“THE SUPREME COURT HELD THAT PERSONAL GUARANTORS TO CORPORATE DEBTORS ARE UNDER OBLIGATION TO FURNISH INFORMATION SOUGHT BY THE RESOLUTION PROFESSION”
S U P R E M E C O U R T O F I N D I A
Petition(s) for Special Leave to Appeal (C) No(s).16464/2021
SURENDRA B. JIWRAJKA & ANR. Petitioner(s)
VERSUS
OMKARA ASSETS RECONSTRUCTION PRIVATE LIMITED Respondent(s)
In this case the Hon’ble Supreme Court was dealing with the constitutional validity of Section 95 to 100 of the Insolvency and Bankruptcy Code (IBC) that govern the insolvency resolution process in relation to individuals and partnership firms with respect to Insolvency Process of Personal Guarantors to Corporate Debtors.
The issue had evolved since 2019 when amendments to the IBC allowed banks to take personal guarantors to the insolvency court and impose a moratorium on the sale of their assets.
It was the contention before the Hon’ble Supreme Court that the IBC does not adhere to the principles of natural justice and straightaway a resolution profession is appointed and given autonomous powers to seek information including personal information of the guarantors.
However the Hon’ble Supreme Court upheld the constitutionality of the IBC.
It was held that the applicability of principles such as natural justice depends on the situation and cannot be applied in a one-size-fits-all manner.
It was observed by the Supreme Court that the role endorsed to the Resolution Professional is to collect information about the application by the creditor and to report it to the Adjudicating Authority.
It also observed that it is ultimately the Adjudicating Authority, who has been vested with the function to accept or reject the report of the Resolution Professional.
The personal guarantors are generally promoters and directors of the corporate debtor and as per the ruling of the Supreme Court would now be required to follow the objectivities of time lines provided for Insolvency of Individuals and such personal guarantors.
It may not be out of place to mention here that this will benefit lenders of companies under resolution and facilitate hearings in insolvency petitions against personal guarantors.
The personal guarantors to corporate debtors would be duty bound to furnish necessary information as may be sought by the Resolution Professional on an application of a creditor.
The judgment would further provide relief for lenders whose petitions for insolvency of personal guarantors were often getting stuck and delayed because all the personal guarantors were filing applications at the stage of Section 94 and 95 to afford them hearing before any recommendation was made by the Resolution Professional.
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