BANK OF BARODA VS FAROOQ ALI KHAN : CASE SUMMARY
The Supreme Court reiterated in Bank of Baroda Vs Farooq Ali Khan Civil Appeal No. 2759/2025 that when statutory tribunals are constituted to adjudicate and determine certain question of law and fact, the High Courts donot substitute themselves as the decision-making authority while exercising judicial review.
FACTS OF THE CASE
Farooq Ali Khan (Respondent No. 1) was director Associate Décor Ltd. Respondent No. 1 entered into deed of guarantee for securing loan to the Corporate Debtor on 10.07.2014. After initiation of CIRP against the Corporate Debtor, Appellant issued demand notice dated 11.08.2020 and invoked deed of personal guarantee and called upon the guarantors to pay 244 crores. The Appellant issued demand notice in Form B under Rule 7 (1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors ) Rules , 2019 of the Rules to initiate personal insolvency proceedings against the Respondent No. 1. The Adjudicating Authority appointed a Resolution Professional and directed him to examine application and submit report as provided under Section 99 of the IBC for approval or rejection of the Application.
Objection relating to limitation and existence of personal guarantee was raised. The Adjudicating Authority relying on Dilip B. Jiwrajka Vs. Union of India observed that objections will be considered after submission of report.
A Writ Petition was filed before High Court under Article 226, wherein the High Court set aside insolvency proceedings on the ground that liability of personal guarantors has been waived and discharged. The High Court held that in Jiwrajka the Supreme Court was not considering an application which was not maintainable.
FINDINGS OF THE SUPREME COURT
The Supreme Court noted that the Adjudicating Authority by its order dated 16.02.2024 has followed the procedure envisaged under Section 95 to 100 IBC and has also relied on the afore-said principles in Jiwrajka case. It was specifically observed that objections regarding limitation and waiver of the guarantee will be considered once the Resolution Professional submits his report, which was correct approach mandated under Section 97 IBC. The adjudicating Authority does not adjudicate any point at this stage and need not decide jurisdictional questions regarding existence of the debt before appointing the resolution professional. This is because Section 99 requires the RP, 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 IBC. The existence of the debt will first be examined by the RP and will then be judicially examined by the Adjudicating Authority when it decides whether to admit or reject the application under Section 100.
The Supreme Court held that High Court has incorrectly exercised writ jurisdiction by precluding that statutory mechanism and procedure under IBC and finding regarding existence of debt, which is mixed question of fact and law and is within domain of the Adjudicating Authority under Section 100 IBC.
The Supreme Court allowed the appeal and set aside the order of Karnatka High Court.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.
