High Court incorrectly exercised writ jurisdiction to preclude statutory mechanism and procedure under IBC from taking its course –Supreme Court
In a recent judgment, the Hon’ble Supreme Court set aside the order of the High Court and held that it incorrectly exercised writ jurisdiction as it precluded the statutory mechanism and procedure under the IBC from taking its course.
ABCAUS Case Law Citation:
4420 (2025) (02) abcaus.in SC
Important Case Laws relied upon by Parties:
Dilip B. Jiwrajka v. Union of India
Mohammed Enterprises (Tanzania) Ltd v. Farooq Ali Khan
In the instant case, the appellant bank had challenged the order passed by the High Court interfering with personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 20161 by holding that liability of the respondent as a debtor had been waived.
The respondent was a promoter and director of one Limited Company. Corporate insolvency resolution proceeding had been initiated against the said company. The corporate debtor had taken various loans from the appellant bank and consortium of banks. The Respondent entered into a deed of guarantee for securing those loans. Due to default in payments by the corporate debtor, and after initiation of CIRP against it, the appellant issued a demand notice and invoked the deed of personal guarantee calling upon respondent and other guarantors to pay the amount of outstanding loan. However, by letter, respondent and other guarantors offered only approx. ten percent as full and final settlement.
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 the respondent.
The NCLT (Adjudicating Authority), 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 on limitation and the validity and existence of the personal guarantee, the Adjudicating Authority, relying on the judgment of Hon’ble Supreme Court stated that “the issue/objections raised by 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.
The Respondent 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, allowed the writ petition and held that the personal insolvency proceedings are not maintainable as respondent’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 distinguished the judgment of the Hon’ble Supreme Court relied upon by the Adjudicating Authority.
Pursuant to the impugned order passed by the High Court, the Adjudicating Authority disposed of the insolvency proceedings against respondent.
The question before the Hon’ble Supreme Court was whether the High Court correctly exercised its writ jurisdiction to interdict the personal insolvency proceedings under the IBC against respondent.
The Hon’ble Supreme Court opined 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.
The Hon’ble Supreme Court observed that 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 instant 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.
The Hon’ble Supreme Court further observed that 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 primary issues involved in the instant case, including the factual determination of whether the debt exists, is part of the statutory and regulatory regime of the Insolvency and Bankruptcy Code.
The Hon’ble Supreme Court further observed that 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.
The Hon’ble Supreme Court opined that the High Court was not justified in allowing respondent’s writ petition. The High Court should have permitted the statutory process through the resolution professional and the Adjudicating Authority to take its course.
Accordingly, the Supreme Court set aside the judgment and order passed by the High Court and restored the proceedings before the NCLT.
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