Loan Default - Personal insolvency proceedings NCLT | Latest Supreme Court Judgement

DRAFT - Detailed Summary of Supreme Court Judgment in Bank of Baroda v. Farooq Ali Khan & Ors., (2025 INSC 253) Case Details • Case Name: Bank of Baroda v. Farooq Ali Khan & Ors. • Court: Supreme Court of India • Citation: 2025 INSC 253 • Case Type: Civil Appeal No. 2759/2025 (Arising out of SLP (C) No. 18062 of 2024) • Judges: Justice Pamidighantam Sri Narasimha & Justice Manoj Misra • Date of Judgment: February 20, 2025 ________________________________________ Background of the Case 1. Subject Matter: The case concerns the invocation of judicial review under Article 226 of the Constitution by the Karnataka High Court to interdict personal insolvency proceedings initiated against Respondent No. 1 (Farooq Ali Khan) under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Parties Involved: o Appellant: Bank of Baroda o Respondents: Farooq Ali Khan & Others o Adjudicating Authority: National Company Law Tribunal (NCLT), Bengaluru 3. Primary Issue: The Supreme Court examined whether the High Court was justified in interfering with the personal insolvency proceedings by holding that Respondent No. 1’s liability as a debtor was waived. ________________________________________ Facts of the Case • Respondent No. 1, Farooq Ali Khan, was a promoter and director of Associate Décor Limited (corporate debtor). • The corporate debtor had taken multiple loans from the appellant bank and other consortium banks since 2010. • On July 10, 2014, Respondent No. 1 executed a deed of personal guarantee securing these loans. • Due to defaults in payments, Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor. • On August 11, 2020, the Bank of Baroda issued a demand notice invoking the personal guarantee and demanded Rs. 244 crores from Respondent No. 1 and other guarantors. • On December 14, 2020, the guarantors offered Rs. 25 crores as a full and final settlement, but this was not accepted. • The appellant bank initiated personal insolvency proceedings under Section 95 of the IBC, and the NCLT appointed a resolution professional on February 16, 2024, under Section 97 of the IBC. • Respondent No. 1 challenged the proceedings before the Karnataka High Court under Article 226, arguing that his liability as a personal guarantor stood waived. ________________________________________ High Court’s Decision • The Karnataka High Court ruled in favor of Respondent No. 1, holding that the personal insolvency proceedings were not maintainable since his liability as a guarantor had been waived. • The High Court distinguished the Supreme Court’s precedent in Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 435, stating that the present case was not maintainable before the NCLT. • As a result, the NCLT disposed of the insolvency proceedings against Respondent No. 1 on June 19, 2024. ________________________________________ Supreme Court’s Analysis & Decision The Supreme Court disagreed with the High Court’s reasoning and set aside its order, restoring the personal insolvency proceedings. The key observations were: 1. Misuse of Writ Jurisdiction • The Supreme Court held that the High Court incorrectly exercised its writ jurisdiction under Article 226 to interfere in a statutory insolvency process. • Judicial review should not override a special statute (IBC), particularly when an alternative remedy exists. The Court reiterated Thansingh Nathmal v. Superintendent of Taxes (AIR 1964 SC 1419) and United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, emphasizing that High Courts should not interfere when statutory remedies exist. 5. Restoration of NCLT Proceedings • The Supreme Court restored the insolvency proceedings before the NCLT, Bengaluru, directing it to continue from February 16, 2024. • The NCLT was requested to decide the matter expeditiously given that the case had been pending since 2021. ________________________________________ Final Judgment ✅ Appeal Allowed ✅ Karnataka High Court’s Order (dated May 28, 2024) Set Aside ✅ NCLT Bengaluru Directed to Resume Proceedings from February 16, 2024 ✅ No Order as to Costs ________________________________________ Key Takeaways from the Judgment 1. IBC Framework Cannot Be Bypassed – The Supreme Court reaffirmed that personal insolvency proceedings must follow the structured process under IBC. 2. Writ Jurisdiction Has Limitations – High Courts should not interfere prematurely in matters governed by a specialized tribunal like the NCLT. 3. Resolution Professional Plays a Crucial Role – The RP must first examine the debt before the NCLT decides the case. 4. Mixed Questions of Law and Fact Should Be Decided by NCLT – The High Court erred by deciding on debt existence before the NCLT could review the RP’s report. ________________________________________ This Supreme Court ruling strengthens the IBC process by ensuring that personal insolvency proceedings are conducted as per statutory guidelines without premature interference from High Courts.