The Delhi High Court on Monday issued notice in a petition challenging Section 10A of the Insolvency and Bankruptcy Code 2016 insofar as it allows insolvency proceedings against persons and personal guarantors (Getamber Anand vs UOI).
A Division Bench of Chief Justice DN Patel and Justice Jyoti Singh sought response from Central government and Insolvency & Bankruptcy Board of India.
The petitioner, Getamber Anand, is the Chairman and Managing Director of the ATS Group, a leading real estate group in the Delhi-NCR area.
Last month, the petitioner received a notice from Xander Finance Pvt Ltd purportedly under Rule 7 (1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019.
The notice sought to initiate insolvency resolution process against the petitioner in his capacity as the personal guarantor to a loan provided by Xander Finance to ATS Infrastructure.
The petitioner, while contending that the demand is incorrect and untenable, also challenged the constitutional validity of Insolvency and Bankruptcy (Second Amendment) Act 2020 which introduced Section 10A.
The Amendment is wholly ultravires and unconstitutional insofar as it violates Article 14, 21 of the Constitution by discriminating between the corporate debtors and the personal guarantors without any reasonable justification and intelligible differentia, the plea says.
The petitioner has submitted that although the object of the Amendment was to provide relief to entities affected by the COVID-19, Section 10A fails to consider that individuals persons/personal guarantors have been equally affected by the pandemic.
It is asserted that Section 10A leads to an absurd consequence that while the corporate creditors remain free, personal guarantors are made liable for the same alleged debt/defaults.
The petitioner has further argued that a personal guarantor cannot be held liable for any debt/default in the absence of the principal liability and thus, no proceedings can be initiated against a personal guarantor under the IBC if the principal debtor i.e., the corporate debtor is protected against the insolvency proceedings for any default.
The petition is filed through Advocate Kartik Nayar, KN LEGAL, Advocates and Solicitors. Senior Advocate Rajiv Nayar appeared for Petitioner.
The matter will be heard next on February 18.