# LALIT KUMAR JAIN v. UNION OF INDIA & ORS

- **Citation:** [2021] 3 S.C.R. 1075
- **Court:** Supreme Court of India
- **Decided:** 2021-05-21
- **Bench:** L. Nageswara Rao, S. Ravindra Bhat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/lalit-kumar-jain-v-union-of-india-ors-34956
- **Pages:** 95

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss.1(3), 2(e), 5(22),
60, 179, 234, 235, 238 and 243 - Vires and validity of notification
dated 15.11.2019 issued by the Central Government - Whether the
impugned notification was an exercise of excessive delegation; and
inasmuch as it notified various provisions of the Code only in so
far as they related to personal guarantors to corporate debtors, it
was therefore, ultra vires - Held: The impugned notification was not
an instance of legislative exercise, nor amounted to impermissible
and selective application of provisions of the Code - No compulsion
in the Code that it should, at the same time, be made applicable to
all individuals, (including personal guarantors) or not at all -
Sufficient indication in the Code- by s.2(e), s.5(22), s.60 and s.179
indicating that personal guarantors, though forming part of the
larger grouping of individuals, were to be, in view of their intrinsic
connection with corporate debtors, dealt with differently, through
the same adjudicatory process and by the same forum (though not
insolvency provisions) as such corporate debtors - Notifications u/
s.1(3), (issued before the impugned notification was issued) disclose
that the Code was brought into force in stages, regard being had to
the categories of persons to whom its provisions were to be applied
- The impugned notification, similarly inter alia makes the provisions
of the Code applicable in respect of personal guarantors to
corporate debtors, as another such category of persons to whom
the Code has been extended - The impugned notification was issued
within the power granted by Parliament, and in valid exercise of it
- The exercise of power in issuing the impugned notification under
s.1(3) is therefore, not ultra vires; the notification is valid.
Insolvency and Bankruptcy Code, 2016 - Whether once a
resolution plan is accepted, the corporate debtor is discharged of
liability; and as a consequence, the guarantor whose liability is co-
[2021] 3 S.C.R. 1075
1075
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[2021] 3 S.C.R.
extensive with the principal debtor, i.e. the corporate debtor, too is
discharged of all liabilities - Held: Approval of a resolution plan
relating to a corporate debtor does not ipso facto discharge a
personal guarantor (of the corporate debtor) of his liabilities under
the contract of guarantee - The release or discharge of a principal
borrower from the debt owed by it to its creditor, by an involuntary
process, i.e. by operation of law, or due to liquidation or insolvency
proceeding, does not absolve the surety/guarantor of his or her
liability, which arises out of an independent contract.
Maxims - Maxim "reddendo singular singulis" - Applicability
- Where a sentence in a statute contains several antecedents and
several consequences, they are to be read distributively, that is to
say, each phrase or expression is to be referred to its appropriate
object - When s.60(2) of the Code alludes to insolvency resolution
or bankruptcy, or liquidation of three categories, i.e. corporate
debtors, corporate guarantors (to corporate debtors) and personal
guarantors (to corporate debtors) they apply distributively, i.e. that
insolvency resolution, or liquidation processes apply to corporate
debtors and their corporate guarantors, whereas insolvency
resolution and bankruptcy processes apply to personal guarantors,
(to corporate debtors) who cannot be subjected to liquidation -
Insolvency and Bankruptcy Code, 2016 - s.60(2).
Dismissing the writ petitions, transferred cases and transfer
petitions, the Court
HELD:1.1. The Central Government followed a stage-bystage process of bringing into force the provisions of the Code,
regard being had to the similarities or dissimilarities of the subject
matter and those covered by the Code. [Para 81][1149-B]
1.2. Insolvency proceedings relating to individuals is
regulated by Part-III of the Code. Before the amendment of 2018,
all individuals (personal guarantors to

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LALIT KUMAR JAIN
v.
UNION OF INDIA & ORS.
(Transferred case (Civil) No. 245 of 2020)
MAY 21, 2021
[L. NAGESWARA RAO AND S. RAVINDRA BHAT, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss.1(3), 2(e), 5(22),
60, 179, 234, 235, 238 and 243 - Vires and validity of notification
dated 15.11.2019 issued by the Central Government - Whether the
impugned notification was an exercise of excessive delegation; and
inasmuch as it notified various provisions of the Code only in so
far as they related to personal guarantors to corporate debtors, it
was therefore, ultra vires - Held: The impugned notification was not
an instance of legislative exercise, nor amounted to impermissible
and selective application of provisions of the Code - No compulsion
in the Code that it should, at the same time, be made applicable to
all individuals, (including personal guarantors) or not at all -
Sufficient indication in the Code- by s.2(e), s.5(22), s.60 and s.179
indicating that personal guarantors, though forming part of the
larger grouping of individuals, were to be, in view of their intrinsic
connection with corporate debtors, dealt with differently, through
the same adjudicatory process and by the same forum (though not
insolvency provisions) as such corporate debtors - Notifications u/
s.1(3), (issued before the impugned notification was issued) disclose
that the Code was brought into force in stages, regard being had to
the categories of persons to whom its provisions were to be applied
- The impugned notification, similarly inter alia makes the provisions
of the Code applicable in respect of personal guarantors to
corporate debtors, as another such category of persons to whom
the Code has been extended - The impugned notification was issued
within the power granted by Parliament, and in valid exercise of it
- The exercise of power in issuing the impugned notification under
s.1(3) is therefore, not ultra vires; the notification is valid.
Insolvency and Bankruptcy Code, 2016 - Whether once a
resolution plan is accepted, the corporate debtor is discharged of
liability; and as a consequence, the guarantor whose liability is co-
[2021] 3 S.C.R. 1075
1075
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[2021] 3 S.C.R.
extensive with the principal debtor, i.e. the corporate debtor, too is
discharged of all liabilities - Held: Approval of a resolution plan
relating to a corporate debtor does not ipso facto discharge a
personal guarantor (of the corporate debtor) of his liabilities under
the contract of guarantee - The release or discharge of a principal
borrower from the debt owed by it to its creditor, by an involuntary
process, i.e. by operation of law, or due to liquidation or insolvency
proceeding, does not absolve the surety/guarantor of his or her
liability, which arises out of an independent contract.
Maxims - Maxim "reddendo singular singulis" - Applicability
- Where a sentence in a statute contains several antecedents and
several consequences, they are to be read distributively, that is to
say, each phrase or expression is to be referred to its appropriate
object - When s.60(2) of the Code alludes to insolvency resolution
or bankruptcy, or liquidation of three categories, i.e. corporate
debtors, corporate guarantors (to corporate debtors) and personal
guarantors (to corporate debtors) they apply distributively, i.e. that
insolvency resolution, or liquidation processes apply to corporate
debtors and their corporate guarantors, whereas insolvency
resolution and bankruptcy processes apply to personal guarantors,
(to corporate debtors) who cannot be subjected to liquidation -
Insolvency and Bankruptcy Code, 2016 - s.60(2).
Dismissing the writ petitions, transferred cases and transfer
petitions, the Court
HELD:1.1. The Central Government followed a stage-bystage process of bringing into force the provisions of the Code,
regard being had to the similarities or dissimilarities of the subject
matter and those covered by the Code. [Para 81][1149-B]
1.2. Insolvency proceedings relating to individuals is
regulated by Part-III of the Code. Before the amendment of 2018,
all individuals (personal guarantors to corporate debtors, partners
of firms, partnership firms and other partners as well as
individuals who were either partners or personal guarantors to
corporate debtors) fell under one descriptive description under
the unamended Section 2(e). The unamended Section 60
contemplated that the adjudicating authority in respect of personal
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guarantors was to be the NCLT. Yet, having regard to the fact
that Section 2 brought all three categories of individuals within
one umbrella class as it were, it would have been difficult for the
Central Government to selectively bring into force the provisions
of part -III only in respect of personal guarantors. It was here
that the Central Government heeded the reports of expert bodies
which recommended that personal guarantors to corporate
debtors facing insolvency process should also be involved in
proceedings by the same adjudicator and for this, necessary
amendments were required. Consequently, the 2018 Amendment
Act altered Section 2(e) and subcategorized three categories of
individuals, resulting in Sections 2(e), (f) and (g). Given that the
earlier notification of 30.11.2016 had brought the Code into force
in relation to entities covered under Section 2(a) to 2(d), the
amendment Act of 2018 provided the necessary statutory backing
for the Central Government to apply the Code, in such a manner
as to achieve the objective of the amendment, i.e. to ensure that
adjudicating body dealing with insolvency of corporate debtors
also had before it the insolvency proceedings of personal
guarantors to such corporate debtors. The amendment of 2018
also altered Section 60 in that insolvency and bankruptcy
processes relating to liquidation and bankruptcy in respect of
three categories, i.e. corporate debtors, corporate guarantors of
corporate debtors and personal guarantors to corporate debtors
were to be considered by the same forum, i.e. NCLT. [Paras 82,
83][1149-B-H]
2.1. In addition to amending Section 2, the same Amendment
also amended Section 60(2). Interestingly, though "personal
guarantor" was not defined, and fell within the larger rubric of
"individual" under the Code, the adjudicating authority for
insolvency process and liquidation of corporate persons including
corporate debtors and personal guarantors was the NCLT- even
under the unamended Code. The amendment of Section 60(2)
added a few concepts. The amendment inserted the expression
"or liquidation" before the words "or bankruptcy" and also
inserted the expression "of a corporate guarantor... as the case
may be, of" such corporate debtor. The interpretation of this
expression has to be contextual. There is no question of
liquidation of a personal guarantor, an individual. In such cases,
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the principle behind the maxim "reddendo singular singulis"
applies. [Paras 86, 87][1050-F-H; 1051-D-F]
2.2. When Section 60(2) alludes to insolvency resolution
or bankruptcy, or liquidation of three categories, i.e. corporate
debtors, corporate guarantors (to corporate debtors) and personal
guarantors (to corporate debtors) they apply distributively, i.e.
that insolvency resolution, or liquidation processes apply to
corporate debtors and their corporate guarantors, whereas
insolvency resolution and bankruptcy processes apply to personal
guarantors, (to corporate debtors) who cannot be subjected to
liquidation. [Para 88][1152-F-G]
2.3. Section 60 had previously, under the original Code,
designated the NCLT as the adjudicating authority in relation to
two categories: corporate debtors and personal guarantors to
corporate debtors. The 2018 amendment added another category:
corporate guarantors to corporate debtors. The amendment seen
in the background of the report, as indeed the scheme of the
Code (i.e., Section 2 (e), Section 5 (22), Section 29A, and Section
60), clearly show that all matters that were likely to impact, or
have a bearing on a corporate debtor's insolvency process, were
sought to be clubbed together and brought before the same forum.
[Para 92][1154-F-G]
3. Sections 234 and 235 of the Code also reveal that the
scheme of the Code always contemplated that overseas assets of
a corporate debtor or its personal guarantor could be dealt with
in an identical manner during insolvency proceedings, including
by issuing letters of request to courts or authorities in other
countries for the purpose of dealing with such assets located within
their jurisdiction. [Para 93][1155-G-H]
4. The impugned notification operationalizes the Code so
far as it relates to personal guarantors to corporate debtors: (1)
Section 79 pertains to the definitional section for the purposes of
insolvency resolution and bankruptcy for individuals before the
Adjudicating Authority. (2) Section 94 to 187 outline the entire
structure regarding initiation of the resolution process for
individuals before the Adjudicating Authority. [Para 94][1156-AB]
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5. The impugned notification authorises the Central
Government and the Board to frame rules and regulations on
how to allow the pending actions against a personal guarantor to
a corporate debtor before the Adjudicating Authority. The intent
of the notification, facially, is to allow for pending proceedings to
be adjudicated in terms of the Code. Section 243, which provides
for the repeal of the personal insolvency laws has not as yet been
notified. Section 60(2) prescribes that in the event of an ongoing
resolution process or liquidation process against a corporate
debtor, an application for resolution process or bankruptcy of
the personal guarantor to the corporate debtor shall be filed with
the concerned NCLT seized of the resolution process or
liquidation. Therefore, the Adjudicating Authority for personal
guarantors will be the NCLT, if a parallel resolution process or
liquidation process is pending in respect of a corporate debtor
for whom the guarantee is given. The same logic prevails, under
Section 60(3), when any insolvency or bankruptcy proceeding
pending against the personal guarantor in a court or tribunal and
a resolution process or liquidation is initiated against the corporate
debtor. Thus if A, an individual is the subject of a resolution
process before the DRT and he has furnished a personal guarantee
for a debt owed by a company B, in the event a resolution process
is initiated against B in an NCLT, the provision results in
transferring the proceedings going on against A in the DRT to
NCLT. [Para 95][1156-C-F]
6. The non-obstante provision under Section 238 gives the
Code overriding effect over other prevailing enactments. This is
perhaps the rationale for not notifying Section 243 as far as
personal guarantors to corporate persons are concerned. Section
243(2) saves pending proceedings under the Acts repealed (PIA
and PTI Act) to be undertaken in accordance with those
enactments. As of now, Section 243 has not been notified. In the
event Section 243 is notified and those two Acts repealed, then,
the present notification would not have had the effect of covering
pending proceedings against individuals, such as personal
guarantors in other forums, and would bring them under the
provisions of the Code pertaining to insolvency and bankruptcy
of personal guarantors. The impugned notification, as a
consequence of the non obstante clause in Section 238, has the
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result that if any proceeding were to be initiated against personal
guarantors it would be under the Code. [Para 96][1156-G-H; 1157A-C]
7. The insolvency process in relation to corporate persons
(a compendious term covering all juristic entities which have been
described in Sections 2 [a] to [d] of the Code) is entirely different
from those relating to individuals; the former is covered in the
provisions of Part II and the latter, by Part III. Section 179, which
defines what the Adjudicating authority is for individuals is
"subject to" Section 60. Section 60(2) is without prejudice to
Section 60(1) and notwithstanding anything to the contrary
contained in the Code, thus giving overriding effect to Section
60(2) as far as it provides that the application relating to
insolvency resolution, liquidation or bankruptcy of personal
guarantors of such corporate debtors shall be filed before the
NCLT where proceedings relating to corporate debtors are
pending. Furthermore, Section 60(3) provides for transfer of
proceedings relating to personal guarantors to that NCLT which
is dealing with the proceedings against corporate debtors. After
providing for a common adjudicating forum, Section 60(4) vests
the NCLT "with all the powers of the DRT as contemplated under
Part III of this Code for the purpose of sub-section (2)". Section 60
(4) thus (a) vests all the powers of DRT with NCLT and (b) also
vests NCLT with powers under Part III. Parliament therefore
merged the provisions of Part III with the process undertaken
against the corporate debtors under Part II, for the purpose of
Section 60(2), i.e., proceedings against personal guarantors along
with corporate debtors. Section 179 is the corresponding
provision in Part III. It is "subject to the provisions of Section 60".
Section 60 (4) clearly incorporates the provisions of Part III in
relation to proceedings before the NCLT against personal
guarantors. [Para 99][1159-F-G; 1160-A-D]
8. It is clear that the Parliamentary intent was to treat
personal guarantors differently from other categories of
individuals. 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
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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 guarantee. The
fact that the process of insolvency in Part III is to be applied to
individuals, whereas the process in relation to corporate debtors,
set out in Part II is to be applied to such corporate persons, does
not lead to incongruity. On the other hand, there appear to be
sound reasons why the forum for adjudicating insolvency
processes - the provisions of which are disparate- is to be
common, i.e through the NCLT. The NCLT would be able to
consider the whole picture, as it were, about the nature of the
assets available, either during the corporate debtor's insolvency
process, or even later; this would facilitate the CoC in framing
realistic plans, keeping in mind the prospect of realizing some
part of the creditors' dues from personal guarantors. [Para
100][1160-D-F; 1161-A-C]
9. The impugned notification is not an instance of legislative
exercise, or amounting to impermissible and selective application
of provisions of the Code. There is no compulsion in the Code
that it should, at the same time, be made applicable to all
individuals, (including personal guarantors) or not at all. There is
sufficient indication in the Code- by Section 2(e), Section 5(22),
Section 60 and Section 179 indicating that personal guarantors,
though forming part of the larger grouping of individuals, were to
be, in view of their intrinsic connection with corporate debtors,
dealt with differently, through the same adjudicatory process and
by the same forum (though not insolvency provisions) as such
corporate debtors. The notifications under Section 1(3), (issued
before the impugned notification was issued) disclose that the
Code was brought into force in stages, regard being had to the
categories of persons to whom its provisions were to be applied.
The impugned notification, similarly inter alia makes the
provisions of the Code applicable in respect of personal
guarantors to corporate debtors, as another such category of
persons to whom the Code has been extended. The impugned
notification was issued within the power granted by Parliament,
and in valid exercise of it. The exercise of power in issuing the
impugned notification under Section 1(3) is therefore, not ultra
vires; the notification is valid. [Para 101][1161-C-G]
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10. Approval of a resolution plan does not ipso facto
discharge a personal guarantor (of a corporate debtor) of her or
his liabilities under the contract of guarantee. The release or
discharge of a principal borrower from the debt owed by it to its
creditor, by an involuntary process, i.e. by operation of law, or
due to liquidation or insolvency proceeding, does not absolve
the surety/guarantor of his or her liability, which arises out of an
independent contract. The impugned notification is legal and valid.
Also, approval of a resolution plan relating to a corporate debtor
does not operate so as to discharge the liabilities of personal
guarantors (to corporate debtors). [Paras 111,112][1168-G-H;
1169-A-B]
State Bank of India v. V. Ramakrishnan (2018) 17 SCC
394 : [2018] 10 SCR 974; Committee of Creditors of
Essar Steel India Ltd. v. Satish Kumar Gupta (2019)
SCC Online SC 1478; Maharashtra State Electricity
Board Bombay v. Official Liquidator, High Court,
Ernakulum & Anr. (1982) 3 SCC 358 : [1983] 1 SCR
561; Industrial Finance Corpn. of India Ltd. v.
Cannanore Spg. & Wvg. Mills Ltd. (2002) 5 SCC 54 :
[2002] 2 SCR 1093 and Punjab National Bank v. State
of UP (2002) 5 SCC 80 - relied on.
Swiss Ribbons (P.) Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535; Delhi Laws Act, 1912, In re v.
Part 'C' States (Laws) Act, 1950, [1951] SCR 747; State
of Tamil Nadu v. K. Sabanayagam (1998) 1 SCC 318 :
[1997] 5 Suppl. SCR 345; Vasu Dev Singh & Ors. v.
Union of India & Ors. (2006) 12 SCC 753 : [2006] 8
Suppl. SCR 535; State of Bombay v. Narothamdas
Jethabhai, [1951] 2 SCR 51; Sardar Inder Singh v. State
of Rajasthan [1957] SCR 605; Hamdard Dawakhana
v. Union of India [1960] 2 SCR 671; Babulal Vardharji
Gurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. &
Anr. (2020) 15 SCC 1; Chettian Veettil Amman v. Taluk
Land Board (1980) 1 SCC 499 : [1979] 3 SCR 839;
Basant Kumar Sarkar v. Eagle Rolling Mills Ltd. [1964]
6 SCR 913; Bishwambhar Singh v. State of Orissa
[1954] SCR 842; Embassy Property Developments (P)
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Ltd. v. State of Karnataka (2020)13 SCC 308; J. Mitra
and Co. Pvt. Ltd. v. Assistant Controller of Patents
(2008) 10 SCC 368 : [2008] 12 SCR 419; Lalit Narayan
Mishra Institute of Economic Development v. State of
Bihar & Ors. Etc. (1988) 2 SCC 433 : [1988] 3 SCR
311; Javed & Ors v. State of Haryana & Ors. (2003) 8
SCC 369 : [2003] 1 Suppl. SCR 947; Bank of Bihar
Ltd. v. Dr. Damodar Prasad & Anr. AIR [1969] 1 SCR
620; State Bank of India v. Index port Registered AIR
1992 SC 1740; Industrial Investment Bank of India v.
Biswanath Jhunjhunwala (2009) 9 SCC 478 : [2009]
13 SCR 391; Lachmi Narain v. Union of India (1976)
2 SCC 953 : [1976] 2 SCR 785; Raghubar Swarup v.
State of U.P AIR 1959 SC 909; ITC Bhadrachalam v.
Mandal Revenue Officer (1996) 6 SCC 634 : [1996] 5
 Suppl. SCR 643; Edward Mills v. State of Ajmer [1955]
1 SCR 735; Chairman Board of Mining Examination v.
Ramji AIR 1977 SC 965 : [1977] 2 SCR 904;
Directorate of Enforcement v. Dipak Mahajan (1994)
3 SCC 440 : [1994] 1 SCR 445; Arcelor Mittal v. Satish
Kumar Gupta (2019) 2 SCC 1 : [2018] 12 SCR 362;
Brij Sundar Kapoor v. First Additional Judge (1989) 1
SCC 561 : [1988] Suppl. SCR 558; Raghubir Sarup v.
State of UP AIR 1959 SC 909; Khargram Panchayat
Samiti v. State of West Bengal (1987) 3 SCC 82 : [1987]
2 SCR 1207; Koteswar Vittal Kamath v. K. Rangappa
Baliga & Co. (1969) 1 SCC 255 : [1969] 3 SCR 40;
Rajendra K. Bhutta v. Maharashtra Housing and Area
Development Authority (2020) 13 SCC 208; Javed v.
State of Haryana (2003) 8 SCC 369 : [2003] 1 Suppl.
SCR 947; Pannalal Bansilal Pitti v. State of A.P. (1996)
2 SCC 498 : [1996] 1 SCR 603; and Vijay Kumar
Jain v. Standard Chartered Bank (2019) SCC OnLine
SC 103 - referred to.
Gouri Shankar Jain v. Punjab National Bank & Anr.
2019 SC Online Cal 7288; Kundanlal Dabriwala v.
Haryana Financial Corporation (2012) 171 Comp Cas
94; Dr. Vishnu Kumar Agarwal v. Piramal Enterprises
Ltd. (2019) SCC Online NCLAT 542 and Pegasus
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Aviation Finance Company vs. Kingfisher Airlines
Limited (2016) SCC OnLine Kar 5991- referred to.
R v. Burah 1878 (3) App. Cases 889 (Decision of Privy
Council); Jatindra Nath Gupta v. Province of Bihar
(Judgment of Federal Court), (1949-50) 11 FCR 595;
and Re Kaupthing Singer and Friedlander Ltd. (in
administration) (Decision of UK Supreme Court), 2012
(1) All ER 883 - referred to.
Bennion on Statutory Interpretation: A Code
(6th Edition, at page 257) - referred to.
Case Law Reference
[2018] 10 SCR 974
relied on
Para 8
[2019] 3 SCR 535
referred to
Para 12
[1951] SCR 747
referred to
Para 16
[1997] 5 Suppl. SCR 345
referred to
Para 16
[2006] 8 Suppl. SCR 535
referred to
Para 16
[1951] 2 SCR 51
referred to
Para 20
[1957] SCR 605
referred to
Para 20
[1960] 2 SCR 671
referred to
Para 20
(2020) 15 SCC 1
referred to
Para 23
[1979] 3 SCR 839
referred to
Para 34
[1964] 6 SCR 913
referred to
Para 36
[1954] SCR 842
referred to
Para 36
(2020) 13 SCC 308
referred to
Para 39
[2008] 12 SCR 419
referred to
Para 42
[1988] 3 SCR 311
referred to
Para 42
[2003] 1 Suppl. SCR 947
referred to
Para 42
[1969] 1 SCR 620
referred to
Para 43
AIR 1992 SC 1740
referred to
Para 43
[2009] 13 SCR 391
referred to
Para 43
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[1983] 1 SCR 561
relied on
Para 44
(2002) 5 SCC 80
relied on
Para 44
[2018] 10 SCR 974
referred to
Para 45
[1976] 2 SCR 785
referred to
Para 47
AIR 1959 SC 909
referred to
Para 48
[1996] 5 Suppl. SCR 643
referred to
Para 48
[1955] 1 SCR 735
referred to
Para 49
[1977] 2 SCR 904
referred to
Para 51
[1994] 1 SCR 445
referred to
Para 51
[2018] 12 SCR 362
referred to
Para 51
[1988] 3 Suppl. SCR 558
referred to
Para 55
AIR 1959 SC 909
referred to
Para 56
[1987] 2 SCR 1207
referred to
Para 56
[1969] 3 SCR 40
referred to
Para 59
(2020) 13 SCC 208
referred to
Para 88
[2003] 1 Suppl. SCR 947
referred to
Para 90
[1996] 1 SCR 603
referred to
Para 90
[2002] 2 SCR 1093
relied on
Para 109
CIVIL ORIGINAL JURISDICTION: Transferred Case (Civil)
No. 245 of 2020.
Transfer Petition U/A139A R/W Article 142 of The Constitution
of India Seeking transfer of Writ Petition (C) No.4849 of 2020 from the
Delhi High Court to this Hon'ble Court.
With
W.P.(c) Nos. 117 of 2021, 1371 of 2020, 1420 of 2020, 1353 of
2020, T.P. (c) No. 1252 of 2020, W.P.(c) Nos. 1276 of 2020, 1287 of
2020, T.P. (c) Nos. 1285 of 2020, 1325 of 2020, W.P.(c) No. 1364 of
2020, T.C.(c) No. 257 of 2020, W.P.(c) Nos. 1434 of 2020, 38 of 2021,
1419 of 2020, T.P.(c) Nos. 1202 of 2020, 1220 of 2020, 1203 of 2020,
1193 of 2020, 1196 of 2020, 1289 of 2020, 1323 of 2020, 1333 of 2020,
LALIT KUMAR JAIN v. UNION OF INDIA & ORS.
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1292 of 2020, 1299 of 2020, 1331 of 2020, W.P.(c) No. 1342 of 2020,
T.P.(c) No. 1339 of 2020, W.P.(c) Nos. 1348 of 2020, 1344 of 2020,
1343 of 2020, T.C.(c) Nos. 250 of 2020, 251 of 2020, 247 of 2020, 253 of
2020, 252 of 2020, 248 of 2020, 254 of 2020, 246 of 2020, 256 of 2020,
249 of 2020, 255 of 2020, W.P.(c) Nos. 62 of 2021, 32 of 2021, 106 of
2021, 97 of 2021, 142 of 2021, 135 of 2021, 131 of 2021, 122 of 2021,
138 of 2021, 146 of 2021, 207 of 2021, 160 of 2021, 168 of 2021, 205 of
2021, 209 of 2021, 194 of 2021, 187 of 2021, 180 of 2021, 182 of 2021,
203 of 2021, 220 of 2021, 229 of 2021, 217 of 2021, 221 of 2021, 225 of
2021, 239 of 2021, 240 of 2021, 228 of 2021, 224 of 2021, 234 of 2021,
260 of 2021, 262 of 2021 AND 283 of 2021.
Tushar Mehta, SG., K. K. Venugopal, AG., K. V. Vishwanathan,
Rakesh Dwivedi, Gopal Subramanium, Dhruv Mehta, Harish Salve,
Sudipto Sarkar, P S Narsimha, Siddhartha Dave, Ritin Rai, Ramji
Srinivasan, Sr. Advs., Mohammed Akhil Nazeer, Kannu Aggarwal,
Navanjay Mahapatra, Arvind Kumar Sharma, Sanjay Kapur, Ms. Megha
Karnwal, V M Kannan, Sambit Panja, Arjun Bhatia, Ms. Monali,
Jayavardhan Singh, Hitesh Kumar Saini, Shankh Sengupta, Siddharth
Ranade, Vividh Tandon, Ms. Nishi Bhankharia, Ms. Kaazvin Kapadia,
Syed Jafar Alam, Ninad Laud, Sahil Tagotra, Vikas Mehta Apoorv Khator,
Sahil Monga, Arvind Kumar Gupta, Dr. Anindita Pujari, Ms. Purti Gupta,
Ms. Henna George, Om Narayan, Ms. Harpreet Kaur, Arjun Sayal,
Shreyan Das, Zeeshan Hashmi, Salman Hashmi, Mithu Jain, Alok Dhir,
Ms. Jayashree Shukla Dasgupta, Ms. Varsha Banerjee, Ashu Kansal,
Ms. Swati Sharma, Ashish Pyasi, Milan Singh Negi, Karan Batura,
Mahesh Agarwal, Ms. Shally Bhasin, Ankur Saigal, Kamaldeep Dayal,
Prateek Gupta, Ms. Madhavi Agrawal, Ankit Banati, Ms. Saloni Mahajan,
E. C. Agrawala, Sandeep S Ladda, Soumik Ghosal, Gaurav Singh, Abhay
Anand Jena, Deepayan Mandal, S. R. Raghunathan, S. Santanam
Swaminadhan, Ms. Abhilasha Shrawat, Mrs. Aarthi Rajan, Vikram
Pooserla, Tadimalla Bhaskar Gowtham, Abhinay Reddy M., Nitish
Bandary, Jeevan Kumar Nandam, Keertivardhan Kommareddy, Ms.
Aahana Madhyala, Ms. Karishma Nedungadi, Ms. Achala Siri Doddala,
Ms. Shreya Devaki, Jyoti Kumar Singh, P. R. Rajhans, Mrs. Paroma
Sengupta, Sandeep Singh, Vishal Arun, Ms. Shivani, Ravindra S Chingale,
Yashraj Singh Deora, Ms. Sonal Mashankar, Ms. Shivangi Sud,
Ms. Prakriti Roy, M Srinivas R. Rao, Sarath S. Janardanan, Ms. Aditi
Tripathi, Ms. Sindoora VNL, Mukunda, Kailashnath PSS, Abid Ali Beeran
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1087
P, Sandeep Singh, Krishna Dev Jagarlamudi, Anish R. Shah, Pradeep
Aggarwal, Ms. Soumya Sharma, Lal Pratap Singh, Umesh Pratap Singh,
Arjun Aggarwal, Ms. Ruchi Kohli, Rohit Sharma, Pranav Bhaskar,
Rounak Nayak, Atul Agarwal, Ms. Arju Chaudhary, Kumar Dushyant
Singh, Vikas Kumar, Manish Paliwal, M/s Corporate Legal Partners,
Sandeep Bajaj, Soayib Quershi, Ms. Nidhi Mohan Parashar, Ms. Aditi
Pundhir, Uttam Datt, Rajiv Singh, Ms. Srujana Suman Mund,
Ms. Sonakshi Singh, Rishi Raj Sharma, Ms. Pallavi Langar, Ms. Gauri
Rishi, Ms. Srishti Juneja, Yadav Narender Singh, V. Lakshmikumaran,
Ms. Charanya Lakshmikumaran, Yogendra Aldak, Gopal Machiraju,
Puneeth Ganpathy, Aditya Bhattacharya, Ms. Apeksha Mehta,
Ms. Mounica Kasturi, Ms. Ishita Mathur, Malak Manish Bhatt,
Ms. Pallavi Singh, Ms. Sangya Gupta, Sidhartha Barua, Sharan Thakur,
Ms. Aditi Gupta, Ms. Jasmine Damkewala, Ms. Ritika Sinha, Ms. Gunjan
Mathur, Ms. Vaishali Sharma, Dinesh Chander Trehan, Ms. Anindita
Roy Chowdhary, Ms. Vansala Rai, Raj Kanwar Singh, Shivam Singh,
Sahil Raveen, Manish Kumar, Ms. Aditi Mittal, Ayush Agarwala, Siddhant
Tripathi, Aditya Narayan Mahajan, Arnav Narain, Alok Kumar,
Ms. Somya Yadava, Ms. Drishti Harpalani, Uday Arora, G. N. Reddy,
Deepayan Mandal, Sandeep Singh, M. P. Vinod, Vinod Kumar, M. D.
Srinivasan, Ms. Avni Sharma, Dheeraj Nair, Ms. Anjali Anchayil,
Ms. Vishrutyi Sahni, Vinam Gupta, R. Sudhinder, Nikhil Singh, Rahul
Dev, Ranjit Shetty, Ashok Mathur, D. Bharat Kumar, Aman Shukla,
Hathindra Manda, Gopal Jha, Ms. Misha, Vaijayant Paliwal, Ms. Charu
Bansal, Ms. Jasveen Kaur, S. S. Shroff, Anoop Rawat, Ms. Mahima
Sareen, Ms. Moulshree Shukla, Ms. Prabh Simran Kaur, Shardul S.
Shroff, Ms. Praveena Gautam, Pawan Shukla, Ms. Sweety Pandey,
Raja Ram, Vivek Sarin, Ms. Astha Sehgal, Satish C. Kaushik, Aakarshan
Aditya, M/S. Cyril Amarchand Mangaldas, Arun Aggarwal, Ms. Anshika
Aggarwal, Ms. Ekjot Bhasin, Mritunjay Kumar Sinha, Ankit, Ms. Kavita
Jha, Ms. Sandhya Iyer, Udit Naresh, O. P. Gaggar, Ms. Astha Prasad,
Aditya Gaggar, Ankit Anandraj Shah, Brijesh Kumar Tamber, Kinshuk
Chatterjee, Kushal Bansal, Ms. Srishti Gupta, Sujoy Chatterjee, Atul
Sharma, Abhishek Sharma, Ms. Ashly Cherian, Indraprateek Naidu,
Gautam Talukdar, Ateev Mathur, Ajay Monga, Amol Sharma, Gagan
Gupta, Abhishek Jebaraj, Ms. Nupur Raut, Vivek A. Vashi, Ms. Shilpa
Sengar, Biswajit Dubey, Madhav Kanoria, Ms. Surabhi Khattar, Prafful
Goyal, Ms. Vani Sharma, Sumit Attri, Advs. for the appearing parties.
LALIT KUMAR JAIN v. UNION OF INDIA & ORS.
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The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. This judgment will dispose of common questions of law, which
arise in various proceedings preferred under Article 32 of the Constitution
of India, as well as transferred cases under Article 139A; those causes
were transferred to the file of this court, from various High Courts1, as
they involved interpretation of common questions of law, in relation to
provisions of the Insolvency and Bankruptcy Code, 2016 (hereafter "the
Code").
I The Petitions and Common Grievances
2. The common question which arises in all these cases concerns
the vires and validity of a notification dated 15.11.2019 issued by the
Central Government2 (hereafter called "the impugned notification"). Other
reliefs too have been claimed concerning the validity of the Insolvency
and Bankruptcy (Application to Adjudicating Authority for Insolvency
Resolution Process for Personal Guarantors to Corporate Debtors) Rules,
2019 issued on 15.11.2019. Likewise, the validity of regulations challenged
by the Insolvency and Bankruptcy Board of India on 20.11.2019 are
also the subject matter of challenge. However, during the course of
submissions, learned counsel for the parties stated that the challenge
would be confined to the impugned notification.
3. All writ petitioners before the High Courts, arrayed as
respondents in the transferred cases before this Court, as well as the
petitioners under Article 32 claim to be aggrieved by the impugned
notification. At some stage or the other, these petitioners (compendiously
termed as "the writ petitioners") had furnished personal guarantees to
banks and financial institutions which led to release of advances to various
companies which they (the petitioners) were associated with as directors,
promoters or in some instances, as chairman or managing directors. In
many cases, the personal guarantees furnished by the writ petitioners
were invoked, and proceedings are pending against companies which
they are or were associated with, and the advances for which they
furnished bank guarantees. In several cases, recovery proceedings and
later insolvency proceedings were initiated. The insolvency proceedings
are at different stages and the resolution plans are at the stage of
1 Madhya Pradesh, Telengana, Delhi, etc.
2 S.O. 4126 (E) issued by the Ministry of Corporation Affairs, Central Government
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finalization. In a few cases, the resolution plans have not yet been approved
by the adjudicating authority and in some cases, the approvals granted
are subject to attack before the appellate tribunal.
4. All the writ petitioners challenged the impugned notification as
having been issued in excess of the authority conferred upon the Union
of India (through the Ministry of Corporate Affairs) which has been
arrayed in all these proceedings as parties. The petitioners contend that
the power conferred upon the Union under Section 1(3) of the Insolvency
and Bankruptcy Code, 2016 (hereafter referred to as "the Code") could
not have been resorted to in the manner as to extend the provisions of
the Code only as far as they relate to personal guarantors of corporate
debtors. The impugned notification brought into force Section 2(e),
Section 78 (except with regard to fresh start process), Sections 79,
94-187 (both inclusive); Section 239(2)(g), (h) & (i); Section 239(2)(m)
to (zc); Section 239 (2)(zn) to (zs) and Section 249.
5. After publication of the impugned notification, many petitioners
were served with demand notices proposing to initiate insolvency
proceedings under the Code. These demand notices were based on
various counts, including that recovery proceedings were initiated after
invocation of the guarantees. This led to initiation of insolvency resolution
process under Part-III of the Code against some of the petitioners. The
main argument advanced in all these proceedings on behalf of the writ
petitioners is that the impugned notification is an exercise of excessive
delegation. It is contended that the Central Government has no authority
- legislative or statutory - to impose conditions on the enforcement of
the Code. It is further contended as a corollary, that the enforcement of
Sections 78, 79, 94-187 etc. in terms of the impugned notification of the
Code only in relation to personal guarantors is ultra vires the powers
granted to the Central Government.
6. It is argued that in terms of the proviso to Section 1(3) of the
Code, Parliament delegated the power to enforce different provisions
of the Code at different points in time to the Central Government.
Section1(3) reads as under:
"It shall come into force on such date as the Central
Government may, by notification in the Official Gazette,
appoint:
LALIT KUMAR JAIN v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
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Provided that different dates may be appointed for different
provisions of this Code and any reference in any such provision
to the commencement of this Code shall be construed a
reference the commencement of that provision."
7. The petitioners argue that the power delegated under Section
1(3) is only as regards the point(s) in time when different provisions of
the Code can be brought into effect and that it does not permit the Central
Government to notify parts of provisions of the Code, or to limit the
application of the provisions to certain categories of persons. The
impugned notification, however, notified various provisions of the Code
only in so far as they relate to personal guarantors to corporate
debtors. It is therefore, ultra vires the proviso to Section 1(3) of the
Code.
8. It is argued that the provisions of the Code brought into effect
by the impugned notification are not in severable, as they do not specifically
or separately deal with or govern insolvency proceedings against personal
guarantors to corporate debtors. The provisions only deal with individuals
and partnership firms. It is urged that from a plain reading of the
provisions, it is not possible to carve out a limited application of the
provisions only in relation to personal guarantors to corporate debtors.
The Central Government's move to enforce Sections 78, 79, 94 to 187,
etc. only in relation to personal guarantors to corporate debtors is an
exercise of legislative power wholly impermissible in law and amounts
to an unconstitutional usurpation of legislative power by the executive.
The petitioners argue that the impugned notification, to the extent it brings
into force Section 2 (e) of the Code with effect from 01.12.2019 is hit by
non-application of mind. It is argued that Section 2(e) of the Code, as
amended by Act 8 of 2018, came into force with retrospective effect
from23.11.2017. This is duly noted by this court in the case of State
Bank of India v. V. Ramakrishnan3, which observed that:
"Though the original Section 2(e) did not come into force at
all, the substituted Section 2(e) has come into force w.e.f.
23.11.2017."
It is urged that this court should, therefore, set aside the impugned
notification.
3 (2018) 17 SCC 394
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9. The petitioners also attack the impugned notification on the
ground that it suffers from non-application of mind, because the Central
Government failed to bring into effect Section 243 of the Code, which
would have repealed the Presidency Towns Insolvency Act, 1909 ("PTI
Act" hereafter) and the Provincial Insolvency Act, 1920 ("PIA"
hereafter). Prior to issuance of the impugned notification, insolvency
proceedings against an individual could be initiated only in terms of the
said two Acts. After enactment of the Code, insolvency proceedings
against personal guarantors to corporate debtors would lie before the
Adjudicating Authority, in terms of Section 60 of the Code, although they
would be governed by the said two Acts. With the enforcement of the
impugned provisions, rules and regulations, insolvency proceedings can
now be initiated against personal guarantors to corporate debtors under
Part III of the Code, and also under the PTI Act and the PIA. Since
Section 243 of the Code has not been brought into force, the petitioners
contend that the impugned notification has the illogical effect of creating
two self-contradictory legal regimes for in solvency proceedings against
personal guarantors to corporate debtors.
10. It is urged that the impugned notification is ultra vires the
provisions of the Code in so far as it notifies provisions of Part III of
the Code only in respect of personal guarantors to corporate debtors.
Part III of the Code governs "Insolvency Resolution and Bankruptcy
for Individuals and Partnership Firms". Also, Section 2(g) of the
Code defines an individual to mean "individuals, other than persons
referred to in clause (e)". Section 2 (e) relates to personal guarantors
to corporate debtors. A joint reading of Section 2(e) with Section 2(g)
and Part III of the Code shows that personal guarantors to corporate
debtors are not covered by Part II, which only deals with individuals and
partnership firms, and personal guarantors to corporate debtors stand
specifically excluded from the definition of individuals. The petitioners
also rely on Section 95 of the Code4, which permits a creditor to invoke
insolvency resolution process against an individual only in relation to a
partnership debt.
LALIT KUMAR JAIN v. UNION OF INDIA & ORS.
[S. RAVINDRA BHAT, J.]
4 "95. Application by creditor to initiate insolvency resolution process.
(1) A creditor may apply either by himself, or jointly with other creditors,
or through resolution professional to the Adjudicating Authority for initiating
an insolvency resolution process under this section by submitting an application.
(2) A creditor may apply under sub-section (1) in relation to any
partnership debt owed to him for initiating an insolvency resolution process
against
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11. Part III of the Code does not contain any provision permitting
initiation of the insolvency resolution process (hereafter "IRP") against
personal guarantors to corporate debtors. The impugned notification
which provides to the contrary, is ultra vires. It is further contended that
provisions of the Code brought into effect by the impugned notification
[Clause (e) of Section 2, Section 78 (except with regard to fresh start
process), Section 79, Section 94 to 187 (both inclusive), Clause (g) to
Clause (l) of sub-section (2) of Section 239, Clause (m) to (zc) of subsection (2) of Section 239, Clause (zn) to Clause (zs) of Sub-section (2)
of Section 239 and Section 249] when enforced only in respect of personal
guarantors to corporate debtors, are manifestly arbitrary; they are also
discriminatory because:
(i)
There is no intelligible differentia or rational basis on which
personal guarantors to corporate debtors have been singled
out for being covered by the impugned provisions, particularly
when the provisions of the Code do not separately apply to
one sub-category of individuals, i.e., personal guarantors to
corporate debtors.