2025 (1) TMI 354 - SC - IBC

Correctness of High Court of Karnataka exercising power of judicial review interdicting Corporate Insolvency Process culminating in the acceptance of a resolution plan by the Committee of Creditors - HELD THAT - The jurisdiction and power of the Adjudicating Authority under Section 60(5)(c) has already been reiterated by this Court in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta 2019 (11) TMI 731 - SUPREME COURT and Gujarat Urja Vikas Nigam Limited v. Amit Gupta 2021 (3) TMI 340 - SUPREME COURT . It is important to note that CIRP proceedings commenced on 26.10.2018, six years ago, and the resolution plan of the appellant was approved in 2020, four years back. The importance of concluding the CIRP proceedings was highlighted by this Court, on a number of occasions. In a recent order in COMMITTEE OF CREDITORS OF KSK MAHANADI POWER COMPANY LIMITED VERSUS M/S UTTAR PRADESH POWER CORPORATION LIMITED AND OTHERS 2024 (10) TMI 1624 - SUPREME COURT , this Court has observed that an unjustified interference with the proceedings initiated under the Insolvency and Bankruptcy Code 2016, breaches the discipline of law. In view of the delay in approaching the High Court, particularly when respondent no.1 himself has initiated proceedings under the Code by filing interlocutory applications seeking similar relief, the High Court committed an error in entertaining the writ petition. Apart from delay and laches, High Court should have noted that Insolvency and Bankruptcy Code is a complete code in itself, having sufficient checks and balances, remedial avenues and appeals. Adherence of protocols and procedures maintains legal discipline and preserves the balance between the need for order and the quest for justice. Conclusion - The supervisory and judicial review powers vested in High Courts represent critical constitutional safeguards, yet their exercise demands rigorous scrutiny and judicious application. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The Supreme Court judgment revolves around several core legal questions:

Whether the High Court of Karnataka was justified in exercising its jurisdiction under Article 226 of the Constitution to interdict the Corporate Insolvency Resolution Process (CIRP) proceedings under the Insolvency and Bankruptcy Code (IBC).
Whether the principles of natural justice were violated due to insufficient notice provided to the suspended directors before the 19th Committee of Creditors (CoC) meeting.
Whether there was an unjustified delay by the respondent in approaching the High Court, and whether such delay should bar relief.
Whether the High Court should have considered the IBC as a complete code with sufficient remedial measures, thus avoiding interference in the CIRP proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of the High Court under Article 226

Relevant legal framework and precedents: The court examined the scope of Article 226, which allows High Courts to issue certain writs. However, the court emphasized the importance of respecting the statutory framework of the IBC, which is designed to handle insolvency matters comprehensively.
Court's interpretation and reasoning: The Supreme Court highlighted that the High Court's intervention breached the discipline of the IBC, which provides specific remedial avenues and appeals. The court referenced its previous decisions, including the CoC of KSK Mahanadai Power Company Limited case, to emphasize the need for restraint in exercising Article 226 jurisdiction.
Key evidence and findings: The court noted that the CIRP proceedings had been ongoing since 2018, and various appeals had already been processed through the IBC's mechanisms.
Application of law to facts: The Supreme Court found that the High Court should not have interfered with the CIRP proceedings, as the IBC provided adequate remedies.
Treatment of competing arguments: The court rejected the argument that the High Court's intervention was justified due to alleged violations of natural justice, emphasizing the procedural safeguards within the IBC.
Conclusions: The High Court erred in exercising its jurisdiction under Article 226 to interdict the CIRP proceedings.

Issue 2: Principles of Natural Justice

Relevant legal framework and precedents: The principles of natural justice require fair hearing and adequate notice. The court referenced the Whirlpool Corporation case to discuss the applicability of these principles.
Court's interpretation and reasoning: The Supreme Court acknowledged the importance of natural justice but found that the High Court's focus on a 24-hour notice issue was insufficient to justify its intervention.
Key evidence and findings: The court noted the procedural history, including the notice given before the CoC meeting and the subsequent legal proceedings.
Application of law to facts: The court determined that the alleged notice deficiency did not warrant the High Court's decision to set aside the resolution plan.
Treatment of competing arguments: The court considered the respondent's claim of inadequate notice but ultimately found it unconvincing in the context of the broader procedural safeguards.
Conclusions: The alleged violation of natural justice principles did not justify the High Court's interference.

Issue 3: Delay in Approaching the High Court

Relevant legal framework and precedents: The court examined the doctrine of laches, which prevents litigants from seeking relief after an unreasonable delay.
Court's interpretation and reasoning: The Supreme Court found that the respondent's delay of nearly three years in approaching the High Court was unjustified.
Key evidence and findings: The court noted the timeline of events, including the initiation of CIRP proceedings and the respondent's involvement in prior legal actions.
Application of law to facts: The court concluded that the delay undermined the respondent's case for relief.
Treatment of competing arguments: The court rejected the respondent's justification for the delay, emphasizing the need for timely action.
Conclusions: The delay barred the respondent from obtaining relief from the High Court.

Issue 4: Completeness of the IBC

Relevant legal framework and precedents: The IBC is designed as a comprehensive code for insolvency matters, including specific procedures and remedies.
Court's interpretation and reasoning: The Supreme Court emphasized the IBC's sufficiency in handling insolvency issues and the importance of adhering to its processes.
Key evidence and findings: The court noted the procedural history and the availability of remedies within the IBC framework.
Application of law to facts: The court found that the High Court should have respected the IBC's comprehensive nature and avoided interference.
Treatment of competing arguments: The court dismissed arguments for High Court intervention, highlighting the IBC's adequacy.
Conclusions: The IBC is a complete code, and the High Court's interference was unwarranted.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The supervisory and judicial review powers vested in High Courts represent critical constitutional safeguards, yet their exercise demands rigorous scrutiny and judicious application."
Core principles established: The IBC is a complete code with adequate remedies, and High Courts should exercise restraint in intervening in CIRP proceedings.
Final determinations on each issue: The Supreme Court allowed the appeals, set aside the High Court's judgment, and directed the Adjudicating Authority to resume CIRP proceedings.

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