Whether you can invoke writ jurisdiction of the High Court under Article 226 of the Indian Constitution to interdict personal insolvency?

 Whether you can invoke writ jurisdiction of the High Court under Article 226 of the Indian Constitution to interdict personal insolvency?

 

This question arose before the Hon’ble Supreme Court of India in the recent decision of Bank of Baroda v. Farooq Ali Khan & Ors. (dated 20.02.2025). Interestingly, in the said case the High Court’s jurisdiction was invoked against the order of the Adjudicating Authority appointing the Resolution Professional. In the said order it was also directed that the said Resolution Professional shall examine the application under Section 95 and file a report under Section 99 of the IBC. 

 

Let us understand the facts of the case:

 

R-1 in the said case was a promoter and director of one Associate Décor Limited (Corporate Debtor), and the present case was limited to the personal insolvency proceedings being initiated against R-1. Starting from 2010, the Corporate Debtor had taken loans from the Appellant and the Consortium of Banks (R-3 and R-4). R-1 had entered into a deed of guarantee for securing the loans availed by the CD. Thereafter, due to the default in payments by the Corporate Debtor, and after invocation of the CIRP against the CD, the Appellant had issued a demand notice and invoked the deed of personal guarantee calling upon the Respondent No.1 and the other guarantors to pay the amount of Rs. 244 crores, however, the R-1 and other guarantors offered Rs. 25 crores in full and final settlement. After issuance of the 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 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 R-1. The Adjudicating Authority appointed a Resolution Professional. 

 

R-1 filed a writ petition before the Hon’ble 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. HC allowed the writ petition and held that the personal insolvency proceedings are not maintainable. Further, the Adjudicating Authority also disposed of the insolvency proceedings. 

 

The process of personal insolvency: 

 

  1. 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 of IBC. 
  2. RP performs distinct functions under Part II (dealing with corporate insolvencies) and Part III (dealing with personal insolvencies) of the IBC.
  3. 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.
  4. Only after submission of this Report, the Adjudicating Authority’s functions commences under Sec. 100. 
  5. Now, the Adjudicating Authority determines whether to admit or reject the application for initiating insolvency.

 

The court observed that the existence of debt shall be first examined by the RP in the report and then judicially examined by the Adjudicating Authority when it decides whether to admit or reject the application. The Hon’ble SC held that in light of the scheme being followed by the Adjudicating Authority, the HC incorrectly exercised its writ jurisdiction, as: 

 

  1. As it precluded the statutory mechanism and procedure under the IBC from taking its course. 
  2. and 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 SC observed 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 HC exercised jurisdiction even prior to the submission of the RP’s report, thereby, precluding the authority from performing its functions under the IBC. 

 

The primary issue in the present case of whether the debt exists is part of the statutory and regulatory regime of the IBC and the HC ought not to have interfered with the proceedings under the statute and assumed what it did while exercising jurisdiction under Article 226 of the Constitution, the insolvency proceedings were restored by the Court. 

 

Read the entire case at- Supreme Court of India | India

Comments

Post a Comment

Popular posts from this blog

Conflict in contractual clauses while determining jurisdiction in case of trans-border arbitration.

Conflict in contractual clauses while determining jurisdiction in case of trans-border arbitration.  Recently, the Hon’ble Supreme Court of India in  Disortho S.A.S. v. Meril Life Sciences Private Limited , examined the vexed question of jurisdiction in case of trans-border arbitration. The said divergence emerges from the interaction between three distinct legal systems which come into play when a dispute occurs: (i) lex-contractus, the law governing the substantive contractual issues; (ii) lex arbitri, the law governing the arbitration agreement, and the performance of this agreement; and (iii) lex-fori, the law governing the procedural aspects of arbitration.    Let us first understand the facts of the case:  The petitioner is a company incorporated in Colombia and the respondent is a company incorporated in Gujarat, India. The petitioner and the respondent had executed an International Exclusive Distributor Agreement dated 16.05.2016 for distribution of medi...
Read more

Even Amazon will have to pay for the rogue conduct!

What if the electronic product you order from Amazon is defective?  What if in case of return there is delay in refund by Amazon? In an interesting decision delivered by the Hon'ble District Consumer Dispute Redressal Commission (East), Government of NCT of Dehi, the Court directed M/s Amazon Seller Services Private Limited and M/s Appario Retail Private Limited to pay compensation amounting to Rs. 35,000/- along with interest @ 7%, and Rs. 10,000 for the litigation costs to the complainant, for its deficient service and unfair trade practice that had caused mental agony, and harassment to the complainant. The complainant had purchased a laptop by placing an order on the Amazon website, the laptop was sold by M/s Appario Retail Private Limited. The laptop was defective, and was returned by the complainant, however, the refund was given after more than one year, which caused mental agony, harassment, inconvenience and torture to the complainant. The Hon'ble Court directed ...
Read more

Whether clause prohibiting payment of damages could be enforced?

  A Clause in the contract disentitling the Appellant from raising any claim for damages or compensation for failure or delay caused by the Respondent in fulfilling its obligations under the contract. Interestingly, in this case the Appellant had also given an undertaking that they shall not make any claim other than escalation because of the delay in completion for which the extension was sought and was also duly granted by the Respondent.    Whether such a clause prohibiting payment of damages could be enforced?    In a recent decision by the Hon'ble Supreme Court of India delivered on 31.01.2025 of  M/s. C & C Constructions Ltd.  v . Ircon International Limited  (CIVIL APPEAL NO. 6657 OF 2023), the Hon'ble Court, firstly, rejected the Appellant’s contention, wherein it had sought to challenge the validity of the above-mentioned clause in light the Section 23 and 28 of the Indian Contract Act as the said contention was never raised before th...
Read more