SCI (09.11.2023) in Dilip B Jiwrajka Vs. Union of India & Ors. [Writ Petition (Civil) No 1281 of 2021, Neutral Citation - 2023 INSC 1018] examined & upheld the constitutional validity of sections 95 to 100 of IBC.
No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC
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;
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;
The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and
The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.
Excerpts of the Order;
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 the IBC does not explicitly mention a hearing for a debtor, the requirement of a hearing has to be read into Section 100. In legal interpretation, when a statute is silent on a specific aspect, like a hearing, and there is no explicit prohibition, the courts may imply or read in such a requirement.27 The key point is that the lack of explicit mention of a hearing in a provision does not automatically make it unconstitutional because such a requirement can be read into the statute.
80. The legislature has evidently made provisions in Section 99, as we have construed earlier, to allow for the engagement of the debtor with the resolution professional before a report is submitted to the adjudicating authority. The process under Section 100 before the adjudicating authority must be compliant with the principles of natural justice. The adjudicating authority is duty bound to hear the person against whom an application has been filed under Section 94 or Section 95 before it comes to the conclusion as to whether the application should be admitted or rejected. The duty of the adjudicating authority to furnish a hearing attaches to its role and function as an authority which is entrusted to decide
questions of law and fact and to arrive at a conclusion on either to admit or reject the application filed by the debtor or the creditor under Chapter III of Part III.
81. The resolution professional in exercise of their duty under Section 99 may not embark on a roving enquiry into the affairs of the debtor or personal guarantor, as the case may be. The information sought by the resolution professional from the debtor, the creditor, or third parties must be relevant to the examination of the application of IRP. In this process, the debtor would inevitably be furnished with a fair opportunity by the resolution professional. Further, the aim of vesting such powers in the resolution professional combined with his duty to keep such information confidential meets the proportionality test which this court has devised for privacy under Article 21 of the Constitution. The nature of the resolution professional’s role, the powers, and its nexus with the legitimate aim of the legislation also lead us to the conclusion that 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 to a partnership debt, the application may be filed against (a) any one or more partners of the firm; or (b) the firm. The provisions of sub-section (2), in other words, cannot control the ambit of subsection (1) of Section 95.
84. The second incidental submission which was urged is that the provisions of Sections 95 to 100 are retroactive in nature since they would operate in respect of guarantees which may have been executed before the statutory provisions were brought into force. It is a well settled principle that a law is not retrospective in nature merely because some parts of the cause of action on which the law operates has arisen in the past. Prior to the commencement of the IBC, the field was governed by the Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920. With the enactment of the IBC, the insolvency resolution process in relation to individuals and partnership firms is governed by Part III of the IBC. The IBC cannot be held as operating in a retroactive manner so as to violate Article 14 of the Constitution.
85. For the above reasons, we have come to the conclusion that the impugned provisions of the IBC do not suffer from any manifest arbitrariness so as to offend Article 14 of the Constitution. This is subject to the clarification on the interpretation of Section 99 in the text of this judgement.
V. Conclusion
86. We summarise the conclusion of this judgment below:
(i) No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC
(ii) The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application;
(iii) The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise 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 the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and
(ix) The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.
# 87. The writ petitions are accordingly dismissed.
# 88. Applications for substitution of the name of the Bank/Company are allowed.
# 89. Pending applications, including the applications for intervention, stand disposed of.
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