Kiran Raj

The Supreme Court of India has set aside a Karnataka High Court ruling that had halted personal insolvency proceedings against a corporate guarantor, holding that the High Court improperly exercised its writ jurisdiction under Article 226 of the Constitution. The apex court ruled that the adjudicatory process prescribed under the Insolvency and Bankruptcy Code, 2016 (IBC) must be allowed to take its course, and the High Court should not have intervened before the adjudicating authority had completed its statutory assessment. The Supreme Court restored the proceedings before the National Company Law Tribunal (NCLT), Bengaluru, and directed it to proceed from the stage at which it was previously halted.

The case arises from personal insolvency proceedings initiated by Bank of Baroda against respondent No.1, Farooq Ali Khan, under Section 95 of the IBC. The respondent had stood as a personal guarantor for loans taken by Associate Décor Limited, a corporate debtor, from a consortium of banks. The loans, starting in 2010, were secured through a personal guarantee deed executed on July 10, 2014. Following defaults by the corporate debtor, the appellant issued a demand notice on August 11, 2020, invoking the personal guarantee and demanding repayment of ₹244 crores from the respondent and other guarantors. The respondent later proposed a settlement of ₹25 crores as full and final payment.

Following the bank’s rejection of the settlement offer, a demand notice was issued 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. Subsequently, the appellant filed an application under Section 95(1) of the IBC to initiate personal insolvency proceedings.

On February 16, 2024, the Adjudicating Authority appointed a resolution professional and directed an examination of the application under Section 99 of the IBC. The respondent challenged this decision, arguing that his liability as a guarantor had been waived. The High Court, in its judgment, held that the personal insolvency proceedings were not maintainable and quashed the adjudication process, leading to the disposal of the case by the Adjudicating Authority.

A Supreme Court bench comprising Justice Pamidighantam Sri Narasimha and Justice Manoj Misra setaside the judgment of the the High Court. The court held: “The Adjudicating Authority, by its order dated 16.02.2024, has followed the procedure envisaged under Sections 95 to 100 of the IBC, and has also relied on the principles laid down in Jiwrajka (supra). 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.”

The court stated that the appointment of a resolution professional at the initial stage is a statutory requirement under Section 97 of the IBC, and the adjudicatory authority does not decide jurisdictional questions regarding the existence of the debt at this stage. The Supreme Court referenced Dilip B. Jiwrajka v. Union of India, (2024) 5 SCC 435, which established that “No judicial adjudication is involved at the stages envisaged in Section 95 to Section 99 IBC.”

The court further stated: “The existence of the debt will first be examined by the resolution professional in his report and will then be judicially examined by the Adjudicating Authority when it decides whether to admit or reject the application under Section 100.”

The judgment criticized the High Court’s intervention, noting that it precluded the statutory mechanism under the IBC from functioning properly. The court observed: “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 Supreme Court upheld the principle that High Courts must refrain from interfering in statutory processes unless there is a clear case of legal infirmity. It stated: “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. Adherence of protocols and procedures maintains legal discipline and preserves the balance between the need for order and the quest for justice.”

Accordingly, the Supreme Court allowed the appeal, set aside the Karnataka High Court’s judgment dated May 28, 2024, and restored the insolvency application before the NCLT, Bengaluru. The court further directed the Tribunal to expedite the proceedings in light of the prolonged delay.

Case Title: Bank of Baroda vs. Farooq Ali Khan & Ors.
Case Number: Civil Appeal No. 2759/2025; 2025 INSC 253
Bench: Justice Pamidighantam Sri Narasimha and Justice Manoj Misra

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