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2025 (6) TMI 1886 - HC - IBCChallenge to petition filed u/s 95 of the Insolvency and Bankruptcy Code 2016 - Jurisdiction of NCLT to entertain the application filed by R1 u/s 95 of the IB Code - petitioner has submitted that the very initiation of proceedings by the NCLT by way of the impugned order is contrary to various provisions of the IB Code - HELD THAT - The Supreme Court in Dilip B Jiwrajka Vs.Union of India Ors. 2024 (1) TMI 33 - SUPREME COURT considered a challenge to the constitutional validity of Sections 95 to 100 of the IB Code. One of the issues examined was as to whether the parties must be heard at the very inception even prior to the commencement of enquiry by the Resolution professional. One of the submissions of the Appellants in Dilip B.Jiwrajka apart from the challenge to the vires of the provisions was that they should be heard even at the stage of appointment of Resolution Professional on the jurisdictional facts that may arise in the matter. This contention was negatived as the Bench was of the view that there was sufficient mechanism for the debtor/guarantor to be heard after the report of the Resolution Professional was submitted. The nature of enquiry by the Resolution Professional is only facilitative and intended to collate necessary facts in order to decide whether the application seeking insolvency process may be proceeded with at which stage the parties will be heard. As the Report of the Resolution Professional is only recommendatory in nature and the guarantor will be heard thereafter at the stage of adjudication after a copy of the Report is supplied to them under Section 99(10) of the IB Code there is no violation of the principles of natural justice. The ratio of this judgement is applicable to the present matter on all fours. A perusal of the objections reveals that the Petitioners have challenged the maintainability of the s.195 applications even before the Tribunal. Thus it is only appropriate for the Tribunal to consider the same. Even assuming that the decision of the NCLT is adverse to the Petitioners they have effective remedies including an efficacious alternate statutory remedy against such adjudication. Petition dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include:
2. ISSUE-WISE DETAILED ANALYSIS Jurisdiction of NCLT under Section 95 of the IB Code The petitioners contended that the NCLT lacks jurisdiction to entertain Section 95 applications against them as personal guarantors because the principal company had been wound up earlier by an order dated 28.11.2012. They argued that the insolvency proceedings against guarantors were misconceived and barred by the prior winding-up. The Court examined this contention in light of the statutory scheme of the IB Code and relevant judicial precedents. The IB Code explicitly provides for initiation of insolvency resolution processes against personal guarantors under Sections 95 to 100. The winding-up of the principal company does not ipso facto oust the jurisdiction of the NCLT to entertain such applications against guarantors. The Court observed that the NCLT is the designated adjudicatory authority under the IB Code and is empowered to examine such applications. The Court relied heavily on the Supreme Court's ruling in a recent authoritative judgment which upheld the constitutional validity of Sections 95 to 100 and clarified the scope of jurisdiction of the NCLT in insolvency proceedings against personal guarantors. This precedent confirmed that the NCLT's jurisdiction is not barred merely because the principal company has been wound up, and that guarantors can be subjected to insolvency resolution independently. Appointment of Interim Resolution Professional and Natural Justice The petitioners challenged the appointment of the IRP by the NCLT as premature and violative of natural justice, asserting that they ought to have been heard on jurisdictional and maintainability issues before such appointment. The Court analyzed the procedural framework under Sections 95 to 100 of the IB Code, particularly referencing the Supreme Court's detailed analysis which held that no judicial adjudication occurs at the stage of appointment of the Resolution Professional. The Resolution Professional's role is facilitative and investigatory, aimed at collating facts and submitting a recommendatory report on whether the insolvency resolution process should commence. The Court emphasized that the statute does not require a hearing on jurisdictional facts prior to the appointment of the Resolution Professional. To impose such a requirement would amount to rewriting the statute, which is impermissible. The Resolution Professional's report is not binding and the guarantors have the opportunity to be heard subsequently when the adjudicatory authority decides on acceptance or rejection of the application under Section 100. Thus, the Court concluded that there is no violation of natural justice at the stage of appointment of the IRP and that the statutory scheme provides adequate safeguards for the guarantors to participate meaningfully at the adjudication stage. Maintainability of Writ Petitions The respondents contended that the writ petitions challenging the NCLT's orders are not maintainable as the objections and challenges to the Section 95 applications are pending before the NCLT, which is the appropriate forum for such disputes. The Court agreed with this position, holding that the writ petitions are premature and misconceived. The Court noted that the petitioners have alternative efficacious statutory remedies available to them to challenge any adverse decisions of the NCLT. It is therefore inappropriate to interfere at this stage through writ jurisdiction. The Court directed that the maintainability and other preliminary issues be considered by the NCLT as a preliminary matter before proceeding to the merits of the insolvency applications. Application of Supreme Court Precedent and Constitutional Validity The Court extensively referred to the Supreme Court's ruling which:
The Court found the reasoning in this precedent directly applicable and binding on the present matter. Treatment of Competing Arguments The petitioners' arguments centered on jurisdictional objections, the winding-up of the principal company, and alleged procedural unfairness at the inception of proceedings. The Court rejected these arguments on the basis that the statutory scheme contemplates insolvency proceedings against guarantors independent of the principal company's status, and that procedural safeguards are embedded in the Code. The respondents' arguments advocating maintainability of the NCLT proceedings and the availability of statutory remedies were accepted. The Court declined to interfere via writ jurisdiction, emphasizing the need to respect the specialized adjudicatory mechanism under the IB Code. 3. SIGNIFICANT HOLDINGS "No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC." "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... The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application." "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." "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." "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." "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 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." Final determinations:
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