The Supreme Court on Thursday upheld the validity of the Insolvency and Bankruptcy Code, 2016 and its amendments, which mandated that personal guarantors must compensate for the debts owned by the corporate debtor.
A bench headed by Chief Justice of India D.Y. Chandrachud passed the judgment while dismissing a batch of staggering 200 odd petitions filed by entities including industrialists Anil Ambani and Venugopal Dhoot.
The petitioners challenged the insolvency laws on the ground they did not provide any opportunity to the corporate guarantors to present their case though the legislation permits the initiation of insolvency proceedings against them.
On October 29, 2020, the apex court had transferred to itself all the cases on the constitutional validity of certain provisions of IBC, 2016 and amended rules in 2019 by which personal guarantors were made liable for the debts of the promoters.
“The statute does not suffer from the vires of any manifest arbitrariness to violate Article 14(right to equality) of the constitution,” the bench said in a judgment which was not uploaded till late evening.
The court is of the view that whether a guarantor is liable to indemnify the default of the debtor is left to the National Company Law Tribunal or the National Company Law Appellate Tribunal.