SC Affirms IBC as Comprehensive Framework and Sets Aside HC Order

Bank of Baroda Vs Farooq Ali Khan & Ors. (Supreme Court of India)

Supreme Court, in Bank of Baroda vs. Farooq Ali Khan & Ors., addressed the issue of whether the Karnataka High Court correctly exercised its writ jurisdiction under Article 226 to halt personal insolvency proceedings initiated under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016. The case arose after the Bank of Baroda initiated proceedings against Farooq Ali Khan, a personal guarantor for loans taken by Associate Décor Limited. The High Court held that the liability as a guarantor had been waived, thereby rendering the insolvency proceedings non-maintainable. The Supreme Court overturned this decision, ruling that the High Court preempted the statutory process under the IBC.

The Court emphasized that the insolvency process under the IBC follows a structured approach, wherein a resolution professional is first appointed to assess the financial status of the debtor and submit a report under Section 99. Only after this stage does the Adjudicating Authority (National Company Law Tribunal) decide on the admission or rejection of the insolvency application under Section 100. The Supreme Court cited Dilip B. Jiwrajka v. Union of India to highlight that judicial adjudication is not required at the preliminary stages of the insolvency process, and objections related to limitation and liability should be addressed only after the resolution professional’s report.