Dilip B. Jirwajka v. Union of India (2023)

Part III does something unusual. When a creditor applies against an individual under s. 95, an interim moratorium begins at once under s. 96, a resolution professional is appointed under s. 97 and reports under s. 99 — and only then, at s. 100, does the Adjudicating Authority decide whether to admit the application at all. Consequences therefore attach before any judicial determination. This case is the constitutional challenge to that sequence, and it is the decision that explains the architecture of ss. 95 to 100. For Unit 3 it is the single most useful authority, because it tells you what each stage is for.

Personal guarantors and individual debtors petitioned under Article 32, contending that ss. 95 to 100 violate Articles 14 and 21: that a moratorium and an investigation are set in motion on a creditor's unilateral application, that the debtor is given no hearing before a resolution professional is appointed under s. 97(5), and that the jurisdictional facts are therefore never tested at the point where they matter.

The petitions were dismissed. Sections 95 to 100 are not unconstitutional and do not violate Article 14 or Article 21. In particular:

1. The resolution professional appointed under s. 97 serves a facilitative role, collating all the facts relevant to the examination of an application made under s. 94 or s. 95. The report submitted to the Adjudicating Authority is recommendatory in nature, on whether to accept or reject the application.
2. There is no violation of natural justice in ss. 95 to 100, as the debtor is not deprived of an opportunity to participate in the process of examination of the application by the resolution professional.
3. No judicial determination takes place until the Adjudicating Authority decides under s. 100 whether to accept or reject the application. The report of the resolution professional does not bind the Adjudicating Authority in the exercise of its jurisdiction under s. 100.
4. The Adjudicating Authority must observe the principles of natural justice when it exercises jurisdiction under s. 100 for the purpose of deciding whether to accept or reject the application.
5. The purpose of the interim moratorium under s. 96 is to protect the debtor from further legal proceedings.

The Court also recorded the statutory background: the provisions were brought into force for personal guarantors to corporate debtors by the notification of 15 November 2019, which had been upheld in the earlier challenge; and Parliament had by amendment extended the jurisdiction of the Adjudicating Authority in matters involving the bankruptcy of corporate or personal guarantors.

The answer to the natural-justice objection is a point about where the hearing belongs, not about whether there is one. Appointment under s. 97 and the report under s. 99 are steps in an investigation; they decide nothing and bind nobody. Hearing is owed at the point of decision, and that point is s. 100. Because the professional only collects and recommends, and the Authority is free to disagree, locating the hearing at s. 100 gives the debtor everything the principle requires.

The moratorium objection is answered by reading s. 96 as a shield rather than a sword. An interim moratorium restrains proceedings in respect of the debt; its effect is protective of the individual, which is the opposite of the prejudice alleged. A protective measure attracted automatically on filing is not arbitrary merely because it is automatic.

Taken together, this is the standard technique for saving a statute against an Article 14 challenge: identify the true character of each stage, show that no adverse consequence follows from the stages that lack a hearing, and read the requirement of natural justice into the stage that decides.

1. For any question on the individual insolvency process, set out the four stages in order — application under s. 94 or s. 95 with the interim moratorium under s. 96; appointment of the professional under s. 97; report under s. 99; adjudication under s. 100 — and attach the holding to each.
2. For a natural-justice question, give the reasoning: no determination before s. 100, therefore no hearing required before it; hearing mandatory at s. 100.
3. For a question on the resolution professional under Part III, use the words facilitative and recommendatory. The professional's role under s. 95 and s. 99 is limited to making an appropriate recommendation, and the final decision on admission or rejection under s. 95 lies solely with the Adjudicating Authority.
4. What it does not decide. It does not decide the scope of the interim moratorium — which proceedings it stops — which is the subject of the next cases.

Two amendments bear directly on this decision. Section 96 now carries a sub-section providing that the section shall not apply where an application is filed for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor, so the automatic interim moratorium no longer attaches in that class of case. Section 99 has been amended to extend the period for the resolution professional's report from ten days to twenty-one days, and to require the report to be served on the debtor and the creditor rather than on one or the other. The architecture the Court described is unchanged; the timing and the reach of the moratorium are not.