The apex court had transferred to itself petitions contesting a notification dated November 15, 2019, which introduced certain provisions to the IBC relating to personal guarantors' insolvency. Because of petitions involving the interpretation of the Insolvency and Bankruptcy Code, 2016, this case dealt with processes under Article 32 and Article 139A of the Constitution.
There was general concern over the legitimacy of the Central Government's notification, which was released on November 15, 2019. Though the validity of the Insolvency and Bankruptcy Code and the validity of the regulations contested by the Insolvency and Bankruptcy Board of India were important issues in these cases, the petitioners' principal argument was frequently limited to the challenged notification.
The petitioners argued that, in addition to the Union's existing power under Section 1(3) of the Code to deal with personal guarantors of corporate debtors, the new impugned notification triggered Section 2(e), Section 78, Section 79, Section 98-114, Section 239(2)(g), (h), and Section 239(2)(m) to (zc); Section 239 (2)(n) to 2(s); and Section 239 (2)(n) to 2(s). The petitioners were presented with demand notices under which the Union sought to begin insolvency proceedings under the Code after gaining such powers. Insolvency proceedings were filed against several of the petitioners after the guarantees were invoked.
The petitioners' major point in these cases was that the contested notification was just an exercise in the undue delegation. The petitioners stated that the Central Government lacked the legal and statutory jurisdiction to impose the conditions under the guise of enforcing the Code. The petitioners asserted that, under Section 1(3) of the Code, Parliament delegated to the Central Government the right to enforce different parts of the Code at various times.
Additionally, the petitioners claimed that the regulations only apply to individuals and partnership firms.
The Union of India's Attorney General argued that the Code under consideration in these cases had been modified in 2018. The definition of debtors was divided into three sorts and categories as a result of this revision. This was done in order to divide the provisions and specify all three categories so that they could encompass three different entities.
The Attorney General stated in court that Parliament was forced to distinguish personal guarantors from other individuals, such as partnership firms, sole proprietorships, and individuals. However, after the 2018 amendment, this separation was achieved but not realised, and the entire insolvency process would have to be handled independently of corporate debtors and their promoters, managing directors, and directors who had provided their guarantees, the same guarantees they had provided to secure the corporate debtors' financial debts.
After carefully considering both sides' arguments and supporting evidence, the court concluded that there was an adequate legislative direction for the Central Government to identify and classify personal guarantors from other individuals before the 2018 amendments taking effect. The court also noted that Parliament intended for personal guarantors to be treated differently than other types of persons. The contested notification was found to be legitimate and valid. The honourable court further concluded that acceptance of a corporate debtor's resolution plan would not discharge personal guarantors' obligations.