Judicial Boundaries: The Supreme Court Upholds IBC's Procedural Integrity


Court: Supreme Court of India.

Case Name: Mohammed Enterprises (Tanzania) Ltd. v. Farooq Ali Khan

Citation: 2025 INSC 25. [PDF]

Introduction

This case involves a dispute arising from the Corporate Insolvency Resolution Process (CIRP) of Associate Decor Ltd.. The High Court of Karnataka had intervened, setting aside the resolution plan approved by the Committee of Creditors (CoC) due to perceived violations of natural justice. The Supreme Court addressed the High Court's exercise of writ jurisdiction under Article 226 of the Constitution in the context of the Insolvency and Bankruptcy Code (IBC), 2016.

The core issue was whether the High Court was correct to interfere with the CIRP process, specifically concerning the validity of the 19th CoC meeting held on February 11, 2020, where Mohammed Enterprises (Tanzania) Ltd. (METL)'s resolution plan was approved. A suspended director of the Corporate Debtor, Farooq Ali Khan, claimed that the meeting was held without proper notice to him.

The Supreme Court's judgment emphasizes the importance of adhering to the procedures and remedies provided within the IBC framework. The court reiterated that the IBC is a complete code with its own mechanisms for checks, balances, and remedies, limiting the scope for High Court interference.

Case Summary

  1. The Corporate Insolvency Resolution Process (CIRP) against Associate Decor Ltd. was initiated on October 26, 2018, by Oriental Bank of Commerce.
  2. Mohammed Enterprises (Tanzania) Ltd. (METL) submitted an expression of interest and their resolution plan was discussed in the 16th, 17th, and 18th CoC meetings.
  3. The 19th CoC meeting was adjourned, and in the second adjourned meeting on February 11, 2020, METL’s revised resolution plan was approved by 100% voting share of the CoC. A suspended director of the corporate debtor, Farooq Ali Khan's proposal was rejected.
  4. Swamitva, another company whose resolution plan was rejected, filed an application to the Adjudicating Authority seeking reconsideration of its plan. This was appealed to NCLAT and the appeal was allowed.
  5. Farooq Ali Khan also filed an interlocutory application before the NCLAT seeking rejection of METL’s plan.
  6. The High Court of Karnataka initially granted an ex-parte stay and later, on April 22, 2024, set aside METL’s resolution plan, citing violation of natural justice due to insufficient notice for the 19th CoC meeting.
  7. The Supreme Court allowed the appeals, setting aside the High Court order, and directed the Adjudicating Authority to resume the CIRP proceedings.

Study Guide

  1. Understand the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), including its objectives and the roles of key stakeholders like the Resolution Professional, Committee of Creditors (CoC), and Adjudicating Authority (NCLT).
  2. Examine the timeline of events, starting from the initiation of the CIRP against Associate Decor Ltd. to the final judgment by the Supreme Court. Pay attention to the different stages of the process, including the submission of resolution plans, CoC meetings, and judicial interventions.
  3. Analyze the role of the Committee of Creditors (CoC) in the CIRP, and how their decisions are central to the resolution process. Study how the CoC approved METL’s plan and rejected the proposal of Farooq Ali Khan.
  4. Understand the concept of natural justice and how it was invoked by Farooq Ali Khan, specifically concerning the notice for the 19th CoC meeting. Also, analyze the High Court's reasoning for setting aside the resolution plan and the Supreme Court’s view on it.
  5. Explore the jurisdiction of High Courts under Article 226 of the Constitution, specifically its limitations within the context of the IBC. Note the circumstances under which the High Court may intervene in CIRP proceedings.
  6. Study the Supreme Court’s view of the IBC as a complete code with its own mechanisms for redressal and the importance of adhering to these mechanisms. Also, see the court's reasoning for not addressing the merits of the resolution plans.
  7. Examine the significance of the delay in approaching the High Court and why the Supreme Court considered it a crucial factor in its decision. Also, understand the other legal principles such as 'laches' that were referred to by the court.
  8. Analyze the arguments presented by both sides, including the appellant's argument that the High Court's intervention was unwarranted and the respondent's plea for violation of natural justice.
  9. Understand the legal arguments related to alternate remedies available under the IBC and why the Supreme Court believed that the High Court should have relegated the respondent to pursue remedies within the IBC framework.
  10. Study the Supreme Court’s final order, including its direction to the Adjudicating Authority to resume the CIRP process and complete it expeditiously.

Rationale

  1. The Supreme Court noted that the High Court's intervention was inappropriate because of the significant delay in approaching the High Court, almost three years after the 19th CoC meeting.
  2. The Court emphasized that the respondent, Farooq Ali Khan, had already availed himself of statutory remedies under the IBC by filing an interlocutory application before the Adjudicating Authority seeking rejection of the resolution plan.
  3. The Supreme Court reiterated that the IBC is a complete code with its own mechanisms for checks, balances, and remedies. High Courts should be cautious in interfering with CIRP proceedings using Article 226.
  4. The Court stressed the importance of completing CIRP proceedings swiftly. It also noted that the process had been ongoing for six years. Interference with the proceedings breaches the discipline of law.
  5. The Supreme Court did not address the merits of the resolution plans, as the intervention by the High Court was not justified due to the delay and the availability of remedies within the IBC.

FAQ

Q.1. What was the primary issue that led to the appeals before the Supreme Court?

Answer: The primary issue was the High Court of Karnataka’s decision to interfere with the Corporate Insolvency Resolution Process (CIRP) and set aside the resolution plan accepted by the Committee of Creditors (CoC), based on a perceived violation of natural justice.

Q.2. Who initiated the Corporate Insolvency Resolution Process (CIRP) against Associate Decor Ltd. and when was it admitted?

Answer: The Oriental Bank of Commerce, a financial creditor, initiated the CIRP against Associate Decor Ltd. The process was admitted on October 26, 2018.

Q.3. What was the role of the Committee of Creditors (CoC) in the CIRP, and what action did they take on 11.02.2020?

Answer: The CoC is responsible for discussing and deliberating resolution plans. On 11.02.2020, they approved Mohammed Enterprises’ resolution plan through e-voting and rejected the proposal from the suspended director, Farooq Ali Khan.

Q.4. Briefly describe the involvement of Swamitva in the CIRP process.

Answer: Swamitva, another company, had its resolution plan rejected, leading it to file an application to the Adjudicating Authority to reconsider its plan. Their legal challenges were eventually dismissed by the Supreme Court.

Q.5. What relief was sought by the suspended director, Farooq Ali Khan, before the High Court of Karnataka and what was the High Court's initial decision?

Answer: Farooq Ali Khan sought the quashing of the minutes of the CoC meeting on 11.02.2020, along with other related orders and declarations, and for his own proposal to be accepted. Initially, the High Court granted an ex-parte stay.

Q.6. What was the main reason given by the High Court for setting aside the resolution plan?

Answer: The High Court set aside the resolution plan because it believed the principles of natural justice had been violated due to insufficient notice (allegedly 24 hours) given to Farooq Ali Khan before the 19th CoC meeting.

Q.7. What was the primary argument of Mr. Shyam Divan, counsel for the Corporate Debtor, concerning the High Court's jurisdiction?

Answer: Mr. Shyam Divan argued that the writ petition under Article 226 was not barred, especially when there was a violation of natural justice. He also contended that Farooq Ali Khan’s settlement proposal was superior.

Q.8. What did the Supreme Court state about the delay in approaching the High Court?

Answer: The Supreme Court rejected Mr. Divan’s justification for approaching the High Court, noting that the delay of almost three years between the alleged violation and the High Court action was unjustifiable.

Q.9. How did the Supreme Court view the High Court’s intervention in light of the remedies already available under the Insolvency and Bankruptcy Code?

Answer: The Supreme Court stated that the High Court should have refrained from intervening in the CIRP process. It noted that the Insolvency and Bankruptcy Code is a complete code with its own mechanisms for appeals and remedies.

Q.10. What was the final decision of the Supreme Court and what instructions were given regarding the CIRP?

Answer: The Supreme Court allowed the appeals, setting aside the High Court's judgment, and directed the Adjudicating Authority to continue the CIRP proceedings from the point where it was interrupted by the High Court. The court emphasized the need for speedy resolution.

Conclusion

The Supreme Court’s judgment in Mohammed Enterprises (Tanzania) Ltd. v. Farooq Ali Khan reinforces the importance of respecting the procedural framework of the Insolvency and Bankruptcy Code (IBC). The Court clearly demarcated the boundaries of High Court intervention in matters related to CIRP, particularly when there are alternative remedies available within the IBC. The case highlights that adherence to the mechanisms of the IBC is paramount for timely resolution of insolvency disputes and upholding the discipline of law.

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