2025 (2) TMI 1021 - SC - IBC

Supreme Court overturns premature writ intervention in personal insolvency proceedings under Section 95 IBC 2016

BANK OF BARODA Versus FAROOQ ALI KHAN & ORS.

SC allowed appeal against HC's premature exercise of writ jurisdiction under Article 226 to interdict personal insolvency proceedings under Section 95 of ... Invocation of judicial review under Article 226 of the Constitution to interdict personal insolvency proceedings initiated against respondent no.1 under Section 95 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- This Court in Jiwrajka [2024 (1) TMI 33 - SUPREME COURT], while deciding the constitutional validity of Sections 95 to 100, has delved into the same and has held as follows. Pursuant to an application for initiating personal insolvency proceedings under Section 94 or Section 95, the Adjudicating Authority appoints a resolution professional under Section 97. The resolution professional performs distinct functions under Part II (dealing with corporate insolvencies) and Part III (dealing with personal insolvencies) of the IBC. As has been held by this Court in Jiwrajka [2024 (1) TMI 33 - SUPREME COURT], the Adjudicating Authority does not adjudicate any point at this stage and need not decide jurisdictional questions regarding existence of the debt before appointing the resolution professional. This is because Section 99 requires the resolution professional to, at the first instance, gather information and evidence regarding repayment of the debt, and ascertain whether the application satisfies the requirements of Section 94 or Section 95 of the IBC. The existence of the debt will first be examined by the resolution professional in his report, and will then be judicially examined by the Adjudicating Authority when it decides whether to admit or reject the application under Section 100. It is well-settled that when statutory tribunals are constituted to adjudicate and determine certain questions of law and fact, the High Courts do not substitute themselves as the decision-making authority while exercising judicial review - In the present case, the proceedings had not even reached the stage where the Adjudicatory Authority was required to make such determination. Rather, the High Court exercised jurisdiction even prior to the submission of the resolution professional’s report, thereby precluding the Adjudicating Authority from performing its adjudicatory function under the IBC. While there is no exclusion of power of judicial review of High Courts, and the limits and restraint that the constitutional court exercises and must exercise are well articulated - the High Court was not justified in allowing respondent no. 1’s writ petition. The High Court should have permitted the statutory process through the resolution professional and the Adjudicating Authority to take its course. Conclusion - The High Court's exercise of writ jurisdiction was incorrect as it interfered with the statutory process and made determinations that fell within the Adjudicating Authority's domain. Appeal allowed. The Supreme Court considered whether the High Court was justified in invoking judicial review under Article 226 of the Constitution to interdict personal insolvency proceedings against respondent no. 1 under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) based on the waiver of liability as a debtor. The High Court had allowed the writ petition, holding that the personal insolvency proceedings were not maintainable due to the waiver of liability. However, the Supreme Court set aside the High Court's judgment and restored the proceedings before the Adjudicatory Authority.The relevant facts involved respondent no. 1 being a promoter and director of a corporate debtor who had taken loans from the appellant and other banks. After default in payments, the appellant invoked the deed of personal guarantee, leading to the initiation of personal insolvency proceedings against respondent no. 1 under Section 95 of the IBC.The Adjudicating Authority appointed a resolution professional to examine the application and submit a report under Section 99 of the IBC. Respondent no. 1 raised objections regarding limitation and the validity of the personal guarantee. The Adjudicating Authority decided to consider these objections after the submission of the resolution professional's report, following the principles established in Dilip B. Jiwrajka v. Union of India.Respondent no. 1 filed a writ petition before the High Court, challenging the personal insolvency petition against him. The High Court allowed the writ petition, finding that the personal insolvency proceedings were not maintainable as the liability as a guarantor had been waived. The High Court's decision led to the disposal of the insolvency proceedings against respondent no. 1.The Supreme Court analyzed the statutory scheme under the IBC, emphasizing that the resolution professional's report is recommendatory and does not bind the Adjudicating Authority. The Court highlighted that the High Court's intervention precluded the statutory mechanism and the Adjudicating Authority's adjudicatory function under the IBC. The Court reiterated that statutory tribunals should determine questions of law and fact, and High Courts should not substitute themselves in such matters.The Supreme Court held that the High Court's exercise of writ jurisdiction was incorrect as it interfered with the statutory process and made determinations that fell within the Adjudicating Authority's domain. The Court emphasized the importance of following the statutory procedures under the IBC and allowing the resolution professional and Adjudicating Authority to carry out their functions.In conclusion, the Supreme Court allowed the appeal, setting aside the High Court's order and restoring the appellant's application before the National Company Law Tribunal. The Court requested the Tribunal to expedite the decision on the matter, considering its pending status since 2021. No costs were awarded, and pending applications were disposed of.