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Informist, Thursday, Feb. 20, 2025

 

NEW DELHI – The Supreme Court on Thursday restored Bank of Baroda's application in the Bengaluru bench of the National Company Law Tribunal to start personal insolvency proceedings against Farooq Ali Khan, the promoter and director of debt-ridden Associate Decor Ltd. The apex court said that the tribunal will proceed from the stage of passing of its order for appointment of a resolution professional for Khan. In doing so, the apex court set aside a Karnataka High Court order which held that personal insolvency proceedings were not maintainable against Khan as his liability as a guarantor stood waived. 

 

The apex court said that the tribunal had followed the correct approach in appointing the resolution professional for Khan to gather information and evidence regarding repayment of the debt. Firstly, the resolution professional examines the existence of debt and then the tribunal decides whether to admit or reject the application under the Insolvency and Bankruptcy Code, 2016, said the top court. 

 

The apex court said that the high court incorrectly exercised its writ jurisdiction in the case. The high court precluded the statutory mechanism and procedure under the insolvency code from taking its course. 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 tribunal under Section 100 of the 2016 Code.

 

"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," said the top court. In the present case, the proceedings had not even reached the stage where the tribunal was required to make such determination, said the apex court. Rather, the high court exercised jurisdiction even prior to the submission of the resolution professional's report, thereby precluding the tribunal from performing its adjudicatory function under the 2016 Code, said the apex court.

 

While there is no exclusion of power of judicial review of high courts, and the limits and restraint that the constitutional court exercises and must exercise are well articulated, said the apex court. "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," said the top court. The high court should have permitted the statutory process through the resolution professional and the tribunal to take its course, the top court added.

 

The case has its genesis from Associate Decor taking various loans from Bank of Baroda and other banks. Farooq Ali Khan had entered into a deed of guarantee for securing these loans in 2014. After initiation of insolvency proceedings against Associate Decor, Bank of Baroda issued a demand notice to Khan calling upon him and other guarantors to pay INR 2.44 billion. Thereafter, in 2021, Bank of Baroda filed an application in the tribunal to start personal insolvency proceedings against Khan. While the tribunal appointed a resolution professional, Khan moved the high court and raised objections on limitation and validity and existence of personal guarantee. After the high court favoured Khan, the tribunal disposed of personal insolvency proceedings against Khan.

 

On Thursday, the shares of Bank of Baroda ended 2.2% higher at INR 213.57 on the National Stock Exchange.  End

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj

 

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