Summary
The Supreme Court upheld Sections 95–100 of the Insolvency and Bankruptcy Code against challenges under Articles 14 and 21. The resolution professional performs a facilitative, recommendatory role, with debtor participation and information requests confined to the application. Judicial adjudication begins under Section 100, when the authority must independently decide after a fair hearing. No additional adjudication of jurisdictional facts is required at appointment under Section 97.
Issues
- Whether the personal insolvency procedure under Sections 95–100 violates equality, privacy or natural justice.
- Whether jurisdictional facts must be judicially determined before appointment of a resolution professional.
- What limits apply to information gathering and the subsequent adjudication.
Provisions considered
- Sections 95–100, Insolvency and Bankruptcy Code, 2016The challenged procedure was upheld, subject to the Court’s construction requiring debtor participation, confined information gathering and independent adjudication with a hearing under Section 100. (¶ 65–86)
- Section 96, contrasted with Sections 14 and 101, Insolvency and Bankruptcy Code, 2016The interim moratorium protects against proceedings in respect of debts; unlike the later moratorium it does not itself restrain the debtor’s alienation of assets. (¶¶ 57–60, 76)
- Section 99(2), (3), (4), (9) and (10), Insolvency and Bankruptcy Code, 2016Debtor engagement, relevant information, reasons and communication of the report safeguard the facilitative process. The information-utility restriction does not bind adjudication under Section 100. (¶ 65–78)
- Articles 14 and 21, Constitution of IndiaThe distinct statutory stages were rational and not manifestly arbitrary; application-related information gathering with confidentiality safeguards met the privacy proportionality requirement. (¶¶ 70–71, 79–86)
Held
- No judicial adjudication occurs under Sections 95–99. The resolution professional collates and examines relevant facts and makes a reasoned recommendation which binds neither the debtor, creditor nor adjudicating authority. (¶¶ 51–55, 86(i)–(ii), 86(vi))
- Requiring adjudication of subsisting debt or creditor-debtor status at appointment under Section 97(5) would rewrite the statutory sequence and undermine Sections 99 and 100. (¶¶ 68–74, 82, 86(iii))
- The debtor must have a fair opportunity to participate before the resolution professional. Section 99(4) authorises information strictly connected to examination of the application, including requests to third parties, and does not permit a roving inquiry. (¶¶ 65–67, 75–81, 86(iv)–(v))
- Section 99(3), concerning debt registered with an information utility, governs the professional’s recommendatory function and cannot restrict the authority’s independent adjudicatory jurisdiction under Section 100. (¶¶ 52, 78)
- The authority must afford a full and fair hearing and independently consider the relevant material before admission or rejection under Section 100; it cannot mechanically adopt the report. (¶¶ 73–80, 86(vi)–(vii))
- The Section 96 interim moratorium operates in respect of debts to protect the debtor from further proceedings. It does not itself freeze the debtor’s assets or legal rights. (¶¶ 57–60, 76, 86(viii))
- Section 95(2) does not confine Section 95(1) to partnership debts. Application to earlier-executed guarantees did not make the framework unconstitutionally retrospective. (¶ 83–85)
- Sections 95–100, construed with the stated safeguards, violate neither Article 14 nor Article 21 and are constitutionally valid. (¶ 79–86)
Result
Writ petitions dismissed. Substitution applications allowed; pending applications, including intervention applications, disposed of.