Provisions of the Insolvency and Bankruptcy Code do not suffer from any manifest arbitrariness, the Supreme Court said on Thursday.
A three-judge bench disposed of a petition that challenged various provisions of the insolvency resolution process for individuals and partnership firms. The case dealt primarily with the role of resolution professionals in relation to personal guarantors.
The legislature has carefully calibrated the role of the resolution professional and the stage at which the adjudicating authority comes into play, the bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra said.
The contention that the resolution professional exercises an adjudicatory role cannot be read into the IBC by the top court as that would be equivalent to rewriting the law, it said.
The apex court explained that the real adjudicatory process starts when the adjudicating authority either accepts or rejects the resolution professional's application to start the insolvency process, not at the stage when an application is made by the resolution professional to the authority.
It said the role of a resolution professional is not to enter into a roving or a detailed enquiry, but to make a recommendation to the adjudicating authority regarding the initiation of the insolvency process.
The adjudicating authority has the option to either accept or reject the recommendation made by the resolution professional, the bench said.
Businessman Anil Ambani, along with more than 300 other petitioners, had filed a petition before the top court in 2022, challenging various provisions of the insolvency resolution process for individuals and partnership firms. Individuals and partnership firms are dealt with under Part 3 of the Code.
During the hearings, they contended that the provisions pertaining to resolution professionals under Part 3 of the IBC suffered from manifest arbitrariness and were in violation of the principles of natural justice. They argued that resolution professionals have unfettered powers as the IBC empowers them to exercise adjudicatory functions.
The Union government had argued that the role of the resolution professional is not arbitrary as it is limited to assisting the adjudicating authority and does not cause any prejudice to the persons against whom the insolvency process has been initiated.
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