In a significant decision reinforcing the principles of judicial discipline and statutory procedure, the Supreme Court of India held that High Courts cannot overstep their jurisdiction under Article 226 of the Constitution to substitute themselves for statutory tribunals. The judgment was delivered on February 20, 2025, by a Bench comprising Justice Pamidighantam Sri Narasimha and Justice Manoj Misra in Bank of Baroda vs Farooq Ali Khan, where the apex court set aside a Karnataka High Court order that had prematurely quashed personal insolvency proceedings.
Case Background
The case arose when Bank of Baroda initiated personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Farooq Ali Khan, a promoter and director of Associate Décor Limited. Khan had provided a personal guarantee for loans extended to the company, which later defaulted on repayments, resulting in outstanding dues of Rs. 244 crores. Despite an offer from Khan and other guarantors to settle for Rs. 25 crores, the bank proceeded to invoke the personal guarantee and initiated insolvency proceedings.
The Adjudicating Authority appointed a resolution professional in February 2024 to assess the insolvency application under Section 99 of the IBC. Before the process could proceed, Khan filed a writ petition under Article 226 before the Karnataka High Court, arguing that his liability as a personal guarantor had been waived. The High Court, agreeing with Khan, quashed the proceedings, prompting the bank to appeal to the Supreme Court.
Important Legal Issues
The central issue before the Supreme Court was whether the Karnataka High Court had overstepped its writ jurisdiction by interfering in an ongoing personal insolvency process under the IBC, even before the resolution professional had submitted their report.
Another critical question was whether the High Court could make determinations on factual disputes—such as the existence or discharge of the debt—that fall within the domain of statutory tribunals like the National Company Law Tribunal (NCLT).
Supreme Court’s Key Observations
The Supreme Court underscored the procedural sanctity of the IBC, stating that personal insolvency proceedings must follow the statutory framework without premature judicial interference. The court emphasized that the appointment of a resolution professional under Section 97 is merely a procedural step and not an adjudicatory function.
In a significant observation, the court noted:
“No judicial determination takes place until the Adjudicating Authority decides under Section 100 whether to accept or reject the application. The High Court, in this case, erred by substituting itself for the tribunal, making factual determinations that should have been left to the designated authority under the IBC.”
The bench highlighted that the role of the High Courts under Article 226 is supervisory, not substitutive, especially when a specialized statutory framework is in place. The court referred to precedents like Thansingh Nathmal v. Superintendent of Taxes and United Bank of India v. Satyawati Tondon, reiterating that High Courts should exercise restraint and allow statutory mechanisms to run their course.
Court’s Decision
Setting aside the Karnataka High Court’s order dated May 28, 2024, the Supreme Court restored the personal insolvency proceedings against Farooq Ali Khan. The apex court directed that the matter resume before the NCLT, Bengaluru, from the stage where the resolution professional was appointed.
The court stressed the need for expediency, instructing the NCLT to process the case swiftly, considering the prolonged pendency since 2021.
“The High Court precluded the statutory mechanism and substituted its judgment where it had no jurisdiction to do so. This undermines the purpose of specialized tribunals like the NCLT, which are equipped to handle complex insolvency matters,” the court remarked.
Case Details
– Case Title: Bank of Baroda vs Farooq Ali Khan & Ors.
– Bench: Justice Pamidighantam Sri Narasimha and Justice Manoj Misra
– Citation: Civil Appeal No. 2759/2025 (Arising out of SLP (C) No. 18062 of 2024)
