Interpretation of Insolvency and Bankruptcy Code, 2016 – Limits of High Court’s Jurisdiction Under Article 226 of the Constitution of India

The Supreme Court set aside the High Court’s judgment and restored the personal insolvency proceedings to the National Company Law Tribunal, Bengaluru.

Acts and Sections:

• Constitution of India (COI) – Article 226 – Judicial Review Jurisdiction

• Insolvency and Bankruptcy Code, 2016 (IBC) – Section 95 – Application for Initiation of Personal Insolvency Proceedings – Section 99 – Report of Resolution Professional – Section 100 – Adjudication by Adjudicating Authority

Subjects:

Personal Insolvency Proceedings – Judicial Review – Resolution Professional – Adjudicating Authority – Debt Existence – Jurisdictional Facts – Statutory Scheme – High Court Intervention

Nature of the Litigation:

The case arose from a challenge against the initiation of personal insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.

Relief Sought: The appellant, Bank of Baroda, sought to set aside the High Court’s decision that waived the personal liability of the respondent as a guarantor and to restore the personal insolvency proceedings.

Reason for Filing the Case: The High Court had prematurely interfered with the statutory mechanism of the IBC by halting the insolvency proceedings initiated against the respondent under Section 95.

Prior Decisions: The High Court allowed the writ petition filed by the respondent and held that his liability as a personal guarantor stood waived.

Issues:

• Whether the High Court was justified in invoking its jurisdiction under Article 226 of the Constitution of India to interdict personal insolvency proceedings at a premature stage.

• Whether the statutory scheme under Sections 95 to 100 of the IBC was correctly followed by the Adjudicating Authority.

Submissions/Arguments: (a) Appellant: The High Court exceeded its jurisdiction by interfering before the resolution professional’s report was submitted and before the adjudicatory process under Section 100 commenced. (b) Respondent: Argued that his liability as a personal guarantor had been waived and the insolvency proceedings were not maintainable.

Ratio:

• The Adjudicating Authority must first appoint a resolution professional and obtain their report before adjudicating under Section 100 of the IBC.

• Judicial review under Article 226 should not preclude statutory mechanisms unless there is a clear and exceptional reason.

• The existence of debt and other factual determinations must be assessed within the IBC framework and not through premature judicial interference.