In a critical ruling, the Supreme Court has overturned a Karnataka High Court decision that had halted personal insolvency proceedings against Farooq Ali Khan, a director of Associate Décor Limited. The top court reaffirmed that High Courts cannot override statutory tribunals while exercising judicial review, especially in matters governed by the Insolvency and Bankruptcy Code (IBC), 2016.
A bench comprising Justices PS Narasimha and Manoj Misra ruled that the High Court overstepped its jurisdiction by intervening in the statutory process. The judgment emphasized that when specialized tribunals are in place to resolve insolvency matters, High Courts should not act as decision-makers in their stead.
The case revolved around personal insolvency proceedings initiated against Khan, who had provided a guarantee for loans taken by Associate Décor Limited. The company defaulted on its obligations, prompting Bank of Baroda to seek recourse under Section 95 of the IBC. The National Company Law Tribunal (NCLT), Bengaluru, appointed a resolution professional to assess the matter under Section 99. However, Khan contested his liability, arguing that his obligations as a guarantor had been waived.
The Karnataka High Court ruled in Khan’s favor, effectively blocking the proceedings. The Supreme Court, however, overturned this decision, stating that the High Court had interfered prematurely—before the resolution professional could submit a report, a critical step in the insolvency process.
“The High Court ought not to have interdicted the proceedings under the statute and assumed what it did while exercising jurisdiction under Article 226 of the Constitution,” the Supreme Court noted.
With this ruling, the Court restored the case to the NCLT and urged expedited proceedings, given that the matter has been pending since 2021. The decision underscores the principle that judicial review cannot be misused to derail statutory processes, particularly in financial and corporate matters governed by specialized legal frameworks.