Dilip B Jiwrajka vs Union of India & Ors.

Held: Provisions of ss.95 to 100 are not unconstitutional as they do not violate Articles 14 and 21– No judicial adjudication is involved at the stages envisaged in ss.95 to 99 – The resolution professional appointed u/s.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 preferred u/ss.94 or 95 – The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application – Further, 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 u/s.97(5), rejected – No such adjudicatory function is contemplated at that stage – The adjudicatory decision-making process of the nature suggested by the petitioners would not be implicated u/s.97(5) – To accept the submission of the petitioners would render the provisions of ss.99 and 100 otiose – The resolution professional may exercise the powers vested u/s.99(4) 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 – There is no violation of natural justice u/ss.95 to 100 – No judicial determination takes place until the adjudicating authority decides u/s.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 u/s.100 – The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction u/s.100 for determining whether to accept or reject the application – The purpose of the interim-moratorium u/s.96 is to protect the debtor from further legal proceedings – Principles of Natural Justice – Constitution of India – Article 14, 21 – Interpretation of Statutes – Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 – Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules 2019. [Paras 82, 86] Insolvency and Bankruptcy Code, 2016 – s.99 – Submission of report by resolution professional – Role ascribed to the resolution professional:

Held: The resolution professional does not possess an adjudicatory function in terms of the provisions of s.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 u/s.100 – The resolution professional does not have the kind of power which their counterpart has in Part II – The role u/s.99 which is ascribed to the resolution professional is that of a facilitator and is to gather relevant information on the basis of the application submitted u/s.94 or s.95 and after carrying out the process which is referred to in sub-section (2), sub-section (4) and sub-section (6) of s.99, to submit a report recommending the acceptance or rejection of the application – The use of expressions “examine the application”, “ascertain” and “satisfies the requirements” and “recommend” the acceptance or rejection of the application, leaves no manner of doubt that the resolution professional is not intended to perform an adjudicatory function or to arrive at binding conclusions on facts – The role of the resolution professional is purely recommendatory in nature and cannot bind the creditor, the debtor or, the adjudicating authority. [Para 54]

Insolvency and Bankruptcy Code, 2016 – Role of the adjudicating authority in applications under Part II and Part III: Held: 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 the role of the resolution professional; the imposition of the moratorium; and the stage at which the adjudicating authority steps in under Part II, on one hand, and Part III, on the other – 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. [Paras 60, 61] Insolvency and Bankruptcy Code, 2016 – s.99 – Process before the resolution professional, if ex parte:

Held: No – The provisions of s.99 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 professional has only a recommendatory value, the legislature has ensured that the recommendation is made after taking into account the information or, as the case may be, the explanation that is furnished by the debtor – Thus, it cannot be said that there is any element of bias in a report submitted by an RP who is nominated by the creditor. [Para 67] Insolvency and Bankruptcy Code, 2016 – Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 r/w para 21 of the First Schedule – Plea of the petitioners that the resolution professional is empowered to direct the personal guarantor and others to disclose sensitive personal information without a prior hearing and this demand for information, lacking an opportunity for the personal guarantor to be heard, raises concerns about violating the right to privacy:

Held: The resolution professional is only entitled to seek information strictly relevant to the examination of the application for IRP – Further, regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 r/w para 21 of the First Schedule, casts an obligation on the resolution professional to ensure confidentiality of all information relating to the insolvency process – The BLRC also acknowledges the information imbalance between debtors and creditors, necessitating the resolution professional’s investigative role in individual insolvency – Therefore, s.99 empowers the resolution professional to seek information – The right to privacy is subject to reasonable restraints – In the context of s.99(4), the legitimate aims of establishing a comprehensive framework for individual insolvency and aiding the adjudicating authority justify seeking personal financial information, balancing privacy rights with the objective. [Para 70]

Insolvency and Bankruptcy Code, 2016 – Role of the Adjudicating Authority – Plea of the petitioners that the adjudicating authority must be required to determine jurisdictional question like whether a debt exists or whether the relationship of debtor and creditor subsists, at the threshold:

Held: The adjudicating authority conducts an independent assessment, not solely relying on the resolution professional’s report, to decide the fate of applications u/ss.94 or 95 – The true adjudicatory function of the authority commences u/s.100 after the submission of the report – 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 suggested by the petitioners, namely, on whether there is a subsisting debt or whether the relationship of debtor and creditor subsists, would involve a decision on mixed questions of law and fact – The entire scheme of ss.99 and 100 implicates time lines laid down by Parliament – The entire process of implementing these time lines would be rendered nugatory if an adjudicatory role were to be read into the provisions of s.97(5) – The provisions of s.99 do not as such implicate any adverse civil consequences particularly if those provisions are read in the manner in which we now propose to elucidate. [Para 73, 74]

Interpretation of Statutes – Insolvency and Bankruptcy Code, 2016 – s.100 – Requirement of hearing for a debtor to be read into s.100: Held: Although s.100 does not explicitly mention a hearing for a debtor, the requirement of a hearing has to be read into s.100 – 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 – 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. [Para 80]

Words and Phrases – “in respect of any debt”, in clause (b)(i) and clause (b)(ii) of sub-section(1) of s.96, Insolvency and Bankruptcy Code, 2016:

Held: These words indicate that the interim-moratorium which is intended to operate by the legislature is primarily in respect of a debt as opposed to a debtor. Clause (b) of sub-section (1) indicates that the purpose of the interim-moratorium is to restrain the initiation or the continuation of legal action or proceedings against the debt – This must be contra-distinguished from the provisions for moratorium which are contained in s.14 in relation to the CIRP under Part II – s.14(1)(a) provides that on the insolvency commencement date, the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including proceedings in execution shall stand prohibited by an order of the adjudicating authority. [Paras 57, 58]

LIST OF CITATIONS AND OTHER REFERENCES

State Bank of India v Rajesh Agarwal (2023) SCC OnLine SC 342 – distinguished.

K.S. Puttaswamy (9 Judge Bench) v Union of India (2017) 10 SCC

1 – followed.

Lalit Kumar Jain v Union of India [2021] 3 SCR 1075:(2021) 9 SCC 321; Ravi Ajit Kulkarni v. State Bank of India (2021) SCC OnLine NCLAT 641; Ujjam Bai v State of Uttar Pradesh AIR [1963] SCR 778: (1962) SC 1621; Swiss Ribbons Private Limited v Union of India (2019)

4 SCC 17; Essar Steel India Limited v Satish Kumar Gupta (2020) 8 SCC

531 – referred to.

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