Supreme Court: Adjudicating Authority Need Not Decide Jurisdictional Questions Regarding Existence Of Debt Before Appointing RP U/S. 97 IBC
The Supreme Court set aside an Order of the Karnataka High Court where it invoked judicial review by quashing insolvency proceedings.
The Supreme Court observed that the Adjudicating Authority does not adjudicate any point at the stages envisaged in Section 95 to Section 99 of the IBC and need not decide jurisdictional questions regarding the existence of the debt before appointing the resolution professional under Section 97 IBC.
The Court set aside the Order of the Karnataka High Court where it invoked judicial review under Article 226 of the Constitution by quashing personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against a personal guarantor (Respondent). The Bench restored the Bank of Baroda’s (Appellant) Application before the National Company Law Tribunal (NCLT), allowing them to proceed from the stage of the resolution professional's (RP) appointment. It was held that a High Court cannot exercise its Writ jurisdiction to interdict personal insolvency proceedings regarding the existence of a debt under the IBC.
A Bench of Justice Pamidighantam Sri Narasimha and Justice Manoj Misra held 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.”
Solicitor General Tushar Mehta appeared for the Appellant, while Senior Advocate Shyam Mehta represented the Respondent.
Brief Facts
The Respondent had 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 had held that the personal insolvency proceedings were not maintainable as the Respondent’s liability as a guarantor had stood waived.
Court’s Reasoning
The Supreme Court emphasised that at the stage of appointing a resolution professional, no judicial adjudication of jurisdictional facts was required, as per its earlier ruling in Dilip B. Jiwrajka v. Union of India (2024).
The Bench explained that “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.”
“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 Court reiterated.
The Bench remarked, “In the present 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 Court clarified that while there is no exclusion of the power of judicial review of High Courts, the primary issues involved in the present case, including the factual determination of whether the debt exists, was part of the statutory and regulatory regime of the IBC.
Consequently, the Court held, “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 High Court should have permitted the statutory process through the resolution professional and the Adjudicating Authority to take its course.”
Accordingly, the Supreme Court allowed the Appeal.
Cause Title: Bank Of Baroda v. Farooq Ali Khan & Ors. (Neutral Citation: 2025 INSC 253)
Appearance:
Appellant: Advocates Mangaljit Mukherjee, Debarpita Basu Mukherjee, Dhirendra Kumar Verma, Deepak Raj Singh, Mohit Yadav and Aarti Pal; AOR Chand Qureshi
Respondent: Advocates Prerna Dhall, Karishma Rajput, Gopinadh MN, Shivam Ganeshia and Akanksha Singh; AOR Prashant Singh
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