Supreme Court Disapproves Of High Court Interdicting Insolvency Process Against Personal Guarantor At Threshold Stage In Writ Jurisdiction

The Supreme Court while deciding an appeal pertaining to insolvency proceedings initiated against a personal guarantor, observed that the High Court should not have prohibited such proceedings by holding that the guarantor's liability has been waived. “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.,” the Bench of Justices P.S. NARASIMHA and Manoj Mishra observed. In the present case, the respondent was the director of a corporate debtor. The debtor took various loans from the appellant, and the respondent acted as his guarantor. Due to default in payments, personal insolvency proceedings were initiated against the respondent under Section 95 of the Insolvency and Bankruptcy Code. Subsequently, a Resolution Professional was appointed and was directed to examine the application and file a report under Section 99 of the Code. As per this provision, the Resolution Professional collates information and examines whether the debt has been repaid. Accordingly, a report recommending admission or rejection of the Section 95 application is filed. The Adjudicating Authority held that the objections raised by the Personal Guarantor will be considered after the submission of the report by the Resolution Professional. The respondent approached the High Court under Article 226 of the Constitution to interdict the insolvency proceedings. The same was allowed on the ground that his liability as a personal guarantor stood waived. Since the insolvency proceedings were disposed of against respondent No. 1, the appellant approached the present Court. At the outset, the Court after relying upon Dilip B. Jiwrajka v. Union of India, discussed the scheme of the Code. It observed that once the Adjudicating Authority appoints a Resolution Professional, a report is submitted by the professional. It is only after this stage that the Authority determines whether to admit or reject the application for initiating insolvency. Taking a cue from this, the Court highlighted that the same procedure was followed by the authority in this present case. “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.” It added that the Authority is not required to decide the issue regarding the 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 Court said. It added that the High Court had incorrectly exercised its writ jurisdiction. The Court said that the High Court prevented the prescribed procedure from taking its own course. Further, it also ruled regarding the existence of debt, which was within the domain of the authority. "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. “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 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.,” the Court said and concluded that the High Court ought not to have interdicted the proceedings under Article 226 of the Constitution.The bench also referred to the recent judgment in Mohammed Enterprises (Tanzania) Ltd v. Farooq Ali Khan which also disapproved of High Courts interfering with CIRP proceedings in exercise of writ jurisdiction. In view of this, the Court, while allowing the appeal, restored the appellant's application before the Adjudicating Authority. Noting that the matter has been pending since 2021, the Court also requested for the expeditious disposal.Solicitor General Tushar Mehta appeared for the appellant. Senior Advocate Shyam Mehta appeared for the respondent. Case Name: BANK OF BARODA v. FAROOQ ALI KHAN & ORS., CIVIL APPEAL NO. 2759/2025Citation : 2025 LiveLaw (SC) 234 Click here to read/...

Supreme Court Disapproves Of High Court Interdicting Insolvency Process Against Personal Guarantor At Threshold Stage In Writ Jurisdiction

Gyanvi Khanna

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