1) The resolution professional shall examine the application referred to in section 94 or section 95, as the case may be, within ten days of his appointment, and submit a report to the Adjudicating Authority recommending for approval or rejection of the application. (2) Where the application has been filed under section 95, the resolution professional may require the debtor to prove repayment of the debt claimed as unpaid by the creditor by furnishing- (a) evidence of electronic transfer of the unpaid amount from the bank account of the debtor; (b) evidence of encashment of a cheque issued by the debtor; or (c) a signed acknowledgment by the creditor accepting receipt of dues. (3) Where the debt for which an application has been filed by a creditor is registered with the information utility, the debtor shall not be entitled to dispute the validity of such debt. (4) For the purposes of examining an application, the resolution professional may seek such f....
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....udicating Authority on the basis of report submitted by the resolution professional that the application was made with the intention to defraud his creditors or the resolution professional, the order under sub-section (1) shall record that the creditor is entitled to file for a bankruptcy order under Chapter IV." [7] 101. Moratorium.- (1) When the application is admitted under section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on the date the Adjudicating Authority passes an order on the repayment plan under section 114, whichever is earlier. (2) During the moratorium period- (a) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed; (b) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and (c) the debtor shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein; (3) Where an order admitting the application under section 96 has been m....