IBC Prevails: The Supreme Court Restricts Premature Writs in Personal Insolvency Proceedings

Introduction

Reiterating the binding nature of the statutory framework under the Insolvency and Bankruptcy Code, 2016 (‘IBC’), the Hon’ble Supreme Court, in Bank of Baroda v. Farooq Ali Khan[i], has observed that the High Court had erroneously exercised its writ jurisdiction under a. 226 of the Constitution of India (‘Constitution’) by interdicting personal insolvency proceedings initiated under Part III of the IBC. The Court underscored that the adjudication of questions involving the existence of debt and validity of personal guarantees lies exclusively within the domain of the Adjudicating Authority (‘AA’) under s. 100 of the IBC, which must follow the procedural scheme embedded under ss. 95-100 of the IBC.

Brief Facts

Associate Decor Limited, the corporate debtor (‘CD’), had availed loans from a consortium of banks, including the Bank of Baroda (‘Appellant’). In this regard, Farooq Ali Khan (‘Respondent’) executed a personal guarantee dated 10.07.2014 to secure the said credit facilities. Upon default by the CD, the Appellant invoked the deed of guarantee and issued a demand notice claiming an amount of Rs. 244 crores. The guarantor and others proposed Rs. 25 crores as full and final settlement.
Pursuant to the issuance of the demand notice in Form B under r. 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (Rules), the Appellant filed an application under s. 95(1) of the IBC. The AA, via order dated 16.02.2024, appointed a resolution professional (‘RP’) and directed him to submit a report under s. 99 for either approval or rejection of the application.
However, the Respondent approached the Karnataka High Court via writ petition under a. 226 of the Constitution, contending that his liability as a guarantor had already been waived. The High Court allowed the writ petition and held that the personal insolvency proceedings were not maintainable. Aggrieved, the Appellant preferred an appeal before the Supreme Court.

Held

The Supreme Court allowed the appeal and set aside the impugned order of the High Court, while observing that the High Court had erroneously exercised its writ jurisdiction by intervening in the statutory process under the IBC at a premature stage, before the RP had submitted his report as contemplated under s. 99 of the IBC. The Court observed that:

The AA had strictly adhered to the statutory procedure under ss. 95–100 of the IBC, and had rightly postponed any adjudication of objections raised by the guarantor until the RP completed his preliminary report.
Referring to its earlier ruling in Dilip B. Jiwrajka v. Union of India[ii], the Court clarified that no adjudicatory function is required to be undertaken by the AA at the stage of appointing the RP under s. 97 of the IBC.
The issue of the existence of debt or discharge of liability, being a mixed question of law and fact, ought to be examined within the statutory scheme and not pre-emptively by constitutional courts.
The High Court, by interdicting the statutory mechanism, effectively substituted its own findings on questions properly falling within the statutory domain through the regulatory process under the IBC.

Accordingly, the proceedings were directed to resume before the National Company Law Tribunal, Bengaluru (NCLT) from the stage of the order dated 16.02.2024.

Our Analysis

The judgment is a reaffirmation of the principle that statutory remedies must be exhausted before invoking writ jurisdiction, especially in financial legislation like the IBC, which prescribes a self-contained mechanism for adjudication and resolution. The Supreme Court's clear articulation that no judicial adjudication is required before submission of the RP’s report ensures consistency in insolvency jurisprudence and prevents dilution of legislative intent.

By setting aside the High Court’s order, the Supreme Court has upheld the procedural sanctity of personal insolvency proceedings and insulated the adjudication process from premature judicial interference. The decision also serves as a cautionary precedent that constitutional courts must refrain from prematurely evaluating facts that fall squarely within the statutory domain, particularly when the process is at a threshold stage. The law explicitly mandates the involvement of a specialised resolution professional before any adjudication occurs.

The ruling strengthens the IBC’s objective of time-bound and orderly insolvency resolution. It ensures that debtors and guarantors cannot bypass statutory obligations through writ remedies unless a clear case of jurisdictional error or fundamental rights violation is made out.

End Notes

[i] 2025 SCC OnLine SC 374 dated 20.02.2025.

[ii] [2023] 156 taxmann.com 304 (SC).

Authored by Ritik Kumar Jha, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.