IBC Is A Complete Code in Itself, Having Sufficient Checks & Balances: SC Sets Aside Karnataka HC Order In Writ Petition Interdicting Corporate Insolvency Process

The appeals before the Apex Court were filed under Article 136 of the Constitution challenging the judgment of the Karnataka High Court exercising power of judicial review interdicting the Corporate Insolvency Process which culminated in the acceptance of a resolution plan by the Committee of Creditors.

The Division Bench comprising Justice Pamidighantam Sri Narasimha & Justice Manoj Misra clarified, “Adherence of protocols and procedures maintains legal discipline and preserves the balance between the need for order and the quest for justice.”

AOR Divyanshu Rai represented the Appellant while Senior Advocate Shyam Divan represented the Respondents

In this batch of matters, there were three appeals, one by the successful resolution applicant METL (Mohammed Enterprises (Tanzania) Ltd), the other by the Bank comprising the Committee of Creditors, and the third appeal by the Resolution Professional appointed by the adjudicating authority to conduct CIRP against Associate Decor Ltd (Corporate Debtor).

The facts of the case that gave rise to the filing of the appeal were that the Corporate Insolvency Resolution Proceedings were admitted against the corporate debtor at the instance of Oriental Bank of Commerce (financial creditor) in the year 2018. Upon the resolution professional issuing the Information Memorandum under Section 29, his client submitted his expression of interest. The resolution professional was said to have issued notice to the suspended directors of the corporate debtor in 2020, including respondent no.1, that the meeting would be held.

While the appellant contended that the second adjourned 19th COC meeting was convened after notice to all, the Counsel for the respondent submitted that no such notice was ever received by his client. The resolution plan was approved by the COC through e-voting.The appellants’ plan was approved and the resettlement proposal submitted by respondent no.1 was rejected.

This decision of the COC led to the declaring of appellant as the successful resolution applicant unanimously by 100% voting share of the CoC. In the meanwhile, there were certain proceedings initiated by yet another company whose request for filing a resolution plan was rejected, leading to the said company filing an interlocutory application before the Adjudicating Authority seeking directions to the COC to reconsider the resolution plan. The Adjudicating Authority's decision to place the resolution plan for reconsideration by the CoC was appealed to the NCLAT. The appellant submitted that respondent no.1, the suspended director of the corporate debtor also filed an interlocutory application before the NCLAT seeking rejection of the resolution plan of the applicant.

The NCLAT set aside the directions of the Adjudicating Authority. Even the appeal filed by another Company against the order of the NCLAT came to be dismissed. Thereafter, the first respondent approached the High Court. The High Court finally allowed the writ petition whereby the appellant’s resolution plan was set aside primarily on the ground that principles of natural justice are violated as 24 hours’ notice was not granted.

The Bench rejected the argument of the Respondent there was no delay in approaching the High Court. The CIRP proceedings commenced in 2018. The justification for the High Court to assume jurisdiction on the ground that principles of natural justice were violated, when respondent no.1 was not given a notice before the 19th COC meeting, occurred way back in 2020 but the jurisdiction of the High Court was invoked only in 2023. The time gap between these 2 events was of almost 3 years.

Referring to its judgment in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) wherein the jurisdiction and power of the Adjudicating Authority under Section 60(5)(c) has been reiterated, the Court further highlighted that in Committee of Creditors of KSK Mahanadi Power Company Ltd. v. M/s Uttar Pradesh Power Corporation Ltd (1998), it has been observed that an unjustified interference with the proceedings initiated under the Insolvency and Bankruptcy Code 2016, breaches the discipline of law.

“In view of the delay in approaching the High Court, particularly when respondent no.1 himself has initiated proceedings under the Code by filing interlocutory applications seeking similar relief, we are of the opinion that the High Court committed an error in entertaining the writ petition”, it said while also adding,“Apart from delay and laches, 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”, it added.

The Bench further held, “The supervisory and judicial review powers vested in High Courts represent critical constitutional safeguards, yet their exercise demands rigorous scrutiny and judicious application. This is certainly not a case for the High Court to interdict CIRP proceedings under the Insolvency and Bankruptcy Code. “

Thus, allowing these appeals and setting aside the final judgment of the High Court, the Bench directed the Adjudicating Authority to commence the proceedings from where it was interdicted by the High Court and complete the same as expeditiously as possible.

Cause Title: Mohammed Enterprises (Tanzania) Ltd. v. Farooq Ali Khan & Ors. (Neutral Citation: 2025 INSC 25)

Appearance:

Appellant: AOR Divyanshu Rai , M/S. Khaitan & Co., Advocates Aseem Chaturvedi, Vishnu Shriram, Arpit Kumar Singh, Keith Varghese, Phalguni Nigam, Solicitor General Tushar Mehta, Advocates Madhav Kanoria, Srideepa Bhattacharyya, Neha Shivhare, Sumit Attri, M/S. Cyril Amarchand Mangaldas

Respondents: Senior Advocates Shyam Divan, Shyam Mehta, AOR Divyanshu Rai, Advocates Pb Suresh, Sivaramakrishnanm, Shivam Singh, Ishwar Singh, Varad Kilor, Vinay N Kumar, Shaurya R Rai, AOR Gopal Singh, Solicitor General Tushar Mehta, Advocates Madhav Kanoria, Srideepa Bhattacharyya, Neha Shivhare, Sumit Attri, M/S. Cyril Amarchand Mangaldas, M/S. Khaitan & Co.

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