Supreme Court Ruling on High Court Intervention in Personal Insolvency Proceedings: Strengthening the IBC Framework

Introduction

In a landmark judgment, the Supreme Court of India has reinforced the statutory framework of the Insolvency and Bankruptcy Code (IBC), 2016, clarifying the limited role of High Courts in personal insolvency proceedings. The ruling, delivered in Bank of Baroda v. Farooq Ali Khan & Ors. (2025 INSC 253), sets a significant precedent by restoring the National Company Law Tribunal (NCLT) proceedings and upholding the integrity of the insolvency resolution process.

The judgment resolves a critical legal issue regarding the extent of judicial review by High Courts in personal insolvency matters, ensuring that statutory mechanisms under the IBC are allowed to function without premature judicial intervention.

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Case Background & Legal Context

The case revolved around personal insolvency proceedings initiated by Bank of Baroda against Farooq Ali Khan, a personal guarantor for Associate Décor Limited.

• The NCLT Bengaluru, acting as the Adjudicating Authority (AA), had appointed a Resolution Professional (RP) under Section 97 of the IBC and directed him to submit a report under Section 99.
• Farooq Ali Khan challenged this order before the Karnataka High Court, arguing that his liability as a personal guarantor had been waived.
• The High Court allowed the petition under Article 226, quashing the insolvency proceedings.

On appeal, the Supreme Court set aside the High Court’s ruling, holding that it was premature and that the insolvency process should be allowed to proceed before judicial review is exercised.

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Key Takeaways from the Supreme Court Ruling

1. Limited Role of the NCLT (Adjudicating Authority) at the Initial Stage

The Supreme Court clarified that:
✅ At the initial stage, the NCLT does not adjudicate jurisdictional questions or determine the existence of debt before appointing the Resolution Professional (RP) under Section 97.
✅ The RP’s role is to examine the debt and submit a report under Section 99, after which the NCLT makes a judicial determination under Section 100.

The Court reaffirmed that raising jurisdictional issues at this stage is premature and contrary to the IBC framework.

2. High Court’s Premature Intervention Was Unwarranted

The Karnataka High Court had exercised its writ jurisdiction under Article 226, quashing the insolvency proceedings before the RP had completed his assessment. The Supreme Court ruled that:
✅ The High Court should not have preempted the statutory process, as the IBC provides a complete and self-contained mechanism.
✅ Judicial review should only be exercised after the statutory process is exhausted, ensuring that tribunals perform their role first.

3. Resolution Professional (RP) Must First Examine the Debt

The judgment reiterated that:
✅ The RP first determines the existence of a debt in his report under Section 99.
✅ The NCLT only makes a judicial determination under Section 100, based on the RP’s findings.
✅ The Supreme Court emphasized that no judicial adjudication occurs before the NCLT decides on the application.

4. Reliance on Precedents: Upholding the IBC Framework

The Supreme Court relied on its prior ruling in Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 435, which had established that:
✅ Jurisdictional determinations in insolvency matters occur later in the process.
✅ No judicial adjudication happens before the RP’s report is submitted.

This ruling further strengthens the Supreme Court’s commitment to preserving the efficiency of the IBC framework.

5. Restoration of Insolvency Proceedings

The Supreme Court ordered:
✅ The restoration of the personal insolvency proceedings before the NCLT Bengaluru, allowing the process to continue from where it was halted.
✅ The tribunal to expedite the case, considering that it had been pending since 2021.

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Impact of the Judgment

1. Strengthening the IBC as a Self-Contained Code

This ruling ensures that the IBC functions as a self-contained legal mechanism, reducing judicial interference and preventing misuse of High Court writ jurisdiction.

2. Ensuring Procedural Compliance in Insolvency Proceedings

By affirming that NCLT does not adjudicate jurisdictional issues at the initial stage, the Supreme Court has provided greater clarity for insolvency practitioners, financial institutions, and legal professionals.

3. Reducing Delays & Preventing Premature Challenges

The decision prevents deliberate delays in insolvency cases, ensuring that:
✅ High Court intervention does not disrupt statutory processes.
✅ Personal guarantors cannot escape insolvency proceedings by prematurely invoking Article 226.

4. Aligning India’s Insolvency Regime with Global Best Practices

The ruling brings India in line with international insolvency frameworks, where:
✅ Arbitration of jurisdictional matters follows a structured process.
✅ Judicial review is exercised only after statutory mechanisms are completed.

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Conclusion

The Supreme Court’s ruling in Bank of Baroda v. Farooq Ali Khan reinforces the integrity of the IBC framework, ensuring that:
✔ Personal insolvency proceedings follow the statutory process without premature judicial interference.
✔ The NCLT’s role at the initial stage is limited to appointing an RP, without adjudicating debt-related disputes.
✔ High Court intervention under Article 226 should be exercised cautiously, only after the statutory process is exhausted.

This ruling serves as a crucial precedent for insolvency law in India, protecting the rights of creditors while preventing personal guarantors from evading liability through premature litigation strategies.

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