Introduction
In
the present case, a Notification dated 15.11.2019 issued by the
Central Government was challenged. Vide this Notification, certain provisions
of the IBC were brought into force only as far as they relate to personal
guarantors of corporate debtors, under the exercise of powers under
Section 1 (3) of the IBC. Section 1 (3) states that: -
“It
shall come into force on such date as the Central Government may, by
notification in the Official Gazette, appoint:
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.”
The
impugned Notification provided for as follows: -
“NOTIFICATION
New
Delhi. the 15th November, 2019
S.O.
4126(E).- ln exercise of the powers conferred by sub-section (3) of section I
of the Insolvency and Bankruptcy Code. 2016 (31 of 2016). the Central
Government hereby appoints the 1st day of December, 2019 as the date on which
the following provisions of the said Code only in so far as they relate
to personal guarantors to corporate debtors. shall come into force:
(1)
clause (e) of section 2;
(2)
section 78 (except with regard to fresh start process) and section 79;
(3)
sections 94 to 187 (both inclusive);
(4)
clause (g) to clause (i) of sub-section (2) of section 239;
(5)
clause (m) to clause (zc) of sub-section (2) of section 239;
(6)
clause (zn) to clause (zs) of’ sub-section (2) of section 240; and
(7)
Section 249.
[F.
No. 30/21/2018-Insolvency Section]
GYANESHWAR
KUMAR SINGH, Jt. Secy.”
Important
Grounds of the Petitioners
It
was pleaded that the impugned Notification suffers from the vice of excessive
delegation and bringing into force certain provisions only in relation to
personal guarantors is ultra vires the powers granted to the Central Government.
It
was also contended that the power delegated under S. 1 (3) is with respect to
the points in time when different provisions of the IBC can be brought into
effect and there is no power to the Government to notify parts of provisions of
the Code or to limit the application of the provisions to certain categories of
persons.
Basically,
certain provisions of Part III of the IBC and other parts were made
applicable to personal guarantors of corporate debtors only. The heading of
Part III of the IBC is “INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS
AND PARTNERSHIP FIRMS.” It was contended that: -
“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. Rather, Part III of the Code does not apply to personal
guarantors to corporate debtors at all.”
It
was further argued that Section 1 (3) merely empowers the Central Government to
bring into force the provisions of the IBC on such date by a Notification in
the Official Gazette and the Proviso specifically provides that different dates
may be appointed for bringing different provisions into force. There is no
scope for amending any provision or curtailing the powers of any provision
under Section 1 (3). The only function assigned to the Central Government under
S. 1 (3) is to bring the law into operation at such as it might decide.
Exercise of power in any other manner would mean unconstitutional delegation of
power.
Another
argument was that by applying the provisions only to personal guarantors to
corporate debtors, the impugned Notification has the effect of modifying the
text of the actual provisions of the IBC.
Various
landmark case-laws such as Delhi Laws Act, 1912, In re v. Part ‘C’ States
(Laws) Act, 1950, 1951 SCR 747, Hamdard Dawakhana v. Union of
India, (1960) 2 SCR 671, State of Bombay v. Narothamdas Jethabhai,
(1951) 2 SCR 51 etc., were cited to buttress the above-stated submissions.
Important
Grounds of the Respondents
The
Central Government argued that the IBC was amended in the year 2018 wherein the
class of personal guarantors to corporate debtors was introduced. The purpose
was to distinguish personal guarantors to corporate debtors from others and “the
result of the amendment is that when a corporate debtor faces insolvency
proceedings, insolvency of its corporate guarantor too can be triggered.
Likewise, a personal guarantor to a corporate debtor, facing insolvency, can be
subjected to insolvency proceedings.”
The
Respondents also relied upon the meaning of the expression “provision”
as provided in the case of Chettian Veettil Amman v. Taluk Land Board,
(1980) 1 SCC 499: -
“A
provision is therefore a distinct rule or principle of law in a statute which
governs the situation covered by it. So an incomplete idea, even though stated
in the form of a section of a statute, cannot be said to be a provision for, by
its incompleteness, it cannot really be said to provide a whole rule or
principle for observance by those concerned. A provision of law cannot
therefore be said to exist if it is incomplete, for then it provides nothing.”
According
to the Respondents, the provisions of the IBC brought into force were complete
in itself and therefore, they were brought into force. Bennion on
Statutory Interpretation was also relied upon to explain that the
executive has the power to bring into force any one provision of a statute at
different times for different purposes.
It
was also argued that there needs to be a purposive construction of Section 1
(3) of the IBC to determine the scope of the power conferred on the Central
Government.
Observations
of the Court
Apart
from other things, the Court discussed the background in which the IBC was
enacted by the Parliament. The Court also discussed its scheme. While
discussing the scheme, the Court observed that Section 5 (22) of the IBC
defines personal guarantor as: -
“an
individual who is the surety in a contract of guarantee to a corporate debtor.”
Various
provisions of the Indian Contract Act, 1872, relating to ‘Surety’ were
also cited in the Judgment. It was also discussed as to how guarantors cannot
escape their liability.
Further,
Section 234 (2) of the IBC was also cited: -
“234
(2) The Central Government may, by notification in the Official Gazette, direct
that the application of provisions of this Code in relation to assets or property
of corporate debtor or debtor, including a personal guarantor of a corporate
debtor, as the case may be, situated at any place in a country outside
India with which reciprocal arrangements have been made, shall be subject to
such conditions as may be specified.”
Based
on the above and other reasons, the Court opined that the “parliamentary
intent was to treat personal guarantors different from other categories of
individuals.” Thus, according to the Court, “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 guarantee.”
Thus,
according to the Court, personal guarantors stand on a different footing and
their case cannot be equated with other classes of individuals or persons.
Held
by the Court
Hence,
upon cumulative consideration of all the arguments and circumstances, it was
held by the Court that the impugned Notification is valid and there is no
legislative exercise carried out by the Central Government holding their
exercise of power in issuing the impugned Notification under Section 1 (3) of
the IBC not to be ultra vires. It was also observed by the Court
that: -
“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.”
There
were other IBC related issues dealt with in the case but the same are not
relevant for our discussion and hence, are not being discussed here.
Concluding
Remarks
To
be honest, I find this Judgment by the Hon’ble Supreme Court to be a strange one.
I have many reasons for saying so. S. 1 (3) of the IBC seems
quite clear in its purport. It unequivocally states that “different dates
may be appointed for different provisions of this code.” Now, how hard
could it be to ascertain the meaning of this Proviso? As far as I know, when
the literal meaning of a text is plain and simple, then that meaning is to be
resorted to and only when the literal meaning is leading to absurdity, can the
other modes of construction such as the rule of purposive construction could be
resorted to. It is not a matter of convenience that sometimes the rule of
literal interpretation would be used and sometimes the rule of purposive
construction. Recently, the Hon’ble Supreme Court in the case of National
Highways Authority of India v. Pandarinathan Govindarajulu and Another, 2021
SCC OnLine SC 28, had held that: -
“9. It has been repeatedly
held by this Court that where there is no ambiguity in the words, literal
meaning has to be applied, which is the golden rule of interpretation. The
words of a statute must prima facie be given their ordinary meaning.”
In my humble opinion, as rightly
pointed out by the Court, a provision could include the parts of a section of a
clause as well and under S. 1 (3), such parts of various sections of the IBC
could be notified at different dates. I also find it reasonable that the personal
guarantors have been put at a different footing in the IBC. But what seems odd
is the observation of the Hon’ble Court in Para 124 and others that certain provisions
indicate that the personal guarantors were to be dealt with differently and
this indication is sufficient to supplement the wordings of S. 1 (3) to
mean that provisions could be notified exclusively for personal guarantors to
corporate debtors. Even S. 234 of the IBC that was cited by the Court is
limited in its application to any place outside India.
Thus, I find it quite troubling that
when the bare provisions of the statute are not intended to be made applicable
to only to the personal guarantors to corporate debtors. Simply because personal guarantors are treated differently
under the IBC should not ipso facto mean that the provisions of the IBC
could be selectively made applicable on them depending upon the whims and
fancies of the Executive.
The Hon’ble Supreme Court relied upon
a Report of the Working Group in relation to the IBC. But when the wordings of
a statute are crystal clear then is there a need to look into the Reports to ascribe
meaning to a text? I most humbly and respectfully state that I have divergent
views in relation to the interpretative process that needs to be carried out in
relation to Section 1 (3) of the IBC and that its meaning is plain and clear
leaving no scope for any purposive interpretation.
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