The Supreme Court ruled that the Karnataka High Court wrongly stopped insolvency proceedings against Farooq Ali Khan, restoring the case before NCLT for a speedy resolution.
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NEW DELHI: The Supreme Court of India overturned a decision by the Karnataka High Court and has restarted the personal insolvency case against Farooq Ali Khan. Khan is a promoter and director of Associate Décor Limited.
The Supreme Court said that the High Court had wrongly used its power under the writ jurisdiction to interfere in the legal process under the Insolvency and Bankruptcy Code (IBC), 2016.
A bench of Justices PS Narasimha and Manoj Misra stated:
“It is well-settled that when statutory tribunals are constituted to adjudicate and determine certain questions of law and fact, the High Courts do not substitute themselves as the decision-making authority while exercising judicial review.”
What Was the Case About?
The main issue was whether the Karnataka High Court was right to use its judicial review powers under Article 226 of the Constitution to stop personal insolvency proceedings against Farooq Ali Khan. Khan argued that his liability as a guarantor had been removed.
The case began when Associate Décor Limited took loans from a consortium of banks, including Bank of Baroda. Khan gave a personal guarantee for these loans. Later, when Associate Décor Limited failed to repay the loans, the company entered the Corporate Insolvency Resolution Process (CIRP).
Since the company had defaulted, Bank of Baroda started personal insolvency proceedings against Khan under Section 95 of the IBC. The National Company Law Tribunal (NCLT), Bengaluru, then appointed a resolution professional to examine the case and give a report under Section 99 of the IBC.
Karnataka High Court’s Decision
Khan challenged this order in the Karnataka High Court, claiming that he was not liable to pay.
The High Court ruled in his favour and stopped the insolvency proceedings against him.
Supreme Court’s Decision
However, the Supreme Court disagreed with the Karnataka High Court’s decision and cancelled it. The Supreme Court said that the High Court had wrongly interfered before the resolution professional could complete the process under Section 99 of the IBC.
The Court said:
“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 Supreme Court stressed that the High Court had acted too soon in deciding whether Khan’s personal guarantee was valid or not. This was a matter that should be decided by the adjudicating authority, not the High Court.
Finally, the Supreme Court restored the insolvency proceedings before the NCLT and requested it to speed up the case, as it had been pending since 2021.
Legal Teams
Bank of Baroda was represented by Solicitor General Tushar Mehta, along with Advocates Madhav Kanoria, Srideepa Bhattacharyya, Neha Shivhare, and Sumit Attri from Cyril Amarchand Mangaldas.
Farooq Ali Khan was represented by Senior Advocate Shyam Mehta, along with Advocates Ishwar Singh, Shivam Singh, Sivaramakrishnan, Varad Kilor, Vinay N Kumar, and Gopal Singh.
CASE TITLE:
Bank of Baroda Vs Farooq Ali Khan.
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