The Supreme Court upholds Centre’s Notification (Insolvency and Bankruptcy Rules, 2019)

In 2019, the Centre had issued a notification which stated that under the Insolvency and Bankruptcy Code, when there is an insolvency resolution, liquidation or bankruptcy proceeding of a corporate guarantor or a personal guarantor of a corporate debtor, an application should be filed by the creditors before the National Company Law Tribunal (NCLT).

It further stated that if any case relating to personal guarantors is pending in any court or tribunal it should transferred to the NCLT.This notification was initially challenged before several High Courts.

In October 2020, the Supreme Court transferred all the petitions from the High Courts to itself on the request made by the government and stated the Insolvency and Bankruptcy Code, was at a “nascent stage” and the interpretations of the provisions should be taken up by the apex court to avoid any confusions or any authoritative settlement of the law.

A Bench of the Supreme Court consisting of Justice L. Nageswara Rao and Justice S. Ravindra Bhat, upheld this notification by the Centre.

The Bench stated that the notification which allows creditors, usually financial institutions and banks, to move against personal guarantors under the Insolvency and Bankruptcy Code is valid and legal.

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