Constitutional Validity Of Section 95-100 Of IBC

Author: LawSphereX

Category: Constitutional & Human Rights

Published: 2026-08-23T18:55:54.008+00:00

Updated: 2026-08-30T07:12:21.526Z

CONSTITUTIONAL VALIDITY OF SECTION 95-100 OF IBC

Shakshi Rana, Chandigarh University Adv. Aryan Verma, Chandigarh University The Insolvency and Bankruptcy Code, 2016 (IBC), was enacted to consolidate and amend laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. Among its various provisions, Sections 95 to 100 deal specifically with the insolvency resolution process for individuals and partnership firms. These sections were challenged for their constitutional validity, leading to significant judicial scrutiny by the Supreme Court of India. On November 9, 2023, the Supreme Court of India added a landmark judgment, three-Judge Bench of Dr DY Chandrachud, J B Pardiwala, and Manoj Misra has held in the matter of Dilip B. Jiwrajka v. Union of India and Others [Writ Petition (Civil) No.

1281 of 2021] (decided along with multiple other similar tagged-along writ petitions on similar legal issue), has upheld the constitutional validity of provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”) pertaining to insolvency resolution process of personal guarantors. For the purpose of reference herein, Mr. Dilip B. Jiwrajka shall be referred to as the “Petitioner” and Union of India shall be referred to as the “Respondent” upholding the constitutional validity of Sections 95 to 100 of the Insolvency and Bankruptcy Code, 2016 (IBC), in response to demanding situations raised on the grounds of privacy, natural justice, and procedural fairness. This judgment greatly improves insolvency jurisprudence, especially regarding individual insolvency resolution processes.

The court’s nuanced reasoning clarified legislative reason, the resolution professional's role (RP), and the stability between efficiency and rights protection. Notably, by way of background, in the matter of Lalit Kumar Jain v. Union of India [(2021)

9 SCC 321], the Supreme Court has, inter alia, held that the liability of a guarantor is not

discharged merely on the discharge of the Corporate Debtor.

BACKGROUND

Sections 95 to 100 of the IBC govern the insolvency resolution process for individual and partnership companies. The provisions have been challenged on multiple constitutional grounds: • The board powers granted to the Resolution Professional (RP) under section 99, which allows for searching for information from the debtor, were alleged to violate the right to privacy under Article 21 of the Indian constitution. • The automatic imposition of an interim moratorium under Sections 94 and 95 without earlier judicial review was argued to prejudice the debtor’s interest. • The shortage of explicit judicial adjudication at the pre-admission stage was claimed to violate the principles of natural justice under Article 14. Key issues addressed by the Supreme Court:

1. Interim Moratorium and its Nature

The petitioners contended that the interim moratorium imposed under Sections 94 and 95 of the IBC changed into arbitrary, as it started automatically upon application, without any court involvement. The court clarified that the interim moratorium under section 96 differs from the moratorium under section 14 relevant to corporate debtors. Section 96 applies only to debt-related claims, not to the debtor’s widespread economic affairs. It is designed to temporarily protect the debtor from additional claims while the insolvency application is tested, without restricting the debtor’s ability to deal with their assets. This restrained nature guarantees it isn't overly burdensome or prejudicial.

2. Function of the resolution professional (RP)

A major issue became that the RP, appointed at the pre-admission stage, exercised quasijudicial powers without sufficient safeguards. The court is outstanding among the roles of RPs in corporate insolvency resolution (CIRP) and individual insolvency resolution (IRP): • In CIRP, the RP takes over the control of the corporate debtor, with extensive-ranging powers.

In IRP, the RP acts as a fact-finder and facilitator. The RP’s role is confined to assisting the Adjudicating Authority (AA) by accumulating information, evaluating the debtor’s monetary state of affairs, and creating non-binding advice. The RP’s report under section 99 no longer has any adjudicatory power. The court emphasized that the RP’s powers under section 99 are narrowly defined—the RP can only request facts strictly vital for analyzing the insolvency application. Furthermore, the confidentiality obligations imposed by the Insolvency and Bankruptcy Board of India (IBBI) rules make sure that the debtor’s privacy is respected.

3. Natural Justice and the Debtor’s Rights to Be Heard

The petitioners argued that the debtor was denied a fair hearing, violating the principles of natural justice. The court noted that section 99 explicitly requires the RP to seek an explanation from the debtor before preparing the report. This provision ensures the debtor is allowed to present their side of the case. moreover: • The debtor can undertake the RP’s appointment under section 98 if there are concerns about bias. • The final decision on admitting or rejecting the insolvency application is made by the Adjudicating Authority (AA) section 100, which must follow natural justice principles, including giving the debtor the right to be heard.

4. Proportionality and right to privacy

A key argument was that section 99 violated the debtor’s right to privacy by allowing the RP to demand sensitive personal and financial information. The court applied the proportionality test under Article 21 and concluded that: • The RP’s power to request information is constrained to what is important for examining the application. • The legislative framework strikes a balance between protecting privacy and ensuring an effective insolvency process. • Confidentiality requirements further safeguard sensitive information. The court, therefore, ruled that section 99 does not violate the right to privacy. Judicial Oversight and the Role of the Adjudicating Authority (AA) The courtroom highlighted that judicial adjudication begins in section 100, in which the AA decides whether or not to accept or reject the insolvency application.

The AA is not bound by the RP’s recommendation and must independently apply its thoughts. Although section 100 does not explicitly mention a right of hearing, the court read in the requirement to comply with natural justice, ensuring the debtor’s right to a fair hearing. Conclusion The Supreme Court’s judgment reaffirmed the constitutionality of Sections 95 to 100 of the IBC, balancing procedural performance with the safety of individual rights. The court’s reasoning clarified that the framework for individual insolvency is designed to reduce judicial workload even as it safeguards privacy and ensures equality. This decision strengthens the IBC’s objectives of well-timed and efficient resolution of financial distress while respecting constitutional principles.