Supreme Court Upholds Resolution Plan, Limits High Court Interference in Insolvency Cases (2025)

Date of the Judgment: January 03, 2025

Citation: 2025 INSC 25

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

Can a High Court interfere with an ongoing corporate insolvency resolution process (CIRP)? The Supreme Court of India recently addressed this critical question, emphasizing the need for minimal judicial interference in insolvency matters. The court’s decision clarifies the boundaries of the High Court’s jurisdiction under Article 226 of the Constitution when dealing with matters already governed by the Insolvency and Bankruptcy Code, 2016. This judgment settles the question of whether the High Court can intervene in the CIRP process, especially after the Committee of Creditors (CoC) has approved a resolution plan. The bench comprised Justices Pamidighantam Sri Narasimha and Manoj Misra, with the majority opinion authored by Justice Pamidighantam Sri Narasimha.

Case Background

The case revolves around the Corporate Insolvency Resolution Process (CIRP) initiated against Associate Decor Ltd. The Oriental Bank of Commerce (now merged with Punjab National Bank), a financial creditor, triggered the CIRP on October 26, 2018. Following this, a resolution professional was appointed, and an Information Memorandum was issued on November 28, 2018, inviting interested parties to submit resolution plans.

Mohammed Enterprises (Tanzania) Ltd. (METL) submitted an expression of interest and participated in multiple meetings of the Committee of Creditors (CoC). After several deliberations, METL’s resolution plan was approved by the CoC on February 11, 2020, with 100% voting share. Simultaneously, a settlement proposal from one of the suspended directors of the corporate debtor, Farooq Ali Khan, was rejected by the CoC.

Subsequently, another company, Swamitva, whose resolution plan was rejected, filed an application before the Adjudicating Authority (NCLT) seeking reconsideration of the resolution plan. The NCLT ordered the CoC to reconsider the plan, but this decision was overturned by the National Company Law Appellate Tribunal (NCLAT) on September 19, 2022. An appeal by Swamitva to the Supreme Court was also dismissed on November 25, 2022.

Farooq Ali Khan then approached the High Court of Karnataka, challenging the CoC’s decision of February 11, 2020, and seeking acceptance of his settlement proposal. The High Court initially granted a stay order and eventually set aside METL’s resolution plan on April 22, 2024, citing a violation of natural justice due to insufficient notice. This decision was appealed before the Supreme Court.

Timeline

Course of Proceedings

The Adjudicating Authority (NCLT) initially directed the Committee of Creditors (CoC) to reconsider the resolution plan after an application by Swamitva. This decision was appealed to the NCLAT, which set aside the NCLT’s order. The NCLAT’s order was further challenged before the Supreme Court, which dismissed the appeal. Subsequently, the High Court of Karnataka entertained a writ petition filed by Farooq Ali Khan, a suspended director of the corporate debtor, and set aside the resolution plan approved by the CoC. The High Court’s decision was based on the ground that the principles of natural justice were violated due to inadequate notice to the suspended director before the 19th CoC meeting. The High Court’s decision was then appealed to the Supreme Court.

Legal Framework

The judgment primarily deals with the interpretation of the Insolvency and Bankruptcy Code, 2016 (IBC). Specifically, it touches upon:

• Section 29 of the IBC: This section deals with the preparation of the Information Memorandum by the resolution professional, which is a crucial document for potential resolution applicants.
• Section 12(A) of the IBC: This section allows for the withdrawal of a CIRP application with the approval of 90% of the voting share of the committee of creditors.
• Section 60(5)(c) of the IBC: This section defines the jurisdiction of the Adjudicating Authority (NCLT) in relation to matters under the IBC.
• Regulation 19 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016: This regulation pertains to the procedure for conducting the CIRP.

The Court also considered the scope of Article 226 of the Constitution, which empowers High Courts to issue writs for the enforcement of fundamental rights and for any other purpose.

Arguments

Arguments by the Appellant (METL, Banks, and Resolution Professional):

• The High Court should not have interfered with the CIRP under Article 226 of the Constitution, especially when the Insolvency and Bankruptcy Code, 2016 (IBC) provides a complete mechanism for dispute resolution.

• The High Court’s intervention breached the discipline of alternate remedy as contemplated under the IBC.

• The resolution plan was approved by the CoC after due process, and there was no violation of natural justice.

• The suspended director’s claim of not receiving notice for the 19th CoC meeting is not valid as notice was duly sent.

• The High Court should not have entertained the writ petition due to the significant delay in filing it.

Arguments by the Respondent (Farooq Ali Khan, Suspended Director):

• The writ petition under Article 226 is maintainable, especially when there is a violation of the principles of natural justice.

• The respondent was not given proper notice of the 19th CoC meeting, which led to the approval of the resolution plan, thereby violating principles of natural justice.

• The offer made by the resolution applicant is much inferior to the proposal made by the respondent under Section 12(A) of the IBC.

• There was no delay in filing the writ petition, as the contest raised by Swamitva Consortium was pending.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:

1. Whether the High Court was justified in exercising its jurisdiction under Article 226 of the Constitution to interfere with the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court relied on the following authorities:

Judgment

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

How each authority was viewed by the Court?

• The Court relied on Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar [(2020) 8 SCC 531]* and Gujarat Urja Vikas Nigam Limited v. Amit Gupta [(2021) 7 SCC 209]* to reiterate the jurisdiction of the Adjudicating Authority under Section 60(5)(c) of the IBC.
• The Court cited Committee of Creditors of KSK Mahanadi Power Company Ltd. v. M/s Uttar Pradesh Power Corporation Ltd (Civil Appeal No. 11086 of 2024, dated 14.10.2024)* to emphasize that unjustified interference with IBC proceedings breaches the discipline of law.
• The Court distinguished Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Ors. [(1998) 8 SCC 1]*, stating that the present case did not warrant intervention under Article 226, as the IBC provides adequate remedies.
• The Court referred to State Bank of India & Ors. v. Consortium of Mr. Murai Lal Jalan & Ors [2024 SCC Online SC 3187]* to highlight the importance of concluding the CIRP proceedings expeditiously.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Delay: The significant delay of almost three years in approaching the High Court was a major factor in the Court’s decision to set aside the High Court’s order. The Court emphasized that the respondent should have pursued remedies under the IBC instead of filing a writ petition after such a long delay.

• Alternate Remedy: The Court reiterated that the IBC is a complete code in itself, providing sufficient checks, balances, and remedial avenues. The High Court should not have interfered with the CIRP, especially when the respondent had already initiated proceedings under the IBC.

• Discipline of Law: The Court stressed the importance of adhering to the procedures and protocols under the IBC to maintain legal discipline and preserve the balance between the need for order and the quest for justice.

• Expeditious Resolution: The Court emphasized the need to conclude the CIRP proceedings expeditiously, as highlighted in previous judgments. The High Court’s intervention was seen as an impediment to this objective.

Fact:Law Ratio

The Court’s decision was influenced by both factual and legal considerations. The factual aspects included the delay in approaching the High Court and the procedural history of the case, while the legal considerations involved the interpretation of the IBC and the scope of Article 226 of the Constitution.

Logical Reasoning

The Court’s reasoning was as follows: The CIRP was initiated, and a resolution plan was approved by the CoC. The High Court then intervened, which was deemed inappropriate by the Supreme Court because of the availability of alternate remedies under the IBC and the delay in approaching the High Court. The Supreme Court, therefore, set aside the High Court’s order, emphasizing the need for minimal interference in the CIRP process.

The Court considered the argument that the principles of natural justice were violated but rejected it, stating that the IBC provides sufficient remedies. The Court also noted that the respondent had already initiated proceedings under the IBC, which further weakened the case for intervention under Article 226. The Court concluded that the High Court’s intervention was not justified and that the CIRP should proceed without further delay.

“The jurisdiction and power of the Adjudicating Authority under Section 60(5)(c) has already been reiterated by this Court…”

“In a recent order in Committee of Creditors of KSK Mahanadi Power Company Ltd. v. M/s Uttar Pradesh Power Corporation Ltd (supra), this Court has observed that an unjustified interference with the proceedings initiated under the Insolvency and Bankruptcy Code 2016, breaches the discipline of law.”

“Adherence of protocols and procedures maintains legal discipline and preserves the balance between the need for order and the quest for justice.”

Key Takeaways

• High Courts should be cautious while exercising jurisdiction under Article 226 of the Constitution in matters related to the Insolvency and Bankruptcy Code, 2016.

• The IBC is a complete code in itself, providing sufficient checks, balances, and remedial avenues. Parties should exhaust these remedies before approaching the High Court.

• Interference in CIRP proceedings should be minimal to ensure the expeditious resolution of insolvency matters.

• Significant delays in approaching the High Court for relief in IBC matters will not be condoned.

Directions

The Supreme Court directed the Adjudicating Authority to commence the proceedings from where they were interdicted by the High Court and complete the same as expeditiously as possible, in accordance with the spirit of the Code.

Development of Law

The ratio decidendi of this case is that High Courts should exercise restraint in interfering with the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, especially when the IBC provides a complete mechanism for dispute resolution. This judgment reinforces the principle that the IBC is a self-contained code and that High Courts should not interfere with its proceedings unless there are exceptional circumstances. This case clarifies the boundaries of judicial review in insolvency matters, emphasizing the need for minimal interference to ensure the expeditious resolution of insolvency cases. There is no change in the previous position of law, but the judgment reinforces the existing legal framework.

Conclusion

The Supreme Court’s judgment in Mohammed Enterprises (Tanzania) Ltd. vs. Farooq Ali Khan & Ors. sets aside the High Court’s order that had interfered with the Corporate Insolvency Resolution Process (CIRP). The Supreme Court emphasized that the High Court should have refrained from exercising its jurisdiction under Article 226 of the Constitution, especially when the Insolvency and Bankruptcy Code, 2016 (IBC) provides a comprehensive framework for resolving disputes. The Court highlighted the importance of adhering to the procedures and protocols under the IBC and the need for minimal interference in CIRP proceedings to ensure their expeditious resolution. This decision reinforces the principle that the IBC is a complete code and that parties should exhaust the remedies available under it before approaching the High Court.