The Central Government vide its notification dated 15.11.2019 notified Section (2) (e), Section 78 (except with regard to fresh start process), Section 79, Section 94 to 187 (both exclusive), Section 239 (2) (i) (g), Section 239 (2) (m) (zc), Section 240 (2) (zn) (zs) and Section 249, pertaining to the personal guarantors to corporate debtors.
The said notification along with the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019 were challenged before different High Courts, which was then suo moto transferred by the Hon’ble Supreme Court of India in a bunch of matter, the leading being Lalit Kumar Jain vs. Union of India.
The main contention raised in the said matters was that the impugned notification is an exercise of excessive delegation of powers of the Central Government. The CG has no authority to impose conditions on the enforcement of the Code. The other contents that were raised in the matters were that the said Sections pertaining to the Personal Guarantors are ultra vires the powers granted to the Central Government.
The Supreme Court vide its judgment in the said case delivered on 21.05.2021 that the Parliamentary intent in issuing the notification was to treat personal guarantors differently from other categories of individuals. The Hon’ble Supreme Court held that the intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating Authority was common with the corporate debtor to whom they had stood guarantor. The Supreme Court thus held that the impugned notification is not an instance of legislative exercise, or amounting to impermissible and selective application of provisions of the Code.