Case Note & Summary
The Supreme Court allowed an appeal against a Karnataka High Court order that had interdicted personal insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) against a personal guarantor. The respondent was a promoter and director of a corporate debtor that had taken loans from a consortium of banks including the appellant. The respondent executed a deed of guarantee on 10.07.2014. After the corporate debtor defaulted and corporate insolvency resolution process was initiated, the appellant issued a demand notice on 11.08.2020 invoking the personal guarantee for Rs. 244 crores. The respondent offered Rs. 25 crores as full and final settlement on 14.12.2020. The appellant filed an application under Section 95(1) IBC on 22.02.2021 to initiate personal insolvency proceedings. The Adjudicating Authority (NCLT) on 16.02.2024 appointed a resolution professional under Section 97 and directed him to examine the application and submit a report under Section 99, noting that objections regarding limitation and waiver would be considered after the report. The respondent filed a writ petition under Article 226 before the High Court, which allowed it on 28.05.2024, holding that the respondent's liability as guarantor stood waived and the proceedings were not maintainable. The Supreme Court framed the issue of whether the High Court correctly exercised writ jurisdiction. The Court examined the statutory scheme under Sections 95-100 IBC, noting that no judicial adjudication occurs until Section 100, and the resolution professional's role under Section 99 is facilitative. The Court held that the High Court erred by precluding the statutory mechanism and deciding the existence of debt, which is a mixed question of law and fact for the Adjudicating Authority. The Court set aside the High Court's order, restored the NCLT proceedings from the stage of the order dated 16.02.2024, and directed expeditious disposal.
Headnote
A) Constitutional Law - Judicial Review - Article 226 of the Constitution - Interference with Statutory Proceedings - High Court incorrectly exercised writ jurisdiction by precluding statutory mechanism under IBC and arriving at finding regarding existence of debt, which is a mixed question of law and fact within domain of Adjudicating Authority under Section 100 IBC - Held that High Court ought not to have interdicted proceedings under statute and assumed what it did while exercising jurisdiction under Article 226 (Paras 8-12).
B) Insolvency and Bankruptcy Code - Personal Insolvency - Sections 95, 97, 99, 100 IBC - Procedure for Admission - Adjudicating Authority appoints resolution professional under Section 97 who examines application and submits report under Section 99; no judicial adjudication occurs until Section 100 stage - Held that High Court should have permitted statutory process through resolution professional and Adjudicating Authority to take its course (Paras 8-9).
C) Insolvency and Bankruptcy Code - Personal Guarantee - Waiver of Liability - Determination of Debt - Existence of debt is first examined by resolution professional in report under Section 99, then judicially examined by Adjudicating Authority under Section 100 - Held that High Court erred in deciding waiver issue prematurely (Paras 9-10).
Issue of Consideration
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 by holding that his liability as a debtor has been waived.
Final Decision
Appeal allowed. Impugned order dated 28.05.2024 of Karnataka High Court in Writ Petition No. 6288/2024 (GM-RES) set aside. Appellant's application in C.P.(IB) No. 139/BB/2022 restored to NCLT, Bengaluru, to proceed from stage of order dated 16.02.2024. Tribunal requested to decide expeditiously. No order as to costs. Pending applications disposed of.
Law Points
- Judicial review under Article 226 should not interdict statutory proceedings under IBC before completion of mandated procedure
- Adjudicating Authority under IBC has exclusive jurisdiction to determine existence of debt at Section 100 stage
- High Court cannot substitute itself as decision-making authority in insolvency matters
Case Details
2025 LawText (SC) (2) 200
Civil Appeal arising out of SLP(C) No. 139/BB/2022 (as per restoration reference); Writ Petition No. 6288/2024 (GM-RES) in Karnataka High Court
Pamidighantam Sri Narasimha
Mr. Tushar Mehta (Solicitor General for appellant), Mr. Shyam Mehta (senior counsel for respondent no.1)
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Nature of Litigation
Appeal against High Court order interdicting personal insolvency proceedings under IBC
Remedy Sought
Appellant sought setting aside of High Court order and restoration of personal insolvency proceedings before NCLT
Filing Reason
High Court allowed writ petition holding that respondent's liability as personal guarantor stood waived, thereby precluding statutory proceedings under IBC
Previous Decisions
Adjudicating Authority (NCLT) on 16.02.2024 appointed resolution professional and directed report under Section 99; High Court on 28.05.2024 allowed writ petition and held proceedings not maintainable; NCLT disposed of proceedings on 19.06.2024 pursuant to High Court order
Issues
Whether the High Court correctly exercised writ jurisdiction under Article 226 to interdict personal insolvency proceedings under IBC before completion of statutory procedure?
Whether the High Court could decide the existence of debt and waiver of guarantee, which are mixed questions of law and fact within the domain of the Adjudicating Authority under Section 100 IBC?
Submissions/Arguments
Appellant (through Solicitor General): The High Court erred in precluding the statutory mechanism under IBC; the Adjudicating Authority had correctly followed the procedure under Sections 95-100; the High Court should not have decided the existence of debt at this stage.
Respondent no.1 (through senior counsel): The liability as personal guarantor stood waived and discharged; the application under Section 95 was not maintainable; the High Court correctly exercised its writ jurisdiction.
Ratio Decidendi
The High Court incorrectly exercised its writ jurisdiction under Article 226 by precluding the statutory mechanism under the IBC from taking its course and by arriving at a finding regarding the existence of the debt, which is a mixed question of law and fact within the domain of the Adjudicating Authority under Section 100 of the IBC. When statutory tribunals are constituted to adjudicate certain questions, High Courts should not substitute themselves as decision-making authority while exercising judicial review, especially before the statutory process has run its course.
Judgment Excerpts
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 by holding that his liability as a debtor has been waived.
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.
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.
Procedural History
Appellant filed application under Section 95(1) IBC on 22.02.2021 before NCLT. NCLT on 16.02.2024 appointed resolution professional under Section 97 and directed report under Section 99. Respondent filed writ petition under Article 226 before Karnataka High Court. High Court on 28.05.2024 allowed writ petition, holding proceedings not maintainable. NCLT on 19.06.2024 disposed of proceedings pursuant to High Court order. Appellant appealed to Supreme Court.
Acts & Sections
- Constitution of India: Article 226
- Insolvency and Bankruptcy Code, 2016: Sections 94, 95, 97, 99, 100
- Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019: Rule 7
