SC to decide constitutional validity of IBC 2016 applying to personal guarantors of corporate debtors

Supreme Court to decide constitutional validity of provisions of IBC 2016 to the extent they apply to personal guarantors of corporate debtors

ABCAUS Case Law Citation
ABCAUS 3416 (2020) (10) SC

The Ministry of Corporate Affirs (MCA) by Notification   dated 15.11.2019 had brought personal guarantors to corporate debtors under Insolvency and Bankruptcy Code, 2016.

Several Writ Petitions were filed in various High Courts challenging the said Notification and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019.  

The Writ Petitioners also sought a declaration that Section 95, 96,99, 100, 101 of the Insolvency and Bankruptcy Code, 2016 are unconstitutional in so far as they apply to   personal guarantors of corporate debtors.  

The Insolvency and Bankruptcy Board of India had filed the various Transfer Petitions under Article 139 (A) read with Article 142 of the Constitution of India seeking transfer of the Writ Petitions filed before various High Courts to Hon’ble Supreme Court to avoid the confusion caused by possible divergence of opinions expressed by the High Courts.

A Full Bench of the Hon’ble Supreme Court heard the matter and stated that the Insolvency and Bankruptcy Code is at a nascent stage and it is better that the interpretation of the provisions of the Code is taken up by the Hon’ble Supreme Court to avoid any confusion, and to authoritatively settle the law.  

Accordingly, the Apex Court directed the transfer of the Writ Petitions pending before the High Courts to it. The Registries of the High Courts were directed to transmit the records of the Writ Petitions forthwith.

It was further direct that no further Writ Petitions involving the challenge to the Notification dated 15.11.2019 by which Part III of the Insolvency and Bankruptcy Code, 2016 and other provisions in so far as they relate to personal guarantors to corporate debtors have been brought into force shall be entertained by any High Court. However any interim orders passed by the High Courts to continue.

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