The Supreme Court on Monday sought response from the Union government on an appeal alleging that various provisions related to initiation of insolvency proceedings against promoters, who stood as guarantors for a debt-laden company’s loan, are violative of their fundamental rights (FRs).
The promoters of Neptune Developers alleged these provisions of the Insolvency and Bankruptcy Code (IBC) automatically precluded them from discharging their debts, transacting with creditors, and continuing their business even prior to the liability of the alleged debtor being determined.
“The automatic commencement of an interim moratorium vitiates the very basis of the Indian legal system in as much as the guarantor is condemned to be an outsider to its own business/properties for a claim which may otherwise be completely illegal…” the promoters said.
This interim moratorium may also be abused by someone who can scuttle the proceedings/rights of other creditors by merely filing an application under Section 95, they said, adding that the resolution professional (RP) has the power to call for sensitive personal information, including IT returns, details of assets and liabilities, etc without any opportunity of being heard and “such an intrusion on the fundamental right to privacy is unconscionable if there is absolutely no application of mind prior to the appointment of RP”, the appeal stated.
A bench led by Justice Indira Banerjee issued a notice to ministries of corporate affairs and law and justice, Hitesh Kothari, RP of Neptune, and Central Bank of India. It also tagged the plea filed by Sachin Manohar Deshmukh and Nayan Ashok Bheda along with another similar one pending before it.
The apex court, in its interim order, also restrained the promoters from selling or creating any third-party interests in their legal or beneficial assets and also asked the IRP not to proceed with filing of the report.
The NCLT, Mumbai bench, had on June 9 order admitted the CBI’s plea to initiate insolvency proceedings against the two promoters who had stood as the personal guarantors for the Rs 100-crore loan taken by Neptune in 2013. The appeal led by Deshmukh said that the NCLT order was passed without giving any opportunity to them to oppose the insolvency petition. Further, the one-sided appointment of RP without ascertaining the correct facts of the case in an adversarial litigation completely washed away their fundamental rights, they argued.