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Synopsis

The Supreme Court has said that when statutory tribunals are constituted to adjudicate and determine certain questions of law and fact, the high courts should not substitute themselves as the decision-making authority while exercising judicial review.

A bench of Justices P S Narasimha and Manoj Misra said that while there is no exclusion of the power of judicial review by high courts, the limits and restraint that the constitutional courts exercise and must exercise are well articulated.

Acting on a civil appeal filed by the Bank of Baroda, the court set aside the high court's judgment, which interdicted personal insolvency proceedings under the Insolvency and Bankruptcy Code against respondent number 1, Farooq Ali Khan, by holding that his liability as a debtor had been waived.

The high court's jurisdiction was invoked against the order of the Adjudicating Authority dated February 16, 2024, appointing a resolution professional and directing him to examine the application under Section 95 and file a report under Section 99 of the IBC.

The high court allowed the writ petition filed by the respondent and held that the personal insolvency proceedings were not maintainable as respondent no. 1’s liability as a guarantor had stood waived. In arriving at this finding, the high court examined various documents pertaining to the guarantee and the loans.

Pursuant to the impugned order passed by the high court, the Adjudicating Authority disposed of the insolvency proceedings against respondent no. 1.

After hearing Solicitor General Tushar Mehta for the appellant and senior advocate Shyam Mehta for respondent no. 1, the bench said it was necessary to appreciate the statutory scheme regarding the admission of an application for initiating personal insolvency under Part III, Chapter III of the IBC.

Referring to Dilip B Jiwrajka v. Union of India (2024), the bench said that while deciding the constitutional validity of Sections 95 to 100, the court had delved into the same.

The bench said the Adjudicating Authority does not adjudicate any point at this stage and need not decide jurisdictional questions regarding the existence of the debt before appointing the resolution professional.

"This is because Section 99 requires the resolution professional to, at the first instance, gather information and evidence regarding repayment of the debt, and ascertain whether the application satisfies the requirements of Section 94 or Section 95 of the IBC," the bench said.

The court pointed out that the existence of the debt would first be examined by the resolution professional in his report and would then be judicially examined by the Adjudicating Authority when it decides whether to admit or reject the application under Section 100.

"In light of this statutory scheme, which has been followed by the adjudicating authority, we are of the view that the high court incorrectly exercised its writ jurisdiction as: first, it precluded the statutory mechanism and procedure under the IBC from taking its course, and second, to do so, the high court arrived at a finding regarding the existence of the debt, which is a mixed question of law and fact that is within the domain of the adjudicating authority under Section 100 of the IBC," the bench said.

The court said that in the present case, the proceedings had not even reached the stage where the Adjudicating Authority was required to make such a determination.

"Rather, the high court exercised jurisdiction even prior to the submission of the resolution professional’s report, thereby precluding the adjudicating authority from performing its adjudicatory function under the IBC," the bench said.

The court said the primary issues involved in the present case, including the factual determination of whether the debt exists, are part of the statutory and regulatory regime of the Insolvency and Bankruptcy Code.

"In fact, the entire rationale behind appointing a resolution professional under Section 97 is to facilitate this determination by the adjudicating authority," the bench said.

The court held that the high court ought not to have interdicted the proceedings under the statute and assumed what it did while exercising jurisdiction under Article 226 of the Constitution.

"In this view of the matter, we are of the opinion that the high court was not justified in allowing respondent no 1’s writ petition. The high court should have permitted the statutory process through the resolution professional and the adjudicating authority to take its course," the bench said.

The court allowed the appeal against the Karnataka High Court's order of May 28, 2024, and restored the matter to the record of the National Company Law Tribunal, Bengaluru, which should proceed from the stage of the order dated February 16, 2024. Considering that the matter has been pending since 2021, the court directed the tribunal to decide it as expeditiously as possible.

Case Title: Bank of Baroda Vs Farooq Ali Khan & Ors