TMI Blog2021 (5) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... ent provisions of the Act had a specific design: to fulfill the objectives underlying the Code, having regard to its priorities. Plainly, the Central Government was concerned with triggering the insolvency mechanism processes in relation to corporate persons at the earliest. Therefore, by the first three notifications, the necessary mechanism such as setting up of the regulatory body, provisions relating to its functions, powers and the operationalization of provisions relating to insolvency professionals and agencies were brought into force. These started the mechanism through which insolvency processes were to be carried out and regulated by law. The Adjudicating Authority for personal guarantors will be the NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pate in meetings of the CoC is that the directors liability as personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated. The sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor s liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. Thus, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han,Adv Ms. Abhilasha Shrawat, Adv Mrs. Aarthi Rajan, AOR Mr. Vikram Pooserla, Adv. Mr. Tadimalla Bhaskar Gowtham, Adv. Mr. Abhinay Reddy M. Adv. Mr. Nitish Bandary, Adv. Mr. Jeevan Kumar Nandam, Adv Mr. Keertivardhan Kommareddy, Adv Ms. Aahana Madhyala, Adv Ms. Krishma Nedungadi, Adv Ms. Achala Siri Doddala, Adv. Ms. Shreya Devaki, Adv. Mr. Jyoti Kumar Singh, Adv. Mr. P.R. Rajhans, Adv. Mrs. Paroma Sengupta, Adv. Mr. Sandeep Singh, AOR Mr. Vishal Arun, AOR Mr. Arvind Kumar Gupta, Adv. Ms. Purti Gupta, Adv. Ms. Henna George, Adv. Ms. Shivani, Adv. Mr. Ravindra S Chingale, AOR Mr. Yashraj Singh Deora, AOR Ms. Sonal Mashankar, Adv. Ms. Shivangi Sud, Adv. Ms. Prakriti Roy, Adv. Mr. PS Narasimha, Sr. Adv Mr. M Srinivas R. Rao, Adv. Mr. Sarath S. Janardanan, Adv. Ms. Aditi Tripathi, Adv. Ms. Sindoora VNL, Adv. Mr. Mukunda, Adv. Mr. Kailashnath PSS, Adv. Mr. Abid Ali Beeran P, AOR Mr. Sandeep Singh, AOR Mr. Krishna Dev Jagarlamudi, AOR Mr. Anish R. Shah, AOR Mr. Pradeep Aggarwal, Adv. Ms. Soumya Sharma, Adv. Mr. Lal Pratap Singh Adv. Mr. Umesh Pratap Singh, Adv. Mr. Arjun Aggarwal, Adv. Ms. Ruchi Kohli, AOR Mr. Rohit Sharma, Adv Mr. Pranav Bhaskar, Adv. Mr. Rouna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha Sehgal, Adv. Mr Satish C. Kaushik, Adv Mr. Aakarshan Aditya, AOR M/S. Cyril Amarchand Mangaldas, AOR Mr. Arun Aggarwal, AOR Ms. Anshika Aggarwal, Adv Ms. Ekjot Bhasin, Adv. Mr. Mritunjay Kumar Sinha, AOR Mr. Ankit, Adv. Ms. Kavita Jha, AOR Ms. Sandhya Iyer, Adv. Mr. Udit Naresh, Adv Mr. O. P. Gaggar, AOR Ms. Astha Prasad, Adv. Mr. Aditya Gaggar, Adv Mr. Ankit Anandraj Shah, AOR Mr. Brijesh Kumar Tamber, AOR Mr. Kinshuk Chatterjee, Adv. Mr. Kushal Bansal, Adv. Ms. Srishti Gupta, Adv. Mr. Sujoy Chatterjee, AOR Mr. Atul Sharma, Adv Mr. Abhishek Sharma, Adv. Ms. Ashly Cherian, Adv. Mr. Indraprateek Naidu, Adv. Mr. Gautam Talukdar, AOR Mr. Ateev Mathur, Adv Mr. Ajay Monga, Adv Mr. Amol Sharma, Adv Mr. Gagan Gupta, AOR Mr. Abishek Jebaraj, AOR Ms. Nupur Raut, Adv. Mr. Vivek A. Vashi, AOR Ms. Shilpa Sengar, Adv. Mr. Biswajit Dubey, Adv Mr. Madhav Kanoria, Adv Ms. Surabhi Khattar, Adv Mr. Prafful Goyal, Adv Ms. Vani Sharma, Adv Mr. Sumit Attri, AOR Ms. Pallavi Langar, AOR Mr. Ravindra Sadanand Chingale, AOR Mr. Malak Manish Bhatt, AOR Mr. Sandeep Singh, AOR Ms. Anindita Pujari, AOR Mr. Yadav Narender Singh, AOR By Courts Motion, AOR Mr. Mithu Jain, AOR Mr. Deepayan Mandal, AOR Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W.P. (C) No. 207/2021, W.P.(C) No. 160/2021, W.P.(C) No. 168/2021, W.P.(C) No. 205/2021, W.P.(C) No. 209/2021, W.P.(C) No. 194/2021, W.P.(C) No. 187/2021, W.P.(C) No. 180/2021, W.P.(C) No. 182/2021, W.P.(C) No. 203/2021, W.P.(C) No. 220/2021, W.P.(C) No. 229/2021, W.P.(C) No. 217/2021, W.P.(C) No. 221/2021, W.P.(C) No. 225/2021, W.P. (C) No. 239/2021, W.P.(C) No. 240/2021, W.P.(C) No. 228/2021, W.P.(C) No. 224/2021, W.P.(C) No. 234/2021, W.P.(C) No. 260/2021 and W.P.(C) No. 262/2021, W.P. (C) No. 283/2021. J U D G M E N T S. RAVINDRA BHAT, J. 1. This judgment will dispose of common questions of law, which arise in various proceedings preferred under Article 32 of the Constitution of India, as well as transferred cases under Article 139A; those causes were transferred to the file of this court, from various High Courts 1 , as they involved interpretation of common questions of law, in relation to provisions of the Insolvency and Bankruptcy Code, 2016 (hereafter the Code ). I The Petitions and Common Grievances 2. The common question which arises in all these cases concerns the vires and validity of a notification dated 15.11.2019 issued by the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought into force Section 2(e), Section 78 (except with regard to fresh start process), Sections 79, 94-187 (both inclusive); Section 239(2)(g), (h) (i); Section 239(2)(m) to (zc); Section 239 (2)(zn) to (zs) and Section 249. 5. After publication of the impugned notification, many petitioners were served with demand notices proposing to initiate insolvency proceedings under the Code. These demand notices were based on various counts, including that recovery proceedings were initiated after invocation of the guarantees. This led to initiation of insolvency resolution process under Part-III of the Code against some of the petitioners. The main argument advanced in all these proceedings on behalf of the writ petitioners is that the impugned notification is an exercise of excessive delegation. It is contended that the Central Government has no authority legislative or statutory to impose conditions on the enforcement of the Code. It is further contended as a corollary, that the enforcement of Sections 78, 79, 94-187 etc. in terms of the impugned notification of the Code only in relation to personal guarantors is ultra vires the powers granted to the Central Government. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the original Section 2(e) did not come into force at all, the substituted Section 2(e) has come into force w.e.f. 23.11.2017. It is urged that this court should, therefore, set aside the impugned notification. 9. The petitioners also attack the impugned notification on the ground that it suffers from non-application of mind, because the Central Government failed to bring into effect Section 243 of the Code, which would have repealed the Presidency Towns Insolvency Act, 1909 ( PTI Act hereafter) and the Provincial Insolvency Act, 1920 ( PIA hereafter). Prior to issuance of the impugned notification, insolvency proceedings against an individual could be initiated only in terms of the said two Acts. After enactment of the Code, insolvency proceedings against personal guarantors to corporate debtors would lie before the Adjudicating Authority, in terms of Section 60 of the Code, although they would be governed by the said two Acts. With the enforcement of the impugned provisions, rules and regulations, insolvency proceedings can now be initiated against personal guarantors to corporate debtors under Part III of the Code, and also under the PTI Act and the PIA. Since Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantors to corporate debtors. Rather, Part III of the Code does not apply to personal guarantors to corporate debtors at all. (ii) the provisions of Part III of the Code, which are partly brought into effect by the impugned notification, provide a single procedure for the insolvency resolution process of a personal guarantor, irrespective of whether the creditor is a financial creditor or an operational creditor. Treating financial creditors and operational creditors on an equal footing in Part III of the Code is in contrast to Part II of the Code, which provides different sets of procedures for different classes of creditors. 12. The petitioners rely on Swiss Ribbons (P.) Ltd. v. Union of India (2019) 4 SCC 17., where this court upheld the difference in procedure for operational creditors and financial creditors on the basis that there are fundamental differences in the nature of loan agreements with financial creditors, from contracts with operational creditors for supplying goods and services. Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee has been invoked by the creditor and remains unpaid in full or part. The parent statute does not define guarantor . It is pointed out that though Section 239(1) of the Code empowers the Insolvency Board to make rules to carry out the provisions of the Code, those rules cannot define a term that is not defined in the Code, as it is likely to result in class legislation for one category of guarantors, i.e., personal guarantors to corporate debtors. The impugned notification is therefore ultra vires the Code. II Contentions of the Petitioners 16. Mr. Harish Salve, learned senior counsel appearing on behalf of the petitioners, urged that Section 1(3) of the Code authorizes or empowers the Central Government only to bring provisions of the Code into force on such date by a notification in the Official Gazette. The proviso to this Section categorically provides that different dates may be appointed for bringing different provisions into force. Section 1(3) is an instance of 'conditional legislation', where the legislature has enacted the law, and the only function assigned to the executive is to bring the law into operation at such time as it may decide. Such leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further by Mr. Salve, that the impugned notification is ex facie in violation of the principles of delegation, inasmuch as the Central Government has effected a classification of individuals- and sought to ensure that insolvency issues of one category of individuals, i.e. personal guarantors to corporate debtors, are considered along with insolvency proceedings of corporate debtors. The distinction between Part II and Part III, the forum and the remedies available to creditors of individuals is no longer available to this category, i.e. personal guarantors, whose insolvency issues are to be now considered along with insolvency process of corporate debtors. It is argued that the power of classification is legislative and that the impugned notification is an instance of the executive acting beyond its jurisdiction. Mr. Salve relied upon observations made by the Privy Council in R v Burah 1878 (3) App. Cases 889., that laws cannot be said to empower general legislative authority, on the executive, or to exercise power not granted to it under the parent Act. 19. It was argued that the Central Government mistakenly assumed that inclusion of personal guarantors in the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it can in no sense be held to be legislation conferring legislative power on the Provincial Government Mr. Narasimha also cited Sardar Inder Singh v. State of Rajasthan 1957 SCR 605 at para 10. and Hamdard Dawakhana v. Union of India 1960 (2) SCR 671 at para 28. and urged that when legislation is complete, and the executive is left to apply the law to an area or determine the time and manner of carrying it out, that is the only permissible task. However, the executive cannot perform its task outside the power granted to it, choosing the subjects to which the law is to apply. 21. Mr. Narasimha referred to the previous notifications, bringing into force provisions of the Code on different dates. He submitted that none of them brought into force some provisions for a limited sub-category, or a class of individuals or entities. He referred to one notification dated 30.11.2016 that brought into force certain provisions of Part II of the Code, within which section 2(a) to 2(d) were also notified. However, it was submitted that irrespective of the notification, Part II was brought into force and it applied to every entity contemplated to be in its coverage. Under the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its application to one sub category of individuals (all of whom are covered by the chapter, which is opened by Section 78) i.e., personal guarantors. This selective application is naked classification exercised by the government conferred with conditional legislative powers. 25. It was next argued that Part III of the Code relating to individuals and partnership firms are outlined in various sections of the Act. Of these chapters, I, III to VII, all of which have been notified are operative components of the Code, relatable to individuals and partnership firms. They can certainly be brought into force independently, whenever the executive is of the opinion that it is appropriate to do so. However, Section 2 cannot be used for this purpose, certainly not for bifurcating individuals and partnership firms into subcategories and then to apply Part II provisions exclusively to personal guarantors. It is argued that Section 2 of the Code is not an operative component, but more merely a descriptive component. Counsel argued that the nature of Section 2 is similar to an amendable descriptive component. Elaborating, it was submitted that an amendable descriptive component of an enactm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the corporate debtor on the one hand, and the personal guarantor, on the other hand, to be clubbed, is, in effect, a legislative exercise, unsupported by any express provision of the Code. It is also submitted that the object of the Code is to ensure a revival of corporate debtors. On the other hand, if an application against a personal guarantor is admitted, a moratorium under Section 101 of the Code automatically applies. This results in stay of all pending proceedings or legal claims in respect of all debts. Since the debt of the personal guarantor is the same as the debt of the corporate debtor, all pending proceedings, including the corporate insolvency resolution plan initiated against a corporate debtor would be stayed on admission of an application for initiation of the resolution plan against a personal guarantor. This would in fact, amount to treating unequals as equals by a sheer legislative fiat. In other words, argued counsel, the moratorium which would operate in respect of pending resolution plans of corporate debtors, upon the initiation of an application against personal guarantors puts them on the same level, which the statute itself does not permit. 28. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantors under the personal guarantee would stand completely discharged. Reliance is placed on the judgment of the Punjab and Haryana High Court in Kundanlal Dabriwala v. Haryana Financial Corporation (2012) 171 Comp Cas 94., which ruled that: on a fair reading of the provisions of the Contract Act, I am inclined to hold that as the liability of the surety is co-extensive with that of the principal debtor, if the latter's liability is scaled down in an amended decree, or otherwise extinguished in whole or in part by statute, the liability of the surety also is pro tanto reduced or extinguished. 30. Reliance was also placed on the judgment of the National Company Law Appellate Tribunal (NCLAT) in Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd 2019 SCC Online NCLAT 542., where it was held that for the same set of debts, claim cannot be filed by same financial creditor in two separate corporate insolvency resolution processes. III Arguments of the Union and other Respondents 31. Arguing for the Union of India, the Attorney General Mr. K.K. Venugopal submitted that the Code was amended in 2018. It substituted the pre-amended definition in Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery of the Code relating to the corporate debtor would work itself out, to the exclusion of personal guarantors. This presented a peculiar problem, in that the resolution applicant, wishing to bid for takeover of the corporate debtor and operate it as a running concern would be faced with a huge liability, and the personal guarantor in most cases would be one of the individuals primarily responsible for the insolvency of the company, but would be out of the resolution process and have to be separately proceeded with. What therefore, has been effectuated by creating an independent provision, by separating personal guarantors of corporate debtors and by the same amendment, placing the personal guarantor's debt before one tribunal/forum namely the NCLT, is that such a forum would apply the procedure in Part III, in regard to personal guarantors for providing repayment of the entire debt for which the guarantee is furnished in the first place. If that debt is not repaid in the Part III, the personal guarantor would not stand discharged, but on the other hand, would himself be forced into bankruptcy proceedings. 33. It was submitted that though the procedure to be adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or principle for observance by those concerned. A provision of law cannot therefore be said to exist if it is incomplete, for then it provides nothing. He therefore urged that Section 2(e) being complete and distinct is a provision within the meaning of Section 1(3), and the Central government acted intra vires to bring it into force, as well as certain provisions in Part III of the code. 35. It was argued that the executive has the power to bring into force any one provision of a statute at different times for different purposes, and that the government can exercise this power to commence a provision for one purpose on one day and for the remaining purposes on a later date. He relied upon the following extract from Bennion on Statutory Interpretation: A Code (6th Edition, at page 257): Where power is given to bring an Act into force by order, it is usual to provide flexibility by enabling different provisions to be brought into force at different times. Furthermore any one provision may be brought into force at different times for different purposes. [..] Advantages. This method of commencement gives all the advantages of extreme flexibility. Before a new Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code. The proceedings would be initiated before the NCLT, which would also be seized of resolution proceedings against the corporate debtors. 38. The Attorney General submitted that the Amendment Act brought about a classification after detailed deliberations and in the light of the report of the Working Group on Individual Insolvency, Regarding Strategy and Approach for implementation of Provisions of the Code to Deal with Insolvency of Guarantors to Corporate debtors, and Individuals having business. In this report of 2017, the working group recognized the dynamics and the interwoven connection between the corporate debtor and guarantor, who has extended his personal guarantee. 39. The Attorney General also relied upon the report of the Bankruptcy Law Reforms Committee ( BLRC ) tasked with introducing a comprehensive framework for insolvency in bankruptcy. That committee recognized that personal guarantors were a category of entities to whom individual insolvency proceedings applied, and acknowledged the link between them and corporate debtors and found that under a common Code, there could be synchronous resolution. In this regard, paras 3.4.3 and 6.1 of the report of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aka (2020)13 SCC 308. where this court had examined and dealt with the interplay between Sections 5(22), 60 and 179 of the Code. 40. Mr. Tushar Mehta, Solicitor General of India, supported the submissions of the Attorney General. He too stressed that different provisions were brought into force on different dates. He highlighted that Section 1(3) of the Code confers wide powers enabling the Central Government to operationalize the Code in a subject-wise and (not necessarily in a contiguous manner) particular sections, provisions or parts. He urged that the petitioner s interpretation of the statute is unduly narrow and would result in disrupting the Code. It was argued that Section 2 of the Code is not a definition clause but rather acts as a lever to provide a mechanism for a phased and limited interpretation of the Code. He underlined, therefore, that Section 2 represents Parliamentary classification as regards classes of debtors who fall under the Code. The Solicitor General pointed out that before the 2018 amendment, Section 2(e) was generic and that the amendment classified three distinct types of entities. The personal guarantors to corporate debtors are no doubt ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity in respect of notifying parts of the Code on different dates, having regard to the difference in subject matter and those governed by it, the learned Solicitor General also relied upon the decision reported as J. Mitra and Co. Pvt. Ltd. v. Assistant Controller of Patents (2008) 10 SCC 368.. He relied upon the report of the Working Group of Individual Insolvency (Regarding Strategy and Approach for Implementation of the Provisions of the Insolvency and Bankruptcy Code, 2016) to deal with insolvency of guarantors to corporate debtors and individuals having business, which had highlighted that in the absence of notification of provisions of the Code dealing with insolvency and bankruptcy of personal guarantors to corporate debtors and creditors are unable to effectuate the provisions of the Code and access remedies available under the Code. He submitted that this court has repeatedly held in several decisions that there is no compulsion that all provisions of law or an Act of Parliament or any other legislation should be brought into force at the same time. The legislature in its wisdom may clothe the executive with discretion to bring into force different parts of a statute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such a right of the creditor. Hence, until the debt is paid off to the creditor in entirety, the guarantor is not absolved of its joint and several liability to make payment of the amounts outstanding in favour of the creditor. 44. The Solicitor General submitted that neither the guarantor's obligations are absolved nor discharged in terms of Sections 133 to 136 of the Indian Contract Act, 1872, on account of release/discharge/composition or variance of contract which a principal borrower may secure by way of operation of law for instance as under the Code. The rights of a creditor against a guarantor continue even in the event of bankruptcy or liquidation, stressed the Solicitor General, and relied on Maharashtra State Electricity Board Bombay v. Official Liquidator, High Court, Ernakulum Anr. 1982 (3) SCC 358., where this court considered the interplay of Sections 128 and 134 of the Contract Act in the facts of the case. In that case, a company whose advances were secured by a guarantee went into liquidation. The court held that the fact the principal debtor went into liquidation had no effect on the liability of the guarantor, because the discharge secured of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be able to recover only the balance debt which remains outstanding and unrecovered from the principal borrower. There are enough safeguards against double recovery as provided under (a) the settled principle of contract law that simultaneous remedy against the co-obligors does not permit the creditor to recover more than the total debt owed to it, and (b) the provisions of the Code itself. The Solicitor General relied on the acknowledged practice, known as, the principle of double dip or the notion of dual nature of recovery by a creditor for the same debt from two entities - be it principal borrower and guarantor or co-guarantors or co-debtors. When a primary obligor and a guarantor are liable on account of a single claim, the creditor can assert a claim for the full amount owed against each debtor until the creditor is paid in full (that is it can double dip). This means that in case a portion of debt is recovered from one of the entities, either principal borrower or guarantor, the other would be liable for the unsatisfied amount of the claim, the principal borrower being joint and several with the surety. This principle is opposed to the principle prohibiting double proof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on involves a delegation of legislative power to the authority concerned. Under Section 1(3), the Central Government is only a delegate of the Parliament. In some cases, such provisions or provisions of broadly similar nature have been described by this court as conditional legislation, but equally in some cases such a power has been described as delegated legislation by different judges. Reliance was placed on Delhi Laws Act, 1912, In re v. Part 'C' States (Laws) Act, 1950 (supra) and Lachmi Narain v. Union of India (1976) 2 SCC 953, para 49.. 48. It was urged that provisions of diverse nature have been characterized as conditional legislation by this court. The cases relied upon by the Petitioners related to a challenge to the validity of legislative provisions on the ground of excessive delegation of legislative power. In In re Delhi Laws, the Central Government was expressly empowered to enforce certain laws with modifications and restrictions . The power of modification was held to be limited to such modifications as did not affect the identity or structure or the essential purpose of the law. This was a departure from the judgment of the Federal Court in Jat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed as conditional legislation and their validity and scope has been determined in the light of the text, context and purpose of the Act. 50. Learned counsel stated that a schematic, structural and purposive construction of Section 1(3) of the Code needs to be adopted to determine the scope of the power conferred on the Central Government by Section 1(3) of the Code. The Petitioners apply the rule of literal construction and seek to construe Section 1(3) in isolation, without reference to the context, scheme or purpose of the Code. It is submitted that the ambit of Section 1(3) should not be determined by merely applying the doctrine of literal construction. All provisions of the Code, including the enforcement provision should be construed in the context of the entire enactment and the approach should be schematic, structural and purposive. Furthermore, Section 1(3) should not be construed in isolation. It is well settled that a statute has to be read as a whole. The scope of the power under Section 1(3) of the Code cannot be expounded without taking note of the scheme of the Code and the other related provisions. Counsel relied on the following observations of this court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s hybridization is to empower the NCLT to deal with the insolvency resolution and bankruptcy process of the corporate debtor along with the corporate guarantor and personal guarantor of the corporate debtor. Parliament is conscious of the fact that personal guarantors to corporate debtors are generally promoters or close relatives of corporate debtors, and in many cases, the corporate's indebtedness was due to acts misfeasance and siphoning of funds done by personal guarantors. Apart from this, personal guarantors to corporate debtors have a contractually agreed debt alignment with such debtors. They are coextensively as well as jointly and severally responsible for the same debt. As Parliament created a legislative hybridization, Part III of the Code had to be enforced by the Central Government under Section 1(3) with Parliamentary categorization through Section 2. The unifying of the forum for insolvency resolution/bankruptcy of the corporate debtor along with its personal guarantor is a Parliamentary dispensation and determination. Therefore, Section 1(3) empowers the Central Government to appoint different dates for different provisions. 53. Learned senior counsel highli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) and other provisions, and Chapter III of Part III. There is no vivisection or dissection involved in the impugned notification. 55. Mr. K.V. Vishwanathan, learned senior counsel appearing for some respondents, argued that an overall reading of the provisions of the Code would show that personal guarantors to corporate debtors are a distinct class of individuals (by virtue of Section 2 (e) and Section 60); the classification is not achieved through the impugned notification, but by the amending Act of 2018, by Parliament. It is emphasized that the amendment ensured that the same forum (NCLT) deals with insolvency processes of corporate debtors, and also deals with similar issues relating to personal guarantors. The statute permits Part III application by NCLT in relation to personal guarantors. All that the impugned notification did was to operationalize these existing provisions of the Code. Learned senior counsel cited Brij Sundar Kapoor v. First Additional Judge 1989 (1) SCC 561. to refute the petitioners argument that the power under Section 1(3) power is a one-time power. He also relied on Section 14 of the General Clauses Act, 1897, which states that any power confe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip and availability of credit; b) ensure the balanced interests of all stakeholders and c) promote time-bound resolution of insolvency in case of corporate persons, partnership firms and individuals. The relevant provisions of the code are extracted below: 1. Short title, extent and commencement - (1) This Code may be called the Insolvency and Bankruptcy Code,2016. (2) It extends to the whole of India: Provided that Part III of this Code shall not extend to the State of Jammu and Kashmir. 8 (3) It shall come into force on such date1 as the Central Government may, by notification in the Official Gazette, appoint: Provided that different dates may be appointed for different provisions of this Code and any reference in any such provision to the commencement of this Code shall be construed as a reference to the commencement of that provision. 2. Application. - The provisions of this Code shall apply to - (a) any company incorporated under the Companies Act, 2013 (18 of 2013) or under any previous company law; (b) any other company governed by any special Act for the time being in force, except in so far as the said p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate applicant means- (a) corporate debtor; or (b) a member or partner of the corporate debtor who is authorised to make an application for the corporate insolvency resolution process under the constitutional document of the corporate debtor; or (c) an individual who is in charge of managing the operations and resources of the corporate debtor; or (d) a person who has the control and supervision over the financial affairs of the corporate debtor; (5A) corporate guarantor means a corporate person who is the surety in a contract of guarantee to a corporate debtor; *** (22) personal guarantor means an individual who is the surety in a contract of guarantee to a corporate debtor 59. Section 13 (Declaration of moratorium and public announcement) provides that the Adjudicating Authority shall (a) declare a moratorium for the purposes referred to under Section 14, (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15, and (c) appoint an interim resolution professional in the manner as laid down in Section 16. A public announcement is to be made imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the corporate debtor in the NCLT. Voluntary insolvency proceedings may also be initiated by the defaulting company, its employees or shareholders [Section 10 of the Code]. Once the resolution process begins, for the entire period, a moratorium is ordered by the NCLT on the debtor's operations. During this period, no judicial proceedings can be initiated. There can also be no enforcement of securities, sale or transfer of assets or termination of essential contracts against the debtor. The next step is appointment of an Interim Resolution Professional under Section16 of the Code. The resolution professional has to work under the broad guidelines of the committee of creditors (or COC - in terms of Section 21 of the Code). The CoC includes all the financial creditors of the corporate debtor, except all related parties and operational creditors. Further, Section 22 of the Code provides that the CoC has to appoint the resolution professional. This resolution professional can also be the interim resolution professional. A vote of 75% of the voting share shall determine the decisions of the committee to opt for either a revival or liquidation (Section 30). The decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [F. No. 30/21/2018-Insolvency Section] GYANESHWAR KUMAR SINGH, Jt. Secy. V Analysis and conclusions 64. The principal ground of attack in all these proceedings has been that the executive government could not have selectively brought into force the Code, and applied some of its provisions to one sub-category of individuals, i.e., personal guarantors to corporate creditors. All the petitioners in unison argued that the impugned notification, in seeking to achieve that end, is ultra vires. This argument is premised on the nature and content of Section 1(3), which the petitioners characterize to be conditional legislation. Unlike delegated legislation, they say, conditional legislation is a limited power which can be exercised once, in respect of the subject matter or class of subject matters. As long as different dates are designated for bringing into force the enactment, or in relation to different areas, the executive acts within its powers. However, when it selectively does so, and segregates the subject matter of coverage of the enactment, it indulges in impermissible legislation. Reliance has been placed on several judgments of this court, with respect to the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 1(3) of the Bihar Maintenance of Public Order Act, 1948 was challenged on the ground that it empowered the Provincial Government to extend the life of the Act for one year with such modification as it could deem fit. The Federal Court held that the power of extension with modification is not a valid delegation of legislative power because it is an essential legislative function which cannot be delegated. The court observed, inter alia, that: The proviso contains the power to extend the Act for a period of one year with modifications, if any. It is one power and not two severable powers. The fact that no modifications were made in the Act when the power was exercised cannot help in determining the true nature of the power. The power to extend the operation of the Act beyond the period mentioned in the Act prima facie is a legislative power. It is for the Legislature to state how long a particular legislation will be in operation. That cannot be left to the discretion of some other body. The power to modify an Act of a Legislature, without any limitation on the extent of the power of modification, is undoubtedly a legislative power. It is not a power confined to apply the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to Part A States, there can be no objection to the Central Government extending, if necessary, the operation of those Acts to the Province of Delhi, because the Parliament is the competent legislature for that Province. To the extent however the section permits the Central Government to extend laws made by any legislature of Part A State to the Province of Delhi, the section is ultra vires. Mahajan, J had this to say: The section does not declare any law but gives the Central Government power to declare what the law shall be. The choice to select any enactment in force in any province at the date of such notification clearly shows that the legislature declared no principles or policies as regards the law to be made on any subject. It may be pointed out that under the Act of 1935 different provinces had the exclusive power of laying down their policies in respect to subjects within their own legislative field. What policy was to be adopted for Delhi, whether that adopted in the province of Punjab or of Bombay, was left to the Central Government. Illustratively, the mischief of such law-making may be pointed out with reference to what happened in pursuance of this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It will be noticed that the powers conferred by this section upon the Central Government are far in excess of those conferred by the other two legislative provisions, at least in accordance with the interpretation which I have attempted to put upon them. As has been stated already, it is quite an intelligible policy that so long as a proper legislative machinery is not set up in a particular area, the Parliament might empower an executive authority to introduce laws validly passed by a competent legislature and actually in force in other parts of the country to such area, with each modifications and restrictions as the authority thinks proper, the modifications being limited to local adjustments or changes of a minor character. But this presupposes that there is no existing law on that particular subject actually in force in that territory. If any such law exists and power is given to repeal or abrogate such laws either in whole or in part and substitute in place of the same other laws which are in force in other areas, it would certainly amount to an unwarrantable delegation of legislative powers. To repeal or abrogate an existing law is the exercise of an essential legislative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction upto ₹ 25,000/-, i.e. Section 4 of the Bombay City Civil Courts Act. The contention successfully raised before the High Court was that once the legislature had conferred jurisdiction upto a pecuniary limit of ₹ 10,000/- to the City Civil Court, delegating the power to increase that jurisdiction was ultra vires. The argument was repelled by a majority of judges (Mahajan, Fazal Ali and B.K. Mukherjea, JJ). Fazal Ali, J stated that 22. It is contended that this section is invalid, because the Provincial Legislature has thereby delegated its legislative powers to the Provincial Government which it cannot do. This contention does not appear to me to be sound. The section itself shows that the Provincial Legislature having exercised its judgment and determined that the New Court should be invested with jurisdiction to try suits and proceedings of a civil nature of a value not exceeding ₹ 25,000, left it to the Provincial Government to determine when the Court should be invested with this larger jurisdiction, for which the limit had been fixed. It is clear that if and when the New Court has to be invested with the larger jurisdiction, that jurisdiction would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal legislation no exception could be taken. Again, the court upheld the exercise of executive discretion on the ground that there was proper legislative framework and guidance to the government, with respect to conferring jurisdiction upon the City Civil Court, beyond the limit enacted by Section 3, and Section 4 was enacted to achieve that objective. 70. In Sardar Inder Singh, the validity of an ordinance which was extended by two notifications was involved. Section 4 of the original ordinance enacted that as long as it (the ordinance) was in force: no tenant shall be liable to ejectment or dispossession from the whole or a part of his holding in such area on any ground whatsoever. The validity of this ordinance, enacted originally in 1949 (and in force for two years), was extended twice, for two years each (by notifications dated June 14, 1951 and June 20, 1953). The Legislative Assembly of Rajasthan was constituted and came into being on March 29, 1952. Till then, the Rajpramukh was vested with legislative authority. On October 15, 1955, a new enactment, the Rajasthan Tenancy Act No. III of 1955 came into force, and the relationship between landlords and tena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication is co- extensive with that of the Ordinance. If the Ordinance did not come to an end by reason of the fact that the authority of the Rajpramukh to legislate came to an end-and that is not and cannot be disputed-neither did the power to issue a notification which is conferred therein. The true position is that it is in his character as the authority on whom power was conferred under Section 3 of the Ordinance that the Rajpramukh issued the impugned notification, and not as the legislative authority of the State. This objection should accordingly be overruled. 71. In Hamdard Dawakhana (supra), the validity of Section 3(d) of the Drug and Magic Remedies (Objectionable Advertisement) Act, 1954 was in issue. Section 16(1) of that Act conferred power on the government to frame rules, among others, by Section 16(2)(a) to specify any disease or condition to which the provisions of Section 3 shall apply and by Section 16(2)(b) prescribe the manner in which advertisement of articles or things referred to in cl. (c) of sub-s. (1) of Section 14 may be sent confidentially. The Central Government argued that Section 3(d), which empowered it to notify any other disease or condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. As to the nature of the power (to exempt), this court, after considering various previous decisions, held that there are three broad categories of conditional legislation, and elaborated as follows: In the first category when the Legislature has completed its task of enacting a Statute, the entire superstructure of the legislation is ready but its future applicability to a given area is left to the subjective satisfaction of the delegate who being satisfied about the conditions indicating the ripe time for applying the machinery of the said Act to a given area exercises that power as a delegate of the parent legislative body. Tulsipur Sugar Co. 's case (supra) is an illustration on this point. When the Act itself is complete and is enacted to be uniformly applied in future to all those who are to be covered by the sweep of the Act, the Legislature can be said to have completed its task. All that it leaves to the delegate is to apply the same uniformly to a given area indicated by the parent Legislature itself but at an appropriate time. This would be an act of pure and simple conditional legislation depending upon the subjective satisfaction of the delegate as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred on the delegate whether to grant full exemption or partial exemption from the tariff rate it may involve such an exercise of conditional legislative function wherein the exercise has to be made by the delegate on its own subjective satisfaction and once that exercise is made whatever exemption is granted or partially granted or partially withdrawn from time to time would be binding on the entire class of persons similarly situated and who will be covered by the seep of such exemptions, partial or whole, and whether granted or withdrawn, wholly or partially, and in exercise of such a power there may be no occasion to hear the parties likely to be affected by such an exercise. For example from a settled tariff say if earlier 30% exemption is granted by the delegate and then reduced to 20% all those who are similarly situated and covered by the sweep of such exemption and its modification cannot be permitted to say in the absence of any statutory provision to that effect that they should be given a hearing before the granted exemption is wholly or partially withdrawn. In the aforesaid first two categories of cases delegate who exercises conditional legislation acting on its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he outset, would like to express our disagreement with the contentions raised before us by the learned counsel appearing on behalf of the respondents that the impugned notification is in effect and substance a conditional legislation and not a delegated legislation. The distinction between conditional legislation and delegated legislation is clear and unambiguous. In a conditional legislation the delegatee has to apply the law to an area or to determine the time and manner of carrying it into effect or at such time, as it decides or to understand the rule of legislation, it would be a conditional legislation. The legislature in such a case makes the law, which is complete in all respects but the same is not brought into operation immediately. The enforcement of the law would depend upon the fulfilment of a condition and what is delegated to the executive is the authority to determine by exercising its own judgment as to whether such conditions have been fulfilled and/or the time has come when such legislation should be brought into force. The taking effect of a legislation, therefore, is made dependent upon the determination of such fact or condition by the executive organ of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws has been upheld. As B.K. Mukherjea observed, in In re Delhi Laws Act, 1912 (supra): it is quite an intelligible policy that so long as a proper legislative machinery is not set up in a particular area, the Parliament might empower an executive authority to introduce laws validly passed by a competent legislature and actually in force in other parts of the country to such area, with each modifications and restrictions as the authority thinks proper, the modifications being limited to local adjustments or changes of a minor character. Lord Selborne, in Burah (supra)held such power to be unexceptionable, saying that Legislation, conditional on the use of particular powers, or on the executive of a limited discretion, entrusted by the Legislature to persons in whom it places confidence is no uncommon thing; and, in many circumstances, it may be highly convenient In Jitendra Nath Gupta (supra), what the Federal Court held objectionable was the conferment of power to extend provisions of an enactment, beyond its expressed duration or time: It is for the Legislature to state how long a particular legislation will be in operation. That cannot be left to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. They stricto sensu fall in the category of general legislative authority, a new legislative Power, not created or authorized by the parent legislation, (per Burah, supra). In Hamdard Dawakhana, the power to include new drugs, was held to be uncanalized, i.e. without any legislative guidance. The decision did not involve bringing into force provisions of an enactment, or exclusion, but inclusion within its fold, without any statutory guidance on new drugs. The case therefore involved delegated legislation. 76. It would now be useful to analyse some decisions cited by the respondents. In Bishwambhar Singh (supra)the power under Section 3(1) of the Orissa Estates Abolition (Amendment) Act, 1952 was involved. The provision enabled the state to declare that an estate had in terms of notifications issued in that regard- vested in it, free from all encumbrances. This court negatived the challenge to that provision: 77. The long title of the Act and the two preambles which have been quoted above clearly indicate that the object and purpose of the Act is to abolish all the rights, title and interest in land of intermediaries by whatever name known. This is a clear enunciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of Employees' State Insurance by a notification. In other words, when the notification should be issued and in respect of what factories it should be issued, has been left to the discretion of the Central Government and that is precisely what is usually done by conditional legislation. [......] 5. [ ] In the very nature of things, it would have been impossible for the legislature to decide in what areas and in respect of which factories the Employees' State Insurance Corporation should be established. It is obvious that a scheme of this kind, though very beneficent, could not be introduced in the whole of the country all at once. Such beneficial measures which need careful experimentation have some times to be adopted by stages and in different phases 77. The next decision cited was Lachmi Narain (supra). Here, the Central Government was empowered by Section 2 of the Part C States (Laws) (Act), 1950 to extend through a notification any enactment in Part A States. The Central Government had issued a Notification in 1951 to extend the provisions of the Bengal Finance (Sales Tax) Act to the then Part C State of Delhi. In 1957, a notification in exercise of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is one dimension of the statutory limits which circumscribe the power. The second is that the power cannot be used for the purpose other than that of extension. In the exercise of this power, only such restrictions and modifications can be validly engrafted in the enactment sought to be extended, which are necessary to bring it into operation and effect in the Union territory. Modifications which are not necessary for, or ancillary and subservient to the purpose of extension, are not permissible. And, only such modifications can be legitimately necessary for such purpose as are required to adjust, adapt and make the enactment suitable to the peculiar local conditions of the Union territory for carrying it into operation and effect. In the context of the section, the words restrictions and modifications do not cover such alterations as involve a change in any essential feature, of the enactment or the legislative policy built into it. This is the third dimension of the limits that circumscribe the power. 61. It is true that the word such restrictions and modifications as it thinks fit if construed literally and in isolation, appear to give unfettered power of amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame into force on 01.12.2016 vide S.O. dated 30.11.2016 S.O.3594(E) Clause (a) to clause (d) of section 2 (except with regard to voluntary liquidation or Bankruptcy section 4 to section 32 (both inclusive), section 60 to section 77(both inclusive), section 198, section 231, section 236 to section 238 (both inclusive) and clause (a) to clause (f)of subsection (2) of section 239 6. S.O. dated 09.12.2016 Came into force on 15.12.2016 S.O.3687(E) Section 33 to section 54 (both inclusive) 7. S.O. dated 30.03.2017; came into force on 01.04.2017 S.O.1005(E) Section 59; section 209 to 215 (both inclusive); subsection (1) of section 216; and section 234 and section 235 8. Came into force on 01.04.2017 vide S.O. dated 15.05.2017 S.O.1570(E) Clause (a) to clause (d) of section 2 relating to voluntary liquidation or bankruptcy 9. 14.06.2017 S.O.1910(E) Section 55 to section 58 (both inclusive) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the eighth notification dated 01.04.2017, with effect from 15.05.2017. In the meanwhile, the notification dated 09.12.2016 with effect from 15.12.2016, operationalized Sections 33 to 44 which deal with the liquidation process. 81. It is quite evident that the method adopted by the Central Government to bring into force different provisions of the Act had a specific design: to fulfill the objectives underlying the Code, having regard to its priorities. Plainly, the Central Government was concerned with triggering the insolvency mechanism processes in relation to corporate persons at the earliest. Therefore, by the first three notifications, the necessary mechanism such as setting up of the regulatory body, provisions relating to its functions, powers and the operationalization of provisions relating to insolvency professionals and agencies were brought into force. These started the mechanism through which insolvency processes were to be carried out and regulated by law. In the next phase, the part of the Code dealing with one of its subjects, i.e., corporate persons [covered by Section 2(a) to 2(d) of the Code] was brought into force. The entire process for conduct of insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruptcy processes relating to liquidation and bankruptcy in respect of three categories, i.e. corporate debtors, corporate guarantors of corporate debtors and personal guarantors to corporate debtors were to be considered by the same forum, i.e. NCLT. 84. Section 2, i.e., (application provision of the Code, in relation to different entities), as originally enacted, did not contain a separate category of personal guarantors to corporate debtors. Instead, personal guarantors were part of a category or group of individuals, to whom the Code applied (i.e. individuals, proprietorship and partnership firms, per Section 2(e) which stated partnership firms and individuals ). The Code envisioned that the insolvency process outlined in provisions of Part III was to apply to them. The Statement of Objects and Reasons for the Amendment Bill of 2017, which eventually metamorphosized into the Amendment Act, stated that the Code provided for insolvency resolution for individuals and partnership firms which are proposed to be implemented in a phased manner on account of the wider impact of these provisions. In the first phase, the provisions would be extended to personal guarantors of corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation of this expression has to be contextual. There is no question of liquidation of a personal guarantor, an individual. In such cases, this court has ruled that the principle behind the maxim reddendo singular singulis applies. This court had, in Koteswar Vittal Kamath v. K. Rangappa Baliga Co (1969) 1 SCC 255. quoted Black's Interpretation of Laws, to explain the meaning of that maxim: Where a sentence in a statute contains several antecedents and several consequences, they are to be read distributively, that is to say, each phrase or expression is to be referred to its appropriate object. Koteswar Vittal Kamath was concerned with the interpretation of the proviso to Article 304(b) of the Constitution of India which provided that: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. The term no Bill or amendment was construed distributively. The Court held In our opinion, the High Court did not correctly appreciate the position. The language of the proviso cannot be interpreted in the manner accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit, because there was a provision enabling it, and the executive confined the exercise of its power to extend the jurisdiction, within the limits enacted. Hamdard Dawakhana was an instance of grant of un-canalized power (without legislative guidance) of inclusion in the schedule to the Act, acts falling within its application; it was clearly a case of excessive delegation. In Lachmi Narain (supra), this court held that the power of modification cannot be used at any time, but has to be resorted to initially by the executive, at the time a law is extended and applied. The observations in Bishwambhar Singh and Basant Kumar Sarkar (supra) reveal that the executive is tasked with implementing the Act in stages, as it would have been impossible for the legislature to decide in what areas and in respect of what subject matters (in that case, factories and establishments) the provisions can apply. Crucially, it was held that a scheme of this kind, though very beneficent, could not be introduced in the whole of the country all at once. Further, held this court, such provisions may need careful experimentation have some times to be adopted by stages and in different phases. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and personal guarantors to corporate debtors. The 2018 amendment added another category: corporate guarantors to corporate debtors. The amendment seen in the background of the report, as indeed the scheme of the Code (i.e., Section 2 (e), Section 5 (22), Section 29A, and Section 60), clearly show that all matters that were likely to impact, or have a bearing on a corporate debtor s insolvency process, were sought to be clubbed together and brought before the same forum. Section 5 (22) which is found in Part II (insolvency process provisions in respect of corporate debtors) as it was originally, defined personal guarantor to say that it means an individual who is the surety in a contract of guarantee to a corporate debtor. There are two more provisions relevant for the purpose of this judgment. They are Sections 234 and 235 of the Code; they read as follows: 234. (1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code. (2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Adjudicating Authority. The intent of the notification, facially, is to allow for pending proceedings to be adjudicated in terms of the Code. Section 243, which provides for the repeal of the personal insolvency laws has not as yet been notified. Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with the concerned NCLT seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be the NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in insolvency resolution processes against corporate debtors. So far as personal guarantors are concerned, we have seen that Part III has not been brought into force, and neither has Section 243, which repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. The net result of this is that so far as individual personal guarantors are concerned, they will continue to be proceeded against under the aforesaid two Insolvency Acts and not under the Code. Indeed, by a Press Release dated 28-8-2017, the Government of India, through the Ministry of Finance, cautioned that Section 243 of the Code, which provides for the repeal of the said enactments, has not been notified till date, and further, that the provisions relating to insolvency resolution and bankruptcy for individuals and partnerships as contained in Part III of the Code are yet to be notified. Hence, it was advised that stakeholders who intend to pursue their insolvency cases may approach the appropriate authority/court under the existing enactments, instead of approaching the Debts Recovery Tribunals. 23. It is for this reason that sub-section (2) of Section 60 speaks of an application rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantor of a corporate debtor, apply only for the limited purpose contained in Sections 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018. 98. This court was clearly cognizant of the fact that the amendment, in so far as it inserted Section 2(e) and altered Section 60(2), was aimed at strengthening the corporate insolvency process. At the same time, since the Code was not made applicable to individuals (including personal guarantors), the court had no occasion to consider what would be the effect of exercise of power under Section 1(3) of the Code, bringing into force such provisions in relation to personal guarantors. 99. The argument that the insolvency processes, application of moratorium and other provisions are incongruous, and so on, in the opinion of this court, are insubstantial. The insolvency process in relation to corporate persons (a compendious term covering all juristic entities which have been described in Sections 2 [a] to [d] of the Code) is entirely different from those relating to individuals; the former is covered in the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating insolvency processes the provisions of which are disparate- is to be common, i.e through the NCLT. As was emphasized during the hearing, the NCLT would be able to consider the whole picture, as it were, about the nature of the assets available, either during the corporate debtor s insolvency process, or even later; this would facilitate the CoC in framing realistic plans, keeping in mind the prospect of realizing some part of the creditors dues from personal guarantors. 101. In view of the above discussion, it is held that the impugned notification is not an instance of legislative exercise, or amounting to impermissible and selective application of provisions of the Code. There is no compulsion in the Code that it should, at the same time, be made applicable to all individuals, (including personal guarantors) or not at all. There is sufficient indication in the Code- by Section 2(e), Section 5(22), Section 60 and Section 179 indicating that personal guarantors, though forming part of the larger grouping of individuals, were to be, in view of their intrinsic connection with corporate debtors, dealt with differently, through the same adjudicatory process and by the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee . 130.Revocation of continuing guarantee.- A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor. 131.Revocation of continuing guarantee by surety s death.- The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions. 133.Discharge of surety by variance in terms of contract.- Any variance, made without the surety s consent, in the terms of the contract between the principal 1 [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance. 134.Discharge of surety by release or discharge of principal debtor.- The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. ****************** 140.Rights of surety on payment or performance.- Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal guarantors persists against the creditors and an approved resolution plan can only lead to a revision of amount or exposure for the entire amount. Any recourse under Section 133 of the Contract Act to discharge the liability of the surety on account of variance in terms of the contract, without her or his consent, stands negated by this court, in V. Ramakrishnan where it was observed that the language of Section 31 makes it clear that the approved plan is binding on the guarantor, to avoid any attempt to escape liability under the provisions of the Contract Act. It was observed that: 25. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. And further that: 26.1 Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and coextensive liability to pay off th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no discharge under Section 134 of that Act. This court observed as follows: 7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to ₹ 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the supplier of goods i.e. the Company in liquidation. The liability is absolute and unconditional. The fact that the Company in liquidation i.e. the principal debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e. the guarantor. Under Section 128 of the Indian Contract Act, the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have an overriding effect over all other enactments. This Act only deals with the liabilities of a company which is nationalized and there is no provision therein which in any way affects the liability of a guarantor who is bound by the deed of guarantee executed by it. The High Court has referred to a decision of this Court in Maharashtra SEB v. Official Liquidator, High Court, Ernakulam [(1982) 3 SCC 358 : AIR 1982 SC 1497] where the liability of the guarantor in a case where liability of the principal debtor was discharged under the insolvency law or the company law, was considered. It was held in this case that in view of the unequivocal guarantee such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act. In our opinion, the principle of the aforesaid decision of this Court is equally applicable in the present case. The right of the appellant to recover money from Respondents 1, 2 and 3 who stood guarantors arises out of the terms of the deed of guarantee which are not in any way superseded or brought to a naught ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors). The writ petitions, transferred cases and transfer petitions are accordingly dismissed in the above terms, without order on costs. ---------------- Notes: 1 . Madhya Pradesh, Telengana, Delhi, etc. 2 . S.O. 4126 (E) issued by the Ministry of Corporation Affairs, Central Government 3. 95. Application by creditor to initiate insolvency resolution process. (1) A creditor may apply either by himself, or jointly with other creditors, or through resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application. (2) A creditor may apply under sub-section (1) in relation to any partnership debt owed to him for initiating an insolvency resolution process against (a) anyone or more partners of the firm; or (b) the firm. (c) (3) Where an application has been made against one partner in a firm, any other application against another partner in the same firm shall be presented in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actice that Indian bank stake a personal guarantee from the firm's promoter when they enter into a loan with the firm. At present, there are a separate set of provisions that guide recovery on the loan to the firm and on the personal guarantee to the promoter. Under a common Code, the resolution can be synchronous, less costly and help more efficient recovery. 6.1 The applicability of the Code The Committee considers the following categories of entities to whom the individual insolvency and bankruptcy provisions shall apply: Sole proprietorships where the legal personality of the proprietorship is not different from the individual who owns it. Personal guarantors Consumer finance borrowers . 6. 14. Powers conferred to be exercisable from time to time- (1) Where, by any Central Act or Regulation made after the commencement of this Act, any power is conferred, then unless a different intention appears that power may be exercised from time to time as occasion requires. (2) This section applies also to all Central Acts and Regulations made on or after the fourteenth day of January, 1887. 7. Defined separately under Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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