New Delhi, Nov 7 ( IANS) Petitioners, challenging several provisions of the Insolvency and Bankruptcy Code (IBC), on Tuesday told the Supreme Court that these not only failed to uphold the principles of natural justice but also infringed upon fundamental rights guaranteed under Article 21, 14 and 19 (1) (g) of the Constitution.
A bench, headed by CJI D.Y. Chandrachud, started hearing a batch of petitions challenging the constitutional validity of several provisions of the IBC pertaining to personal guarantors' Insolvency Resolution Process.
Challenging Sections 95(1), 96(1), 97(5), 99(1), 99(2), 99(4), 99(5), 99(6), and 100 of the IBC the petitioners argued that provisions failed to uphold the principles of natural justice and further alleged absence of due process in the application of these provisions.
Senior advocate Abhishek Manu Singhvi, appearing for petitioners, said that Section 95 that deals with the existence of debt, lacked a formal hearing and initiated the appointment of a Resolution Professional (RP) without allowing the alleged guarantor to present their case.
He told the top court that there was a need to incorporate the principles of natural justice in Section 95 and also raised concerns over "intrusive questions" by RPs and threats to individual privacy.
The petitioners have told the court that IBC provisions obstruct the right to livelihood and life guaranteed under Article 21 by imposing moratoriums and insolvency proceedings without a fair opportunity to be heard.
They further alleged that the provisions encroach on an individual's right to practice any profession under Article 19(1)(g).
They also said that IBC provisions, discriminate against individuals by imposing restrictions on their economic and professional activities without reasonable grounds or a fair hearing and thus infringe upon Article 14.
The Centre introduced the IBC in 2016 to resolve claims involving insolvent companies. The bankruptcy code brought to fast-track resolution of insolvencies and tackle the piling of bad loan cases in the country that had hugely impacted the banking system.
The code also intended to protect the interests of small investors and make the process of doing business less cumbersome. The IBC, which has 255 sections and 11 Schedules, provides for a time-bound process to resolve insolvency.
When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Companies have to complete the entire insolvency exercise within 180 days under the code. However, the deadline may be extended if the creditors do not raise objections on the extension.
Under the provisions, debtors and creditors both can start recovery proceedings against each other.
The court will resume hearing the petitions on Wednesday.
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