Summary
The Supreme Court held that the Karnataka High Court wrongly used its writ jurisdiction to quash personal insolvency proceedings against a personal guarantor at the stage when the Adjudicating Authority had only appointed a resolution professional. Whether the guarantee liability was waived, i.e., whether the debt exists, is a mixed question for the resolution professional's report under Section 99 and adjudication under Section 100 IBC; the proceedings were restored.
Issues
- Whether the High Court could, under Article 226, interdict personal insolvency proceedings under Section 95 IBC by holding that the personal guarantor's liability had been waived.
- Whether the Adjudicating Authority must decide objections on limitation and existence of the guarantee or debt before appointing a resolution professional under Section 97 IBC.
Provisions considered
- Section 95, Insolvency and Bankruptcy Code, 2016The creditor bank applied under Section 95(1) (with Rule 7(2) of the 2019 Personal Guarantor Rules) to initiate personal insolvency against the guarantor; the High Court's order had stopped this application before it reached the adjudicatory stage. (¶¶ 2, 4, 8)
- Section 97, Insolvency and Bankruptcy Code, 2016Appointment of a resolution professional at the threshold is statutorily mandated; following Dilip B. Jiwrajka, no adjudication of jurisdictional facts or existence of debt is required at this stage. (¶¶ 8, 9, 12)
- Section 99, Insolvency and Bankruptcy Code, 2016The resolution professional performs a facilitative role, first gathering information on repayment and checking compliance with Section 94 or 95, and submits a recommendatory report; the existence of the debt is first examined here. (¶¶ 8, 9)
- Section 100, Insolvency and Bankruptcy Code, 2016Judicial determination, including whether the debt exists, takes place only when the Adjudicating Authority decides to admit or reject the application after the report; the High Court usurped this function. (¶¶ 8, 9, 10)
- Article 226, Constitution of IndiaJudicial review is not excluded, but the High Court should not substitute itself for the statutory tribunal or stall the IBC process by deciding mixed questions of law and fact within the tribunal's domain. (¶¶ 10, 11, 12, 13)
Held
- Under Part III, Chapter III of the IBC, as explained in Dilip B. Jiwrajka, no judicial adjudication occurs at the stages of Sections 95 to 99; the resolution professional's report under Section 99 is only recommendatory, and adjudication begins under Section 100. (¶ 8)
- The Adjudicating Authority acted correctly in appointing a resolution professional and deferring the guarantor's objections on limitation and waiver of guarantee until after the Section 99 report, since it need not decide jurisdictional questions about the existence of the debt before such appointment. (¶ 9)
- The High Court erred on two counts: it prevented the statutory mechanism of the IBC from running its course, and it decided the existence of the debt, a mixed question of law and fact reserved for the Adjudicating Authority under Section 100. (¶ 10)
- Where statutory tribunals are constituted to decide questions of law and fact, the High Court in judicial review does not substitute itself as the decision-maker, particularly where the proceedings had not even reached the stage of determination; the IBC is a complete code with its own checks, remedies and appeals. (¶¶ 11, 12, 13)
Result
Appeal allowed; the High Court's order dated 28.05.2024 set aside; the bank's application restored to the NCLT, Bengaluru, to proceed from the stage of its order dated 16.02.2024, with a request for expeditious decision; no costs.