2025 INSC 253
SUPREME COURT OF INDIA
(HON’BLE
PAMIDIGHANTAM SRI NARASIMHA, J. AND HON’BLE MANOJ MISRA, JJ.)
BANK OF BARODA
Petitioner
VERSUS
FAROOQ ALI KHAN
Respondent
Civil
Appeal No. 2759 Of 2025 Arising Out Of Slp (C) No. 18062 OF 2024-Decided on
20-02-2025
Civil
Insolvency and
Bankruptcy Code, 2016, Section 95 – Insolvency and Bankruptcy (Application to
Adjudicating Authority for Insolvency Resolution Process for Personal
Guarantors to Corporate Debtors) Rules, 2019, Form B under Rule 7(1) - Personal insolvency proceedings – Judicial
review -
Adjudicating Authority, by its order dated 16.02.2024, has followed the
procedure envisaged under Sections 95 to 100 of the IBC - It specifically
observed that respondent no. 1’s objections regarding limitation and waiver of
the guarantee will be considered once the resolution professional submits his
report – Held that this is the correct approach as the appointment of a
resolution professional, at the very threshold, is statutorily mandated
under Section 97 of the IBC - 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 - High Court incorrectly exercised
its writ jurisdiction as: first, it precluded the statutory mechanism and
procedure under the IBC from taking its course, and second, to do so, the High
Court arrived at a finding regarding the existence of the debt, which is a
mixed question of law and fact that is within the domain of the
Adjudicating Authority under Section 100 of the IBC - Entire rationale behind
appointing a resolution professional under Section 97 is to facilitate this
determination by the Adjudicating Authority - High Court ought not to have
interdicted the proceedings under impugned order - Consequently, the
appellant’s application restored to the record of the National Company Law
Tribunal and it shall proceed from the stage of passing of the order dated
16.02.2024
(Para
9, 10, 12 and 14)
JUDGMENT
Pamidighantam Sri
Narasimha, J. :-
Leave granted.
2.
The question for our consideration is whether the High Court could have
justifiably invoked 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 [Hereinafter ‘IBC’.] by holding that his
liability as a debtor has been waived. The High Court jurisdiction was invoked
against the order of the Adjudicating Authority dated 16.02.2024
appointing a resolution professional and directing him to examine the
application under Section 95 and file a report under Section 99 of the IBC.
Having considered the facts, legal submissions, and for the reasons to follow,
we set aside the judgment and order passed by the High Court and restore the
proceedings before the Adjudicatory Authority from the time of its order dated
16.02.2024 directing the resolution professional to submit a report as provided
under Section 99 of the IBC.
3.
The relevant facts are that respondent no. 1 was a promoter and director of one
Associate Décor Limited [Hereinafter
‘corporate debtor’.]. While corporate insolvency resolution proceeding[Hereinafter ‘CIRP’.] has been initiated
against the corporate debtor as well, this is not the subject matter of the
present appeal, which is restricted to the personal insolvency proceedings
against respondent no. 1. Commencing from 2010, the corporate debtor took
various loans from the appellant and respondent nos. 3 and 4, who are a
consortium of banks. Respondent no. 1 entered into a deed of guarantee for
securing these loans on 10.07.2014. Due to default in payments by the corporate
debtor, and after initiation of CIRP against it, the appellant issued a demand
notice dated 11.08.2020 and invoked the deed of personal guarantee calling upon
respondent no. 1 and other guarantors to pay an amount of Rs. 244 crores.
However, by letter dated 14.12.2020, respondent no. 1 and other guarantors
offered Rs. 25 crores as full and final settlement.
4.
After issuing a Demand Notice in Form B under Rule 7(1) of the Insolvency and
Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution
Process for Personal Guarantors to Corporate Debtors) Rules, 2019[Hereinafter ‘Rules’.] on 22.02.2021,
the appellant filed an application under Section 95(1) of the IBC read with
Rule 7(2) of the Rules to initiate personal insolvency proceedings against
respondent no. 1.
5.
The Adjudicating Authority, by order dated 16.02.2024, appointed a resolution
professional and directed him to examine the application and submit his report
as provided in Section 99 of the IBC for approval or rejection of the
application. On objections raised by respondent no. 1 on limitation and the
validity and existence of the personal guarantee, the Adjudicating Authority,
relying on the judgment of this Court in Dilip B. Jiwrajka v. Union of India [(2024) 5 SCC 435.], stated that “the
issue/objections raised by the Ld. Counsel for the Personal Guarantor will be
considered after the submission
of the report by the Resolution Professional and response of the Personal
Guarantor on the same”.
6.
Respondent no. 1 preferred a writ petition before the High Court
under Article 226 of the Constitution to prohibit the Adjudicating
Authority from entertaining the personal insolvency petition against him,
primarily on the ground that his liability as a personal guarantor stood waived
and discharged. The High Court, vide the order impugned before us, allowed the
writ petition and held that the personal insolvency proceedings are not
maintainable as respondent no. 1’s liability as a guarantor had stood waived.
In order to arrive at this finding, the High Court examined various documents
pertaining to the guarantee and the loans. It further held that this Court in
Jiwrajka (supra) was not considering an application that was not maintainable
before the Adjudicating Authority, and thereby distinguished the same. Pursuant
to the impugned order passed by the High Court, the Adjudicating Authority
disposed of the insolvency proceedings against respondent no. 1 by order dated
19.06.2024.
7.
We have heard Mr. Tushar Mehta, learned Solicitor General for the appellant and
Mr. Shyam Mehta, learned senior counsel for respondent no. 1 in detail.
8.
The simple question for our consideration is whether the High Court correctly
exercised its writ jurisdiction to interdict the personal insolvency
proceedings under the IBC against respondent no. 1. It is necessary to
appreciate the statutory scheme regarding the admission of an application for
initiating personal insolvency under Part III, Chapter III of the IBC. This
Court in Jiwrajka (supra), 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. [Jiwrajka
(supra), para 50.] Under Part III, Chapter III, the resolution professional
performs a facilitative role of collating information, as provided under Section
99 of the IBC, in which the resolution professional examines the application,
determines whether the debt has been repaid, and submits a report to the
Adjudicating Authority recommending the admission or rejection of the
application. [Ibid, paras 54 and 55.]
It is only after the submission of this report that the Adjudicating
Authority’s adjudicatory functions commence under Section 100. At this stage,
the Adjudicating Authority determines whether to admit or reject the
application for initiating insolvency. [ibid,
paras 60 and 74.] These principles have been summarized as follows:
“86.1. No judicial
adjudication is involved at the stages envisaged in Section 95 to Section 99
IBC;
[…] 86.3. The
submission that a hearing should be conducted by the adjudicatory authority for
the purpose of determining “jurisdictional facts” at the stage when it appoints
a resolution professional under Section 97(5) IBC is rejected. No such
adjudicatory function is contemplated at that stage. To read in such a
requirement at that stage would be to rewrite the statute which is
impermissible in the exercise of judicial review;
[…] 86.6. No judicial
determination takes place until the adjudicating authority decides under
Section 100 whether to accept or reject the application. The report of the
resolution professional is only recommendatory in nature and hence does not
bind the adjudicatory authority when it exercises its jurisdiction under
Section 100.”
9.
The Adjudicating Authority, by its order dated 16.02.2024, has followed the
procedure envisaged under Sections 95 to 100 of the IBC, and has also relied on
the afore-stated principles in Jiwrajka (supra). It specifically observed that
respondent no. 1’s objections regarding limitation and waiver of the guarantee
will be considered once the resolution professional submits his report. This is
the correct approach as the appointment of a resolution professional, at
the very threshold, is statutorily mandated under Section 97 of the IBC. As has
been held by this Court in Jiwrajka (supra), 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[ibid, paras 72, 86.1 and
86.3.]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. [ibid, para 74.]
10.
In light of this statutory scheme, which has been followed by the Adjudicating
Authority, we are of the view that the High Court incorrectly exercised its
writ jurisdiction as: first, it precluded the statutory mechanism and procedure
under the IBC from taking its course, and second, to do so, the High Court
arrived at a finding regarding the existence of the debt, which is a mixed
question of law and fact that is within the domain of the Adjudicating
Authority under Section 100 of the IBC. [ibid.]
11.
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. [Thansingh Nathmal v.
Superintendent of Taxes, Dhubri, AIR 1964 SC 1419, para 7; United Bank of
India v. Satyawati Tondon, (2010) 8 SCC 110, paras 43, 45; Commissioner of
Income Tax v. Chhabil Dass Agarwal, (2014) 1 SCC 603, para 15; South
Indian Bank Ltd v. Naveen Mathew Philip, 2023 SCC OnLine SC 435, para
14.] 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.
12.
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 [Whirlpool
Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1, para
15; Harbanslal Sahnia v. Indian Oil Corporation Ltd, (2003) 2 SCC 107,
para 7.] the primary issues involved in the present case, including the
factual determination of whether the debt exists, is part of the statutory and
regulatory regime of the Insolvency and Bankruptcy Code. In fact, the
entire rationale behind appointing a resolution professional under Section 97
is to facilitate this determination by the Adjudicating Authority. The High
Court ought not to have interdicted the proceedings under the statute and
assumed what it did while exercising jurisdiction under Article
226 of the Constitution.
[See Union of India v. V.N. Singh, (2010) 5 SCC 579; Executive Engineer
Southern Electricity Supply Company of Orissa Ltd. v. Seetaram Rice Mill, (2012)
2 SCC 108, para 80; Radha Krishan Industries v. State of Himachal Pradesh,
(2021) 6 SCC 771, para 27.6.] In this view of the matter, we are of the
opinion that 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.
13.
In Mohammed Enterprises (Tanzania) Ltd v. Farooq Ali Khan, [2025 SCC OnLine SC 23.] while setting aside the judgment of the
same High Court interfering with the CIRP proceedings against the same
corporate debtor, we expressed the same principle in the following terms:
“15…High Court should
have noted that Insolvency and Bankruptcy Code is a complete code in itself,
having sufficient checks and balances, remedial avenues and appeals. Adherence
of protocols and procedures maintains legal discipline and preserves the
balance between the need for order and the quest for justice. The supervisory
and judicial review powers vested in High Courts represent critical
constitutional safeguards, yet their exercise demands rigorous scrutiny and
judicious application. This is certainly not a case for the High Court to
interdict CIRP proceedings under the Insolvency and Bankruptcy Code.”
14.
In view of the above reasons, we allow the present appeal and set aside the
impugned order dated 28.05.2024 by the Karnataka High Court in Writ Petition
No. 6288/2024 (GM-RES). Consequently, the appellant’s application in C.P.(IB)
No. 139/BB/2022 is restored to the record of the National Company Law Tribunal,
Bengaluru, and it shall proceed from the stage of passing of the order dated
16.02.2024. Considering the fact that the matter has been pending since 2021,
we request the Tribunal to decide the same as expeditiously as possible.
15.
No order as to costs.
16.
Pending applications, if any, disposed of.
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