The Insolvency and Bankruptcy Code, 2016 ("Code") seeks to consolidate the existing legal framework for debt recovery in India. Prior to the enactment of the Code, matters relating to debt, defaults and liquidation were covered under the Companies Act, 1956 and later the Companies Act, 2013, and the appropriate authority to manage such matters was the Company Law Board. Since the Company Law Board was the only authority handling various matters related to companies, this resulted in delays, complexities, and higher costs in the process of liquidation.

The aim of the Code has been to establish a creditor-in-control regime, increase reliance on market mechanism for insolvency and introduce strict timelines for insolvency resolution processes. The Code is an all-encompassing law and provides rules and regulations with respect to re-organization and insolvency resolution of not only companies, but partnership firms and individuals as well. Although the Code is a relatively new legislation, it has undergone several amendments within a short period of time in order to resolve any ambiguities that may impact the smooth and efficient functioning of the insolvency and bankruptcy resolution process.

This article aims to discuss the evolution of the Code and the applicability of Part III Chapter III of the Code for insolvency process for personal guarantors as well as for corporate debtors, and the appropriate adjudicating authority with respect to the same. Furthermore, this article analyses the grounds under which High Courts can intervene by exercising their powers of judicial review in insolvency and bankruptcy proceedings under the Code.


A Bankruptcy Law Reforms Committee ("BLRC") was constituted by the Ministry of Finance, India on August 22, 2014 to consolidate the insolvency and bankruptcy laws in India. Subsequently, on May 28, 2016, the Code was enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.

The Code designated the National Company Law Tribunal ("NCLT") as the Adjudicating Authority for corporate persons and the Debt Recovery Tribunal ("DRT") as the Adjudicating Authority for individuals and partnership firms (except in some situations). With the Code coming into force, the Sick Industrial Companies (Special Provision) Act, 1985 was repealed with effect from December 01, 2016 and other laws such as the Indian Partnership Act, 1932, Central Excise Act, 1944, Income Tax Act, 1961, Recovery of Debts and Bankruptcy Act, 1993 (formerly, Recovery of Debts due to Banks and Financial Institutions Act, 1993), Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Limited Liability Partnership Act, 2008 and Companies Act, 2013 were amended accordingly.


Ever since the Code came into effect there have been many nuances which have been dealt with by the NCLT concerning jurisdiction, effect of finality of the resolution plan, rights of operational creditors, etc. After the enforcement of Part III of the Code, there have been several conflicts with regards to the adjudicating authority for the claims against personal guarantors. We would like to examine the adjudicating authority with regards to Part III of the Code and the applicability of Section 95 of the Code.

It is to be noted that the definition of Adjudicating Authority under Section 79(1) of the Code refers to the DRT. The definition of the same is set out hereinbelow: -

"Adjudicating Authority" means the Debt Recovery Tribunal constituted under sub- 69 section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institution Act, 1993 (51 of 1993);

In view of the plain language of the definition of "Adjudicating Authority" as set out hereinabove, the maintainability of a petition under Section 95 of the Code is required to be analyzed.

The plain language of Section 95(1) of the Code states that "A creditor may apply to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application". The intentional adoption of the term "Adjudicating Authority" in the plain language of Section 95 of the Code indicates that the Adjudicating Authority is the DRT constituted under the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.

Further, the only scenario where a petition against a personal guarantor can be lodged directly before the NCLT is when the same is to be heard along with the insolvency resolution process of the corporate debtor connected with the personal guarantor. For instance, Section 60 of the Code, which is contained in Chapter VI of Part II of the Code, is applicable to corporate persons. The term "corporate person" is defined under Section 3(7) of the Code to mean a company incorporated under the Companies Act, 2013 or a Limited Liability Partnership or a person incorporated with limited liability for any other law for the timing in force.

Section 60(1) of the Code provides that the adjudicating authority for corporate persons including corporate debtors and personal guarantors thereof shall be the NCLT having jurisdiction over the place whether the registered office of the corporate person is located. Further, it is clear from the reading of Section 60(1) of the Code that the intention of the Parliament is that the resolution process of the corporate debtor and that of the personal guarantor ought to be considered together before the same forum being the relevant NCLT having territorial jurisdiction over the corporate debtor.

Sub-section (2) of Section 60 of the Code makes it even more clear that where the corporate insolvency resolution process of a corporate debtor is pending before the NCLT an application for insolvency resolution of a personal guarantor shall be filed before the same NCLT. Similarly, to achieve this intent of the Parliament, sub-section (3) of Section 60 of the Code makes it clear that where the insolvency resolution process in respect of a personal guarantor is pending in any other court, the same shall also stand transferred to the adjudicating authority dealing with the corporate insolvency resolution process of the corporate debtor. Sub-section (2) and (3) of Section 60 of the Code are set out hereinbelow:

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before the National Company Law Tribunal.

(3) An insolvency resolution process or 2 [liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor] pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor.

Further, in accordance with Section 60(2) of the Code, the Hon'ble National Company Appellate Tribunal ("NCLAT") in DLF Phase-IV Commercial Developers Limited and Others [SCC OnLine NCLAT 46] has held that "It is well settled that a Coordinate Bench is bound to follow the law enunciated by another Coordinate Bench and if it feels that the earlier view requires reconsideration, it may refer the matter to a larger bench for reconsideration."

This becomes even clearer on perusal of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019. These rules were notified by a notification published on November 15, 2019 by the Ministry of Corporate Affairs. Even under these rules, Rules 3 sub-rule (1)(a) defines an Adjudicating Authority as follows:

Definitions.—(1) In these rules, unless the context otherwise requires, -

(a) "Adjudicating Authority" means-
(i) for the purpose of section 60, the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); or (ii) in cases other than sub-clause (i), the Debt Recovery Tribunal established under subsection (1A) of section 3 of the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993);

As is clear from the above, the rules also specifically define that for the purpose of Section 60 of the Code, the adjudicating authority is the NCLT but for all other cases, the adjudicating authority is only the DRT constituted under the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.


Initially, the writ jurisdiction of the High Court under Article 226 of the Constitution of India was invoked to challenge the constitutionality of the Code in cases such as Sree Metaliks Limited and Anr. v.Union of India and Anr., [2017 SCC OnLine Cal 2749], Shivam Water Treaters v. Union of India, [C/SCA/19808/2017] and Akshay Jhunjhunwala & Anr. v. Union of India through the Ministry of Corporate Affairs & Ors., [2018 SCC OnLine Cal 142]. However, the questions revolving around the constitutionality of the Code were put to rest in Swiss Ribbons Private Ltd. and Anr. v. Union of India and Ors., [(2019) 4 SCC 17] by the Supreme Court of India.

The Division Bench of the Bombay High Court in Anthony Raphael Kallarakkal v. National Company Law Tribunal, Mumbai Bench & Ors., [2018 SCC OnLine Bom 13865], while considering the tenability of a writ petition in view of the availability of alternate efficacious remedy of appeal before the NCLAT under Section 61 of the Code observed that non-exercise of jurisdiction under Article 226 on the ground of availability of alternate remedy is a self-imposed restraint and where exceptional facts and circumstances have been made out, the High Court can exercise writ jurisdiction under Article 226 in spite of the availability of alternate remedy. However, in Anthony Raphael Kallarakkal (Supra), the Bombay High Court had dismissed the writ petition on the ground of availability of alternate and equally efficacious remedy under Section 61 of the Code to prefer an appeal before the NCLAT, and a further remedy under Section 62 of the Code to prefer an appeal before the Supreme Court from NCLAT.

Subsequently, a Full Bench of the Supreme Court was called upon in M/s Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., [2019 SCC OnLine SC 1542] to decide, inter alia, whether the High Courts could exercise the writ jurisdiction under Article 226/227 of the Constitution and interfere with the NCLT's order in insolvency and bankruptcy proceedings when a statutory remedy of appeal to the NCLAT was available, and the grounds for such intervention. The Supreme Court, vide order dated December 03, 2019, held that "NCLT, being the creation of a special statute to discharge specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action" which is a concept flowing from the Constitution. The Supreme Court further observed that "a decision taken by the government or statutory or quasi-judicial authorities in relation to a matter which is in the realm of public law cannot be treated as one "arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor" under Section 60(5) of IBC and the same can be corrected only by way of judicial review of administrative action." As the NCLT at Chennai had exercised jurisdiction, which was not vested upon it in law, the Karnataka High Court in this case was held to be justified in entertaining the writ petition.


The need for a definitive jurisprudence on the interplay of the Code and the Prevention of Money Laundering Act, 2002 ("PMLA") has resulted in uncertainty in enforcement. While the Code ensures the management of operations of a corporate debtor on a going concern basis during corporate insolvency resolution process ("CIRP"), the PMLA, on the contrary, provides for attachment, seizure or confiscation of assets derived from or involved in money laundering. As such, the legislations are at crossroads with each other.

In many cases, the judiciary has successfully established an interface between the Code and other statutes, including the PMLA. With the insertion of Section 32A (being a non-obstante provision itself) provided much-needed certainty and predictability, thereby safeguarding parties who may have acquired bona fide interest in the properties of the corporate debtor.

Pertinently, Section 32A provides immunity to the corporate debtor and its assets from any prosecution, attachment or similar proceedings upon the approval of a resolution plan, if the resolution plan results in a change in the management or control of the corporate debtor. The provision, subsequently, passed the test for validity in JSW Steel Limited v. Mahender Kumar Khandelwal, [Company Appeal (AT) (Insolvency) No. 957 of 2019], the case that has been theorized to be the raison d'etre of the provision in the first place and it was observed by the Hon'ble NCLAT, that assets of the corporate debtor are immune from attachment by the Directorate of Enforcement. The NCLAT, in this particular aspect, has relied upon the response of the Ministry of Corporate Affairs ("MCA") on the attachment of the assets of the corporate debtor once the resolution plan had been approved. The MCA clarified that the rights of the secured creditors must be protected and that of the bona fide investor who acquires the non-performing assets as a going concern. Further, the MCA stated that approval of the resolution plan is binding on all stakeholders, including all government agencies. Once the process under the Code is completed, there cannot be any attachment or confiscation of the assets of the corporate debtor by any enforcement agencies.

The Hon'ble Supreme Court in Manish Kumar v. Union of India and Another [Writ Petition (C) No. 26 of 2020] upheld the validity of Section 32A of the Code and has observed that the liability of the corporate debtor extinguishes on commencement of the CIRP. The new management cannot be the subject matter of an investigation that has resulted in material showing of abetment or conspiracy for the commission of the offence. Further, in Mahesh Sureka v. Marathe Hospitality [2020 SCC Online NCLT 446] the Hon'ble NCLT, Mumbai relying on the non-obstante clause of Section 238 of the Code, upheld the validity of Section 238 of the Code and considering the overriding effect of the Code under Section 238 the Hon'ble NCLT, Mumbai in this particular case, declared an attachment order of Economic Offences Wing as a nullity and non est in law.

Most recently, the NCLAT in Directorate of Enforcement v. Manoj Kumar Agarwal [2021 SCC OnLine NCLAT 121] stated that the extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate and it upheld the constitutional validity of Section 32A of the Code. The NCLAT further recorded that there is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the corporate debtor , if CIRP is initiated, the property should become available to fulfill objects of IBC till a resolution takes place or sale of liquidation assets occurs in terms of Section 32A of the Code.

The Code has been evolved to strengthen the insolvency framework for India and to provide successful resolution applicants a clean slate to attain a positive economic outcome for the corporate debtor, without fear of prosecution for past misdeeds of the erstwhile promoters/directors. Section 32A envisages that once the resolution plan is approved by the Adjudicating Authority after completion of the CIRP, there cannot be attachment or confiscation of assets of corporate debtor, as otherwise same will defeat objects of the Code.

Further, the Hon'ble Supreme Court in P. Mohanraj & Ors. vs. M/s Shah Brothers Ispat Pvt. Ltd. [AIR 2021 SC 1308], held that the declaration of moratorium under Section 14 of Code covers criminal proceedings under Section 138 and 141 of the Negotiable Instrument Act, 1881 ("NI Act") for dishonour of cheques. The decision reconciles and aligns the provisions of the Code with that of the NI Act, 1881. It carries forward the object and intent with which the Code was enacted and more particularly addresses the issue of preservation of assets of the corporate debtor pending the insolvency resolution process and at the same time allows the recovery proceedings under the provisions of Section 138 of the NI Act to continue against directors/persons in management or control of the corporate debtor. The decision draws a fine balance between the needs of the corporate debtor during the insolvency process and that of the drawee, left in the lurch on account of the dishonor of cheque, especially in those instances where the drawer (in case of a company, through natural persons then in control of its affairs) intentionally issued the instrument in spite of knowledge of lack of funds.


A Writ Petition was filed before the Hon'ble Bombay High Court in a matter between Alok Industries Ltd. versus State of Maharashtra & Ors. [Writ petition no. 457 of 2021] challenging the Impugned Notice issued by the Office of Collector, Mumbai, under Section 267 of the Maharashtra Land Revenue Code, 1966 on account of alleged labour dues which were claimed as compensation under a Voluntary Retirement Scheme ("VRS") by the Mathadi Workmen of the Cloth Market & Shopkeeper Mandal ("Mathadi Workmen"), and recoverable as arrears of land revenue from Alok Industries Ltd. It is pertinent to note that the said Impugned Notice was issued without any proper reason and/or justification and also failed to explain the rationale and/or merit as regards the alleged labour dues claimed by the Mathadi Workmen. It is also pertinent to note that the alleged labour dues claimed had already been adjudicated upon and rejected by the erstwhile Resolution Professional of Alok Industries Ltd. during the course of the CIRP. Thus, in light of the same and based on the facts and merits, the said Writ Petition was disposed by the Hon'ble Bombay High Court thereby quashing and setting aside the Impugned Notice.

The basic intent of the Code was to inter alia permit a restructuring process whereby the liability of a corporate debtor could be reset in order to enable new management to begin with a clean slate for reviving the business of the corporate debtor.

The Maharashtra Mathadi, Hamal and Other Manual Workers (Regulation of Employment and Welfare) Act, 1969 ("Mathadi Act") was enacted for regulating the employment of unprotected manual workers employed in certain employments in the State of Maharashtra and to make provision for their adequate supply and proper utilization in such employments, and for matters connected therewith.

In this regard, it is instructive to refer to the Supreme Court's decision in Essar Steel v Satish Gupta & Ors. [2019 SCC OnLine SC1478], which held as under: "88 A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, the NCLAT judgment must also be set aside on this count."

The Hon'ble Supreme Court in the case of Swiss Ribbons v. Union of India& Ors. reported at [2019 (4) SCC 17] has held that the aim of the Code is to economically rehabilitate the corporate debtor and for that purpose, the timelines protect the corporate debtor's assets from further dilution. To achieve the said purpose, it is essential that creditors are barred from raising belated claims against the successfully resolution applicant who is trying to resuscitate the corporate debtor.

The abovementioned position has been reinforced in the recent judgments passed by the Hon'ble Supreme Court of India dated April 13, 2021 in the matter of Ghanashyam Mishra and Sons Private Limited through the Authorized Signatory Vs. Edelweiss Asset Reconstruction Company Limited through the Director & Ors. [Civil Appeal No. 8129 of 2019 with WP (Civil) No. 1177 of 2020 and Civil Appeals No. 1550-1554 of 2021] wherein it was held that "the respondents are not entitled to recover any claims or claim any debts owed to them from the corporate debtor accruing prior to the transfer date." Thus, all dues with respect to operational creditors are to be settled in accordance with the resolution plan and no new claims can be entertained following completion of the same.

Further, Section 238 essentially grants the Code an overriding effect by insertion of a non-obstante clause by ensuring that provisions of the Code will continue in full force even if they are inconsistent with any other law. A non-obstante clause is appended to a Section in the beginning, with a view to give the enacting part of the Section in case of conflict an overriding effect over the provision or Act mentioned in the non-obstante clause. The marginal note of Section 238 of the Code is "Provisions of this Code to override other laws". Various benches of the NCLT have had an opportunity to interpret the overriding nature of the Code over different laws in various decisions, an understanding of which becomes necessary to be able to correctly appreciate and decipher its meaning. The Supreme Court has also expounded on non-obstante clauses and their interpretation in important judgments such as Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. & Ors., [2001 (3) SCC 71], Duncans Industries Ltd. v. A.J. Agrochem [Civil Appeal No. 5120 of 2019] and Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited, [2018 (18) SCC 786].

The Code is an evolving legislation, constantly being interpreted by the courts and being frequently amended to harmonize insolvency and bankruptcy practices with related legal policy. The Code has brought a paradigm shift by introducing a 'creditor-in-control' regime replacing the flawed 'debtor-in- possession' regime by putting in place a well-oiled CIRP. The goal of the entire insolvency resolution process is to maximize the value of assets of the stressed company, reorganize the management of the stressed company and keep the company as a going concern, rather than allowing its demise.

There are increasing instances wherein statutory departments as well as other creditors were filing/continuing to file recovery proceedings despite a successful resolution. Hence, this was a big impediment for the prospective resolution applicants because there was always an apprehension that despite crystallized part payments of debts, the new entity would be saddled with fresh claims. The Code has been a successful economic mechanism to revive corporate entities which would otherwise have faced liquidation. It has resulted in a reversal of policy, moving from recovery of debt to revival of the corporate entity, and liquidation being the final alternative if revival is unsuccessful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.