IBC a complete code: Supreme Court rules against High Court’s claim of writ jurisdiction to disrupt CIRP
The Supreme Court, overturning a Karnataka High Court decision that halted a Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), emphasized that the IBC functions as a self-contained legal framework equipped with inherent safeguards. The Court cautioned that High Courts must apply their supervisory and judicial review authority with utmost care and restraint to avoid undermining the Code's objectives.
A bench comprising Justices P.S. Narasimha and Manoj Misra ruled in favor of a resolution applicant who had challenged the High Court’s intervention, stressing that the IBC’s comprehensive structure balances stakeholder interests and requires minimal external judicial interference during insolvency proceedings. It has been observed by the bench that
"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...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. Adherence of protocols and procedures maintains legal discipline and preserves the balance between the need for order and the quest for justice. 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."
The Supreme Court further instructed the Adjudicating Authority to resume the insolvency proceedings from the stage at which they were halted by the High Court and ensure their swift completion. In its reasoning, the Court drew upon the precedent established in Committee of Creditors of KSK Mahanadi Power Company Ltd. v. M/s Uttar Pradesh Power Corporation Ltd., where a bench led by former Chief Justice D.Y. Chandrachud stressed the critical need to expedite Corporate Insolvency Resolution Processes (CIRP). The earlier ruling had criticized the Telangana High Court for delaying a CIRP under Article 226 of the Constitution, particularly after dismissing the primary relief sought in the writ petition—consolidation of insolvency proceedings for two companies. The Court clarified that once the central request in the writ petition was denied, the High Court lacked justification to obstruct the CIRP’s progress.
In the present case, Corporate Insolvency Resolution Process (CIRP) proceedings against Associate Decor Ltd. (Corporate Debtor) were initiated on October 26, 2018. The appellant’s resolution plan was approved in 2020 after the Committee of Creditors (CoC) reviewed a "slightly revised" plan during a meeting on February 11, 2020. However, one of the Corporate Debtor’s directors allegedly did not receive prior notice of this meeting. Despite this, the CoC unanimously approved the appellant’s plan. Respondent No. 1 (a suspended director of the Corporate Debtor) later filed a writ petition in the Karnataka High Court, seeking to quash the minutes of the February 11, 2020 CoC meeting and declare himself the successful resolution applicant. On November 22, 2023, the High Court allowed the petition, overturning the appellant’s approved plan.
Though review petitions were filed, the High Court reaffirmed its decision, primarily ruling that principles of natural justice were violated due to the lack of a mandatory 24-hour notice for the CoC meeting. This led the appellant to appeal before the Supreme Court, where the Corporate Debtor contended there was no undue delay in Respondent No. 1 approaching the High Court.
After hearing the parties, the Supreme Court rejected the argument on delay, observing:
"The CIRP proceedings commenced on 26.10.2018. The sheet anchor of Mr. Divan submission and also 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 on 11.02.2020. However, the jurisdiction of the High Court was invoked only on 04.01.2023. The time gap between these two events is almost three years. The initiation and continuation of proceeding by Swamitva Consortium before the Adjudicating Authority, NCLT or the Supreme Court cannot lend any justification whatsoever in approaching the High Court so late."
Considering that respondent no. 1 had moved an interlocutory application before the Adjudicating Authority seeking rejection of the resolution plan filed by the appellant, the Court said that it was not as if the High Court was unaware of respondent No.1 availing the statutory remedy under the Code. "At least on this ground, the High Court should have relegated respondent no. 1 to the procedure under the Code and permitted him to continue the remedy that he has chosen to adopt."
Case Title: MOHAMMED ENTERPRISES (TANZANIA) LTD. VERSUS FAROOQ ALI KHAN & ORS., CIVIL APPEAL NO. 48/2025
Author: Robin Singh, Associate with Pratap & Co.