Supreme Court clarifies the scope of High Court’s intervention in personal insolvency proceedings under IBC: Bank of Baroda vs. Farooq Ali Khan (20 February 2025)

Date of the Judgment: 20 February 2025

Citation: 2025 INSC 253

Judges: Pamidighantam Sri Narasimha, J., Manoj Misra, J.

Can a High Court interfere with personal insolvency proceedings initiated under Section 95 of the Insolvency and Bankruptcy Code (IBC) by claiming a waiver of liability? The Supreme Court addressed this critical question in the case of Bank of Baroda vs. Farooq Ali Khan. The court clarified the extent to which High Courts can use their powers under Article 226 of the Constitution to halt such proceedings. The Supreme Court set aside the High Court’s order, emphasizing that the statutory process under the IBC should be allowed to take its course. The judgment was delivered by a two-judge bench comprising Justice Pamidighantam Sri Narasimha and Justice Manoj Misra.

Case Background

The case revolves around Farooq Ali Khan (Respondent No. 1), a promoter and director of Associate Décor Limited. The corporate debtor, Associate Décor Limited, had taken various loans from Bank of Baroda (the appellant) and other banks (Respondent Nos. 3 and 4) starting in 2010. On 10 July 2014, Respondent No. 1 entered into a deed of guarantee to secure these loans.

Due to defaults in payments by the corporate debtor, the appellant initiated Corporate Insolvency Resolution Proceedings (CIRP) against it. Subsequently, the appellant issued a demand notice dated 11 August 2020, invoking the deed of personal guarantee and demanding Rs. 244 crores from Respondent No. 1 and other guarantors. In response, on 14 December 2020, Respondent No. 1 and the other guarantors offered Rs. 25 crores as a full and final settlement.

Following this, on 22 February 2021, the appellant issued a 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. Subsequently, 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 Respondent No. 1.

Timeline

Course of Proceedings

The Adjudicating Authority, on 16 February 2024, appointed a resolution professional to examine the application and submit a report as required by Section 99 of the IBC. Respondent No. 1 raised objections regarding limitation and the validity of the personal guarantee. The Adjudicating Authority, relying on the Supreme Court’s judgment in Dilip B. Jiwrajka v. Union of India, stated that these objections would be considered after the resolution professional submitted the report and Respondent No. 1 responded to it.

Aggrieved by this order, Respondent No. 1 filed a writ petition before the High Court under Article 226 of the Constitution, seeking to prevent the Adjudicating Authority from proceeding with the personal insolvency petition. The primary ground for the petition was that Respondent No. 1’s liability as a personal guarantor had been waived and discharged. The High Court allowed the writ petition, holding that the personal insolvency proceedings were not maintainable because Respondent No. 1’s liability as a guarantor had been waived. The High Court examined documents related to the guarantee and loans to reach this conclusion and distinguished the Jiwrajka case, stating that it did not involve an application that was not maintainable before the Adjudicating Authority.

Legal Framework

The legal framework relevant to this case includes the following provisions of the Insolvency and Bankruptcy Code, 2016 (IBC):

• Section 95 of the IBC: Allows a creditor to apply to the Adjudicating Authority for initiating insolvency resolution process.
• Section 97 of the IBC: Provides for the appointment of a resolution professional by the Adjudicating Authority upon receiving an application under Section 94 or 95.
• Section 99 of the IBC: Outlines the duties of the resolution professional to examine the application and submit a report to the Adjudicating Authority, recommending the admission or rejection of the application.
• Section 100 of the IBC: Specifies that the Adjudicating Authority will determine whether to admit or reject the application for initiating insolvency after the submission of the resolution professional’s report.

Additionally, Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, is relevant as it prescribes the procedure for filing an application for initiating the insolvency resolution process for personal guarantors to corporate debtors.

Arguments

Appellant’s Arguments (Bank of Baroda):

• The High Court should not have interfered with the statutory mechanism under the IBC.
• The High Court erred in making a finding on the existence of the debt, which is a mixed question of law and fact that falls within the Adjudicating Authority’s domain under Section 100 of the IBC.
• The appointment of a resolution professional is statutorily mandated under Section 97 of the IBC, and the Adjudicating Authority correctly followed the procedure under Sections 95 to 100 of the IBC.

Respondent’s Arguments (Farooq Ali Khan):

• His liability as a personal guarantor stood waived and discharged.
• The High Court was justified in intervening because the application before the Adjudicating Authority was not maintainable.

Issues Framed by the Supreme Court

1. Whether the High Court correctly exercised its writ jurisdiction to interdict the personal insolvency proceedings under the IBC against Respondent No. 1.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

• Dilip B. Jiwrajka v. Union of India, (2024) 5 SCC 435 (Supreme Court of India): This case was relied upon by the Adjudicating Authority to state that objections regarding limitation and waiver of guarantee would be considered after the resolution professional’s report. The Supreme Court in the present case affirmed the principles laid down in Jiwrajka, particularly regarding the roles of the resolution professional and the Adjudicating Authority.
• Thansingh Nathmal v. Superintendent of Taxes, Dhubri, AIR 1964 SC 1419 (Supreme Court of India): Cited to emphasize that High Courts should not substitute themselves as decision-making authorities when statutory tribunals are constituted to adjudicate questions of law and fact.
• United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 (Supreme Court of India): Cited for the same principle as Thansingh Nathmal, regarding the limits of judicial review when statutory tribunals exist.
• Commissioner of Income Tax v. Chhabil Dass Agarwal, (2014) 1 SCC 603 (Supreme Court of India): Cited to reinforce the principle that High Courts should not interfere with the decisions of statutory tribunals.
• South Indian Bank Ltd v. Naveen Mathew Philip, 2023 SCC OnLine SC 435 (Supreme Court of India): Cited to reiterate the limitations on High Courts’ exercise of judicial review when statutory remedies are available.
• Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1 (Supreme Court of India): Cited regarding the scope of judicial review of High Courts.
• Harbanslal Sahnia v. Indian Oil Corporation Ltd, (2003) 2 SCC 107 (Supreme Court of India): Cited to discuss the limits and restraints on the exercise of constitutional court powers.
• Union of India v. V.N. Singh, (2010) 5 SCC 579 (Supreme Court of India): Cited to support the view that High Courts should not interdict proceedings under a statute.
• Executive Engineer Southern Electricity Supply Company of Orissa Ltd. v. Seetaram Rice Mill, (2012) 2 SCC 108 (Supreme Court of India): Cited to reinforce the principle against interdicting statutory proceedings.
• Radha Krishan Industries v. State of Himachal Pradesh, (2021) 6 SCC 771 (Supreme Court of India): Cited to emphasize the need for restraint in exercising judicial review.
• Mohammed Enterprises (Tanzania) Ltd v. Farooq Ali Khan, 2025 SCC OnLine SC 23 (Supreme Court of India): Cited to highlight that the IBC is a complete code with sufficient checks and balances, and High Courts should not interdict CIRP proceedings under the IBC.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Dilip B. Jiwrajka v. Union of India, (2024) 5 SCC 435: The Court affirmed the principles laid down in this case, particularly regarding the roles of the resolution professional and the Adjudicating Authority.
• Thansingh Nathmal v. Superintendent of Taxes, Dhubri, AIR 1964 SC 1419: The Court cited this case to emphasize that High Courts should not substitute themselves as decision-making authorities when statutory tribunals are constituted.
• United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110: The Court cited this case for the same principle as Thansingh Nathmal.
• Commissioner of Income Tax v. Chhabil Dass Agarwal, (2014) 1 SCC 603: The Court cited this case to reinforce the principle that High Courts should not interfere with the decisions of statutory tribunals.
• South Indian Bank Ltd v. Naveen Mathew Philip, 2023 SCC OnLine SC 435: The Court cited this case to reiterate the limitations on High Courts’ exercise of judicial review when statutory remedies are available.
• Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1: The Court cited this case regarding the scope of judicial review of High Courts.
• Harbanslal Sahnia v. Indian Oil Corporation Ltd, (2003) 2 SCC 107: The Court cited this case to discuss the limits and restraints on the exercise of constitutional court powers.
• Union of India v. V.N. Singh, (2010) 5 SCC 579: The Court cited this case to support the view that High Courts should not interdict proceedings under a statute.
• Executive Engineer Southern Electricity Supply Company of Orissa Ltd. v. Seetaram Rice Mill, (2012) 2 SCC 108: The Court cited this case to reinforce the principle against interdicting statutory proceedings.
• Radha Krishan Industries v. State of Himachal Pradesh, (2021) 6 SCC 771: The Court cited this case to emphasize the need for restraint in exercising judicial review.
• Mohammed Enterprises (Tanzania) Ltd v. Farooq Ali Khan, 2025 SCC OnLine SC 23: The Court cited this case to highlight that the IBC is a complete code with sufficient checks and balances, and High Courts should not interdict CIRP proceedings under the IBC.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to adhere to the statutory framework established by the Insolvency and Bankruptcy Code (IBC). The Court emphasized that the High Court’s intervention was premature, as it precluded the Adjudicating Authority from performing its statutory functions under Section 100 of the IBC. The Court also highlighted the importance of allowing the resolution professional to conduct an examination and submit a report, as mandated by Section 99 of the IBC.

The Court’s reasoning reflects a strong adherence to the principles of statutory interpretation and the need to respect the roles and responsibilities of specialized tribunals. The decision also underscores the importance of maintaining a balance between judicial review and the efficient functioning of statutory mechanisms designed for resolving specific types of disputes.

Fact:Law Ratio

In the case of Bank of Baroda v. Farooq Ali Khan, the Supreme Court’s decision was significantly influenced by legal considerations, which accounted for 70% of the decision-making process. These considerations primarily involved interpreting the statutory framework of the Insolvency and Bankruptcy Code (IBC) and determining the appropriate scope of judicial review by the High Court. The Court focused on ensuring that the procedures and roles outlined in the IBC were strictly followed, emphasizing the importance of specialized tribunals in resolving insolvency disputes.

Factual aspects, such as the specifics of the debt and guarantee agreements, played a secondary role, accounting for 30% of the decision. While the Court acknowledged the factual background of the case, its emphasis was on the legal principles governing the intervention of High Courts in ongoing insolvency proceedings. This indicates that the Court prioritized maintaining the integrity of the legal framework and the intended processes of the IBC over a detailed examination of the case’s specific facts.

Key Takeaways

• High Courts should exercise restraint when considering intervention in ongoing insolvency proceedings under the IBC.
• The statutory process under the IBC, including the role of the resolution professional and the Adjudicating Authority, should be allowed to take its course without premature interference.
• Findings on the existence of debt and waiver of guarantee should be made by the Adjudicating Authority, not the High Court, during the initial stages of insolvency proceedings.

Development of Law

The ratio decidendi of this case is that High Courts should not interdict personal insolvency proceedings under the IBC at a preliminary stage, especially before the Adjudicating Authority has had the opportunity to consider the resolution professional’s report and make a determination under Section 100 of the IBC. This decision reinforces the importance of adhering to the statutory framework of the IBC and respecting the roles of the resolution professional and the Adjudicating Authority.

Conclusion

In Bank of Baroda v. Farooq Ali Khan, the Supreme Court set aside the High Court’s order that had interdicted personal insolvency proceedings against Respondent No. 1. The Court clarified that High Courts should not prematurely interfere with the statutory process under the IBC and should allow the Adjudicating Authority to perform its functions as intended by the Code. This decision reinforces the integrity of the IBC framework and ensures that specialized tribunals are allowed to operate within their designated roles.