HC seeks Centre's reply on plea challenging IBC provisions on personal guarantors

The Delhi High Court has asked the Centre and the Insolvency and Bankruptcy Board of India (IBBI) to respond to a plea by former chairman of Bhushan Power and Steel Ltd. (BPSL) Sanjay Singal, who challenged the provisions on personal insolvency proceedings against guarantors of corporate debtors.

The Delhi High Court bench of Chief Justice D N Patel and Justice Prateek Jalan issued notices and asked the Ministry of Law and Justice and Ministry of Corporate Affairs (MCA), IBBI and State Bank of India to file their replies on the petition.

The Court refused to stay, at this stage, a notice issued by SBI to Singal seeking to invoke personal guarantee under the provisions.

In his petition, Singal has sought to strike down various sections of the Insolvency and Bankruptcy Code (IBC) which apply to personal guarantors of corporate debtors.

Apparently, SBI has initiated recovery proceedings before the Debt Recovery Tribunal against Singal invoking his various guarantees although the Corporate Insolvency Resolution Process (CIRP) of BPSL is pending. Singal stood as surety in his personal capacity for certain loans taken by BPSL from SBI.

The petition claimed that the unlawful attempt of the Central Government to enforce certain provisions of the IBC only in relation to personal guarantors to corporate debtors is wholly impermissible in law and it amounts to an unconstitutional usurpation of legislative power by the executive.

According to the petition, the MCA notifying the sections in relation to personal guarantors to corporate debtors is without jurisdiction and arbitrary, discriminatory and unconstitutional.

The court has listed the matter for further hearing on October 6.