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SC Sets Aside HC’s Order Interfering With Insolvency Proceedings

The Supreme Court of India, in the case of Bank of Baroda v. Farooq Ali Khan & Ors. (2025 SCC OnLine SC 374), dated February 20, 2025, set aside the Karnataka High Court’s order that quashed personal insolvency proceedings initiated under the Insolvency and Bankruptcy Code (IBC), 2016. The Hon’ble Court held that the High Court had exceeded its jurisdiction by intervening.

In the present matter, the respondent, being the director of a corporate debtor, had acted as a guarantor for the debtor’s loans with the appellant. Due to the corporate debtor’s default in payment, an application was filed to initiate personal insolvency proceedings against the respondent under Section 95 of the Code. Subsequently, by an order dated February 16, 2024, the Adjudicating Authority appointed a Resolution Professional to examine the application and submit a report under Section 99 of the IBC. The respondent then approached the High Court under Article 226 of the Constitution of India, 1950, seeking to halt the insolvency proceedings. The High Court granted the relief, ruling that the respondent’s liability as a personal guarantor had been waived. Consequently, the Adjudicating Authority disposed of the insolvency proceedings against the respondent on June 19, 2024, prompting the appellant to seek recourse before the Hon’ble Supreme Court of India.

The Supreme Court, upon examining the statutory framework under IBC, held that the Karnataka High Court erred in exercising its writ jurisdiction under Article 226 of the Indian Constitution, 1950, thereby contravening the procedure prescribed under Sections 95 to 100 of the Code. The Hon’ble Court reiterated that upon the filing of an application under Section 95 of IBC, the Adjudicating Authority is mandated to appoint a Resolution Professional under Section 97 of the Code, who is required to examine the application and submit a report under Section 99, which is advisory and non-binding. Judicial scrutiny is only warranted under Section 100 when the Adjudicating Authority considers the application for admission or rejection. The Hon’ble Court further held that the Hon’ble High Court had prematurely intervened by determining the existence of debt and the waiver of guarantee, issues which are mixed questions of law and fact to be adjudicated by the Adjudicating Authority under Section 100 of the Code. The Hon’ble Court emphasised that judicial intervention should be exercised with restraint, especially where a comprehensive statutory adjudicatory process exists. By intervening at an interlocutory stage, the High Court had disrupted the statutory process and precluded the Adjudicating Authority from performing its statutory duties.

The Hon’ble Supreme Court found that the High Court’s conclusion regarding the waiver of liability amounted to an adjudication on the merits at a premature stage, thereby undermining the procedural discipline of the IBC. The Hon’ble Court reaffirmed that judicial review under Article 226 must not bypass the specialised tribunals constituted under the IBC. It further referred to the recent judgment in Mohammed Enterprises (Tanzania) Ltd v. Farooq Ali Khan (5 2025 SCC OnLine SC 23), dated January 3, 2025, which disapproved of High Courts interfering with CIRP proceedings under writ jurisdiction. Consequently, the Hon’ble Supreme Court allowed the appeal, set aside the High Court’s order, and restored the appellant’s application before the National Company Law Tribunal (NCLT), directing that the matter proceed from the NCLT’s order dated February 16, 2024.

This judgment underscores the necessity of adhering to the IBC’s statutory scheme, reinforcing that judicial review should be exercised only in cases involving clear jurisdictional errors, thereby preserving the integrity of the insolvency process.