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Synopsis

The Supreme Court has recently upheld the validity of various provisions of the Insolvency and Bankruptcy Code, 2016 and rejected contentions that those were unconstitutional.

A bench of Chief Justice of India D Y Chandrachud and Justices J B Pardiwala and Manoj Misra said that 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 court passed its judgment on a batch of 384 petitions under Article 32 of the Constitution, challenging the constitutional validity of Sections 95 to 100 of the Insolvency and Bankruptcy Code 2016. 

The court emphasised that it needs to be noted that the principles of natural justice are not to be construed in a straitjacket. 

"The nature of natural justice is liable to vary with the exigencies of the situation," the bench said.

The court said that in a given situation, it may extend to a full-fledged evidentiary hearing while, on the other hand, the principles of natural justice may require that a bare minimum opportunity should be given to an individual who is liable to be affected by an action, to furnish an explanation to the allegations or the nature of the enquiry.

"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," the bench said.

It pointed out that 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 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," the bench said.

After the enactment of the IBC, the bench said that 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," the bench said.

With regard to the plea related to violation of right to privacy, the bench said, "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."

A batch of petitions was filed by ex-promoters of bankrupt companies, including Anil Ambani, Venugopal Dhoot and Sanjay Singal, challenging personal insolvency proceedings initiated against them. They questioned various provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) on grounds such as the alleged absence of due process and violation of natural justice principles. 

Case Title: Dilip B Jiwrajka Vs Union of India & Ors