The Supreme Court on Thursday affirmed some of the key provisions of the Insolvency and Bankruptcy Code, (IBC) 2016, relating to the appointment of resolution professional (RP), adjudicatory process and interim moratorium, holding that the legislature has “carefully calibrated” the role of an RP and other procedure contemplated under the law.

Deciding a clutch of over 200 petitions challenging a set of IBC provisions on the ground of alleged breach of principles of natural justice and due process, a bench led by Chief Justice of India Dhananjaya Y Chandrachud held that the impugned provisions are bereft of any illegality and augur well with the legislative intent of the IBC.

The provisions under challenge before the bench, which also included justices JB Pardiwala and Manoj Misra, included sections 95 (application by creditor to initiate insolvency resolution process), 96 (interim moratorium), 97 (appointment of resolution professional), 99 (submission of report by resolution professional), 100 (admission or rejection of application) of the 2016 Code.

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The petitions primarily challenged the operation of the law allowing lenders to initiate insolvency proceedings against personal guarantors and promoters without giving them the opportunity to present their stand. They contended the set of IBC provisions vested unfettered powers in the RP to be a judge in his own cause while a personal guarantor was left remediless and at the RP’s mercy. Various industrialists and promoters, including Anil Ambani, Venugopal Dhoot, Sanjay Singal and Kishore Biyani, were petitioners in the case.

Rejecting the challenge, the top court, however, held that the statute does not suffer from any manifest arbitrariness or was violative of Article 14 (equality and equal protection of law) of the Constitution, and added that the statute cannot be held to be operating in a retroactive manner.

The bench shot down the petitioner’s plea that there ought to be some form of an adjudicatory process before the appointment of a RP under Section 97 of the IBC so that the corporate debtor is also heard.

“We are of the view that the argument that an adjudicatory role be imposed before Section 97 cannot be accepted … We have come to the conclusion that reading an adjudicatory role in section 97 will render Section 99 and Section 100 of the IBC otiose,” ruled the bench.

It would be “impermissible” for the court to accept an argument regarding an element of adjudication at the stage of appointment of an RP by the adjudicating authority.

“True adjudication only begins at the stage of Section 100 (admission or rejection of application) of the IBC. For the court to enter here will be to rewrite the statute. What is described as a jurisdiction question is not a simple matter of law to be decided as urged by the petitioner,” held the bench, adding the timelines made part of the Code will be rendered nugatory if an adjudicatory role is read into Section 97 of the IBC.

On the issue of principles of natural justice, the bench pointed out that “sufficient safeguards” have been read into the manner in which a RP functions in the course of an insolvency process.

“Parliament has not contemplated a roving enquiry by the resolution professional, but an enquiry for recommendation. The resolution professional, after carrying out process, is required to make an ascertainment in terms of clause (6) of Section 97. The process which takes place before the resolution professional is not ex parte and the legislature has ensured that even for a recommendation made, there is explanation taken from the debtor for the purpose,” it underlined.

Explaining Section 99, the court highlighted that the role ascribed to a RP is that of a facilitator who has to gather relevant information and recommend acceptance or rejection of application. “It leaves no manner of doubt that resolution professional is not intended to perform an adjudicatory function or to arrive at binding decisions on facts and it is only a recommendation which has no binding force,” it said.

Affirming the provision regarding an interim moratorium, the court accepted solicitor general Tushar Mehta’s submissions on behalf of the central government that the IBC provisions imposing a stay on other legal proceedings against corporate debtors was for the benefit of the debtors.

“The moratorium is primarily in respect of a debt as opposed to a debtor … Purpose of moratorium under Section 96 is protective and Solicitor General was correct that moratorium was to insulate the corporate debtor from the legal action of the debt,” it noted.

The court went on to acknowledge that there were differences with respect to when the resolution professional and the adjudicating authority steps in, and when a moratorium on other legal proceedings is imposed under Parts II (corporate insolvency) and III (insolvency of individuals and partnerships) of the IBC. However, the Court opined that such differential treatment is justified and based on intelligible differentia.

“The legislature has carefully calibrated the role of resolution professional, imposition of moratorium and the stage at which adjudicating authority steps in Part II and Part III and this is based on intelligible differentia between the individual debtors, partnerships and corporate debtors”, it held.