LALIT KUMAR JAIN versus UNION OF INDIA & ORS.

[2021] 3 S.C.R. 1075

LALIT KUMAR JAIN

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 notificationdated 15.11.2019 issued by the Central Government – Whether theimpugned notification was an exercise of excessive delegation; andinasmuch as it notified various provisions of the Code only in sofar as they related to personal guarantors to corporate debtors, itwas therefore, ultra vires – Held: The impugned notification was notan instance of legislative exercise, nor amounted to impermissibleand selective application of provisions of the Code – No compulsionin the Code that it should, at the same time, be made applicable toall individuals, (including personal guarantors) or not at all –Sufficient indication in the Code- by s.2(e), s.5(22), s.60 and s.179indicating that personal guarantors, though forming part of thelarger grouping of individuals, were to be, in view of their intrinsicconnection with corporate debtors, dealt with differently, throughthe same adjudicatory process and by the same forum (though notinsolvency provisions) as such corporate debtors – Notifications u/s.1(3), (issued before the impugned notification was issued) disclosethat the Code was brought into force in stages, regard being had tothe categories of persons to whom its provisions were to be applied– The impugned notification, similarly inter alia makes the provisionsof the Code applicable in respect of personal guarantors tocorporate debtors, as another such category of persons to whomthe Code has been extended – The impugned notification was issuedwithin the power granted by Parliament, and in valid exercise of it– The exercise of power in issuing the impugned notification unders.1(3) is therefore, not ultra vires; the notification is valid.

Insolvency and Bankruptcy Code, 2016 – Whether once aresolution plan is accepted, the corporate debtor is discharged ofliability; and as consequence, the guarantor whose liability is co-

DEF

Aextensive with the principal debtor, i.e. the corporate debtor, too isdischarged of all liabilities – Held: Approval of resolution planrelating to corporate debtor does not ipso facto discharge apersonal guarantor (of the corporate debtor) of his liabilities underthe contract of guarantee – The release or discharge of principalborrower from the debt owed by it to its creditor, by an involuntaryBprocess, i.e. by operation of law, or due to liquidation or insolvencyproceeding, does not absolve the surety/guarantorof his or herliability, which arises out of an independent contract.

Maxims – Maxim “reddendo singular singulis” – Applicability– Where sentence in statute contains several antecedents andCseveral consequences, they are to be read distributively, that is tosay, each phrase or expression is to be referred to its appropriateobject – When s.60(2) of the Code alludes to insolvency resolutionor bankruptcy, or liquidation of three categories, i.e. corporatedebtors, corporate guarantors (to corporate debtors) and personalDguarantors (to corporate debtors) they apply distributively, i.e. thatinsolvency resolution, or liquidation processes apply to corporatedebtors and their corporate guarantors, whereas insolvencyresolution and bankruptcy processes apply to personal guarantors,(to corporate debtors) who cannot be subjected to liquidation –Insolvency and Bankruptcy Code, 2016 – s.60(2).EDismissing the writ petitions, transferred cases and transferpetitions, the Court

HELD:1.1. The Central Government followed stage-by-stage process of bringing into force the provisions of the Code,Fregard being had to the similarities or dissimilarities of the subjectmatter and those covered by the Code. [Para 81][1149-B]

1.2. Insolvency proceedings relating to individuals isregulated by Part-III of the Code. Before the amendment of 2018,all individuals (personal guarantors to corporate debtors, partnersGof firms, partnership firms and other partners as well asindividuals who were either partners or personal guarantors tocorporate debtors) fell under one descriptive description underthe unamended Section 2(e). The unamended Section 60contemplated that the adjudicating authority in respect of personal

guarantors was to be the NCLT. Yet, having regard to the factthat Section 2 brought all three categories of individuals withinone umbrella class as it were, it would have been difficult for theCentral Government to selectively bring into force the provisionsof part –III only in respect of personal guarantors. It was herethat the Central Government heeded the reports of expert bodieswhich recommended that personal guarantors to corporatedebtors facing insolvency process should also be involved inproceedings by the same adjudicator and for this, necessaryamendments were required. Consequently, the 2018 AmendmentAct altered Section 2(e) and subcategorized three categories ofindividuals, resulting in Sections 2(e), (f) and (g). Given that theearlier notification of 30.11.2016 had brought the Code into forcein relation to entities covered under Section 2(a) to 2(d), theamendment Act of 2018 provided the necessary statutory backingfor the Central Government to apply the Code, in such manneras to achieve the objective of the amendment, i.e. to ensure thatadjudicating body dealing with insolvency of corporate debtorsalso had before it the insolvency proceedings of personalguarantors to such corporate debtors. The amendment of 2018also altered Section 60 in that insolvency and bankruptcyprocesses relating to liquidation and bankruptcy in respect ofthree categories, i.e. corporate debtors, corporate guarantors ofcorporate debtors and personal guarantors to corporate debtorswere 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 Amendmentalso amended Section 60(2). Interestingly, though “personalguarantor” was not defined, and fell within the larger rubric of“individual” under the Code, the adjudicating authority forinsolvency process and liquidation of corporate persons includingcorporate debtors and personal guarantors was the NCLT- evenunder the unamended Code.The amendment of Section 60(2)added few concepts. The amendment inserted the expression“or liquidation” before the words “or bankruptcy” and alsoinserted the expression “of corporate guarantor… as the casemay be, of” such corporate debtor. The interpretation of thisexpression has to be contextual. There is no question ofliquidation of personal guarantor, an individual. In such cases,

Athe 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 resolutionor bankruptcy, or liquidation of three categories, i.e. corporatedebtors, corporate guarantors (to corporate debtors) and personalBguarantors (to corporate debtors) they apply distributively, i.e.that insolvency resolution, or liquidation processes apply tocorporate debtors and their corporate guarantors, whereasinsolvency resolution and bankruptcy processes apply to personalguarantors, (to corporate debtors) who cannot be subjected toliquidation. [Para 88][1152-F-G]

2.3. Section 60 had previously, under the original Code,designated the NCLT as the adjudicating authority in relation totwo categories: corporate debtors and personal guarantors tocorporate debtors. The 2018 amendment added another category:corporate guarantors to corporate debtors. The amendment seenDin the background of the report, as indeed the scheme of theCode (i.e., Section 2 (e), Section 5 (22), Section 29A, and Section60), clearly show that all matters that were likely to impact, orhave bearing on corporate debtor’s insolvency process, weresought to be clubbed together and brought before the same forum.E[Para 92][1154-F-G]

3. Sections 234 and 235 of the Code also reveal that thescheme of the Code always contemplated that overseas assets ofa corporate debtor or its personal guarantor could be dealt within an identical manner during insolvency proceedings, includingFby issuing letters of request to courts or authorities in othercountries for the purpose of dealing with such assets located withintheir jurisdiction. [Para 93][1155-G-H]

4. The impugned notification operationalizes the Code sofar as it relates to personal guarantors to corporate debtors: (1)GSection 79 pertains to the definitional section for the purposes ofinsolvency resolution and bankruptcy for individuals before theAdjudicating Authority. (2) Section 94 to 187 outline the entirestructure regarding initiation of the resolution process forindividuals before the Adjudicating Authority. [Para 94][1156-A-B]H

5. The impugned notification authorises the CentralGovernment and the Board to frame rules and regulations onhow to allow the pending actions against personal guarantor toa corporate debtor before the Adjudicating Authority. The intentof the notification, facially, is to allow for pending proceedings tobe adjudicated in terms of the Code. Section 243, which providesfor the repeal of the personal insolvency laws has not as yet beennotified. Section 60(2) prescribes that in the event of an ongoingresolution process or liquidation process against corporatedebtor, an application for resolution process or bankruptcy ofthe personal guarantor to the corporate debtor shall be filed withthe concerned NCLT seized of the resolution process orliquidation. Therefore, the Adjudicating Authority for personalguarantors will be the NCLT, if parallel resolution process orliquidation process is pending in respect of corporate debtorfor whom the guarantee is given. The same logic prevails, underSection 60(3), when any insolvency or bankruptcy proceedingpending against the personal guarantor in court or tribunal anda resolution process or liquidation is initiated against the corporatedebtor. Thus if A, an individual is the subject of resolutionprocess before the DRT and he has furnished personal guaranteefor debt owed by company B, in the event resolution processis initiated against in an NCLT, the provision results intransferring the proceedings going on against in the DRT toNCLT. [Para 95][1156-C-F]

6. The non-obstante provision under Section 238 gives theCode overriding effect over other prevailing enactments. This isperhaps the rationale for not notifying Section 243 as far aspersonal guarantors to corporate persons are concerned. Section243(2) saves pending proceedings under the Acts repealed (PIAand PTI Act) to be undertaken in accordance with thoseenactments. As of now, Section 243 has not been notified. In theevent Section 243 is notified and those two Acts repealed, then,the present notification would not have had the effect of coveringpending proceedings against individuals, such as personalguarantors in other forums, and would bring them under theprovisions of the Code pertaining to insolvency and bankruptcyof personal guarantors. The impugned notification, as aconsequence of the non obstante clause in Section 238, has the

Aresult that if any proceeding were to be initiated against personalguarantors it would be under the Code. [Para 96][1156-G-H; 1157-A-C]

7. The insolvency process in relation to corporate persons(a compendious term covering all juristic entities which have beenBdescribed in Sections 2 [a] to [d] of the Code) is entirely differentfrom those relating to individuals; the former is covered in theprovisions of Part II and the latter, by Part III. Section 179, whichdefines what the Adjudicating authority is for individuals is“subject to” Section 60. Section 60(2) is without prejudice toSection 60(1) and notwithstanding anything to the contraryCcontained in the Code, thus giving overriding effect to Section60(2) as far as it provides that the application relating toinsolvency resolution, liquidation or bankruptcy of personalguarantors of such corporate debtors shall be filed before theNCLT where proceedings relating to corporate debtors areDpending. Furthermore, Section 60(3) provides for transfer ofproceedings relating to personal guarantors to that NCLT whichis dealing with the proceedings against corporate debtors. Afterproviding for common adjudicating forum, Section 60(4) veststhe NCLT “with all the powers of the DRT as contemplated underPart III of this Code for the purpose of sub-section (2)”. Section 60E(4) thus (a) vests all the powers of DRT with NCLT and (b) alsovests NCLT with powers under Part III. Parliament thereforemerged the provisions of Part III with the process undertakenagainst the corporate debtors under Part II, for the purpose ofSection 60(2), i.e., proceedings against personal guarantors alongFwith corporate debtors. Section 179 is the correspondingprovision in Part III. It is “subject to the provisions of Section 60”.Section 60 (4) clearly incorporates the provisions of Part III inrelation to proceedings before the NCLT against personalguarantors. [Para 99][1159-F-G; 1160-A-D]G8. It is clear that the Parliamentary intent was to treatpersonal guarantors differently from other categories ofindividuals. The intimate connection between such individualsand corporate entities to whom they stood guarantee, as well asthe possibility of two separate processes being carried on indifferent forums, with its attendant uncertain outcomes, led toH

carving out personal guarantors as separate species ofindividuals, for whom the Adjudicating authority was common withthe corporate debtor to whom they had stood guarantee. Thefact that the process of insolvency in Part III is to be applied toindividuals, whereas the process in relation to corporate debtors,set out in Part II is to be applied to such corporate persons, doesnot lead to incongruity. On the other hand, there appear to besound reasons why the forum for adjudicating insolvencyprocesses – the provisions of which are disparate- is to becommon, i.e through the NCLT. The NCLT would be able toconsider the whole picture, as it were, about the nature of theassets available, either during the corporate debtor’s insolvencyprocess, or even later; this would facilitate the CoC in framingrealistic plans, keeping in mind the prospect of realizing somepart of the creditors’ dues from personal guarantors. [Para100][1160-D-F; 1161-A-C]9. The impugned notification is not an instance of legislativeexercise, or amounting to impermissible and selective applicationof provisions of the Code. There is no compulsion in the Codethat it should, at the same time, be made applicable to allindividuals, (including personal guarantors) or not at all. There issufficient 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 tobe, in view of their intrinsic connection with corporate debtors,dealt with differently, through the same adjudicatory process andby the same forum (though not insolvency provisions) as suchcorporate debtors. The notifications under Section 1(3), (issuedbefore the impugned notification was issued) disclose that theCode was brought into force in stages, regard being had to thecategories of persons to whom its provisions were to be applied.The impugned notification, similarly inter alia makes theprovisions of the Code applicable in respect of personalguarantors to corporate debtors, as another such category ofpersons to whom the Code has been extended. The impugnednotification was issued within the power granted by Parliament,and in valid exercise of it. The exercise of power in issuing theimpugned notification under Section 1(3) is therefore, not ultravires; the notification is valid. [Para 101][1161-C-G]

A10. Approval of resolution plan does not ipso factodischarge personal guarantor (of corporate debtor) of her orhis liabilities under the contract of guarantee. The release ordischarge of principal borrower from the debt owed by it to itscreditor, by an involuntary process, i.e. by operation of law, ordue to liquidation or insolvency proceeding, does not absolveBthe surety/guarantorof his or her liability, which arises out of anindependent contract. The impugned notification is legal and valid.Also, approval of resolution plan relating to corporate debtordoes not operate so as to discharge the liabilities of personalguarantors (to corporate debtors). [Paras 111,112][1168-G-H;C1169-A-B]

State Bank of India v. V. Ramakrishnan (2018) 17 SCC394 : [2018] 10 SCR 974; Committee of Creditors ofEssar Steel India Ltd. v. Satish Kumar Gupta (2019)SCC Online SC 1478; Maharashtra State ElectricityBoard 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. Stateof UP (2002) 5 SCC 80 – relied on.

Swiss Ribbons (P.) Ltd. v. Union of India (2019) 4 SCC17 : [2019] 3 SCR 535; Delhi Laws Act, 1912, In re v.Part ‘C’ States (Laws) Act, 1950, [1951] SCR 747; Stateof 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] 8Suppl. SCR 535; State of Bombay v. NarothamdasJethabhai, [1951] 2 SCR 51; Sardar Inder Singh v. Stateof Rajasthan [1957] SCR 605; Hamdard Dawakhanav. Union of India [1960] 2 SCR 671; Babulal VardharjiGurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. &Anr. (2020) 15 SCC 1; Chettian Veettil Amman v. TalukLand 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)

Ltd. v. State of Karnataka (2020)13 SCC 308; J. Mitraand Co. Pvt. Ltd. v. Assistant Controller of Patents(2008) 10 SCC 368 : [2008] 12 SCR 419; Lalit NarayanMishra Institute of Economic Development v. State ofBihar & Ors. Etc. (1988) 2 SCC 433 : [1988] 3 SCR 311; Javed & Ors v. State of Haryana & Ors. (2003) 8SCC 369 : [2003] 1 Suppl. SCR 947; Bank of BiharLtd. v. Dr. Damodar Prasad & Anr. AIR [1969] 1 SCR620; State Bank of India v. Index port Registered AIR1992 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. SatishKumar Gupta (2019) 2 SCC 1 : [2018] 12 SCR 362;Brij Sundar Kapoor v. First Additional Judge (1989) 1SCC 561 : [1988] Suppl. SCR 558; Raghubir Sarup v.State of UP AIR 1959 SC 909; Khargram PanchayatSamiti v. State of West Bengal (1987) 3 SCC 82 : [1987]2 SCR 1207; Koteswar Vittal Kamath v. K. RangappaBaliga & Co. (1969) 1 SCC 255 : [1969] 3 SCR 40;Rajendra K. Bhutta v. Maharashtra Housing and AreaDevelopment 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 KumarJain v. Standard Chartered Bank (2019) SCC OnLineSC 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 Cas94; Dr. Vishnu Kumar Agarwal v. Piramal EnterprisesLtd. (2019) SCC Online NCLAT 542 and Pegasus

AAviation Finance Company vs. Kingfisher AirlinesLimited (2016) SCC OnLine Kar 5991– referred to.

R v. Burah 1878 (3) App. Cases 889 (Decision of PrivyCouncil); Jatindra Nath Gupta v. Province of Bihar(Judgment of Federal Court), (1949-50) 11 FCR 595;Band Re Kaupthing Singer and Friedlander Ltd. (inadministration) (Decision of UK Supreme Court), 2012(1) All ER 883 – referred to.

Bennion on Statutory Interpretation: Code(6[th] Edition, at page 257) – referred to.

Case Law Reference

CIVIL ORIGINAL JURISDICTION: Transferred Case (Civil)No. 245 of 2020.

Transfer Petition U/A139A R/W Article 142 of The Constitutionof India Seeking transfer of Writ Petition (C) No.4849 of 2020 from theDelhi High Court to this Hon’ble Court.

With

W.P.(c) Nos. 117 of 2021, 1371 of 2020, 1420 of 2020, 1353 of2020, T.P. (c) No. 1252 of 2020, W.P.(c) Nos. 1276 of 2020, 1287 of2020, T.P. (c) Nos. 1285 of 2020, 1325 of 2020, W.P.(c) No. 1364 of2020, 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,

A1292 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 of2020, 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 of2021, 97 of 2021, 142 of 2021, 135 of 2021, 131 of 2021, 122 of 2021,B138 of 2021, 146 of 2021, 207 of 2021, 160 of 2021, 168 of 2021, 205 of2021, 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 of2021, 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.CTushar 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, RamjiSrinivasan, Sr. Advs., Mohammed Akhil Nazeer, Kannu Aggarwal,Navanjay Mahapatra, Arvind Kumar Sharma, Sanjay Kapur, Ms. MeghaDKarnwal, V M Kannan, Sambit Panja, Arjun Bhatia, Ms. Monali,Jayavardhan Singh, Hitesh Kumar Saini, Shankh Sengupta, SiddharthRanade, 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,EShreyan 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,FE. C. Agrawala, Sandeep S Ladda, Soumik Ghosal, Gaurav Singh, AbhayAnand Jena, Deepayan Mandal, S. R. Raghunathan, S. SantanamSwaminadhan, Ms. Abhilasha Shrawat, Mrs. Aarthi Rajan, VikramPooserla, Tadimalla Bhaskar Gowtham, Abhinay Reddy M., NitishBandary, Jeevan Kumar Nandam, Keertivardhan Kommareddy, Ms.

Aahana Madhyala, Ms. Karishma Nedungadi, Ms. Achala Siri Doddala,GMs. Shreya Devaki, Jyoti Kumar Singh, P. R. Rajhans, Mrs. ParomaSengupta, 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. AditiTripathi, Ms. Sindoora VNL, Mukunda, Kailashnath PSS, Abid Ali BeeranH

P, Sandeep Singh, Krishna Dev Jagarlamudi, Anish R. Shah, PradeepAggarwal, 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 DushyantSingh, Vikas Kumar, Manish Paliwal, M/s Corporate Legal Partners,Sandeep Bajaj, Soayib Quershi, Ms. Nidhi Mohan Parashar, Ms. AditiPundhir, Uttam Datt, Rajiv Singh, Ms. Srujana Suman Mund,Ms. Sonakshi Singh, Rishi Raj Sharma, Ms. Pallavi Langar, Ms. GauriRishi, 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. GunjanMathur, Ms. Vaishali Sharma, Dinesh Chander Trehan, Ms. AninditaRoy Chowdhary, Ms. Vansala Rai, Raj Kanwar Singh, Shivam Singh,Sahil Raveen, Manish Kumar, Ms. Aditi Mittal, Ayush Agarwala, SiddhantTripathi, 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, RahulDev, Ranjit Shetty, Ashok Mathur, D. Bharat Kumar, Aman Shukla,Hathindra Manda, Gopal Jha, Ms. Misha, Vaijayant Paliwal, Ms. CharuBansal, Ms. Jasveen Kaur, S. S. Shroff, Anoop Rawat, Ms. MahimaSareen, 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, AakarshanAditya, M/S. Cyril Amarchand Mangaldas, Arun Aggarwal, Ms. AnshikaAggarwal, Ms. Ekjot Bhasin, Mritunjay Kumar Sinha, Ankit, Ms. KavitaJha, Ms. Sandhya Iyer, Udit Naresh, O. P. Gaggar, Ms. Astha Prasad,Aditya Gaggar, Ankit Anandraj Shah, Brijesh Kumar Tamber, KinshukChatterjee, Kushal Bansal, Ms. Srishti Gupta, Sujoy Chatterjee, AtulSharma, Abhishek Sharma, Ms. Ashly Cherian, Indraprateek Naidu,Gautam Talukdar, Ateev Mathur, Ajay Monga, Amol Sharma, GaganGupta, Abhishek Jebaraj, Ms. Nupur Raut, Vivek A. Vashi, Ms. ShilpaSengar, Biswajit Dubey, Madhav Kanoria, Ms. Surabhi Khattar, PraffulGoyal, Ms. Vani Sharma, Sumit Attri, Advs. for the appearing parties.

DEF

AThe Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. This judgment will dispose of common questions of law, whicharise in various proceedings preferred under Article 32 of the Constitutionof India, as well as transferred cases under Article 139A; those causesBwere transferred to the file of this court, from various High Courts[1], asthey involved interpretation of common questions of law, in relation toprovisions of the Insolvency and Bankruptcy Code, 2016 (hereafter “theCode”).

I The Petitions and Common GrievancesC

2. The common question which arises in all these cases concernsthe vires and validity of notification dated 15.11.2019 issued by theCentral Government[2] (hereafter called “the impugned notification”). Otherreliefs too have been claimed concerning the validity of the Insolvencyand Bankruptcy (Application to Adjudicating Authority for InsolvencyDResolution Process for Personal Guarantors to Corporate Debtors) Rules,2019 issued on 15.11.2019. Likewise, the validity of regulations challengedby the Insolvency and Bankruptcy Board of India on 20.11.2019 arealso the subject matter of challenge. However, during the course ofsubmissions, learned counsel for the parties stated that the challengeEwould be confined to the impugned notification.

3. All writ petitioners before the High Courts, arrayed asrespondents in the transferred cases before this Court, as well as thepetitioners under Article 32 claim to be aggrieved by the impugnednotification. At some stage or the other, these petitioners (compendiouslyFtermed as “the writ petitioners”) had furnished personal guarantees tobanks and financial institutions which led to release of advances to variouscompanies which they (the petitioners) were associated with as directors,promoters or in some instances, as chairman or managing directors. Inmany cases, the personal guarantees furnished by the writ petitionerswere invoked, and proceedings are pending against companies whichGthey are or were associated with, and the advances for which theyfurnished bank guarantees. In several cases, recovery proceedings andlater insolvency proceedings were initiated. The insolvency proceedingsare 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

finalization. In few cases, the resolution plans have not yet been approvedby the adjudicating authority and in some cases, the approvals grantedare subject to attack before the appellate tribunal.

4. All the writ petitioners challenged the impugned notification ashaving been issued in excess of the authority conferred upon the Unionof India (through the Ministry of Corporate Affairs) which has beenarrayed in all these proceedings as parties. The petitioners contend thatthe power conferred upon the Union under Section 1(3) of the Insolvencyand Bankruptcy Code, 2016 (hereafter referred to as “the Code”) couldnot have been resorted to in the manner as to extend the provisions ofthe Code only as far as they relate to personal guarantors of corporatedebtors. 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 petitionerswere served with demand notices proposing to initiate insolvencyproceedings under the Code. These demand notices were based onvarious counts, including that recovery proceedings were initiated afterinvocation of the guarantees. This led to initiation of insolvency resolutionprocess under Part-III of the Code against some of the petitioners. Themain argument advanced in all these proceedings on behalf of the writpetitioners is that the impugned notification is an exercise of excessivedelegation. It is contended that the Central Government has no authority– legislative or statutory – to impose conditions on the enforcement ofthe Code. It is further contended as corollary, that the enforcement ofSections 78, 79, 94-187 etc. in terms of the impugned notification of theCode only in relation to personal guarantors is ultra vires the powersgranted to the Central Government.

6. It is argued that in terms of the proviso to Section 1(3) of theCode, Parliament delegated the power to enforce different provisionsof 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 CentralGovernment may, by notification in the Official Gazette,appoint:

1090SUPREME COURT REPORTS

AProvided that different dates may be appointed for differentprovisions of this Code and any reference in any such provisionto the commencement of this Code shall be construed areference the commencement of that provision.”

7. The petitioners argue that the power delegated under SectionB1(3) is only as regards the point(s) in time when different provisions ofthe Code can be brought into effect and that it does not permit the CentralGovernment to notify parts of provisions of the Code, or to limit theapplication of the provisions to certain categories of persons. Theimpugned notification, however, notified various provisions of the Codeonly in so far as they relate to personal guarantors to corporateCdebtors. It is therefore, ultra vires the proviso to Section 1(3) of theCode.

8. It is argued that the provisions of the Code brought into effectby the impugned notification are not in severable, as they do not specificallyor separately deal with or govern insolvency proceedings against personalDguarantors to corporate debtors. The provisions only deal with individualsand partnership firms. It is urged that from plain reading of theprovisions, it is not possible to carve out limited application of theprovisions only in relation to personal guarantors to corporate debtors.The Central Government’s move to enforce Sections 78, 79, 94 to 187,Eetc. only in relation to personal guarantors to corporate debtors is anexercise of legislative power wholly impermissible in law and amountsto an unconstitutional usurpation of legislative power by the executive.The petitioners argue that the impugned notification, to the extent it bringsinto force Section 2 (e) of the Code with effect from 01.12.2019 is hit bynon-application of mind. It is argued that Section 2(e) of the Code, asFamended by Act 8 of 2018, came into force with retrospective effectfrom23.11.2017. This is duly noted by this court in the case of StateBank of India v. V. Ramakrishnan[3], which observed that:

“Though the original Section 2(e) did not come into force atall, the substituted Section 2(e) has come into force w.e.f.G23.11.2017.”It is urged that this court should, therefore, set aside the impugnednotification.

H3 (2018) 17 SCC 394

9. The petitioners also attack the impugned notification on theground that it suffers from non-application of mind, because the CentralGovernment failed to bring into effect Section 243 of the Code, whichwould have repealed the Presidency Towns Insolvency Act, 1909 (“PTIAct” hereafter) and the Provincial Insolvency Act, 1920 (“PIA”hereafter). Prior to issuance of the impugned notification, insolvencyproceedings against an individual could be initiated only in terms of thesaid two Acts. After enactment of the Code, insolvency proceedingsagainst personal guarantors to corporate debtors would lie before theAdjudicating Authority, in terms of Section 60 of the Code, although theywould be governed by the said two Acts. With the enforcement of theimpugned provisions, rules and regulations, insolvency proceedings cannow be initiated against personal guarantors to corporate debtors underPart III of the Code, and also under the PTI Act and the PIA. SinceSection 243 of the Code has not been brought into force, the petitionerscontend that the impugned notification has the illogical effect of creatingtwo self-contradictory legal regimes for in solvency proceedings againstpersonal guarantors to corporate debtors.

10. It is urged that the impugned notification is ultra vires theprovisions of the Code in so far as it notifies provisions of Part III ofthe Code only in respect of personal guarantors to corporate debtors.Part III of the Code governs “Insolvency Resolution and Bankruptcyfor Individuals and Partnership Firms”. Also, Section 2(g) of theCode defines an individual to mean “individuals, other than personsreferred to in clause (e)”. Section 2 (e) relates to personal guarantorsto corporate debtors. joint reading of Section 2(e) with Section 2(g)and Part III of the Code shows that personal guarantors to corporatedebtors are not covered by Part II, which only deals with individuals andpartnership firms, and personal guarantors to corporate debtors standspecifically excluded from the definition of individuals. The petitionersalso rely on Section 95 of the Code[4], which permits creditor to invokeinsolvency resolution process against an individual only in relation to apartnership debt.

4 “95. Application by creditor to initiate insolvency resolution process.

(1) creditor may apply either by himself, or jointly with other creditors,or through resolution professional to the Adjudicating Authority for initiatingan insolvency resolution process under this section by submitting an application.(2) creditor may apply under sub-section (1) in relation to anypartnership debt owed to him for initiating an insolvency resolution processagainst

A11. Part III of the Code does not contain any provision permittinginitiation of the insolvency resolution process (hereafter “IRP”) againstpersonal guarantors to corporate debtors. The impugned notificationwhich provides to the contrary, is ultra vires. It is further contended thatprovisions of the Code brought into effect by the impugned notification[Clause (e) of Section 2, Section 78 (except with regard to fresh startBprocess), Section 79, Section 94 to 187 (both inclusive), Clause (g) toClause (l) of sub-section (2) of Section 239, Clause (m) to (zc) of sub-section (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 personalguarantors to corporate debtors, are manifestly arbitrary; they are alsoCdiscriminatory because:(i)There is no intelligible differentia or rational basis on whichpersonal guarantors to corporate debtors have been singledout for being covered by the impugned provisions, particularlywhen the provisions of the Code do not separately apply toDone sub-category of individuals, i.e., personal guarantors tocorporate debtors. Rather, Part III of the Code does not applyto personal guarantors to corporate debtors at all.

(a) anyone or more partners of the firm; orE(b) the firm.(c)

(3) Where an application has been made against one partner in firm,any other application against another partner in the same firm shall be presentedin or transferred to the Adjudicating Authority in which the first mentionedapplication is pending for adjudication and such Adjudicating Authority maygive such directions for consolidating the proceedings under the applicationsFas it thinks just.(4) An application under sub-section (1)shall be accompanied with detailsand documents relating to:

(a) the debts owed by the debtor to the creditor or creditors submittingthe application for insolvency resolution process as on the date of application;(b) the failure by the debtor to pay the debt within period of fourteendays of the service of the notice of demand; andG

(c) relevant evidence of such default or non-repayment of debt.

(5) The creditor shall also provide copy of the application made undersub-section (1) to the debtor.(6)The application referred to in sub-section (1) shall be in such formand manner and accompanied by such fee as may be prescribed.(7)The details and documents required to be submitted under Sub-sectionH(4) shall be such as may be specified.”

(ii) the provisions of Part III of the Code, which are partly broughtinto effect by the impugned notification, provide singleprocedure for the insolvency resolution process of personalguarantor, irrespective of whether the creditor is financialcreditor or an operational creditor. Treating financial creditorsand operational creditors on an equal footing in Part III of theCode is in contrast to Part II of the Code, which providesdifferent sets of procedures for different classes of creditors.

12. The petitioners rely on Swiss Ribbons (P.) Ltd. v. Union ofIndia[5], where this court upheld the difference in procedure for operationalcreditors and financial creditors on the basis that there are fundamentaldifferences in the nature of loan agreements with financial creditors,from contracts with operational creditors for supplying goods and services.Financial creditors generally lend finance on term loan or for workingcapital that enables the corporate debtor to either set up and/or operateits business. On the other hand, contracts with operational creditors arerelatable to supply of goods and services in the operation of business.Financial contracts generally involve large sums of money.

13. The petitioners argue that the act of clubbing financial creditorsand operational creditors in relation to the procedure for insolvencyresolution of personal guarantors to corporate debtors amounts to treatingunequals equally and amounts to collapsing the classification that iscarefully created by Parliament in Part II of the Code. They also arguethat the application of Sections 96 and 101 of the Code by the impugnednotification results in the illogical consequence of staying insolvencyproceedings against the corporate debtor, when insolvency proceedingsare initiated against the personal guarantor. It is pointed out that combinedreading of Sections 99 and100 of the Code shows that the resolutionprofessional, while recommending the approval/rejection of theapplication, and the Adjudicating Authority while accepting it, do nothave to consider whether the underlying debt owed by the corporatedebtor to the creditor stands discharged or extinguished.14. It is argued that the liability of guarantor is co-extensivewith that of the principal debtor (Section 128 of Indian Contract Act,1872). Further, it is settled law that upon conclusion of insolvencyproceedings against principal debtor, the same amounts to extinction

5 (2019) 4 SCC 17.

Aof all claims against the principal debtor, except to the extent admitted inthe insolvency resolution process itself. This is clear from Section 31 ofthe Code, which makes the resolution plan approved by the AdjudicatingAuthority binding on the corporate debtor, its creditors and guarantors.The petitioners also contend that the impugned notification allows creditorsto unjustly enrich themselves by claiming in the insolvency process ofBthe guarantor without accounting for the amount realized by them in thecorporate insolvency resolution process of the corporate debtor underPart II of the Code. It is therefore, untenable.

15. It is argued that the impugned notification has resulted inclothing authorities, the Committee of Creditors (CoC) and ResolutionCProfessionals (RPs) with powers beyond the enacted statute. They havedefined the term “guarantor” as debtor who is personal guarantor toa corporate debtor and in respect of whom guarantee has been invokedby the creditor and remains unpaid in full or part. The parent statutedoes not define “guarantor”. It is pointed out that though Section 239(1)Dof the Code empowers the Insolvency Board to make rules to carry outthe provisions of the Code, those rules cannot define term that is notdefined in the Code, as it is likely to result in class legislation for onecategory of guarantors, i.e., personal guarantors to corporate debtors.The impugned notification is therefore ultra vires the Code.

EII Contentions of the Petitioners

16. Mr. Harish Salve, learned senior counsel appearing on behalfof the petitioners, urged that Section 1(3) of the Code authorizes orempowers the Central Government only to bring provisions of the Codeinto force on such date by notification in the Official Gazette. TheFproviso to this Section categorically provides that different dates may beappointed for bringing different provisions into force. Section 1(3) is aninstance of ‘conditional legislation’, where the legislature has enactedthe law, and the only function assigned to the executive is to bring thelaw into operation at such time as it may decide. Such legislation istermed as conditional, because the legislature has itself made the law inGall its completeness as regards “place, person, laws, powers”, leavingnothing for an outside authority to legislate on. Therefore, no element oflegislation was left open to the government, and the only function assignedto it being to bring the law into operation at such time as it might decide.The central government has however, by the impugned notificationHexceeded the power conferred upon it, and has in effect modified the

provisions of Part III of the Code, which it was not authorized to do byParliament. Assuming that such powers were present under Section1(3) of the Code, it would amount to an unconstitutional delegation ofpower.It is argued that this court has repeatedly held that in conditionallegislation, the law is already complete in all respects, and as such theoutside agency i.e., the government, while exercising power under sucha provision, cannot legislate or in any manner add or alter the effect ofthe law already laid down. Reliance is placed on Delhi Laws Act, 1912,In re v. Part ‘C’ States (Laws) Act, 1950[6], State of Tamil Nadu v. K.Sabanayagam[7]and Vasu Dev Singh & Ors. v. Union of India &Ors[8].The effect of the impugned notification translates into going beyondthe power to notify date when the Code or its provisions should comeinto force.17. It is argued that Part III of the Code does not create anydistinction between an individual and personal guarantor to corporatedebtor. Part III provides for “Insolvency Resolution and Bankruptcyfor Individuals and Partnership Firms”, and thereafter refers to thesetwo categories of persons simply as debtors. The impugned notificationin substance modifies the text of the actual sections of Part III, despitethe absence of any element of legislation/legislative authority having beenconferred upon the Central Government. The words “only in so far asthey relate to personal guarantors to corporate debtors” forming apart of the impugned notification are attempted to be added like riderto each of the sections mentioned in the impugned notification, clearlyrendering such an exercise completely outside the scope and powersconferred under Section 1(3) of the Code.

18. It was argued further by Mr. Salve, that the impugnednotification is ex facie in violation of the principles of delegation, inasmuchas the Central Government has effected classification of individuals-and sought to ensure that insolvency issues of one category of individuals,i.e. personal guarantors to corporate debtors, are considered along withinsolvency proceedings of corporate debtors. The distinction betweenPart II and Part III, the forum and the remedies available to creditors ofindividuals is no longer available to this category, i.e. personal guarantors,whose insolvency issues are to be now considered along with insolvency

6 1951 SCR 747 at paras 39, 42 and 47.

7 (1998) 1 SCC 318 at para 14.

8 (2006) 12 SCC 753 at para 16.

Aprocess of corporate debtors. It is argued that the power of classificationis legislative and that the impugned notification is an instance of theexecutive acting beyond its jurisdiction. Mr. Salve relied upon observationsmade by the Privy Council in R v Burah[9 ]that laws cannot be said toempower general legislative authority, on the executive, or to exercisepower not granted to it under the parent Act.B

19. It was argued that the Central Government mistakenly assumedthat inclusion of personal guarantors in the definition provisions byamending Section 2 and inserting section 2(e) automatically results inamendment of section 1(3) of the Code. Section 2 provides that theCode applies to the entities enumerated in the various sub-sections. TheCamendment of 2018 added that the Code would apply to personalguarantors to corporate debtors. Consequently, when provisions of theCode are brought into force, they would apply to personal guarantors tocorporate debtors. The application of provision depends upon its plainlanguage, and not upon the enumeration of entities to whom the CodeDapplies. The provisions which have been now brought into force by virtueof the impugned notification do not limit themselves to personal guarantorsto corporate debtors, but apply generally to individuals and other entities.However, to the extent that it limits their application to personal guarantorsalone, through the impugned notification, it is illegal and beyond the powersconferred by Parliament. It was urged that conditional legislation shouldEnot be confused with delegation, which is broader concept allowingthe executive to frame rules and flesh out gaps within the broad legislativepolicy. That exercise is legislative. However, conditional legislation onlypermits the executive government the power to designate the time whenthe law is to be brought into force, or place or places where it operates,

Fbut not which parts of an enactment can apply to which class of persons,without any substantive legislative provision or guidance. The impugnednotification has the effect of amending the statutory scheme in the mannerit applies them to personal guarantors and is therefore, ultra vires theCode.

G20. Mr. P.S. Narasimha, learned senior counsel, who argued next,contended further that in several judgments, this court has ruled thatconditional legislation is one where legislative exercise is complete initself, and the only power and/or function to be delegated to the authority(in this case the Central Government), is to apply the law to specific

area or to determine the time and manner of carrying into effect suchlaw. He cited the decision in State of Bombay v. NarothamdasJethabhai[10] in which this court observed as follows:

“……The section does not empower the Provincial Governmentto enact law as regards the pecuniary jurisdiction of thenew court and it can in no sense be held to be legislationconferring legislative power on the Provincial Government”

Mr. Narasimha also cited Sardar Inder Singh v. State ofRajasthan[11 ]and Hamdard Dawakhana v. Union of India[12] and urgedthat when legislation is complete, and the executive is left to apply thelaw to an area or determine the time and manner of carrying it out, thatis the only permissible task. However, the executive cannot perform itstask outside the power granted to it, choosing the subjects to which thelaw is to apply.

21. Mr. Narasimha referred to the previous notifications, bringinginto force provisions of the Code on different dates. He submitted thatnone of them brought into force some provisions for limited sub-category, or class of individuals or entities. He referred to one notificationdated 30.11.2016 that brought into force certain provisions of Part II ofthe Code, within which section 2(a) to 2(d) were also notified. However,it was submitted that irrespective of the notification, Part II was broughtinto force and it applied to every entity contemplated to be in its coverage.Under the notification of 30.11.2016, the inclusion of the four subcategories described in section 2(a) to 2(d) became irrelevant, and PartII of the Code applied uniformly to all categories of persons intended tobe covered by it by virtue of the definition of corporate person underSection 3(7) of the Act. The impugned notification however applies toonly sub-category, namely, personal guarantors to corporate debtors,among homogeneous class of individuals; therefore, it is anunprecedented exercise of conditional legislation power, clearly ultravires the parent enactment.

22. It was urged that even if it were assumed that the CentralGovernment had the power to issue the impugned notification and bringPart III in force only with respect to personal guarantors to corporate

10 State of Bombay v. Narothamdas Jethabai 1951 2 SCR51, at para 37.

11 1957 SCR 605 at para 10.

12 1960 (2) SCR 671 at para 28.

Adebtors, it is ultra vires the objects and purpose of the Code. Reliancewas placed on the Statement of Objects and Reasons of the Insolvencyand Bankruptcy Code (Amendment) Bill, 2017 in this regard.[13]

23. Learned counsel emphasized that this court has repeatedlyclarified that the object of the Code is to ensure company’s revival andBcontinuation by protecting from its management and, as far as feasible,to save it from liquidation, thereby maximizing its value. The Code is abeneficial legislation which puts the corporate debtor back on its feet,not being mere recovery legislation for creditors. Observations in SwissRibbons Pvt. Ltd. and Anr. v. Union of India & Ors.[14 ]and BabulalVardharji Gurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. &CAnr.[15 ]are relied upon for this purpose.24. It was submitted that Parliament undoubtedly amended theCode in 2018, defining “personal guarantor” as species of individualsto whom the law applied. However, the manner of its applicationcontinued to be the same, i.e. to all individuals. Therefore, the resort toDconditional legislation power under Section 1(3) to bring into force certainprovisions selectively, in respect of some individuals, i.e. personalguarantors and not all individuals, is ultra vires, and contrary to thepower conferred on Parliament. Illustratively, it is pointed out that theapplication of the law itself is limited- for instance in the case of SectionE78 which applies to fresh start of insolvency proceedings- the Code islimited then, in its application to one sub category of individuals (all ofwhom are covered by the chapter, which is opened by Section 78) i.e.,personal guarantors. This selective application is naked classificationexercised by the government conferred with conditional legislativepowers.F

25. It was next argued that Part III of the Code relating toindividuals and partnership firms are outlined in various sections of the

13 “The Code prescribes for the insolvency resolution and for individuals and partnershipfirms, which are proposed to be implemented in phased manner on account of thewider impact of these provisions. In the first phase, the provisions would be extended toGpersonal guarantors of corporate debtors to further strengthen the corporate insolvencyresolution process and clear enabling provision for the purpose has been provided inthe Bill.”

14 Swiss Ribbons Pvt. Ltd. and Anr. vs. Union of India &Ors., (2019) 4 SCC 17, at para28; Babulal Vardharji Gurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. and Anr.(2020) 15 SCC 1, at paras 21, 21.1.H15 (2020) 15 SCC 1 at paras 21, 21.1.

Act. Of these chapters, I, III to VII, all of which have been notified areoperative components of the Code, relatable to individuals and partnershipfirms. They can certainly be brought into force independently, wheneverthe executive is of the opinion that it is appropriate to do so. However,Section 2 cannot be used for this purpose, certainly not for bifurcatingindividuals and partnership firms into subcategories and then to applyPart II provisions exclusively to personal guarantors. It is argued thatSection 2 of the Code is not an operative component, but more merely adescriptive component. Counsel argued that the nature of Section 2 issimilar to an amendable descriptive component. Elaborating, it wassubmitted that an amendable descriptive component of an enactment isone that describes the whole or some part of the Act, and was subject toamendment when the Bill was introduced in Parliament in 2017. Section2, in other words, is descriptive and merely declares the subjects towhich the code would apply. It certainly cannot clothe the executivewith power to apply the code selectively at its discretion to differentsubjects.

26. Mr. Sudipto Sarkar, learned senior counsel, adopted thearguments of Mr. Salve. He also relied on the decision of the FederalCourt in Jatindra Nath Gupta v. Province of Bihar[16], especially thefollowing passage:

“The proviso contains the power to extend the Act for periodof one year with modifications, if any. It is one power and nottwo severable powers. The fact that no modifications weremade in the Act when the power was exercised cannot help indetermining the true nature of the power. The power to extendthe operation of the Act beyond the period mentioned in theAct prima facie is legislative power. It is for the Legislatureto state how long particular legislation will be in operation.That cannot be left to the discretion of some other body. Thepower to modify an Act of Legislature, without any limitationon the extent of the power of modification, is undoubtedly alegislative power. It is not power confined to apply the Actsubject to any restriction, limitation or proviso (which is thesame as an exception) only.”

A27. The other counsel, viz. Mr. Rohit Sharma, Ms. Pruthi Gupta,Mr. Rishi Raj Sharma, and Mr. Manish Paliwal too, argued for otherpetitioners. Pointing to the distinction between provisions in Part II ofthe Code and those in Part III, it is argued that the procedure for initiationof insolvency resolution against personal guarantors to corporate debtorsis the same as in relation to other individuals. The only difference is thatBthe forum to decide this would be the National Company Law Tribunal(NCLT). In all other respects, in terms of Part III, the recovery processfor debt realization is identical for personal guarantors to corporate debtors,as in the case of individuals. By separating the process in an artificialmanner, and subjecting the insolvency process of personal guarantorsCwho are also individuals, to adjudication by the NCLT, and furthermore,virtually directing that the two proceedings, i.e. in relation to the corporatedebtor on the one hand, and the personal guarantor, on the other hand, tobe clubbed, is, in effect, legislative exercise, unsupported by any expressprovision of the Code. It is also submitted that the object of the Code isto ensure revival of corporate debtors. On the other hand, if anDapplication against personal guarantor is admitted, moratorium underSection 101 of the Code automatically applies. This results in stay of allpending proceedings or legal claims in respect of all debts. Since thedebt of the personal guarantor is the same as the debt of the corporatedebtor, all pending proceedings, including the corporate insolvencyEresolution plan initiated against corporate debtor would be stayed onadmission of an application for initiation of the resolution plan against apersonal guarantor. This would in fact, amount to treating unequals asequals by sheer legislative fiat. In other words, argued counsel, themoratorium which would operate in respect of pending resolution plansof corporate debtors, upon the initiation of an application against personalFguarantors puts them on the same level, which the statute itself does notpermit.

28. It is submitted that by virtue of Section 140 of the IndianContract Act, guarantor upon payment or performance of all that he isliable for, is invested with all rights which the creditor had enjoyed againstGthe principal debtor. This provision enables the guarantor to exercise allrights, which the creditor had against the principal debtor, which wouldinclude the right to file resolution plan against the corporate debtorafter conclusion of the latter’s resolution process. However, by virtue ofSection 29A of the Code, promoters of corporate debtors who in mostHcases are personal guarantors, are barred from filing resolution plan in

the corporate resolution process of the corporate debtor. This placesthem at distinct disadvantage as compared with individuals who arenot personal guarantors. In this regard, the inability of such personalguarantors to recover amounts from the corporate debtor in the insolvencyprocess, as well as at later stage, if necessary, to initiate insolvencyprocess, has been affected by virtue of the impugned notification. It wassubmitted that this court, in Committee of Creditors of Essar SteelIndia Ltd. v. Satish Kumar Gupta[17], ruled that

“Section 31 (1) of the Code makes it clear that once aresolution plan is approved by the Committee of Creditors itshall be binding on all stakeholders ... This is for the reasonthat this provision ensures that the successful resolutionapplicant starts running the business of the corporate debtoron fresh slate ...

All claims must be submitted to and decided by the resolutionprofessional so that prospective resolution applicant knowsexactly what has to be paid in order that it may then takeover and run the business of the corporate debtor. This thesuccessful resolution applicant does on fresh slate’’.

Counsel therefore argued that an approved resolution plan inrespect of corporate debtor amounts to extinction of all outstandingclaims against that debtor; consequently, the liability of the guarantor,which is co-extensive with that of the corporate debtor, would also beextinguished.

29. It was further argued that the resolution plans, duly approvedby the Committee of Creditors would propose to extinguish and dischargethe liability of the principal borrower to the financial creditor. Therefore,the petitioners’ liability as guarantors under the personal guarantee wouldstand completely discharged. Reliance is placed on the judgment of thePunjab and Haryana High Court in Kundanlal Dabriwala v. HaryanaFinancial Corporation[18], which ruled that:

“on fair reading of the provisions of the Contract Act, I aminclined to hold that as the liability of the surety is co-extensivewith that of the principal debtor, if the latter’s liability is scaleddown in an amended decree, or otherwise extinguished in

17 2019 SCC Online SC 1478.

18 (2012) 171 Comp Cas 94.

Awhole or in part by statute, the liability of the surety also ispro tanto reduced or extinguished.”

30. Reliance was also placed on the judgment of the NationalCompany Law Appellate Tribunal (NCLAT) in Dr. Vishnu KumarAgarwal v. Piramal Enterprises Ltd[19], where it was held that “for theBsame set of debts, claim cannot be filed by same financial creditorin two separate corporate insolvency resolution processes.”

III Arguments of the Union and other Respondents

31. Arguing for the Union of India, the Attorney General Mr. K.K.Venugopal submitted that the Code was amended in 2018. It substitutedCthe pre-amended definition in Section 2(e) by introducing three differentclasses of debtors, which were personal guarantors to corporate debtors[Section 2(e)], partnership firms and proprietorship firms [Section 2 (f)]and individuals [Section 2(g)]. The purpose of splitting the provision anddefining three separate categories of debtors was to cover three separateDsets of entities. Parliament wanted to deal with personal guarantors [underSection 2(e)], differently from partnership firms and proprietorship firms[under section 2(f),] and individuals other than persons referred to inSection 2 (e) [under Section 2(g)]. The intention was to clearly distinguishpersonal guarantors to corporate debtors from other individuals. Thiswas because Section 60 of the Code which deals with the adjudicatingEauthority for corporate debtors too was partially amended in 2018. Theamendment to Section 60(2) added that it applied to insolvencyproceedings or liquidation/bankruptcy of corporate guarantor orpersonal guarantor as the case may be, to corporate debtor. The resultof the amendment is that when corporate debtor faces insolvencyFproceedings, insolvency of its corporate guarantor too can be triggered.Likewise, personal guarantor to corporate debtor, facinginsolvency, can be subjected to insolvency proceedings. All this is to beresolved and decided by the NCLT. In other words, the amendment bySection 60(2) too achieved unified adjudication through the same forumfor resolution of issues and disputes concerning corporate resolutionGprocesses, as well as bankruptcy and insolvency processes in relation topersonal guarantors to corporate debtors.

32. It was argued that Parliament felt compelled to separatepersonal guarantors from other individuals such as partnership firms,

proprietorships and individuals. It was felt that if this separation, achievedthrough the amendment of 2018 were not realized, the insolvencyresolution process of corporate debtors would have to be dealt withseparately and independently of its promoters, managing directors, anddirectors who had furnished their personal guarantees to secure debtsof corporate debtors. If insolvency resolution proceedings againstcorporate debtors were continued without this amendment, and withoutthe unification, (of the adjudicatory body) on the default of the corporatedebtor to debt owed to financial creditor, the entire machinery of theCode relating to the corporate debtor would work itself out, to the exclusionof personal guarantors. This presented peculiar problem, in that theresolution applicant, wishing to bid for takeover of the corporate debtorand operate it as running concern would be faced with huge liability,and the personal guarantor in most cases would be one of the individualsprimarily responsible for the insolvency of the company, but would beout of the resolution process and have to be separately proceeded with.What therefore, has been effectuated by creating an independentprovision, by separating personal guarantors of corporate debtors andby the same amendment, placing the personal guarantor’s debt beforeone tribunal/forum namely the NCLT, is that such forum would applythe procedure in Part III, in regard to personal guarantors for providingrepayment of the entire debt for which the guarantee is furnished in thefirst place. If that debt is not repaid in the Part III, the personal guarantorwould not stand discharged, but on the other hand, would himself beforced into bankruptcy proceedings.

33. It was submitted that though the procedure to be adopted bythe NCLT and rules of insolvency (in relation to personal guarantors,under Part III of the Code) might be different from that relating tocorporate debtors, unifying both processes under one forum enables theadjudicating body to have clear vision of the extent of debt of thecorporate debtor, its available assets and resources, as also the assetsand resources of the personal guarantor. This would not have been viable,had the insolvency resolution process of the personal guarantor continuedunder Part III, before another body. The amendment, and the impugnednotification would ensure more optimal resolution process, as resolutionapplicants wishing to take over the management of corporate debtors,would ultimately find the process of taking over more attractive; besides,there will be more competition in regard to the bids proposed, and thetotal debt servicing of the corporate debtor might be lowered if the

Apersonal guarantor’s assets are also taken into account to mitigate thecorporate debtor’s liabilities. The personal guarantor in such cases, whoprovides assets which have been charged against the amount advancedto his company would most probably not permit himself to be driven tobankruptcy, and would therefore, be more likely to arrange for paymentof monies due from him to obtain discharge by payment of the amountBoutstanding to the bank or other financial creditor. In some cases, thecreditor bank may be even prepared to take haircut or forego theinterest amounts so as to enable an equitable settlement of the corporatedebt, as well as that of the personal guarantor. This would result inmaximizing the value of assets and promoting entrepreneurship, whichCis one of the main purposes of the Code.

34. The learned Attorney General submitted that the expression“provision” has been defined in Black’s Law Dictionary (10th edition atpage 1420) as, “a clause in statute, contract or other legalinstrument”/ He also relied upon the judgment in Chettian VeettilDAmman v. Taluk Land Board[20] to the effect that:

“A provision is therefore distinct rule or principle of law ina statute which governs the situation covered by it. So anincomplete idea, even though stated in the form of sectionof statute, cannot be said to be provision for, by itsEincompleteness, it cannot really be said to provide wholerule or principle for observance by those concerned. Aprovision of law cannot therefore be said to exist if it isincomplete, for then it provides nothing.”

He therefore urged that Section 2(e) being complete and distinctFis provision within the meaning of Section 1(3), and the Centralgovernment acted intra vires to bring it into force, as well as certainprovisions in Part III of the code.

35. It was argued that the executive has the power to bring intoforce any one provision of statute at different times for differentGpurposes, and that the government can exercise this power to commencea provision for one purpose on one day and for the remaining purposeson later date. He relied upon the following extract from Bennion onStatutory Interpretation: Code (6[th] Edition, at page 257):

“Where power is given to bring an Act into force by order, itis usual to provide flexibility by enabling different provisionsto be brought into force at different times. Furthermore anyone provision may be brought into force at different times fordifferent purposes. [..]

Advantages. This method of commencement gives all theadvantages of extreme flexibility. Before new Act is broughtinto operation, any necessary regulations or other instrumentswhich need to be made under it can be drafted. […]”

36. The learned Attorney General relied upon two Constitutionbench decisions of this Court, which throw light on the power exercisedby the Central Government under provisions, which permit notificationof provisions bringing into force legislation in phases. The judgmentscited were Basant Kumar Sarkar v. Eagle Rolling Mills Ltd.[21 ]andBishwambhar Singh v. State of Orissa[22]. He emphasized that often,when new legislation is introduced, the impact it might have on the subjectmatter needs to be studied and it would be to the benefit of all that astage by stage or region by region implementation is adopted. Furthermorethe discretion exercised by the executive government is not unfettered.

37. The Attorney General urged that what follows from the abovedecisions is that Section 1(3) of the IBC has to be interpreted to giveflexibility to the Central Government to implement provisions of the Codeto meet the objectives of the enactment. He highlighted that the CentralGovernment has in fact been enforcing the provisions of the Code in aphased manner and brought to the Court’s notice that the provisionswere notified on 10 different dates. It was submitted that the Code broughtabout radical change in the existing laws applicable to debtor companiesin that single default by the corporate debtor above threshold limitprescribed in the Code triggers an insolvency resolution process enablinga creditor to demand repayment. Heavy emphasis is placed by the Codeon attempting resolution of the corporate debtor to maximize the valueof the company and ensure that it continues as the going concern in theinterests of the economy. It was keeping in mind these objectives thatthe impugned notification was issued appointing 1st of December 2019as the date on which certain provisions of the IBC were to come intoforce, only so far as they relate to personal guarantors to corporate21 (1964) 6 SCR 913.22 1954 SCR 842.

Adebtors. The submission that the impugned notification creates aclassification was refuted. He stated that it only brought into force sectionsin Part III of the Code and Section 2(e) of the Code, from 1st December2019. From that date, proceedings could be filed against personalguarantors to corporate debtors under the Code. The proceedings wouldbe initiated before the NCLT, which would also be seized of resolutionBproceedings against the corporate debtors.

38. The Attorney General submitted that the Amendment Actbrought about classification after detailed deliberations and in the lightof the report of the Working Group on Individual Insolvency, RegardingStrategy and Approach for implementation of Provisions of the Code toCDeal with Insolvency of Guarantors to Corporate debtors, and Individualshaving business. In this report of 2017, the working group recognizedthe dynamics and the interwoven connection between the corporatedebtor and guarantor, who has extended his personal guarantee.

39. The Attorney General also relied upon the report of theDBankruptcy Law Reforms Committee (“BLRC”) tasked with introducinga comprehensive framework for insolvency in bankruptcy. Thatcommittee recognized that personal guarantors were category of entitiesto whom individual insolvency proceedings applied, and acknowledgedthe link between them and corporate debtors and found that under

Ecommon Code, there could be synchronous resolution. In this regard,paras 3.4.3 and 6.1 of the report of the committee, dated November2015, were relied upon.[23 ]He pointed out that the synchronous resolution

23 The said extracts are as follows:

“3.4.3 Design of the proposed Code: unified Code -The Committee recommends that there be single Code to resolve insolvency for allFcompanies, limited liability partnerships, partnership firms and individuals.In order to ensure legal clarity, the Committee recommends that provisions in allexisting law that deals with insolvency of registered entities be removed and replaced bythis Code.

This has two distinct advantages in improving the insolvency and bankruptcy frameworkin India. The first is that all the provisions in one Code will allow for higher legal clarityGwhen there arises any question of insolvency or bankruptcy. The second is that acommon insolvency and bankruptcy framework for individual and enterprise will enablemore coherent policies when the two interact. For example, it is common practice thatIndian bank stake personal guarantee from the firm’s promoter when they enter intoa loan with the firm. At present, there are separate set of provisions that guiderecovery on the loan to the firm and on the personal guarantee to the promoter. Undera common Code, the resolution can be synchronous, less costly and help more efficientHrecovery.”envisaged by the BLRC is found in the IBC in Section 5(22) and Section60 (which fall in Part II of the Code), and Section 179 (which falls inPart III of the Code) and submitted that- firstly, the term ‘personalguarantors’ is defined in Part II of the Code which provides for insolvencyresolution and liquidation for corporate persons, Section 5(22) of theIBC defines “personal guarantor” to mean “an individual who is thesurety in contract of guarantee to corporate debtor”. Secondly, byreason of Section 60(1), the Adjudicating Authority, in relation toinsolvency resolution and liquidation for corporate persons (includingcorporate debtors and their personal guarantors), shall be the NCLT.Section 60(2) mandates that where corporate insolvency resolutionprocess or liquidation proceeding of corporate debtor is pending beforethe NCLT, an application relating to the insolvency resolution orbankruptcy of personal guarantor of such corporate debtor shall befiled before the NCLT. Section 60(4) vests the NCLT with all powers ofthe Debt Recovery Tribunal (DRT) as contemplated under Part III ofthe Code for the purpose of Section 60(2). Thirdly, under Section 179,the DRT is the Adjudicating Authority for insolvency resolution for allother categories of individuals and partnership firms. Section 179 itselfis “subject to Section 60”. It was argued that common oversight ofinsolvency processes of the corporate debtor, its corporate guarantor,and personal guarantors, through one forum, under the Code, (which, byreason of Section 238, overrides all other laws), was the objective of theamendment of 2018 and the impugned notification. The learned AttorneyGeneral also pointed out to Section 30, which enacts that an Adjudicatoryauthority approved resolution plan binds all stakeholders. However, atthe same time, in the event resolution plan permits creditors to continueproceedings against the personal guarantor, then such personal guarantorswould continue to be liable to discharge the debts owed to the creditorby the corporate debtor, which would be limited of course to the extentof debt that did not get repaid under the resolution plan. The AttorneyGeneral also relied on Embassy Property Developments (P) Ltd. v.

“6.1 The applicability of the CodeThe Committee considers the following categories of entities to whom the individualinsolvency and bankruptcy provisions shall apply:��Sole proprietorships where the legal personality of the proprietorship is not differentfrom the individual who owns it.�Personal guarantors

��Consumer finance borrowers ….”

DEF

AState of Karnataka[24 ]where this court had examined and dealt with theinterplay between Sections 5(22), 60 and 179 of the Code.

40. Mr. Tushar Mehta, Solicitor General of India, supported thesubmissions of the Attorney General. He too stressed that differentprovisions were brought into force on different dates. He highlightedBthat Section 1(3) of the Code confers wide powers enabling the CentralGovernment to operationalize the Code in subject-wise and (notnecessarily in contiguous manner) – particular sections, provisions orparts. He urged that the petitioner’s interpretation of the statute is undulynarrow and would result in disrupting the Code. It was argued that Section2 of the Code is not definition clause – but rather acts as lever toCprovide mechanism for phased and limited interpretation of the Code.He underlined, therefore, that Section 2 represents Parliamentaryclassification as regards classes of debtors who fall under the Code.The Solicitor General pointed out that before the 2018 amendment, Section2(e) was generic and that the amendment classified three distinct typesDof entities. The personal guarantors to corporate debtors are no doubtindividuals like others, but are in fact at the centre of insolvency of acorporate debtor. He submitted that predominant reason for theinsolvency of corporate debtors invariably is the role played by its directors,etc., who are personal guarantors and are or were, mostly at the helm ofaffairs of the corporate debtor itself.E

41. The Solicitor General submitted that Part-II of the Code appliedto all categories of corporate entities who are debtors. By virtue of Section3(8), the corporate debtor is corporate or juristic entity that owes adebt to any person. Likewise, the corporate guarantor under Section3(7) is corporate person who has stood guarantee to corporate debtor.FBefore the impugned notification, proceedings in Part-II were confinedto corporate debtors and only another class, i.e. corporate guarantors.Personal guarantors and corporate guarantors formed part of the sameclass inasmuch as they were guarantors since they had furnishedguarantees to corporate debtors to secure their loans. Yet, personalGguarantors being individuals were not included in Part-III, for functionaland operational purposes. The Solicitor General submitted that Part-IIoutlines the mechanism involved in regard to insolvency resolutionfunctionally and operationally designed for corporate bodies. This takesinto its sweep resolution professional, committee of creditors as third

parties taking over the debtor and taking crucial decisions for insolvencyresolution. This statutory mechanism could not be applied to individualsas there is no question of “take over” of individuals. Individuals, whostand guarantee to corporate debtors and whose liability is co-terminuswith such corporate debtors were therefore, outside the field of the Code.This resulted in an anomaly inasmuch as one set of guarantors to corporatedebtors, i.e. individuals or personal guarantors were outside the purviewof the Code whereas other set of guarantors, i.e. corporate guarantorswere subjected to the provisions of the Code and could also be proceededagainst in Part-II. As result, conscious decision was taken to enforcePart-III and operationalize the mechanism suitably for class ofindividuals, i.e. personal guarantors. This decision was implementedthrough the impugned notification.42. Apart from reiterating the submission of the Attorney Generalwith regard to the flexibility in respect of notifying parts of the Code ondifferent dates, having regard to the difference in subject matter andthose governed by it, the learned Solicitor General also relied upon thedecision reported as J. Mitra and Co. Pvt. Ltd. v. Assistant Controllerof Patents[25]. He relied upon the report of the Working Group of IndividualInsolvency (Regarding Strategy and Approach for Implementation ofthe Provisions of the Insolvency and Bankruptcy Code, 2016) to dealwith insolvency of guarantors to corporate debtors and individuals havingbusiness, which had highlighted that in the absence of notification ofprovisions of the Code dealing with insolvency and bankruptcy of personalguarantors to corporate debtors and creditors are unable to effectuatethe provisions of the Code and access remedies available under theCode. He submitted that this court has repeatedly held in several decisionsthat there is no compulsion that all provisions of law or an Act ofParliament or any other legislation should be brought into force at thesame time. The legislature in its wisdom may clothe the executive withdiscretion to bring into force different parts of statute on differentdates, or in respect of different subject matters, or in different areas.Reliance was placed upon Lalit Narayan Mishra Institute of EconomicDevelopment v. State Of Bihar & Ors. Etc[26] and Javed & Ors v.State of Haryana & Ors[27]. It was submitted that the CentralGovernment, therefore, acted within its rights to confine the enforcement

25 (2008) 10 SCC 368.

26 (1988) 2 SCC 433.

27 (2003) 8 SCC 369.

Aof the provisions of the Code to class of individuals, i.e., to personalguarantors, without altering the identity and structure of the Code. Itwas submitted that this is permissible as it is within the larger power ofenforcement of the statute, which encompasses the discretion to enforcethe law in respect of definite category, provided that such an act ofenforcement would not alter the character of the Code. It was therefore,Bsubmitted that the enforcement of parts through the impugned notification– only in respect of personal guarantors in no way alters the identity orcharacter of the Code.

43. The Solicitor General further submitted that the liability of aguarantor is co-extensive, joint and several with that of the principalCborrower unless the contrary is provided by the contract. dischargewhich principal borrower may secure by operation of law (for instanceon account of winding up or the process under the Code) does nothowever absolve the surety from its liability. Section 128 of the IndianContract Act, 1872 (“Contract Act”) provides that the liability of principalDdebtor and surety is co-extensive, unless provided to the contrary inthe contract. The word “co-extensive” is an objective for the word‘extent’ and it can relate only to the quantum of the principal debt. TheSolicitor General relied on certain decisions in this regard.[28] It is statedthat the creditor also has the liberty to proceed against the principalborrower and all sureties simultaneously; in this regard, he cited BankEof Bihar Ltd. v. Dr. Damodar Prasad & Anr[29]. It is submitted that nocourt or co-surety can limit such right. For this proposition, reliancewas placed on State Bank of India v. Index port Registered[30 ]andIndustrial Investment Bank of India v. Biswanath Jhunjhunwala[31].Counsel also submitted that surety cannot alter or defer such right ofFthe creditor. Hence, until the debt is paid off to the creditor in entirety,the guarantor is not absolved of its joint and several liability to makepayment of the amounts outstanding in favour of the creditor.

44. The Solicitor General submitted that neither the guarantor’sobligations are absolved nor discharged in terms of Sections 133 to 136Gof the Indian Contract Act, 1872, on account of release/discharge/composition or variance of contract which principal borrower may

28 Gopilal J Nichani v. Trac Inds. and Components Ltd, AIR 1978 Mad. 134.29 AIR 1969 (1) SCR 620.30 AIR 1992 SC 1740.H31 (2009) 9 SCC 478.

secure by way of operation of law for instance as under the Code.The rights of creditor against guarantor continue even in the event ofbankruptcy or liquidation, stressed the Solicitor General, and relied onMaharashtra State Electricity Board Bombay v. Official Liquidator,High Court, Ernakulum & Anr.[32], where this court considered theinterplay of Sections 128 and 134 of the Contract Act in the facts of thecase. In that case, company whose advances were secured by aguarantee went into liquidation. The court held that the fact the principaldebtor went into liquidation had no effect on the liability of the guarantor,because the discharge secured of the principal borrower was by“operation of law” and involuntary in nature. This was followed in PunjabNational Bank v. State of UP[33]. This court held that:

“In our opinion, the principle of the aforesaid decision ofthis court is equally applicable in the present case. The rightof the appellant to recover money from respondents Nos. 1,2and 3 who stood guarantors arises out of the terms of thedeeds of guarantee which are not in any way superseded orbrought to naught merely because the appellant may not beable to recover money from the principal-borrower. It mayhere be added that even as result of the Nationalization Actthe liability of the principal-borrower does not come to anend. It is only the mode of recovery which is referred to in thesaid Act.”

45. To similar end, the judgment of the Calcutta High Court inGouri Shankar Jain v. Punjab National Bank & Anr.[34 ]were reliedon. It was held that none of the obligations of the surety under Section133 to 139, 141 and 145 of the Contract Act are discharged on accountof admission of Section 7 application. As such, discharge is on accountof statute and involuntary in nature. It was also argued that similarly, interms of Section 31 of the Code, resolution plan approved by theAdjudicating Authority is binding on all stakeholders including theguarantors, and hence, the release/discharge/ composition or varianceof contract with the principal borrower in terms of resolution plan, is“statutorily” presumed to be consented by the guarantors in question.Therefore, by way of approval of resolution plan, any release/discharge

32 1982 (3) SCC 358.

33 (2002) 5 SCC 80.

34 2019 SC Online Cal 7288 at para 34 and 35.

Asecured by the principal borrower or entering into composition withthe principal borrower (reference to Section 135 of the Contract Act)cannot discharge the guarantor in any manner what so ever. The judgmentof this court in State Bank of India v. V. Ramakrishnan &Ors.[35 ]toowas relied on, where the court recognized that guarantor cannot seeka discharge of its liability on account of approval of resolution plan, andBthe terms of such plan can provide for the continuation of the debt ofthe guarantors. It was submitted that the continuation of financialcreditor’s claim against guarantor would not lead to double recoveryof claim as the financial creditor would be able to recover only thebalance debt which remains outstanding and unrecovered from theCprincipal borrower. There are enough safeguards against double recoveryas provided under (a) the settled principle of contract law thatsimultaneous remedy against the co-obligors does not permit the creditorto recover more than the total debt owed to it, and (b) the provisions ofthe Code itself. The Solicitor General relied on the acknowledged practice,known as, the principle of “double dip” or the notion of dual nature ofDrecovery by creditor for the same debt from two entities - be it principalborrower and guarantor or co-guarantors or co-debtors. When primaryobligor and guarantor are liable on account of single claim, the creditorcan assert claim for the full amount owed against each debtor until thecreditor is paid in full (that is it can double dip). This means that in caseEa portion of debt is recovered from one of the entities, either principalborrower or guarantor, the other would be liable for the unsatisfied amountof the claim, the principal borrower being joint and several with the surety.This principle is opposed to the principle prohibiting “double proof” inwhich the same debt is pursued against the same estate twice, leading todouble payment. This right of double dip of creditor was spoken of, inFrecent judgment PAFCO 2916 INC. C/o Pegasus Aviation FinanceCompany vs. Kingfisher Airlines Limited[36], where the decree holdersinitiated simultaneous execution proceedings against both the principaldebtor and the guarantor on the basis of the same decree, and theExecuting Court suo moto raised the issue of maintainability to hold thatGboth the execution petitions are not simultaneously maintainable. TheHigh Court of Karnataka disagreed and held that the decree holderscannot be directed to amend their claims in each of the execution petitionsto only half the decretal amount. Reliance was also placed on the

35 2018(17) SCC 394.H36 2016 SCC OnLine Kar 5991.

judgment of the UK Supreme Court in In Re Kaupthing Singer andFriedlander Ltd. (in administration)[37].

46. Mr. Rakesh Dwivedi, learned senior counsel, appearing forthe State Bank of India, urged that the substance of the petitioners’argument is that Section 1(3) does not empower the Central Governmentto enforce the provisions of Part III of the Code selectively to personalguarantors of Corporate Debtors only. The petitioners highlight that PartIII applies to individuals and partnership firms in composite manner,and the impugned notification dated 15.11.2019 splits up that unity byenforcing the provisions of Part III only upon personal guarantors ofcorporate debtors. It is urged that the submission that Section 1(3) doesnot confer the power of modification on the Central Government ispresented by characterizing Section 1(3) as conditional legislation. Hesubmits that Section 1(3) has two distinct dimensions. Parliament firstlyconferred on the Central Government not only the power to determinethe date on which the Code will come into force, but also empowers it toappoint different dates for different provisions of the Code. It wasintended that all the provisions of the Code may not be enforced at once.Given the width of impact and with an eye on the objectives set out inthe statement of objects and reasons and preamble, staggeredenforcement was anticipated.

47. Mr. Dwivedi stated that nothing much depends on thecharacterization of Section 1(3) as conditional or delegated legislation.Even conditional legislation involves delegation of legislative power tothe authority concerned. Under Section 1(3), the Central Government isonly delegate of the Parliament. In some cases, such provisions orprovisions of broadly similar nature have been described by this court asconditional legislation, but equally in some cases such power has beendescribed as delegated legislation by different judges. Reliance wasplaced on Delhi Laws Act, 1912, In re v. Part ‘C’ States (Laws) Act,1950 (supra) and Lachmi Narain v. Union of India[38].

48. It was urged that provisions of diverse nature have beencharacterized as conditional legislation by this court. The cases reliedupon by the Petitioners related to challenge to the validity of legislativeprovisions on the ground of excessive delegation of legislative power. InIn re Delhi Laws, the Central Government was expressly empowered

37 2012 (1) All ER 883 Paras 11, 12, 53-54.38 (1976) 2 SCC 953, para 49.

Ato enforce certain laws with “modifications and restrictions”. Thepower of modification was held to be limited to such modifications as didnot affect the identity or structure or the essential purpose of the law.This was departure from the judgment of the Federal Court in JatindraNath[39]. However, in the case of Lachmi Narain, the notification issuedby the Government was challenged, and this court held that the realBquestion was whether the delegate acts within the general scope of theaffirmative words which give the power, and without violating any expressconditions or restrictions by which that power is limited. While JatindraNath involved extension of the life of temporary Act, in the DelhiLaws case, the power under consideration was to extend the laws ofCPart States to Part States. Later, in Raghubar Swarup v. State ofU.P[40], the State Government was conferred power by Section 2 of U.P.Zamindari Abolition and Land Reforms Act, 1951, to extend the Act toother areas in the State. It involved selection of geographical area forapplying the law. Similarly, in Tulsipur Sugar Company[41], the powerwas conferred to extend the U.P. Town Areas Act, 1914, to notifiedDarea. Learned senior counsel argued that in Sardar Inder Singh (supra),the power conferred on the executive to extend the life of temporaryAct, even when no outer limit is prescribed, was upheld. In BangaloreWoollen, Cotton and Silk Mills v. Bangalore Corporation[42], the powerconferred on the Municipal Corporation to levy octroi on “other articlesEnot specified in the Schedule” was upheld saying that it was more in thenature of conditional legislation. Reliance was also place on ITCBhadrachalam v. Mandal Revenue Officer[43], where the power toexempt any class of non-agricultural land and was upheld saying:

“the power to bring an Act into force as well as the power toFgrant exemption are both treated, without doubt, as belongingto the category of conditional legislation”.

Learned counsel therefore urged that the line of demarcationbetween conditional and delegated legislation at times gets blurred.

49. While judging the validity of the legislations, this Court hasGexamined the sufficiency of the guidance afforded by the legislative

39 Jatindra Nath Gupta v. State of Bihar (1949-1950) 11 FCR 595.

40 AIR 1959 SC 909 at p. 913

41 (1980) 2 SCC 295.42 (1961)3 SCR 698.H43 (1996) 6 SCC634.

policy indicated in the relevant statute. For this, reliance was placed onEdward Mills v. State of Ajmer[44]. All these establish that diverseprovisions apart from those which empower the executive to enforcethe Act or provisions of the Act have been characterized as conditionallegislation and their validity and scope has been determined in the lightof the text, context and purpose of the Act.

50. Learned counsel stated that schematic, structural andpurposive construction of Section 1(3) of the Code needs to be adoptedto determine the scope of the power conferred on the CentralGovernment by Section 1(3) of the Code. The Petitioners apply the ruleof literal construction and seek to construe Section 1(3) in isolation,without reference to the context, scheme or purpose of the Code. It issubmitted that the ambit of Section 1(3) should not be determined bymerely applying the doctrine of literal construction. All provisions of theCode, including the enforcement provision should be construed in thecontext of the entire enactment and the approach should be schematic,structural and purposive. Furthermore, Section 1(3) should not beconstrued in isolation. It is well settled that statute has to be read as awhole. The scope of the power under Section 1(3) of the Code cannotbe expounded without taking note of the scheme of the Code and theother related provisions. Counsel relied on the following observations ofthis court in State of West Bengal v. Union of India[45].

“In considering the true meaning of words or expression usedby the legislature the court must have regard to the aim, objectand scope of the statute to be read in its entirety. The courtmust ascertain the intention of the legislature by directing itsattention not merely to the clauses to be construed but to theentire Statute; it must compare the clause with the other partsof the law, and the setting in which the clause to be interpretedoccurs.”

51. Legislative intent, it is urged, cannot be gathered by baremechanical interpretation of words or mere literal reading. The wordsare to be read and understood in the context of the scheme of the Actand the purpose or object with which the power is conferred. As Iyer, J.observed in Chairman Board of Mining Examination v. Ramji[46] “to

44 (1955) I SCR 735.

45 (1964) I SCR 371, at para 69.

46 AIR 1977 SC 965 at p. 968.

Abe literal in meaning is to see the skin and miss the soul. The judicialkey to construction is the composite perception of the deha and thedehi of the provision”. This has been followed in Directorate ofEnforcement v. Dipak Mahajan[47]. Recently too, this court has movedon to accept purposive interpretation of the statute as the correctapproach to ascertain legislative intent. If the given words can reasonablyBbear construction which effectuates the purpose or object then thatconstruction is to be preferred. In this regard, the decision in ArcelorMittal v. Satish Kumar Gupta[48 ]and Swiss Ribbons (supra) were reliedon.

52. Mr. Dwivedi stated that the impugned notification does notCmodify any provisions of the Code. By enforcing certain provisions ofthe Code by its seven clauses‘‘only in so far as they relate to personalguarantors to corporate debtors”, the notification does not modifyany legislative provision. It merely carries out the Parliamentary intentionas expressed by the scheme, structure and purpose of the Code. SectionD1(3), Section 2, Section 3(23), Section 5(5)(a) and (22), Section 14(3),Section 31(1) and in particular, Section 60 and Section 179 are indicativeof the fact that the scheme and structure of the Code involves aparliamentary hybridization and legislative fusionof the provisions ofPart III, in so far as personal guarantors of corporate debtors areconcerned. The object of this hybridization is to empower the NCLT toEdeal with the insolvency resolution and bankruptcy process of thecorporate debtor along with the corporate guarantor and personalguarantor of the corporate debtor. Parliament is conscious of the factthat personal guarantors to corporate debtors are generally promotersor close relatives of corporate debtors, and in many cases, the corporate’sFindebtedness was due to acts misfeasance and siphoning of funds doneby personal guarantors. Apart from this, personal guarantors to corporatedebtors have contractually agreed debt alignment with such debtors.They are coextensively as well as jointly and severally responsible forthe same debt. As Parliament created legislative hybridization, Part III

of the Code had to be enforced by the Central Government under SectionG1(3) with Parliamentary categorization through Section 2. The unifyingof the forum for insolvency resolution/bankruptcy of the corporate debtoralong with its personal guarantor is Parliamentary dispensation and

47 (1994) 3 SCC 440.H48 (2019) 2 SCC 1, at para 27-29.

determination. Therefore, Section 1(3) empowers the Central Governmentto appoint different dates for different provisions.

53. Learned senior counsel highlighted Section 60(1), (2), (3) and(4) and urged that Parliament had merged the provisions of Part III withthe process undertaken against the corporate debtors under Part II. Theprocess of Part II and the provisions of Part III were legislatively fusedfor the purpose of proceedings against personal guarantors along withthe corporate debtors. He argued that Section 179, the correspondingprovision in Part III, begins by deploying the phrase “subject to theprovisions of Section 60”. Section 60(4) incorporates the provisions ofPart III, in relation to proceedings before the NCLT against personalguarantors. Counsel cited Western Coalfield Ltd. v. Special AreaDevelopment Authority[49]; Baleshwar Dayal v. Bank of India[50], andNagpur Improvement Trust v. Vasantrao[51]. It was submitted that otherindividuals and partnership firms do not figure in this Parliamentaryhybridization/fusion. Sections 2(e) and 2(g) when read together, wouldindicate that personal guarantors are also individuals. Act 8 of 2018 hasbrought about trifurcation of the categories which were comprehendedin Section 2(e) as it stood before the amendment. Section 179 alsoindicates that personal guarantors are individuals and Part III is applicableto them. In fact, it is by operation of the provisions in Chapter III of PartIII that personal guarantors get the benefit of interim moratorium [Section96] and moratorium [Section 101]. Personal guarantors do not getmoratorium under Section 14. In this regard, reliance is placed on V.Ramakrishnan (supra). It is contended that the hybridization achievedby the impugned notification does not create any anomaly or problem inenforcement.

54. It was lastly contended that Section 78 is declaratory andstates that Part III applies to individuals and partnership firms. It is madeapplicable to the various categories of individuals and partnership firms.Both Sections 2 and 78 carry the margin caption of “application”. Section2 commences with”the provisions of this Code shall apply” to the sixcategories and Section 78 also declares that “Part III shall apply”tothe mentioned categories. Section 2 embraces the whole Code includingSection 78 and other provisions enforced by the impugned notification,

49 (1982) 1SCC 125, paras 3, 17, 18.

50 (2016) 1 SCC 444. paras 6-8.

51 (2002) 7SCC 657, para 31.

Awhich clearly appoints the date of enforcement for Section 2(e) andother provisions, and Chapter III of Part III. There is no vivisection ordissection involved in the impugned notification.

55. Mr. K.V. Vishwanathan, learned senior counsel appearing forsome respondents, argued that an overall reading of the provisions ofBthe Code would show that personal guarantors to corporate debtors area distinct class of individuals (by virtue of Section 2 (e) and Section 60);the classification is not achieved through the impugned notification, butby the amending Act of 2018, by Parliament. It is emphasized that theamendment ensured that the same forum (NCLT) deals with insolvencyprocesses of corporate debtors, and also deals with similar issues relatingCto personal guarantors. The statute permits Part III application by NCLTin relation to personal guarantors. All that the impugned notificationdid was to operationalize these existing provisions of the Code. Learnedsenior counsel cited Brij Sundar Kapoor v. First Additional Judge[52]to refute the petitioners’ argument that the power under Section 1(3)Dpower is one-time power. He also relied on Section 14 of the GeneralClauses Act, 1897, which states that any power conferred by any Act orRegulation can be exercised from time to time.[53]

56. Mr. Vishwanathan cited Raghubir Sarup v. State of UP[54]and urged that the legislature acts within its rights in enacting law andEleaving it to the executive to apply it to different geographical areas atdifferent times, depending upon various considerations. He also reliedon Khargram Panchayat Samiti v. State of West Bengal[55] and arguedthat the power to bring into force different provisions, or different partsof statute, on different dates, having regard to the subject matter, ispart of the incidental power conferred by Parliament under Section 1 (3)Fof the Code.57. Mr. Ritin Rai, learned senior counsel appearing for somerespondents, urged that there is an inter connectedness between corporate

52 1989 (1) SCC 561.53 “14. Powers conferred to be exercisable from time to time—(1) Where, by any CentralGAct or Regulation made after the commencement of this Act, any power is conferred,then unless different intention appears that power may be exercised from time to timeas occasion requires.

(2) This section applies also to all Central Acts and Regulations made on or after thefourteenth day of January, 1887.”

54 AIR 1959 SC 909.H55 1987 (3) SCC 82.

debtors and personal guarantors, which was recognized by the 2018amendment, evidenced by its Statement of Objects and Reasons. Hestated that the power under Section 1(3) of the Code has been properlyexercised. Mr. Rai submitted that like the impugned notification, anothernotification was issued on 01-05-2018[56 ]bringing into effect provisions ofthe Code in relation to distinct class, i.e., financial service providers[57].This was achieved by bringing into force Sections 227 to 229 of theCode. It was submitted that the discretion conferred on the executive, toexperiment, and bring into force legislation in phases, is part of thegeneral pattern of legislative practice and it recognizes that it is not alwayswise or possible to enforce provisions of new law, together, at all places,in respect of all that it seeks to cover.

IV The Provisions of the Code and the Impugned Notification

58. On 28[th] May, 2016, the Code was published in the officialgazette after its passage in Parliament. It has been hailed as majoreconomic measure, aimed at aligning insolvency laws with internationalstandards. Parliament’s previous attempts to ensure recovery of publicdebt, (through the Recovery of Debts due to Banks or FinancialInstitutions Act, 1993, hereafter “RDBFI Act”) securitization (by theSecuritization and Reconstruction and Enforcement of Security InterestsAct, 2002 hereafter “SARFESI”) deal with certain facets of corporateinsolvency. These did not result in the desired consequences. The aim ofthe Code is to a) promote entrepreneurship and availability of credit; b)ensure the balanced interests of all stakeholders and c) promote time-bound resolution of insolvency in case of corporate persons, partnershipfirms and individuals.

The relevant provisions of the code are extracted below:

“1. Short title, extent and commencement -

(1) This Code may be called the Insolvency and BankruptcyCode, 2016.

(2) It extends to the whole of India:

Provided that Part III of this Code shall not extend to theState of Jammu and Kashmir.[58]

56 SO 1817 (E).

57 Defined separately under Section 2 (17) of the Code.

58 Proviso omitted by the Jammu and Kashmir Reorganisation (Adaptation of CentralLaws) Order, 2020 vide S.O. 1123(E), dated 18[th ]March 2020 (w.e.f. 18-3-2020).

[2021] 3 S.C.R.

A(3) It shall come into force on such date1 as the CentralGovernment may, by notification in the Official Gazette,appoint:

Provided that different dates may be appointed for differentprovisions of this Code and any reference in any such provisionBto the commencement of this Code shall be construed as areference to the commencement of that provision.

2. Application. - The provisions of this Code shall apply to -

(a) any company incorporated under the Companies Act, 2013(18 of 2013) or under any previous company law;

(b) any other company governed by any special Act for thetime being in force, except in so far as the said provisions areinconsistent with the provisions of such special Act;

(c) any Limited Liability Partnership incorporated under theDLimited Liability Partnership Act, 2008 (6 of 2009);

(d) such other body incorporated under any law for the timebeing in force, as the Central Government may, by notification,specify in this behalf;

(e) personal guarantors to corporate debtors;

(f) partnership firms and proprietorship firms; and

(g) individuals, other than persons referred to in clause (e).

3. Definitions – In this Code, unless the context otherwiserequires, -

(7) “corporate person” means company as defined in clause(20) of section 2 of the Companies Act, 2013 (18 of 2013), alimited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability PartnershipGAct, 2008 (6 of 2009), or any other person incorporated withlimited liability under any law for the time being in force butshall not include any financial service provider;

(8) “corporate debtor” means corporate person who owesa debt to any person;

(10) “creditor” means any person to whom debt is owedand includes financial creditor, an operational creditor, asecured creditor, an unsecured creditor and decree-holder;

(11) “debt” means liability or obligation in respect of aclaim which is due from any person and includes financialdebt and operational debt;

(23) “person” includes—

(a) an individual;

(b) Hindu Undivided Family;

(c) company;

(d) trust;

(e) partnership;

(f) limited liability partnership; and

(g) any other entity established under statute, and includesa person resident outside India;***

4. Application. –

(1) This Part shall apply to matters relating to the insolvencyand liquidation of corporate debtors where the minimumamount of the default is one crore rupees.[59]

Provided that the Central Government may, by notification,specify the minimum amount of default of higher value whichshall not be more than one crore rupees.

5. Definitions. – In this part, unless the context otherwiserequires –

(1) “Adjudicating Authority”, for the purposes of this Part,Gmeans National Company Law Tribunal constituted undersection 408 of the Companies Act, 2013 (18 of 2013);***

A(5) “corporate applicant” means—

(a) corporate debtor; or

(b) member or partner of the corporate debtor who isauthorised to make an application for the corporateinsolvency resolution process under the constitutionalBdocument of the corporate debtor; or

(c) an individual who is in charge of managing the operationsand resources of the corporate debtor; or

(d) person who has the control and supervision over theCfinancial affairs of the corporate debtor;

(5A) “corporate guarantor” means corporate person whois the surety in contract of guarantee to corporate debtor;***

(22) “personal guarantor” means an individual who is theDsurety in contract of guarantee to corporate debtor”

59. Section 13 (Declaration of moratorium and publicannouncement) provides that the Adjudicating Authority shall (a) declarea moratorium for the purposes referred to under Section 14, (b) cause apublic announcement of the initiation of corporate insolvency resolutionEprocess and call for the submission of claims under section 15, and (c)appoint an interim resolution professional in the manner as laid down inSection 16. public announcement is to be made immediately after theappointment of the interim resolution professional. Section 14(Moratorium) provides that on the insolvency commencement date, theFAdjudicating Authority shall declare moratorium prohibiting (a) theinstitution or continuation of suits or proceedings against the corporatedebtor including execution of judgment, decree, order, etc; (b)transferring, encumbering alienating or disposing of by the corporatedebtor any of its assets or any legal right or beneficial interest; (c) anyaction to foreclose, recover or enforce any security interest created byGthe corporate debtor in respect of its property including any action underthe Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002; and (d) recovery of anyproperty by an owner or lessor where such property is occupied by, or inthe possession of the corporate debtor. Section 16 provides for theHappointment and tenure of an interim resolution professional.60. The highlight of the Code is the institutional framework itenvisions. This framework consists of the regulator (Insolvency andBankruptcy Board of India) insolvency professionals, information utilitiesand adjudicatory mechanisms (NCLT and National Company LawAppellate Tribunal-NCLAT). These institutions and structures are aimedat promoting corporate governance and also enable time bound andformal resolution of insolvency. The major features of the Code includea two-step process -insolvency resolution for corporate debtors wherethe minimum amount of the default is 1,00,00,000/-. Two processesare proposed by the Code: a) Insolvency resolution process (Sections 6to 32 of the Code) - In this, the creditors play crucial role in evaluatingand ultimately determining whether the debtor’s business can be continuedand if so, what are the choices for its revival; and b) Liquidation [Sections33-54 Code] - If revival fails or is not feasible option, then creditorscan resolve to wind up the company. Upon winding up, assets of thedebtor are to be distributed.

61.The insolvency resolution process under Section 6 can beinitiated by the financial creditor [Section 7 of the Code] or operationalcreditor [subject to issuing demand notice to the corporate debtor statingthe amount involved in the default, under Section 8, of the Code] againstthe corporate debtor in the NCLT. Voluntary insolvency proceedingsmay also be initiated by the defaulting company, its employees orshareholders [Section 10 of the Code]. Once the resolution process begins,for the entire period, moratorium is ordered by the NCLT on the debtor’soperations. During this period, no judicial proceedings can be initiated.There can also be no enforcement of securities, sale or transfer of assetsor termination of essential contracts against the debtor. The next step isappointment of an Interim Resolution Professional under Section16 ofthe Code. The resolution professional has to work under the broadguidelines of the committee of creditors (or “COC”- in terms of Section21 of the Code). The CoC includes all the financial creditors of thecorporate debtor, except all related parties and operational creditors.Further, Section 22 of the Code provides that the CoC has to appoint theresolution professional. This resolution professional can also be the interimresolution professional. vote of 75% of the voting share shall determinethe decisions of the committee to opt for either revival or liquidation(Section 30). The decision of the CoC is binding not only on debtors, butalso on all the other creditors. Different types of revival plans includefresh finance, sale of assets, haircuts (i.e. acceptance by creditors of

Aamounts lower than what is due to them), change of management etc.The committee should approve the resolution plan forwarded by thecreditor. Only upon approval does the resolution professional forwardthe plan to the adjudicating authority for final approval. The resolutionplan has to be approved by the NCLT; while doing so, it can considerobjections to the resolution plan by any party interested in voicing suchBobjections (i.e. operational creditors, financial creditors, etc).

62.Section 78(3) of the Code states that the adjudicating authority,for the purpose of Part III (that deals with insolvency Resolution andbankruptcy of individuals and partnership firms) would be the DebtRecovery Tribunal(DRT) that was established under the RDBFI Act.CThe adjudicating authority for corporate insolvency (companies, LLPsand limited liability entities), on the other hand, is the NCLT. The appealfrom the NCLT lies to the National Company Law Appellate Tribunal(NCLAT). The appeal from the DRT lies to the Debt Recovery AppellateTribunal (DRAT). This court hears appeals from both the NCLAT andDthe DRAT.

63.The provisions of the Code were brought into force throughdifferent notifications issued on different dates.The impugned notificationissued in the Gazette of India Extraordinary, by the Ministry of CorporateAffairs, reads as follows:E“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 BankruptcyFCode. 2016 (31 of 2016). the Central Government herebyappoints the 1st day of December,2019 as the date on whichthe following provisions of the said Code only in so far asthey relate to personal guarantors to corporate debtors. shallcome into force:

(1) clause (e) of section 2;

(2) section 78 (except with regard to fresh start process) andsection 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 section240; and

(7) Section 249.

[F. No. 30/21/2018-Insolvency Section]GYANESHWAR KUMAR SINGH, Jt. Secy.”

V Analysis and conclusions

64. The principal ground of attack in all these proceedings hasbeen that the executive government could not have selectively broughtinto force the Code, and applied some of its provisions to one sub-categoryof individuals, i.e., personal guarantors to corporate creditors. All thepetitioners in unison argued that the impugned notification, in seeking toachieve that end, is ultra vires. This argument is premised on the natureand content of Section 1(3), which the petitioners characterize to beconditional legislation. Unlike delegated legislation, they say, conditionallegislation is limited power which can be exercised once, in respect ofthe subject matter or class of subject matters. As long as different datesare designated for bringing into force the enactment, or in relation todifferent areas, the executive acts within its powers. However, when itselectively does so, and segregates the subject matter of coverage ofthe enactment, it indulges in impermissible legislation. Reliance has beenplaced on several judgments of this court, with respect to the limits ofsuch power- notably the decisions of the Privy Council in Burah, of theFederal Court in Narothamdas Jethabai; In Re Delhi Laws Act, 1912,Jatindranath Gupta, Hamdard Dawakhana, Sabanayagam and VasuDev Singh.

65. In Burah, the question arose in the context of law made bythe Indian Legislature removing the district of Garo Hills from thejurisdiction of the civil and criminal courts and the law applied to them,and to vest the administration of civil and criminal justice within thesame district in such officers as the Lieutenant-Governor of Bengal mightappoint for the purpose. By Section 9, the Lt. Governor was empoweredfrom time to time, by notification in the Calcutta Gazette, to extend,mutatis mutandis, all or any of the provisions contained in the Act to theJaintia, Naga and Khasi Hills and to fix the date of application thereof aswell. By notification, the Lt. Governor extended all the provisions,

Awhich was challenged by Burah, who was convicted of murder andsentenced to death. The High Court of Calcutta upheld his contentionand held that Section 9 of the Act was ultra vires the powers of theIndian Legislature as it was delegate of the Imperial Parliament and assuch further delegation was not permissible. The Privy Council overturnedthat verdict, and held:B

“Legislation which does not directly fix the period for its owncommencement, but leaves that to be done by an externalauthority, may with quite as much reason he called incomplete;as that which does not itself immediately determine the wholearea to which it is to be applied, but leaves this to be done byCthe same external authority. If it is an act of legislation on thepart of the external authority so trusted to enlarge the areawithin which law actually in operation is to be applied, itwould seem à fortiori to be an act of legislation to bring thelaw originally into operation by fixing the time for itsDcommencement…..”

It was also observed that:

“Their Lordships agree that the Governor-General in Councilcould not, by any form of enactment, create in India, and armwith general legislative authority, new legislative Power,Enot created or authorized by the Councils Act. Nothing ofthat kind has, in their Lordships’ opinion, been done orattempted in the present case.”

66. The next case cited was Jatindra Nath Gupta where thevalidity of Section 1(3) of the Bihar Maintenance of Public Order Act,F1948 was challenged on the ground that it empowered the ProvincialGovernment to extend the life of the Act for one year with suchmodification as it could deem fit. The Federal Court held that the powerof extension with modification is not valid delegation of legislative powerbecause it is an essential legislative function which cannot be delegated.GThe court observed, inter alia, that:

“The proviso contains the power to extend the Act for periodof one year with modifications, if any. It is one power and nottwo severable powers. The fact that no modifications weremade in the Act when the power was exercised cannot help indetermining the true nature of the power. The power to extendH

the operation of the Act beyond the period mentioned in theAct prima facie is legislative power. It is for the Legislatureto state how long particular legislation will be in operation.That cannot be left to the discretion of some other body. Thepower to modify an Act of Legislature, without any limitationon the extent of the power of modification, is undoubtedly alegislative power. It is not power confined to apply the Actsubject to any restriction, limitation or proviso (which is theaim as an exception) only. It seems to me therefore that thepower contained in the proviso is legislative.”

67. In the case of In re Delhi Laws Act, 1912, reference madeunder Article 143 of the Constitution, saw polyvocal court and pluralityof judicial opinion by the seven judge bench of this court. Three provisionswere referred for the opinion of this court. Having regard to the majorityview, it was held that essential legislative functions could not be delegated,and that the power to repeal an enactment, extended by the CentralGovernment, to part state, could not be delegated. The majority’sconclusion was that the power of repeal is legislative. The observationsin some of the judgments are telling, and are reproduced below. Kania,CJ observed as follows:“53. It is common ground that no law creating suchbodies has been passed by the Parliament so far. Article 246deals with the distribution of legislative powers between theCentre and the States but Part ‘C’ States are outside itsoperation. Therefore on any subject affecting Part ‘C’ States,Parliament is the sole and exclusive legislature until it passesan Act creating legislature or council in terms of Article240. Proceeding on the footing that power of legislationdoes not carry with it the power of delegation (as claimed bythe Attorney-General), the question is whether Section 2 ofthe Part ‘C’ States (Laws) Act is valid or not. By that sectionthe Parliament has given power to the Central Governmentby notification to extend to any part of such State (Part ‘C’State), with such restrictions and modifications as it thinksfit, any enactment which is in force in Part State at the dateof the notification. The section although framed on the linesof the Delhi Laws Act and the Ajmer-Merwara Act is restrictedin its scope as the executive Government is empowered to

extend only an Act which is in force in any of the Part AStates. For the reasons I have considered certain parts of thetwo sections covered by Questions 1 and 2 ultra vires, thatpart of Section 2 of the Part ‘C’ States (Laws) Act, 1950, whichempowers the Central Government to extend laws passed byany legislature of Part State, will also be ultra vires. To theextent the Central Legislature or Parliament has passed Actswhich are applicable to Part States, there can be no objectionto the Central Government extending, if necessary, theoperation of those Acts to the Province of Delhi, because theParliament is the competent legislature for that Province. Tothe extent however the section permits the Central Governmentto extend laws made by any legislature of Part State to theProvince of Delhi, the section is ultra vires.”

Mahajan, J had this to say:

“The section does not declare any law but gives the CentralGovernment power to declare what the law shall be. Thechoice to select any enactment in force in any province at thedate of such notification clearly shows that the legislaturedeclared no principles or policies as regards the law to bemade on any subject. It may be pointed out that under the Actof 1935 different provinces had the exclusive power of layingdown their policies in respect to subjects within their ownlegislative field. What policy was to be adopted for Delhi,whether that adopted in the province of Punjab or of Bombay,was left to the Central Government. Illustratively, the mischiefof such law-making may be pointed out with reference to whathappened in pursuance of this section in Ajmer-Merwara.The Bombay Agricultural Debtors’ Relief Act, 1947, has beenextended under cover of this section to Ajmer-Merwara andunder the power of modification by amending the definitionof the word ‘debtor’ the whole policy of the Bombay Act hasbeen altered. Under the Bombay Act person is debtorwho is indebted and whose annual income from sources otherthan agricultural and manly labour does not exceed 33 percent of his total annual income or does not exceed Rs 500,whichever is greater. In the modified statutes “debtor” meansan agriculturist who owes debt, and “agriculturist” means person who earns his livelihood by agriculture and whoseincome from such source exceeds 66 per cent of his totalincome. The outside limit of Rs 500 is removed. The exerciseof this power amounts to making new law by body whichwas not in the contemplation of the Constitution and was notauthorized to enact any laws. Shortly stated, the question is,could the Indian Legislature under the Act of 1935 enact thatthe executive could extend to Delhi laws that may be madehereinafter by legislature in Timbuctoo or Soviet Russia withmodifications. The answer would be in the negative becausethe policy of those laws could never be determined by the lawmaking body entrusted with making laws for Delhi. TheProvincial Legislatures in India under the Constitution Act of1935 qua Delhi constitutionally stood on no better footingthan the legislatures of Timbuctoo and Soviet Russia thoughgeographically and politically they were in differentsituation.

************

271. For reasons given for answering Questions 1 and 2 thatthe enactments mentioned therein are ultra vires theconstitution in the particulars stated, this question is alsoanswered similarly. It might, however, be observed that in thiscase express power to repeal or amend laws alreadyapplicable in Part-C States has been conferred on the CentralGovernment. Power to repeal or amend laws is power whichcan only be exercised by an authority that has the power toenact laws. It is power coordinate and coextensive with thepower of the legislature itself. In bestowing on the CentralGovernment and clothing it with the same capacity as ispossessed by the legislature itself the Parliament has actedunconstitutionally.”

B.K. Mukherjea, J, held as follows:

“342. It will be noticed that the powers conferred by this sectionupon the Central Government are far in excess of thoseconferred by the other two legislative provisions, at least inaccordance with the interpretation which I have attempted toput upon them. As has been stated already, it is quite an

1130SUPREME COURT REPORTS

Aintelligible policy that so long as proper legislativemachinery is not set up in particular area, the Parliamentmight empower an executive authority to introduce laws validlypassed by competent legislature and actually in force inother parts of the country to such area, with each modificationsand restrictions as the authority thinks proper, theBmodifications being limited to local adjustments or changesof minor character. But this presupposes that there is noexisting law on that particular subject actually in force inthat territory. If any such law exists and power is given torepeal or abrogate such laws either in whole or in part andCsubstitute in place of the same other laws which are in forcein other areas, it would certainly amount to an unwarrantabledelegation of legislative powers. To repeal or abrogate anexisting law is the exercise of an essential legislative power,and the policy behind such acts must be the policy of thelegislature itself. If the legislature invests the executive withDthe power to determine as to which of the laws in force in aparticular territory are useful or proper and if it is given tothat authority to replace any of them by laws brought fromother provinces with such modifications as it thinks proper,that would be to invest the executive with the determinationEof the entire legislative policy and not merely of carrying outa policy which the legislature has already laid down. Thusthe power of extension, which is contemplated by Section 2of Part-C States (Laws) Act, includes the power of introducinglaws which may be in actual conflict with the laws validlyestablished and already in operation in that territory….”F68. It is apparent that the legislation which this court had to dealwith had virtually granted what was described as carte blanche inregard to whether to extend the provisions of any state Act, if so, which,the power of modification, as well as the power of repeal. The judgeswere agreed that within the broad remit of delegated legislative power,Gas long as essential legislative powers were not delegated, the provisionswould not be ultra vires. However, the power to extend laws thatParliament had not enacted (as it was competent to enact, in respect ofPart states) as well as the power to repeal, was held to be legislativein content. Therefore, the court held such power to be ultra vires. This

is evident from the following Opinion of the court, recorded as resultof the majority judgment:

“OPINION OF THE COURT

357. The Court held by majority that the provisions containedin Questions 1 and 2 are not ultra vires the legislatures whichpassed the Act containing those provisions. As regards thesection mentioned on Question 3, the first part was held to beintra vires, but the second portion, which is in the followingterms:

“provision may be made in any enactment so extended, forthe repeal or amendment of any corresponding law (otherthan Central Act) which is for the time being applicable tothat Part-C State”, is ultra vires the Indian Parliament whichpassed the Act.”

69. In Narottamdas Jethabhai (supra) three issues wereinvolved; one of them concerned the question of empowering theexecutive to designate court to exercise jurisdiction upto 25,000/-,i.e. Section 4 of the Bombay City Civil Courts Act[60]. The contentionsuccessfully raised before the High Court was that once the legislaturehad conferred jurisdiction upto pecuniary limit of 10,000/- to the CityCivil Court, delegating the power to increase that jurisdiction was ultravires. The argument was repelled by majority of judges (Mahajan,Fazal Ali and B.K. Mukherjea, JJ). Fazal Ali, J stated that

“22. It is contended that this section is invalid, becausethe Provincial Legislature has thereby delegated itslegislative powers to the Provincial Government which itcannot do. This contention does not appear to me to besound. The section itself shows that the ProvincialLegislature having exercised its judgment and determinedthat the New Court should be invested with jurisdiction totry suits and proceedings of civil nature of value notexceeding Rs. 25,000, left it to the Provincial Government

60 “Subject to the exceptions specified in Section 3, the Provincial Government, may bynotification in the Official Gazette, invest the City Civil Court with jurisdiction to receive,try and dispose of all suits and other proceedings of civil nature, arising within theGreater Bombay and of such value not exceeding Rs. 25,000 as may be specified in thenotification.”

to determine when the Court should be invested with thislarger jurisdiction, for which the limit had been fixed. It isclear that if and when the New Court has to be investedwith the larger jurisdiction, that jurisdiction would be dueto no other authority than the Provincial Legislature itselfand the court would exercise that jurisdiction by virtue ofthe Act itself. As several of my learned colleagues havepointed out, the case of Queen v. Burah [3 A.C. 889.], theauthority of which was not questioned before us, fullycovers the contention raised, and the impugned provisionis an instance of what the Privy Council has designated asconditional legislation, and does not really delegate anylegislative power but merely prescribes as to how effect isto be given to what the Legislature has already decided.As the Privy Council has pointed out, legislationconditional on the use of particular powers or on theexercise of limited discretion entrusted by the Legislatureto persons in whom it places confidence, is no uncommonthing, and in many instances it may be highly convenientand desirable.”

Mahajan, J observed as follows:

“The fixation of the maximum limit of the court’s pecuniaryjurisdiction is the result of exercise of legislative will, aswithout arriving at this judgment it would not have beenable to determine the outside limit of the pecuniaryjurisdiction of the new court. The policy of the legislaturein regard to the pecuniary jurisdiction of the court thatwas being set up was settled by Sections 3 and 4 of the Actand it was to the effect that initially its pecuniary jurisdictionwill be limited to Rs. 10,000 and that in future ifcircumstances make it desirable - and this was left to thedetermination of the Provincial Government - it could begiven jurisdiction to hear cases up to the value of Rs.25,000. It was also determined that the extension of thepecuniary jurisdiction of the new court will be subject tothe provisions contained in the exceptions to Section 3. Iam therefore of the opinion that the learned Chief Justicewas not right in saying that the legislative mind was never

applied as to the conditions subject to which and as to theamount up to which the new court could have pecuniaryjurisdiction. All that was left to the discretion of theProvincial Government was the determination of thecircumstances under which the new court would be clothedwith enhanced pecuniary jurisdiction. The vital matters ofpolicy having been determined, the actual execution ofthat policy was left to the Provincial Government and tosuch conditional legislation no exception could be taken.”

Again, the court upheld the exercise of executive discretion onthe ground that there was proper legislative framework and guidance tothe government, with respect to conferring jurisdiction upon the CityCivil Court, beyond the limit enacted by Section 3, and Section 4 wasenacted to achieve that objective.

70. In Sardar Inder Singh, the validity of an ordinance whichwas extended by two notifications was involved. Section 4 of the originalordinance enacted that as long as it (the ordinance) was in force:

“no tenant shall be liable to ejectment or dispossession fromthe whole or part of his holding in such area on any groundwhatsoever.”

The validity of this ordinance, enacted originally in 1949 (and inforce for two years), was extended twice, for two years each (bynotifications dated June 14, 1951 and June 20, 1953). The LegislativeAssembly of Rajasthan was constituted and came into being on March29, 1952. Till then, the Rajpramukh was vested with legislative authority.On October 15, 1955, new enactment, the Rajasthan Tenancy Act No.III of 1955 came into force, and the relationship between landlords andtenants was governed by it. Negativing the challenge to the extension ofthe ordinance, this court ruled, (after considering Burah, In re DelhiLaws Act and Jatindra Nath Gupta) that:

“In the present case, the preamble to the Ordinance clearlyrecites the state of facts which necessitated the enactment ofthe law in question, and Section 3 fixed the duration of theAct as two years, on an understanding of the situation as itthen existed. At the same time, it conferred power on theRajpramukh to extend the life of the Ordinance beyond thatperiod, if the state of affairs then should require it. When

such extension is decided by the Rajpramukh and notified,the law that will operate is the law which was enacted by thelegislative authority in respect of “ place, person, laws,powers “, and it is clearly conditional and not delegatedlegislation as laid down in The Queen v. Burah ([1878] 5 I.A.178), and must, in consequence, be held to be valid. It followsthat we are unable to agree with the statement of the law inJatindra Nath Gupta v. The, State of Bihar([1949] F.C.R. 595)that power to extend the life of an enactment cannot validlybe conferred on an outside authority. In this view, the questionas to the permissible limits of delegation of legislativeauthority on which the judgments in In re The Delhi LawsAct, 1912 ([1951] S.C.R. 747), reveal sharp conflict ofopinion does not arise for consideration, and we reserve ouropinion thereon.

It is next contended that the notification dated June 20, 1953,is bad, because after the Constitution came into force, theRajpramukh derived his authority to legislate from Article385, and that under that Article his authority ceased whenthe Legislature of the State was constituted, which was in thepresent case, on March 29, 1952. This argument proceeds ona misconception as to the true character of notificationissued under Section 3 of the Ordinance. It was not anindependent piece of legislation such as could be enactedonly by the then competent legislative (1).authority of the State,but merely an exercise of power conferred by statute whichhad been previously enacted by the appropriate legislativeauthority. The exercise of such power is referable not to thelegislative competence of the Rajpramukh but to OrdinanceNo- IX of 1949, and provided Section 3 is valid, the validityof the notification is co- extensive with that of the Ordinance.If the Ordinance did not come to an end by reason of the factthat the authority of the Rajpramukh to legislate came to anend-and that is not and cannot be disputed-neither did thepower to issue notification which is conferred therein. Thetrue position is that it is in his character as the authority onwhom power was conferred under Section 3 of the Ordinancethat the Rajpramukh issued the impugned notification, and

not as the legislative authority of the State. This objectionshould accordingly be overruled.”

71. In Hamdard Dawakhana (supra), the validity of Section3(d) of the Drug and Magic Remedies (Objectionable Advertisement)Act, 1954 was in issue. Section 16(1) of that Act conferred power onthe government to frame rules, among others, by Section 16(2)(a) “tospecify any disease or condition to which the provisions of Section3 shall apply” and by Section 16(2)(b) “prescribe the manner in whichadvertisement of articles or things referred to in cl. (c) of sub-s. (1)of Section 14 may be sent confidentially.” The Central Governmentargued that Section 3(d), which empowered it to notify “any otherdisease or condition which may be specified in the rules made underthis Act” was an instance of conditional legislation. The relevantdiscussion on conditional legislation, in the judgment, is extracted below:“The distinction between conditional legislation anddelegated legislation is this that in the former the delegate’spower is that of determining when legislative declaredrule of conduct shall become effective; Hampton & Co. v.U.S. (1) and the latter involves delegation of rule makingpower which constitutionally may be exercised by theadministrative agent. This means that the legislature havinglaid down the broad principles of its policy in the legislationcan then leave the details to be supplied by theadministrative authority. In other words by delegatedlegislation the delegate completes the legislation bysupplying details within the limits prescribed by the statuteand in the case of conditional legislation the power oflegislation is exercised by the legislature conditionallyleaving to the discretion of an external authority the timeand manner -of carrying its legislation into effect as alsothe determination of the area to which it is to extend.”

The court held that the impugned provision was impermissibledelegation as it lacked legislative guidance as regards the exerciseof executive power:

“The question for decision then is, is the delegationconstitutional in that the administrative authority has beensupplied with proper guidance. In our view the words

Aimpugned are vague. Parliament has established nocriteria, no standards and has not prescribed any principleon which particular disease or condition is to be specifiedin the Schedule. It is not stated what facts or circumstancesare to be taken into consideration to include particular-condition or disease. The power of specifying diseases andBconditions as given in s. 3(d) must therefore be held to begoing beyond permissible boundaries of valid delegation.As consequence the Schedule in the rules must be struckdown.”

72. In Sabanayagam (supra) the vires of notification issuedCunder Section 36 of the Payment of Bonus Act, exempting the concernedstatutory board from its coverage, was in issue. This court interpretedthe notification as one operating from the date of its issue, thus resultingin the application of the Payment of Bonus Act for previous accountingyears. As to the nature of the power (to exempt), this court, afterDconsidering various previous decisions, held that there are three broadcategories of conditional legislation, and elaborated as follows:

“In the first category when the Legislature has completed itstask of enacting Statute, the entire superstructure of thelegislation is ready but its future applicability to given areaEis left to the subjective satisfaction of the delegate who beingsatisfied about the conditions indicating the ripe time forapplying the machinery of the said Act to given area exercisesthat power as delegate of the parent legislative body. TulsipurSugar Co. ‘s case (supra) is an illustration on this point. Whenthe Act itself is complete and is enacted to be uniformly appliedFin future to all those who are to be covered by the sweep ofthe Act, the Legislature can be said to have completed its task.All that it leaves to the delegate is to apply the same uniformlyto given area indicated by the parent Legislature itself butat an appropriate time. This would be an act of pure andGsimple conditional legislation depending upon the subjectivesatisfaction of the delegate as to when the said Act enactedand completed by the parent Legislature is to be made effective.As the parent Legislature itself has laid down binding courseof conduct to be followed by all and sundry to be covered bythe sweep of the legislation and as it has to act as binding

rule of conduct within that sweep and on the basis of whichall their future actions are to be controlled and guided, it caneasily be visualised that of the parent Legislature while itenacted such law was not required to hear the parties likelyto be affected by the operation of the Act, is delegateexercising an extremely limited and almost ministerial functionas an agent of the principal Legislature applying the Act tothe area at an appropriate time is also not supposed andrequired to hear all those who are likely to be affected infuture by the binding code of conduct uniformly laid down tobe followed by all within the sweep of the Act as enacted bythe parent Legislature.

However, there may be second category of conditionallegislations wherein the delegate has to decide whether andunder what circumstances completed Act of the parentlegislation which has already come into force is to be partiallywithdraw from operation in given area or in given cases soas not to be applicable to given class of persons who areotherwise admittedly governed by the Act. When such powerby way of conditional legislation is to be exercised by thedelegate question may arise as to how the said power canbe exercised. In such an eventuality if the satisfactionregarding the existence of condition precedent to the exerciseof such power depends upon pure subjective satisfaction ofthe delegate and if such an exercise is not required to bebased on the prima face proof of factual data for ad againstsuch an exercise and if such an exercise to uniformly applyin future to given common class of subjects to be governedby such an exercise and when such an exercise is not to beconfined to individual cases only, then even in such categoryof cases while exercising conditional legislative powers thedelegate may not be required to have an objective assessmentafter considering rival versions on the data placed before itfor being taken into consideration by it in exercise of suchpower of conditional legislation. For example if tariff isfixed under the Act and exemption power is conferred on thedelegate whether to grant full exemption or partial exemptionfrom the tariff rate it may involve such an exercise ofconditional legislative function wherein the exercise has to

be made by the delegate on its own subjective satisfactionand once that exercise is made whatever exemption is grantedor partially granted or partially withdrawn from time to timewould be binding on the entire class of persons similarlysituated and who will be covered by the seep of suchexemptions, partial or whole, and whether granted orwithdrawn, wholly or partially, and in exercise of such apower there may be no occasion to hear the parties likely tobe affected by such an exercise. For example from settledtariff say if earlier 30% exemption is granted by the delegateand then reduced to 20% all those who are similarly situatedand covered by the sweep of such exemption and itsmodification cannot be permitted to say in the absence ofany statutory provision to that effect that they should be givena hearing before the granted exemption is wholly or partiallywithdrawn.In the aforesaid first two categories of cases delegate whoexercises conditional legislation acting on its pure subjectivesatisfaction regarding existence of conditions precedent forexercise of such power may not be required to hear partieslikely to be affected by the exercise of such power. Where thedelegate proceeds to fill p the details of the legislation for thefuture - which is part of the integrated action of policy-makingfor the future, it is part of the future policy and is legislative.But where he merely determines either subjectively orobjectively - depending upon the “conditions” imposed inthe statute permitting exercise of power by the delegate - thereis no legislation involved in the real sense and therefore, inour opinion, applicability of principles of fair play,consultation or natural justice to the extent necessary cannotbe said to be foreclosed. Of course, the fact that in such casesof `conditional legislation’ these principles are not forecloseddoes not necessarily mean that they are always mandated. Ina case of purely ministerial function or in case where noobjective conditions are prescribed and the matter is left tothe subjective satisfaction of the delegate (as in categoriesone and two explained above) no such principles of fair play,consultation or natural justice could be attracted. That isbecause the very nature of the administrative determination

does not attract these formalities and not because thedetermination is legislative in character. There may also besituations where the persons affected are unidentifiable classof persons or where public interest or interests of State etc.preclude observations of such procedure. (….)”

73. In another decision, Vasu Dev Singh, the court had to decideupon the validity of notification issued by the Administrator ofChandigarh dated 7.11.2002, directing that the provision of the East PunjabUrban Rent Restriction Act, 1949, (which was extended by Parliamentto Chandigarh by the East Punjab Urban Rent Restriction Act (Extensionto Chandigarh) Act 1974) was not applicable to buildings and rentedlands whose monthly rent exceeded 1500. The Administrator justifiedthe notification as an instance of conditional legislation since the powerunder Section 3 enabled him to exempt provisions of the Act to classesof buildings.[61] This court disagreed with the contention that the exemptionwas in the exercise of conditional legislative power:

“16. We, at the outset, would like to express our disagreementwith the contentions raised before us by the learned counselappearing on behalf of the respondents that the impugnednotification is in effect and substance conditional legislationand not delegated legislation. The distinction betweenconditional legislation and delegated legislation is clear andunambiguous. In conditional legislation the delegatee hasto apply the law to an area or to determine the time andmanner of carrying it into effect or at such time, as it decidesor to understand the rule of legislation, it would be aconditional legislation. The legislature in such case makesthe law, which is complete in all respects but the same is notbrought into operation immediately. The enforcement of thelaw would depend upon the fulfilment of condition and whatis delegated to the executive is the authority to determine byexercising its own judgment as to whether such conditionshave been fulfilled and/or the time has come when suchlegislation should be brought into force. The taking effect of

legislation, therefore, is made dependent upon the

61 “3. Exemptions.—The Central Government may direct that all or any of the provisionsof this Act, shall not apply to any particular building or rented land or any class ofbuildings or rented lands.”

Adetermination of such fact or condition by the executive organof the Government. Delegated legislation, however, involvesdelegation of rule-making power of legislation and authorisesan executive authority to bring in force such an area by reasonthereof. The discretion conferred on the executive by way ofdelegated legislation is much wider. Such power to make rulesBor regulations, however, must be exercised within the fourcorners of the Act. Delegated legislation, thus, is devicewhich has been fashioned by the legislature to be exercisedin the manner laid down in the legislation itself. By reason ofSection 3 of the Act, the Administrator, however, has beenCempowered to issue notification whereby and whereunder,an exemption is granted for application of the Act itself.”

After considering large number of decisions, including thosewhere this court had upheld exemptions issued by different states basedon rent, this court concluded that there was insufficient justification forDthe impugned exemption notification, and that it was ultra vires the powerconferred upon the Administrator:

“150. Moreover, the notification has not been issued for alimited period. It will have, therefore, permanent effect.Submission of Mr Nariman that having regard to the provisionsEof the General Clauses Act, the same can be modified,amended at any time and withdrawn, cannot be accepted formore than one reason. Firstly, the respondent proceeded onthe basis that the said notification has been issued with aview to give effect to the National Policy i.e. amendments mustbe carried out until new Rent Act is enacted. Whether theFAct would be enacted or not is matter of surmises andconjectures. It would be again matter of legislative policywhich was not within the domain of the Administrator. Secondly,the Administrator in following the National Policy proceededon the basis that the provisions of the Act must ultimately beGrepealed. When steps are taken to repeal the Act either whollyor in part, the intention becomes clear i.e. the same is notmeant to be given temporary effect. When the repealedprovisions are sought to be brought back to the statute-book,it has to be done by way of fresh legislation. (…) What can be

done in future by another authority cannot be ground forupholding an executive act.”

74. close reading of the decisions cited on behalf of thepetitioners would reveal that the power to extend laws has been upheld.As B.K. Mukherjea observed, in In re Delhi Laws Act, 1912 (supra):

“it is quite an intelligible policy that so long as properlegislative machinery is not set up in particular area, theParliament might empower an executive authority to introducelaws validly passed by competent legislature and actuallyin force in other parts of the country to such area, with eachmodifications and restrictions as the authority thinks proper,the modifications being limited to local adjustments or changesof minor character.”

Lord Selborne, in Burah (supra)held such power to beunexceptionable, saying that

“Legislation, conditional on the use of particular powers, oron the executive of limited discretion, entrusted by theLegislature to persons in whom it places confidence is nouncommon thing; and, in many circumstances, it may be highlyconvenient”

In Jitendra Nath Gupta (supra), what the Federal Court heldobjectionable was the conferment of power to extend provisions of anenactment, beyond its expressed duration or time:

“It is for the Legislature to state how long particularlegislation will be in operation. That cannot be left to thediscretion of some other body. The power to modify an Act ofa Legislature, without any limitation on the extent of the powerof modification, is undoubtedly legislative power.”

The plurality of judgments, as well as opinions rendered in In ReDelhi Laws Act, 1912, makes that decision somewhat complex reading.Yet, the final per curiam opinion of the court was that the power toextend, modify or repeal enactments of Part States, in respect ofmatters which the Parliament had not directly enacted, amounted toexcessive legislation. Additionally, exception was taken to the power torepeal, being delegated, as it was an essential legislative power.

1142SUPREME COURT REPORTS

A75. In Sardar Inder Singh (supra), the extension of rent restrictionordinances was in question; the court did not apply the rule in JatindraNath Gupta (supra), and ultimately held that the true position was thatthe Rajpramukh “in his character as the authority on whom powerwas conferred under Section 3 of the Ordinance that theRajpramukh issued the impugned notification, and not as theBlegislative authority of the State.” In Hamdard Dawakhana (supra),the argument that Section 3 was conditional legislation was negativedand it was held to be an instance of excessive delegation, where Parliamentdid not indicate any guidance for inclusion of particular instances in theschedule, leaving it to the executive government to decide the issue, inCwhat could be an arbitrary manner. Vasu Dev Singh (supra) was acase where the court held that the power to exclude from application ofthe enactment, based on the quantum of rent, was premised on theAdministrator’s opinion that the legislation would be repealed, havingregard to National Policy. Moreover, the notification excluded theapplication of the Act in relation to premises based on rent and had aDpermanent character. This court held that the notification was an instanceof impermissible legislation by the executive. It is evident that the courtruled in Jitendra Nath Gupta, In re Delhi Laws Act and Vasu DevSingh that the exercise of extending an enactment beyond the time ofits designated application by the legislature; the power of extension,Emodification and repeal of laws made by other legislative bodies; andthe limiting the application of an enactment based on quantification (anamount of rent) were legislative exercises, beyond the powers conferred.They stricto sensu fall in the category of “general legislative authority,a new legislative Power, not created or authorized” by the parentlegislation, (per Burah, supra). In Hamdard Dawakhana, the powerFto include new drugs, was held to be uncanalized, i.e. without anylegislative guidance. The decision did not involve bringing into forceprovisions of an enactment, or exclusion, but inclusion within its fold,without any statutory guidance on new drugs. The case thereforeinvolved delegated legislation.G

76. It would now be useful to analyse some decisions cited by therespondents. In Bishwambhar Singh (supra) the power under Section3(1) of the Orissa Estates Abolition (Amendment) Act, 1952 was involved.The provision enabled the state to declare that an estate had – in termsof notifications issued in that regard- vested in it, free from allHencumbrances. This court negatived the challenge to that provision:

“77. The long title of the Act and the two preambles whichhave been quoted above clearly indicate that the object andpurpose of the Act is to abolish all the rights, title and interestin land of intermediaries by whatever name known. This is aclear enunciation of the policy which is sought to beimplemented by the operative provisions of the Act. Whateverdiscretion has been vested in the State Government underSection 3 or Section 4 must be exercised in the light of thispolicy and, therefore, it cannot be said to be an absolute orunfettered discretion, for sooner or later all estates mustperforce be abolished. From the very nature of things certainamount of discretionary latitude had to be given to the StateGovernment. It would have been colossal task if the StateGovernment had to take over all the estates at one and thesame time. It would have broken down the entire administrativemachinery. It could not be possible to collect sufficient staffto take over and discharge the responsibilities. It would bedifficult to arrange for the requisite finance all at once. Itwas, therefore, imperative to confer some discretion on theState Government. It has not been suggested or shown that inpractice any discrimination has been made.”

In Basant Kumar Sarkar (supra), the power in question wasSection 1(3) of the Employees State Insurance Act, which enabled thegovernment to extend the enactment to establishments. This courtnegatived that the power was ultra vires:

“4. The argument is that the power given to the CentralGovernment to apply the provisions of the Act by notification,confers on the Central Government absolute discretion, theexercise of which is not guided by any legislative provisionand is, therefore, invalid. The Act does not prescribeanyconsiderations in the light of which the Central Governmentcan proceed to act under Section 1(3) and such un-canalisedpower conferred onthe Central Government must be treatedas invalid. We are not impressed by this argument. Section1(3) is really not an illustration of delegated legislation atall; it is what can be properly described as conditionallegislation. The Act has prescribed self-contained Code inregard to the insurance of the employees covered by it; several

Aremedial measures which the legislature thought it necessaryto enforce in regard to such workmen have been specificallydealt with and appropriate provisions have been made tocarry out the policy of the Act as laid down in its relevantsections. Section 3(1) of the Act purports to authorise theCentral Government to establish Corporation for theBadministration of the scheme of Employees’ State Insuranceby notification. In other words, when the notification shouldbe issued and in respect of what factories it should beissued,has been left to the discretion of the Central Government andthatis precisely what is usually done by conditional legislation.C[......]

5. […] In the very nature of things, it would have beenimpossible for the legislature to decide in what areas and inrespect of which factories the Employees’ State InsuranceCorporation should be established. It isobvious that schemeDof this kind, though very beneficent, could not be introducedin the whole of the country all at once. Such beneficialmeasures which need careful experimentation have some timesto be adopted by stages and in different phases…”

77. The next decision cited was Lachmi Narain (supra). Here,Ethe Central Government was empowered by Section 2 of the Part CStates (Laws) (Act), 1950 to extend through notification any enactmentin Part States. The Central Government had issued Notification in1951 to extend the provisions of the Bengal Finance (Sales Tax) Act tothe then Part State of Delhi. In 1957, notification in exercise of thispower under Section 2 was issued modifying the earlier notificationFresulting in withdrawal of certain benefits. In the background of thesefacts, three-judge bench of this Court dealing with an argument onwhether the power to extend with or without modifications any enactmentwas conditional or delegated legislation, made the following observations:

“49. Before proceeding further, it will be proper to say fewGwords in regard to the argument that the power conferred bySection 2 of the Laws Act is power of conditional legislationand not power of ‘delegated’ legislation. In our opinion,no useful purpose will be served to pursue this line ofargument because the distinction propounded between the twoHcategories of legislative powers makes no difference, in

principle. In either case, the person to whom the power isentrusted can do nothing beyond the limits which circumscribethe power; he has to act – to use the words of Lord Selbourne– “within the general scope of the affirmative words whichgive the power” and without violating any “express conditionsor restrictions by which that power is limited”. There is nomagic in name. Whether you call it the power of “conditionallegislation” as Privy Council called it in Burah’s case (supra),or ‘ancillary legislation’ as the Federal Court termed it inChoitram v. C. I. T., Bihar, or ‘subsidiary legislation’ as Kania,C. J. Styled it, or whether you camouflage it under the veilingname of ‘administrative or quasi-legislative power’ – asProfessor Cushman and other authorities have done it –necessary for bringing into operation and effect anenactment, the fact remains that it has content, howsoeversmall and restricted, of the law-making power itself. There isample authority in support of the proposition that the powerto extend and carry into operation an enactment withnecessary modifications and adaptations is in truth and realityin the nature of power of delegated legislation.”

After these observations, this court held that the power ofmodification could not have been exercised by the Government in themanner that it did, and observed as follows:

“60. The power given by Section 2 exhausts itself on extensionof the enactment; it cannot be exercised repeatedly orsubsequently to such extension. It can be exercised only one,simultaneously with the extension of the enactment. This isone dimension of the statutory limits which circumscribe thepower. The second is that the power cannot be used for thepurpose other than that of extension. In the exercise of thispower, only such “restrictions and modifications can be validlyengrafted in the enactment sought to be extended, which arenecessary to bring it into operation and effect in the Unionterritory. “Modifications” which are not necessary for, orancillary and subservient to the purpose of extension, arenot permissible. And, only such “modifications” can belegitimately necessary for such purpose as are required toadjust, adapt and make the enactment suitable to the peculiar

Alocal conditions of the Union territory for carrying it intooperation and effect. In the context of the section, the words“restrictions and modifications” do not cover such alterationsas involve change in any essential feature, of the enactmentor the legislative policy built into it. This is the third dimensionof the limits that circumscribe the power.

61. It is true that the word “such restrictions and modificationsas it thinks fit” if construed literally and in isolation, appearto give unfettered power of amending and modifying theenactment sought to be extended. Such wide constructionmust be eschewed lest the very validity of the section becomesCvulnerable on account of the vice of excessive delegation.Moreover, such construction would be repugnant to thecontext and the content of the section, read as whole, andthe statutory limits and conditions attaching to the exerciseof the power. We must, therefore, confine the scope of theDwords “restrictions and modifications” to alterations of such

character which keep the inbuilt policy, essence andsubstance of the enactment sought to be extended, intact, andintroduce only such peripheral or insubstantial changes whichare appropriate and necessary to adapt and adjust it to thelocal conditions of the Union territory.”E

78. It would be useful at this stage to set out in tabular form, thevarious dates on which the provisions of the Code were brought intoforce. The chart is set out below:

79. The above tabular chart reveals that the provisions relating tothe Insolvency and Bankruptcy Board of India were brought into forceat the earliest point of time, i.e., 05.08.2016. This was to enable thesetting up of the regulatory body so that it could commence its task ofexamining the relevant issues and evolving standards to be embodied in

Arules and regulations. Thereafter, the notification dated 19.08.2016 broughtinto force Chapter VII) of Part-IV and some provisions of Part-V –relating to finance, acts, audit and miscellaneous provisions. These werethe provisions ancillary to the working of the Board. The next to bebrought into force were parts of Sections 196-197 and 223, again whichdealt with the Board’s functions, its funds etc. as well as Sections 244,B246-248 and 250-252. These were general provisions relating to theprovisions that amended various other enactments in terms of theSchedules set out to the Code. The fourth notification dated 15.11.2016brought into force those provisions relating to insolvency professionalagencies and some other provisions which amended other enactments.C

80. The notification of 30.11.2016 brought into force certainprovisions that had the effect of operationalizing the enactment in respectof four distinct categories, i.e. companies incorporated under theCompanies Act, companies governed by special Act, LLPs and otherbodies incorporated under any law which the Central Government couldDby notification specify. These provisions triggered the application of theCode to corporate debtors as well as LLPs and other companies andcorporations. Significantly, provisions with regard to voluntary liquidationor bankruptcy were excluded from application by this notification. Thoseprovisions were brought into force by the eighth notification dated01.04.2017, with effect from 15.05.2017. In the meanwhile, the notificationEdated 09.12.2016 with effect from 15.12.2016, operationalized Sections33 to 44 which deal with the liquidation process.81. It is quite evident that the method adopted by the CentralGovernment to bring into force different provisions of the Act had aspecific design: to fulfill the objectives underlying the Code, having regardFto its priorities. Plainly, the Central Government was concerned withtriggering the insolvency mechanism processes in relation to corporatepersons at the earliest. Therefore, by the first three notifications, thenecessary mechanism such as setting up of the regulatory body, provisionsrelating to its functions, powers and the operationalization of provisionsGrelating to insolvency professionals and agencies were brought into force.These started the mechanism through which insolvency processes wereto be carried out and regulated by law. In the next phase, the part of theCode dealing with one of its subjects, i.e., corporate persons [coveredby Section 2(a) to 2(d) of the Code] was brought into force. The entireprocess for conduct of insolvency proceedings and provisions relating toH

such corporate persons were brought into force. The other notificationsbrought into force certain consequential provisions, as well as provisionswhich give overriding effect to the Code (as also the provisions thatamend or modify other laws). All these clearly show that the CentralGovernment followed stage-by-stage process of bringing into forcethe provisions of the Code, regard being had to the similarities ordissimilarities of the subject matter and those covered by the Code.

82. As discussed in previous part of this judgment, insolvencyproceedings relating to individuals is regulated by Part-III of the Code.Before the amendment of 2018, all individuals (personal guarantors tocorporate debtors, partners of firms, partnership firms and other partnersas well as individuals who were either partners or personal guarantorsto corporate debtors) fell under one descriptive description under theunamended Section 2(e). The unamended Section 60 contemplated thatthe adjudicating authority in respect of personal guarantors was to bethe NCLT. Yet, having regard to the fact that Section 2 brought all threecategories of individuals within one umbrella class as it were, it wouldhave been difficult for the Central Government to selectively bring intoforce the provisions of part –III only in respect of personal guarantors.It was here that the Central Government heeded the reports of expertbodies which recommended that personal guarantors to corporate debtorsfacing insolvency process should also be involved in proceedings by thesame adjudicator and for this, necessary amendments were required.Consequently, the 2018 Amendment Act altered Section 2(e) andsubcategorized three categories of individuals, resulting in Sections 2(e),(f) and (g). Given that the earlier notification of 30.11.2016 had broughtthe Code into force in relation to entities covered under Section 2(a) to2(d), the amendment Act of 2018 provided the necessary statutory backingfor the Central Government to apply the Code, in such manner as toachieve the objective of the amendment, i.e. to ensure that adjudicatingbody dealing with insolvency of corporate debtors also had before it theinsolvency proceedings of personal guarantors to such corporate debtors.

83. The amendment of 2018 also altered Section 60 in thatinsolvency and bankruptcy processes relating to liquidation and bankruptcyin respect of three categories, i.e. corporate debtors, corporate guarantorsof corporate debtors and personal guarantors to corporate debtors wereto be considered by the same forum, i.e. NCLT.

A84. Section 2, i.e., (application provision of the Code, in relation todifferent entities), as originally enacted, did not contain separate categoryof personal guarantors to corporate debtors. Instead, personal guarantorswere part of category or group of individuals, to whom the Code applied(i.e. individuals, proprietorship and partnership firms, per Section 2(e)which stated “partnership firms and individuals”). The CodeBenvisioned that the insolvency process outlined in provisions of Part IIIwas to apply to them. The Statement of Objects and Reasons for theAmendment Bill of 2017, which eventually metamorphosized into theAmendment Act, stated that the Code provided for insolvency resolutionfor individuals and partnership firmsC

“which are proposed to be implemented in phased manneron account of the wider impact of these provisions. In thefirst phase, the provisions would be extended to personalguarantors of corporate debtors to further strengthen thecorporate insolvency resolution process and clear enablingDprovision for the purpose has been provided in the Bill.”

85. The amendment introduced Section 2(e) i.e. personalguarantors to corporate debtors, as distinct category to whom theCode applied. Now, the amendment was brought into forceretrospectively, on 23 November, 2017. Section 1 of the AmendmentEAct states:“Section 1. (1) This Act may be called the Insolvency andBankruptcy Code (Amendment) Act, 2018.

(2) It shall be deemed to have come into force on the 23rdday of November, 2017.”F

86. In addition to amending Section 2, the same Amendment alsoamended Section 60(2). Interestingly, though “personal guarantor” wasnot defined, and fell within the larger rubric of “individual” under theCode, the adjudicating authority for insolvency process and liquidationof corporate persons including corporate debtors and personal guarantorsGwas the NCLT- even under the unamended Code.The amendment ofSection 60(2) added few concepts. This is best understood on ajuxtaposition of the unamended and the amended provisions: Theunamended Section 60 (2) read as follows:

“(2) Without prejudice to sub-section (1) andHnotwithstanding anything to the contrary contained in this

Code, where corporate insolvency resolution process orliquidation proceeding of corporate debtor is pendingbefore National Company Law Tribunal, an applicationrelating to the insolvency resolution or bankruptcyproceeding of personal guarantor of the corporatedebtor shall be filed before the National Company LawTribunal.”

The amended Section 60 (2) reads as follows:

“(2) Without prejudice to sub-section (1) andnotwithstanding anything to the contrary contained in thisCode, where corporate insolvency resolution process orliquidation proceeding of corporate debtor is pendingbefore National Company Law Tribunal, an applicationrelating to the insolvency resolution or liquidation orbankruptcy of corporate guarantor or personalguarantor, as the case may be, of such corporate debtorshall be filed before the National Company Law Tribunal”

87. The amendment inserted the expression “or liquidation”before the words “or bankruptcy” and also inserted the expression“of corporate guarantor… as the case may be, of” such corporatedebtor. The interpretation of this expression has to be contextual. Thereis no question of liquidation of personal guarantor, an individual. Insuch cases, this court has ruled that the principle behind the maxim“reddendo singular singulis” applies. This court had, in Koteswar VittalKamath v. K. Rangappa Baliga& Co[62 ]quoted Black’s Interpretationof Laws, to explain the meaning of that maxim:“Where sentence in statute contains several antecedentsand several consequences, they are to be readdistributively, that is to say, each phrase or expression isto be referred to its appropriate object.”

Koteswar Vittal Kamath was concerned with the interpretationof the proviso to Article 304(b) of the Constitution of India which providedthat:

“Provided that no Bill or amendment for the purposes ofclause (b) shall be introduced or moved in the Legislatureof State without the previous sanction of the President.”

62 (1969) 1 SCC 255.

AThe term “no Bill or amendment” was construed distributively.The Court held

“In our opinion, the High Court did not correctlyappreciate the position. The language of the proviso cannotbe interpreted in the manner accepted by the High CourtBwithout doing violence to the rules of construction. If boththe words “introduced” or “moved” are held to refer tothe Bill, it must necessarily be held that both those wordswill also refer to the word “amendment”. On the face of it,there can be no question of introducing an amendment.Amendments are moved and then, if accepted by the House,Cincorporated in the Bill before it is passed. There is furtheran indication in the Constitution itself that wherever areference is made to Bill, the only step envisaged isintroduction of the Bill. There is no reference to such astep as Bill being moved. The Articles, of which noticeDmay be taken in this connection, are Articles 109, 114,117, 198 and 207. In all these articles, whatever prohibitionis laid down relates to the introduction of Bill in theLegislature. There is no reference at any stage to Billbeing moved in House. The language thus used in theConstitution clearly points to the interpretation that, evenEin the proviso to Article 304, the word “introduced” refersto the Bill, while the word “moved” refers to theamendment.”

88. Recently, in Rajendra K. Bhutta v. Maharashtra Housingand Area Development Authority[63], this principle and Koteshwar VittalFKamath were cited and applied. Therefore, it is held that when Section60(2) alludes to insolvency resolution or bankruptcy, or liquidation ofthree categories, i.e. corporate debtors, corporate guarantors (tocorporate debtors) and personal guarantors (to corporate debtors) theyapply distributively, i.e. that insolvency resolution, or liquidation processesGapply to corporate debtors and their corporate guarantors, whereasinsolvency resolution and bankruptcy processes apply to personalguarantors, (to corporate debtors) who cannot be subjected to liquidation.

89. The case law cited on behalf of the petitioners shows certainpattern. In many cases (In re Delhi Laws Act, Jitendra Kumar Gupta)H63 (2020) 13 SCC 208.

this court had held that the power to extend the law, existing or future,that had not been enacted by the competent legislature, and the powerof repeal, as well as the power to extend the life of the law, were instancesof excessive delegation of legislative power. In Narottamdas Jethabhai(supra), this court upheld the extension of pecuniary jurisdiction of citycivil courts beyond the statutorily prescribed limit, because there was aprovision enabling it, and the executive confined the exercise of its powerto extend the jurisdiction, within the limits enacted. HamdardDawakhana was an instance of grant of un-canalized power (withoutlegislative guidance) of inclusion in the schedule to the Act, acts fallingwithin its application; it was clearly case of excessive delegation. InLachmi Narain (supra), this court held that the power of modificationcannot be used at any time, but has to be resorted to initially by theexecutive, at the time law is extended and applied. The observations inBishwambhar Singh and Basant Kumar Sarkar (supra) reveal thatthe executive is tasked with implementing the Act in stages, as it “wouldhave been impossible for the legislature to decide in what areas”and in respect of what subject matters (in that case, factories andestablishments) the provisions can apply. Crucially, it was held that “ascheme of this kind, though very beneficent, could not be introducedin the whole of the country all at once.”Further, held this court, suchprovisions may “need careful experimentation have some times to beadopted by stages and in different phases.”

90. The theme of gradual implementation of law or legal principles,was also spoken about in Javed v. State of Haryana[64 ]by this court,which held that there is no constitutional imperative that law or policyshould be implemented all at once:

“16. uniform policy may be devised by the Centre or by aState. However, there is no constitutional requirement that anysuch policy must be implemented at one go. Policies arecapable of being implemented in phased manner. More so,when the policies have far-reaching implications and aredynamic in nature, their implementation in phased manneris welcome for it receives gradual willing acceptance andinvites lesser resistance.”

ASimilar observations were made in Pannalal BansilalPitti v. State of A.P.[65] where the court held that imposition of uniformlaw, in some areas, or subjects may be counterproductive and contraryto public purpose. Sabanayagam (supra) too emphasized discretion toextend an enactment, having regard to the time, area of operation, andits applicability when it was emphasized that such power is “limitedBand almost ministerial function as an agent of the principalLegislature applying the Act to the area at an appropriate time”

91. The close proximity, or inter-relatedness of personal guarantorswith corporate debtors, as opposed to individuals and partners in firmswas noted by the report of the Working Group, which remarked that it:C

“recognizes that dynamics, the interwoven connection betweenthe corporate debtor and guarantor (who has extended hispersonal guarantee for the corporate debtor) and thepartnership firms engaged in business activities may be ondistinct footing in reality, and would, therefore, requireDdifferent treatment, because of economic considerations. Assetsof the guarantor would be relevant for the resolution processof the corporate debtor. Between the financial creditor andthe corporate debtor, mostly the guarantee would contain acovenant that as between the guarantor and the financialEcreditor, the guarantor is also principal debtor,notwithstanding that he is guarantor to corporate debtor.”

(Emphasis supplied)

92. As noticed earlier, Section 60 had previously, under the originalCode, designated the NCLT as the adjudicating authority in relation toFtwo categories: corporate debtors and personal guarantors to corporatedebtors. The 2018 amendment added another category: corporateguarantors to corporate debtors. The amendment seen in the backgroundof 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 mattersGthat were likely to impact, or have bearing on corporate debtor’sinsolvency process, were sought to be clubbed together and broughtbefore the same forum. Section 5 (22) which is found in Part II(insolvency process provisions in respect of corporate debtors) as it wasoriginally, defined personal guarantor to say that it”means an individual

H65 (1996) 2 SCC 498.

who is the surety in contract of guarantee to corporate debtor.”There are two more provisions relevant for the purpose of this judgment.They are Sections 234 and 235 of the Code; they read as follows:

“234. (1) The Central Government may enter into anagreement with the Government of any country outside Indiafor enforcing the provisions of this Code.

(2) The Central Government may, by notification in the OfficialGazette, direct that the application of provisions of this Codein relation to assets or property of corporate debtor or debtor,including personal guarantor of corporate debtor, as thecase may be, situated at any place in country outside Indiawith which reciprocal arrangements have been made, shallbe subject to such conditions as may be specified.

235. (1) Notwithstanding anything contained in this Code orany law for the time being in force if, in the course ofinsolvency resolution process, or liquidation or bankruptcyproceedings, as the case may be, under this Code, theresolution professional, liquidator or bankruptcy trustee, asthe case may be, is of the opinion that assets of the corporatedebtor or debtor, including personal guarantor of acorporate debtor, are situated in country outside India withwhich reciprocal arrangements have been made under section234, he may make an application to the Adjudicating Authoritythat evidence or action relating to such assets is required inconnection with such process or proceeding.

(2) The Adjudicating Authority on receipt of an applicationunder sub-section (1) and, on being satisfied that evidenceor action relating to assets under sub-section (1) is requiredin connection with insolvency resolution process or liquidationor bankruptcy proceeding, may issue letter of request to acourt or an authority of such country competent to deal withsuch request.”

93. These two provisions also reveal that the scheme of the Codealways contemplated that overseas assets of corporate debtor or itspersonal guarantor could be dealt with in an identical manner duringinsolvency proceedings, including by issuing letters of request to courtsor authorities in other countries for the purpose of dealing with suchassets located within their jurisdiction.

A94. The impugned notification operationalizes the Code so far asit relates to personal guarantors to corporate debtors:

(1) Section 79 pertains to the definitional section for the purposesof insolvency resolution and bankruptcy for individuals before theAdjudicating Authority.

(2) Section 94 to 187 outline the entire structure regarding initiationof the resolution process for individuals before the AdjudicatingAuthority.

95. The impugned notification authorises the Central Governmentand the Board to frame rules and regulations on how to allow the pendingCactions against personal guarantor to corporate debtor before theAdjudicating Authority. The intent of the notification, facially, is to allowfor pending proceedings to be adjudicated in terms of the Code. Section243, which provides for the repeal of the personal insolvency laws hasnot as yet been notified. Section 60(2) prescribes that in the event of anDongoing resolution process or liquidation process against corporatedebtor, an application for resolution process or bankruptcy of the personalguarantor to the corporate debtor shall be filed with the concerned NCLTseized of the resolution process or liquidation. Therefore, the AdjudicatingAuthority for personal guarantors will be the NCLT, if parallel resolutionprocess or liquidation process is pending in respect of corporate debtorEfor whom the guarantee is given. The same logic prevails, under Section60(3), when any insolvency or bankruptcy proceeding pending againstthe personal guarantor in court or tribunal and resolution process orliquidation is initiated against the corporate debtor. Thus if A, an individualis the subject of resolution process before the DRT and he has furnishedFa personal guarantee for debt owed by company B, in the event aresolution process is initiated against in an NCLT, the provision resultsin transferring the proceedings going on against in the DRT to NCLT.

96.This court in V. Ramakrishnan (supra), noticed why anapplication under Section 60(2) could not be allowed. At that stage, neitherPart III of the Code nor Section 243 had not been notified. This meantGthat proceedings against personal guarantors stood outside the NCLTand the Code. The non-obstante provision under Section 238 gives theCode overriding effect over other prevailing enactments. This is perhapsthe rationale for not notifying Section 243 as far as personal guarantorsto corporate persons are concerned. Section 243(2) saves pendingH

proceedings under the Acts repealed (PIA and PTI Act) to be undertakenin accordance with those enactments. As of now, Section 243 has notbeen notified. In the event Section 243 is notified and those two Actsrepealed, then, the present notification would not have had the effect ofcovering pending proceedings against individuals, such as personalguarantors in other forums, and would bring them under the provisionsof the Code pertaining to insolvency and bankruptcy of personalguarantors. The impugned notification, as consequence of the nonobstante clause in Section 238, has the result that if any proceedingwere to be initiated against personal guarantors it would be under theCode.

97. In the opinion of this court, there was sufficient legislativeguidance for the Central Government, before the amendment of 2018was made effective, to distinguish and classify personal guarantorsseparately from other individuals. This is evident from Sections 5(22),60, 234, 235 and unamended Section 60. In V. Ramakrishnan (supra)this court noted the effect of various provisions of the Code, and howthey applied to personal guarantors:

“22. We are afraid that such arguments have to be turneddown on careful reading of the sections relied upon. Section60 of the Code, in sub-section (1) thereof, refers to insolvencyresolution and liquidation for both corporate debtors andpersonal guarantors, the adjudicating authority for whichshall be the National Company Law Tribunal, having territorialjurisdiction over the place where the registered office of thecorporate person is located. This sub-section is only importantin that it locates the Tribunal which has territorial jurisdictionin insolvency resolution processes against corporate debtors.So far as personal guarantors are concerned, we have seenthat Part III has not been brought into force, and neither hasSection 243, which repeals the Presidency Towns InsolvencyAct, 1909 and the Provincial Insolvency Act, 1920. The netresult of this is that so far as individual personal guarantorsare concerned, they will continue to be proceeded againstunder the aforesaid two Insolvency Acts and not under theCode. Indeed, by Press Release dated 28-8-2017, theGovernment of India, through the Ministry of Finance,cautioned that Section 243 of the Code, which provides for

the repeal of the said enactments, has not been notified tilldate, and further, that the provisions relating to insolvencyresolution and bankruptcy for individuals and partnershipsas contained in Part III of the Code are yet to be notified.Hence, it was advised that stakeholders who intend to pursuetheir insolvency cases may approach the appropriateauthority/court under the existing enactments, instead ofapproaching the Debts Recovery Tribunals.

23. It is for this reason that sub-section (2) of Section 60speaks of an application relating to the “bankruptcy” of apersonal guarantor of corporate debtor and states that anysuch bankruptcy proceedings shall be filed only before theNational Company Law Tribunal. The argument of the learnedcounsel on behalf of the respondents that “bankruptcy”would include SARFAESI proceedings must be turned down as“bankruptcy” has reference only to the two Insolvency Actsreferred to above. Thus, SARFAESI proceedings against theguarantor can continue under the SARFAESI Act. Similarly, sub-section (3) speaks of bankruptcy proceeding of personalguarantor of the corporate debtor pending in any court ortribunal, which shall stand transferred to the adjudicatingauthority dealing with the insolvency resolution process orliquidation proceedings of such corporate debtor. An“Adjudicating Authority”, defined under Section 5(1) of theCode, means the National Company Law Tribunal constitutedunder the Companies Act, 2013.

24. The scheme of Sections 60(2) and (3) is thus clear — themoment there is proceeding against the corporate debtorpending under the 2016 Code, any bankruptcy proceedingagainst the individual personal guarantor will, if alreadyinitiated before the proceeding against the corporate debtor,be transferred to the National Company Law Tribunal or, ifinitiated after such proceedings had been commenced againstthe corporate debtor, be filed only in the National CompanyLaw Tribunal. However, the Tribunal is to decide suchproceedings only in accordance with the Presidency TownsInsolvency Act, 1909 or the Provincial Insolvency Act, 1920,as the case may be. It is clear that sub-section (4), whichstates that the Tribunal shall be vested with all the powers ofthe Debts Recovery Tribunal, as contemplated under Part IIIof this Code, for the purposes of sub-section (2), would nottake effect, as the Debts Recovery Tribunal has not yet beenempowered to hear bankruptcy proceedings againstindividuals under Section 179 of the Code, as the said Sectionhas not yet been brought into force. Also, we have seen thatSection 249, dealing with the consequential amendment ofthe Recovery of Debts Act to empower Debts RecoveryTribunals to try such proceedings, has also not been broughtinto force. It is thus clear that Section 2(e), which was broughtinto force on 23-11-2017 would, when it refers to theapplication of the Code to personal guarantor of acorporate debtor, apply only for the limited purpose containedin Sections 60(2) and (3), as stated hereinabove. This is whatis meant by strengthening the Corporate Insolvency ResolutionProcess in the Statement of Objects of the Amendment Act,2018.”

98. This court was clearly cognizant of the fact that the amendment,in so far as it inserted Section 2(e) and altered Section 60(2), was aimedat strengthening the corporate insolvency process. At the same time,since the Code was not made applicable to individuals (including personalguarantors), the court had no occasion to consider what would be theeffect of exercise of power under Section 1(3) of the Code, bringing intoforce such provisions in relation to personal guarantors.

99. The argument that the insolvency processes, application ofmoratorium and other provisions are incongruous, and so on, in the opinionof this court, are insubstantial. The insolvency process in relation tocorporate persons (a compendious term covering all juristic entitieswhich have been described in Sections 2 [a] to [d] of the Code) is entirelydifferent from those relating to individuals; the former is covered in theprovisions of Part II and the latter, by Part III. Section 179, which defineswhat the Adjudicating authority is for individuals[66 ] is “subject to” Section60. Section 60(2) is without prejudice to Section 60(1) and

66 “179. (1) Subject to the provisions of section 60, the Adjudicating Authority, in relationto insolvency matters of individuals and firms shall be the Debt Recovery Tribunalhaving territorial jurisdiction over the place where the individual debtor actually andvoluntarily resides or carries on business or personally works for gain and can entertainan application under this Code regarding such person.

Anotwithstanding anything to the contrary contained in the Code,thus giving overriding effect to Section 60(2) as far as it provides thatthe application relating to insolvency resolution, liquidation or bankruptcyof personal guarantors of such corporate debtors shall be filed beforethe NCLT where proceedings relating to corporate debtors are pending.Furthermore, Section 60(3) provides for transfer of proceedings relatingBto personal guarantors to that NCLT which is dealing with theproceedings against corporate debtors. After providing for commonadjudicating forum, Section 60(4) vests the NCLT “with all the powersof 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 powersCof DRT with NCLT and (b) also vests NCLT with powers under PartIII. Parliament therefore merged the provisions of Part III with theprocess undertaken against the corporate debtors under Part II, for thepurpose of Section 60(2), i.e., proceedings against personal guarantorsalong with corporate debtors. Section 179 is the corresponding provisionin Part III. It is “subject to the provisions of Section 60”. Section 60D(4) clearly incorporates the provisions of Part III in relation to proceedingsbefore the NCLT against personal guarantors.100. It is clear from the above analysis that Parliamentary intentwas to treat personal guarantors differently from other categories ofindividuals. The intimate connection between such individuals andEcorporate entities to whom they stood guarantee, as well as the possibilityof two separate processes being carried on in different forums, with itsattendant uncertain outcomes, led to carving out personal guarantors asa separate species of individuals, for whom the Adjudicating authoritywas common with the corporate debtor to whom they had stoodFguarantee. The fact that the process of insolvency in Part III is to be

(2) The Debt Recovery Tribunal shall, notwithstanding anything contained inany other law for the time being in force, have jurisdiction to entertain or dispose of—(a) any suit or proceeding by or against the individual debtor;

(b) any claim made by or against the individual debtor;

G(c) any question of priorities or any other question whether of law or facts,arising out of or in relation to insolvency and bankruptcy of the individual debtor orfirm under this Code.

(3) Notwithstanding anything contained in the Limitation Act, 1963 or inany other law for the time being in force, in computing the period of limitationspecified for any suit or application in the name and on behalf of debtor for whichan order of moratorium has been made under this Part, the period during whichHsuch moratorium is in place shall be excluded”

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 leadto incongruity. On the other hand, there appear to be sound reasons whythe forum for adjudicating insolvency processes – the provisions of whichare disparate- is to be common, i.e through the NCLT. As was emphasizedduring the hearing, the NCLT would be able to consider the whole picture,as it were, about the nature of the assets available, either during thecorporate debtor’s insolvency process, or even later; this would facilitatethe CoC in framing realistic plans, keeping in mind the prospect of realizingsome part of the creditors’ dues from personal guarantors.

101. In view of the above discussion, it is held that the impugnednotification is not an instance of legislative exercise, or amounting toimpermissible and selective application of provisions of the Code. Thereis no compulsion in the Code that it should, at the same time, be madeapplicable to all individuals, (including personal guarantors) or not atall. There is sufficient indication in the Code- by Section 2(e), Section5(22), Section 60 and Section 179 indicating that personal guarantors,though forming part of the larger grouping of individuals, were to be, inview of their intrinsic connection with corporate debtors, dealt withdifferently, through the same adjudicatory process and by the same forum(though not insolvency provisions) as such corporate debtors. Thenotifications under Section 1(3), (issued before the impugned notificationwas issued) disclose that the Code was brought into force in stages,regard being had to the categories of persons to whom its provisionswere to be applied. The impugned notification, similarly inter alia makesthe provisions of the Code applicable in respect of personal guarantorsto corporate debtors, as another such category of persons to whom theCode has been extended. It is held that the impugned notification wasissued within the power granted by Parliament, and in valid exercise ofit. The exercise of power in issuing the impugned notification under Section1(3) is therefore, not ultra vires; the notification is valid.102. The other question which parties had urged before this courtwas that the impugned notification, by applying the Code to personalguarantors only, takes away the protection afforded by law; referencewas made to Sections 128, 133 and 140 of the Contract Act; the petitionerssubmitted that once resolution plan is accepted, the corporate debtor isdischarged of liability. As consequence, the guarantor whose liability isco-extensive with the principal debtor, i.e. the corporate debtor, too is

Adischarged of all liabilities.It was urged therefore, that the impugnednotification which has the effect of allowing proceedings before the NCLTby applying provisions of Part III of the Code, deprives the guarantorsof their valuable substantive rights.

103. Section 31 of the Code, inter alia, provides that:B

“31. (1) If the Adjudicating Authority is satisfied that theresolution plan as approved by the committee of creditorsunder sub-section (4) of section 30 meets the requirements asreferred to in sub-section (2) of section 30, it shall by orderapprove the resolution plan which shall be binding on theCcorporate debtor and its employees, members, creditors,guarantors and other stakeholders involved in the resolutionplan.”

The relevant provisions of the Indian Contract Act are extractedbelow:D“

“128. Surety’s liability.—The liability of the surety is co-extensive with that of the principal debtor, unless it isotherwise provided by the contract.

129. “Continuing guarantee”.—A guarantee which extendsto series of transactions, is called “continuing guarantee”.

130. Revocation of continuing guarantee.—A continuingguarantee may at any time be revoked by the surety, as tofuture transactions, by notice to the creditor.

131. Revocation of continuing guarantee by surety’s death.—The death of the surety operates, in the absence of any contractFto the contrary, as revocation of continuing guarantee,so far as regards future transactions.

133. Discharge of surety by variance in terms of contract.—Any variance, made without the surety’s consent, in the termsof the contract between the principal 1 [debtor] and theGcreditor, discharges the surety as to transactions subsequentto the variance.

134. Discharge of surety by release or discharge of principaldebtor.—The surety is discharged by any contract betweenthe creditor and the principal debtor, by which the principal

debtor is released, or by any act or omission of the creditor,the legal consequence of which is the discharge of theprincipal debtor.

******************

140. Rights of surety on payment or performance.—Where aguaranteed debt has become due, or default of the principaldebtor to perform guaranteed duty has taken place, thesurety upon payment or performance of all that he is liablefor, is invested with all the rights which the creditor hadagainst the principal debtor.

141. Surety’s right to benefit of creditor’s securities.—A suretyis entitled to the benefit of every security which the creditorhas against the principal debtor at the time when the contractof suretyship is entered into, whether the surety knows of theexistence of such security or not; and if the creditor loses, or,without the consent of the surety, parts with such security, thesurety is discharged to the extent of the value of the security.”

104. All creditors and other classes of claimants, including financialand operational creditors, those entitled to statutory dues, workers, etc.,who participate in the resolution process, are heard and those in relationto whom the CoC accepts or rejects pleas, are entitled to vent theirgrievances before the NCLT. After considering their submissions andobjections, the resolution plan is accepted and approved. This results infinality as to the claims of creditors, and others, from the company (i.e.the company which undergoes the insolvency process). The questionwhich the petitioners urge is that in view of this finality, their liabilitieswould be extinguished; they rely on Sections 128, 133 and 140 of theContract Act to urge that creditors cannot therefore, proceed againstthem separately.

105. In Vijay Kumar Jain v. Standard Chartered Bank[67], thiscourt, while dealing with the right of erstwhile directors participating inmeetings of Committee of Creditors observed that:

“we find that Section 31(1) of the Code would make it clearthat such members of the erstwhile Board of Directors, whoare often guarantors, are vitally interested in resolution plan

67 2019 SCC OnLine SC 103

Aas such resolution plan then binds them. Such plan may scaledown the debt of the principal debtor, resulting in scalingdown the debt of the guarantor as well, or it may not. Theresolution plan may also scale down certain debts and notothers, leaving guarantors of the latter kind of debts exposedfor the entire amount of the debt. The regulations also makeBit clear that these persons are vitally interested in resolutionplans as they affect them”

106. The rationale for allowing directors to participate in meetingsof the CoC is that the directors’ liability as personal guarantors persistsagainst the creditors and an approved resolution plan can only lead to aCrevision of amount or exposure for the entire amount. Any recourseunder Section 133 of the Contract Act to discharge the liability of thesurety on account of variance in terms of the contract, without her or hisconsent, stands negated by this court, in V. Ramakrishnan where it wasobserved that the language of Section 31 makes it clear that the approvedDplan is binding on the guarantor, to avoid any attempt to escapeliability under the provisions of the Contract Act. It was observed that:

“25. Section 31(1), in fact, makes it clear that the guarantorcannot escape payment as the resolution plan, which has beenapproved, may well include provisions as to payments to beEmade by such guarantor.…”

And further that:

“26.1 Section 14 refers only to debts due by corporate debtors,who are limited liability companies, and it is clear that in thevast majority of cases, personal guarantees are given byFDirectors who are in management of the companies. The objectof the Code is not to allow such guarantors to escape froman independent and co-extensive liability to pay off the entireoutstanding debt, which is why Section 14 is not applied tothem. However, insofar as firms and individuals areGconcerned, guarantees are given in respect of individual debtsby persons who have unlimited liability to pay them. And suchguarantors may be complete strangers to the debtor — oftenit could be personal friend. It is for this reason that themoratorium mentioned in Section 101 would cover suchpersons, as such moratorium is in relation to the debt and notHthe debtor.”107. In Committee of Creditors of Essar Steel (I) Ltd. v. SatishKumar Gupta[68] (the ”Essar Steel case”) this court refused to interferewith proceedings initiated to enforce personal guarantees by financialcreditors; it was observed as follows:

“106. Following this judgment in V. Ramakrishnancase [SBI v. V. Ramakrishnan, (2018) 17 SCC 394], it isdifficult to accept Shri Rohatgi’s argument that that part ofthe resolution plan which states that the claims of theguarantor on account of subrogation shall be extinguished,cannot be applied to the guarantees furnished by the erstwhileDirectors of the corporate debtor. So far as the present caseis concerned, we hasten to add that we are saying nothingwhich may affect the pending litigation on account ofinvocation of these guarantees. However, NCLAT judgmentbeing contrary to Section 31(1) of the Code and this Court’sjudgment in V. Ramakrishnan case [SBI v. V. Ramakrishnan,(2018) 17 SCC 394], is set aside.”

108. It is therefore, clear that the sanction of resolution plan andfinality imparted to it by Section 31 does not per se operate as dischargeof the guarantor’s liability. As to the nature and extent of the liability,much would depend on the terms of the guarantee itself. However, thiscourt has indicated, time and again, that an involuntary act of the principaldebtor leading to loss of security, would not absolve guarantor of itsliability. In Maharashtra State Electricity Board (supra) the liabilityof the guarantor (in case where liability of the principal debtor wasdischarged under the insolvency law or the company law), wasconsidered. It was held that in view of the unequivocal guarantee, suchliability of the guarantor continues and the creditor can realize the samefrom the guarantor in view of the language of Section 128 of the ContractAct as there is no discharge under Section 134 of that Act. This courtobserved as follows:

“7. Under the bank guarantee in question the Bank hasundertaken to pay the Electricity Board any sum up toRs 50,000 and in order to realise it all that the ElectricityBoard has to do is to make demand. Within forty-eight hoursof such demand the Bank has to pay the amount to theElectricity Board which is not under any obligation to prove68 (2020) 8 SCC 531.

Aany default on the part of the Company in liquidation beforethe amount demanded is paid. The Bank cannot raise the pleathat it is liable only to the extent of any loss that may havebeen sustained by the Electricity Board owing to any defaulton the part of the supplier of goods i.e. the Company inliquidation. The liability is absolute and unconditional. TheBfact that the Company in liquidation i.e. the principal debtorhas gone into liquidation also would not have any effect onthe liability of the Bank i.e. the guarantor. Under Section128 of the Indian Contract Act, the liability of the surety iscoextensive with that of the principal debtor unless it isCotherwise provided by the contract. surety is no doubtdischarged under Section 134 of the Indian Contract Act byany contract between the creditor and the principal debtorby which the principal debtor is released or by any act oromission of the creditor, the legal consequence of which isthe discharge of the principal debtor. But discharge whichDthe principal debtor may secure by operation of law inbankruptcy (or in liquidation proceedings in the case of acompany) does not absolve the surety of his liability(see Jagannath Ganeshram Agarwala v. ShivnarayanBhagirath [AIR 1940 Bom 247; see also In re Fitzgeorge ExEparte Robson [(1905) 1 KB 462] ).”

109. This legal position was noticed and approved later in IndustrialFinance Corpn. of India Ltd. v. Cannanore Spg. & Wvg. Mills Ltd.[69]An earlier decision of three judges, Punjab National Bank v. State ofU.P.[70] pertains to the issues regarding guarantor and the principal debtor.FThe court observed as follows:

“The appellant had, after Respondent 4’s management wastaken over by U.P. State Textile Corporation Ltd. (Respondent3) under the Industries (Development and Regulation) Act,advanced some money to the said Respondent 4. In respect ofGthe advance so made, Respondents 1, 2 and 3 executed deedsof guarantee undertaking to pay the amount due to the bankas guarantors in the event of the principal borrower beingunable to pay the same.

69 (2002) 5 SCC 54H70 (2002) 5 SCC 80

Subsequently, Respondent 3 which had taken over themanagement of Respondent 4 became sick and proceedingswere initiated under the Sick Textile Undertakings(Nationalisation) Act, 1974 (for short ‘the Act’). The appellantfiled suit for recovery against the guarantors and the principaldebtor of the amount claimed by it.

The following preliminary issue was, on the pleadings of theparties, framed:

‘Whether the claim of the plaintiff is not maintainable in viewof the provisions of Act 57 of 1974 as alleged in para 25 ofthe written statement of Defendant 2?’

The trial court as well as the High Court, both came to theconclusion that in view of the provisions of Section 29 of theAct, the suit of the appellant was not maintainable.

We have gone through the provisions of the said Act and inour opinion the decision of the courts below is not correct.Section 5 of the said Act provides for the owner to be liablefor certain prior liabilities and Section 29 states that the saidAct will have an overriding effect over all other enactments.This Act only deals with the liabilities of company which isnationalized and there is no provision therein which in anyway affects the liability of guarantor who is bound by thedeed of guarantee executed by it. The High Court has referredto decision of this Court in Maharashtra SEB v. OfficialLiquidator, High Court, Ernakulam [(1982) 3 SCC 358 : AIR1982 SC 1497] where the liability of the guarantor in casewhere liability of the principal debtor was discharged underthe insolvency law or the company law, was considered. Itwas held in this case that in view of the unequivocal guaranteesuch liability of the guarantor continues and the creditor canrealize the same from the guarantor in view of the languageof Section 128 of the Contract Act as there is no dischargeunder Section 134 of that Act.

In our opinion, the principle of the aforesaid decision of thisCourt is equally applicable in the present case. The right ofthe appellant to recover money from Respondents 1, 2 and 3who stood guarantors arises out of the terms of the deed of

Aguarantee which are not in any way superseded or broughtto naught merely because the appellant may not be able torecover money from the principal borrower. It may here beadded that even as result of the Nationalisation Act theliability of the principal borrower does not come to an end. Itis only the mode of recovery which is referred to in the saidBAct.”

110. In Kaupthing Singer and Friedlander Ltd. (supra) theUK Supreme Court reviewed large number of previous authorities onthe concept of double proof, i.e. recovery from guarantors in the contextof insolvency proceedings. The court held that:C

“The function of the rule is not to prevent double proof ofthe same debt against two separate estates (that is whatinsolvency practitioners call “double dip”). The rule preventsa double proof of what is in substance the same debt beingmade against the same estate, leading to the payment of aDdouble dividend out of one estate. It is for that reasonsometimes called the rule against double dividend. In thesimplest case of suretyship (where the surety has neither givennor been provided with security, and has an unlimited liability)there is triangle of rights and liabilities between the principalEdebtor (PD), the surety (S) and the creditor (C). PD has theprimary obligation to and secondary obligation toindemnify S if and so far as S discharges PD’s liability, but ifPD is insolvent S may not enforce that right in competitionwith C. S has an obligation to to answer for PD’s liability,and the secondary right of obtaining an indemnity from PD.FC can (after due notice) proceed against either or both of PDand S. If both PD and S are in insolvent liquidation, canprove against each for 100p in the pound but may not recovermore than 100p in the pound in all.”

111. In view of the above discussion, it is held that approval of aGresolution plan does not ipso facto discharge personal guarantor (of acorporate debtor) of her or his liabilities under the contract of guarantee.As held by this court, the release or discharge of principal borrowerfrom the debt owed by it to its creditor, by an involuntary process, i.e. byoperation of law, or due to liquidation or insolvency proceeding, does not

absolve the surety/guarantorof his or her liability, which arises out of anindependent contract.

112. For the foregoing reasons, it is held that the impugnednotification is legal and valid. It is also held that approval of resolutionplan relating to corporate debtor does not operate so as to dischargethe liabilities of personal guarantors (to corporate debtors). The writpetitions, transferred cases and transfer petitions are accordinglydismissed in the above terms, without order on costs.

Devika Gujral

Matters dismissed.