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JC - Legal Updates - Insolvency Resolution Process against Personal Guarantors - Constitutionally Valid!

Legal Updates

16 Nov 2023

Insolvency Resolution Process against Personal Guarantors - Constitutionally Valid!

Brief Overview:
 
The constitutional validity of provisions relating to the initiation of insolvency resolution process against personal guarantors under the Insolvency and Bankruptcy Code (“IB Code”) were upheld in a landmark decision of the Supreme Court.
 
Technical Details:
  
The Supreme Court while upholding the constitutional validity of Sections 95 to 100 of the IB Code (pertaining to insolvency resolution process of personal guarantors) has held that, the interim moratorium imposed is primarily in respect of a debt as opposed to a debtor. Further, not allowing an opportunity of hearing to the personal guarantors before admission of an insolvency petition filed against them is not unconstitutional.
 
The Supreme Court also held that the role of a resolution professional is that of a facilitator and is not to perform an adjudicatory function.
 
(To be updated after the judgment is uploaded).
 
JC Takeaways:
 
1)  Insolvency Proceedings can be initiated against personal guarantors under the IB Code.
 
2)  Interim moratorium is to protect the personal guarantors from the legal actions arising out of the debt.
 
3)  The role of a resolution professional under Section 99 of the IB Code is that of a facilitator, inter alia to gather relevant information and recommend acceptance or rejection of application, instead of playing an adjudicatory role.
 
For further details, please see:
 
Surendra B. Jiwrajika and Anr. v. Omkara Assets Reconstruction Private Limited
SLP(C) No. 016464/2021
 
For any queries / clarifications, please feel free to ping us and we will be happy to chat:

●  Mr. Ankit Sinha (ankit.sinha@jclex.com)
●  Ms. Palak Nenwani (palak.nenwani@jclex.com)
●  Mr. Ronit Chopra (ronit.chopra@jclex.com)