2024 (10) TMI 1624 - SC - IBC

Supreme Court Overrules High Court's CIRP Deferral, Citing Overreach and Violation of Insolvency Code Timelines.

Committee of Creditors of KSK Mahanadi Power Company Limited Versus M/s Uttar Pradesh Power Corporation Limited and Others

The SC set aside the HC's order deferring the Corporate Insolvency Resolution Process (CIRP), ruling that the HC overstepped its jurisdiction under ... Challenge to order of the Single Judge of the High Court of Telangana at Hyderabad - consolidation of the CIRP of all the three companies - HELD THAT:- There are merit in the grievance that the High Court had no justification, to direct the deferment of the CIRP in the exercise of its jurisdiction under Article 226 of the Constitution. Significantly, the High Court declined to grant the main relief which was sought in the petition for the consolidation of the CIRP of three corporate entities. After coming to that conclusion, there was absolutely no reason for the High Court to exercise its jurisdiction under Article 226 by directing the deferment of the CIRP. Such a direction under Article 226 breaches the discipline of the law which has been laid down in the provisions of the Insolvency and Bankruptcy Code 2016. Conclusion - The High Court had no justification, to direct the deferment of the CIRP in the exercise of its jurisdiction under Article 226 of the Constitution. Appeal disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe Supreme Court considered several core legal questions in this judgment:Whether the High Court had the jurisdiction under Article 226 of the Constitution to defer the Corporate Insolvency Resolution Process (CIRP) after declining to consolidate the CIRP of three corporate entities.Whether the order of the High Court directing the deferment of the CIRP was justified without issuing notice to the Committee of Creditors (CoC) or other respondents.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Jurisdiction of the High Court under Article 226 to Defer CIRPRelevant Legal Framework and Precedents: The jurisdiction of the High Court under Article 226 of the Constitution allows for the issuance of certain writs. However, the Insolvency and Bankruptcy Code, 2016 (IBC) provides a specific legal framework for insolvency proceedings, which typically limits the intervention of courts outside the designated tribunals.Court's Interpretation and Reasoning: The Supreme Court found that the High Court's decision to defer the CIRP was not justified. The High Court had already declined the main relief of consolidating the CIRP, and thus, there was no basis for it to defer the process. The Supreme Court emphasized that such a direction breached the discipline of the IBC.Key Evidence and Findings: The High Court's order was passed without issuing notice to the CoC or other respondents, which was a significant procedural lapse.Application of Law to Facts: The Supreme Court applied the principles of the IBC, which aim to ensure timely resolution of insolvency proceedings, and found that the High Court's order was contrary to these principles.Treatment of Competing Arguments: The appellant argued that the High Court's order was passed without due process, while the respondent supported the High Court's decision. The Supreme Court sided with the appellant, emphasizing the procedural irregularity and lack of jurisdiction.Conclusions: The Supreme Court concluded that the High Court had overstepped its jurisdiction under Article 226 by deferring the CIRP and set aside the impugned order.Issue 2: Procedural Fairness in Issuing OrdersRelevant Legal Framework and Precedents: Procedural fairness requires that parties affected by a judicial order be given notice and an opportunity to be heard.Court's Interpretation and Reasoning: The Supreme Court found merit in the grievance that the High Court issued its order without notice to the CoC or other respondents, which violated principles of natural justice.Key Evidence and Findings: The High Court's order was passed on the first date of listing, without any prior notice to the affected parties.Application of Law to Facts: The Supreme Court applied the principles of natural justice, which require notice and hearing, and found that the High Court's order was procedurally flawed.Treatment of Competing Arguments: The appellant argued that the lack of notice was a significant procedural error. The respondent did not adequately address this procedural lapse. The Supreme Court agreed with the appellant's position.Conclusions: The Supreme Court concluded that the High Court's order was procedurally unfair and set it aside.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'We find merit in the grievance that the High Court had no justification, to direct the deferment of the CIRP in the exercise of its jurisdiction under Article 226 of the Constitution.'Core Principles Established: The judgment reinforces the principle that High Courts should not interfere with the CIRP under the IBC, except under circumstances clearly justified by law. It also underscores the importance of procedural fairness and the necessity of issuing notice to affected parties.Final Determinations on Each Issue: The Supreme Court allowed the appeal, setting aside the High Court's order to defer the CIRP. The Court emphasized adherence to the legal framework established by the IBC and the principles of natural justice.