Supreme Court Restores Statutory Personal Insolvency Process, Rules High Court Erred in Interdicting IBC Proceedings

A bench of Justices Pamidighantam Sri Narasimha and Manoj Misra heard an appeal against an order of the Karnataka High Court which had restrained personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC) by holding that the guarantor’s liability had been waived. The issue before the Court was whether the High Court could invoke writ jurisdiction under Article 226 to preclude statutory proceedings and decide the existence or waiver of a debt before the Adjudicating Authority followed the scheme of Sections 95–100 of the IBC.

The Court allowed the appeal, set aside the High Court order and restored the proceedings before the Adjudicating Authority from the stage of its order dated 16.02.2024, directing the resolution professional to submit a report under Section 99. The Court held that appointment of a resolution professional under Section 97 was mandatory and that no judicial adjudication was intended at the stages under Sections 95–99; the Adjudicating Authority’s adjudicatory function arose only when it decided under Section 100 whether to admit or reject the application. The Court, in its reasoning, observed: “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.” The Court further noted that the Adjudicating Authority had correctly observed 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.”

Background The dispute arose from a personal guarantee executed by respondent No.1 for loans taken by Associate Décor Limited from a consortium led by the appellant bank. Following default by the corporate debtor, the bank issued a demand notice and initiated personal insolvency proceedings under Section 95 read with the relevant Rules. The Adjudicating Authority appointed a resolution professional on 16.02.2024 to examine the application and file a report under Section 99. The guarantor challenged the process before the Karnataka High Court under Article 226, contending that his liability had been waived and that the personal insolvency petition was not maintainable. The High Court accepted that contention, held the guarantee to be waived, and directed disposal of the personal insolvency proceedings.

On appeal, the Supreme Court reviewed the statutory scheme of Part III, Chapter III of the IBC and followed this Court’s earlier pronouncement in Dilip B. Jiwrajka v. Union of India that Sections 95–99 did not contemplate judicial adjudication at the initial stages and that the resolution professional’s report was recommendatory. The Court held that the High Court had incorrectly exercised writ jurisdiction and had precluded the statutory mechanism by deciding a mixed question of law and fact before the Adjudicating Authority could adjudicate under Section 100. The Supreme Court allowed the appeal, set aside the High Court order dated 28.05.2024, restored C.P.(IB) No.139/BB/2022 to the NCLT record to proceed from the stage of the Adjudicating Authority’s order dated 16.02.2024, and requested the Tribunal to decide the matter expeditiously. No order as to costs was made.

Case No.: CIVIL APPEAL NO. 2759/2025 (Arising out of SLP (C) No. 18062 of 2024)
Case Title: Bank of Baroda v. Farooq Ali Khan & Ors.
Appearances:
For the Petitioner(s): Mr. Tushar Mehta, learned Solicitor General of India
For the Respondent(s): Mr. Shyam Mehta, learned Senior Counsel (for respondent no.1)