Mohammed Enterprises Vs. Farooq Ali Khan: Supreme Court Reiterates IBC as a Complete Code, Disapproves High Court Writ Intervention in CIRP

Introduction:

In Mohammed Enterprises (Tanzania) Ltd. Vs. Farooq Ali Khan & Ors., the Supreme Court delivered a significant judgment reinforcing the Insolvency and Bankruptcy Code, 2016 (IBC), as a comprehensive legal framework for resolving corporate insolvencies. A bench comprising Justices PS Narasimha and Manoj Misra categorically held that High Courts must exercise extreme caution when entertaining writ petitions under Article 226 in matters governed by the IBC.

The Court emphasized that the IBC is a complete code with adequate checks, balances, and remedial mechanisms. It dismissed attempts to disrupt Corporate Insolvency Resolution Processes (CIRP) through delayed and misplaced judicial interventions, emphasizing the need for adherence to statutory discipline. By allowing the appeal, the Supreme Court reaffirmed the autonomy of the IBC framework and directed the Adjudicating Authority to resume proceedings from the stage disrupted by the High Court’s order.

Background

The CIRP against Associate Decor Ltd. (Corporate Debtor) commenced on October 26, 2018, following a petition by Oriental Bank of Commerce (now Punjab National Bank). The appellant, Mohammed Enterprises (Tanzania) Ltd. (METL), submitted a resolution plan, which was unanimously approved by the CoC on February 11, 2020.

However, respondent No. 1 (a suspended director of the Corporate Debtor) challenged the resolution plan, alleging procedural lapses, particularly the lack of a 24-hour notice for the CoC meeting. On January 4, 2023, nearly three years after the resolution plan’s approval, respondent No. 1 filed a writ petition in the Karnataka High Court, seeking to quash the CoC’s decision. The High Court annulled the resolution plan, citing violations of natural justice.

Aggrieved by the High Court’s order, the appellant moved the Supreme Court, arguing that the High Court’s intervention was unwarranted, especially given the availability of statutory remedies under the IBC.

Questions of Law:

1. Can High Courts exercise jurisdiction under Article 226 to interdict a CIRP governed by the IBC, despite the availability of statutory remedies under the Code?
2. Does a three-year delay in filing a writ petition justify the invocation of extraordinary jurisdiction under Article 226, particularly in cases where statutory remedies have been pursued?
3. To what extent can procedural irregularities, such as inadequate notice for CoC meetings, constitute grounds for judicial intervention in CIRP proceedings?

Findings and Rationale:

1. IBC as a Complete Code: The Supreme Court reaffirmed that the IBC is a complete and exhaustive code with sufficient checks, balances, and remedial mechanisms. Citing Committee of Creditors of KSK Mahanadi Power Company Ltd. v. M/s Uttar Pradesh Power Corporation Ltd., the Court emphasized that High Courts must exercise their supervisory and judicial review powers under Article 226 judiciously. The Court held that unwarranted interference disrupts the legislative intent of expeditious insolvency resolution.
2. Delay and Laches: The Court rejected respondent No. 1’s justification for the delayed filing of the writ petition. It noted that the alleged procedural lapses occurred in February 2020, but the High Court’s jurisdiction was invoked only in January 2023—a delay of almost three years. The Court observed that the respondent had actively pursued remedies under the IBC during this period, which precluded him from seeking relief through a writ petition.“The time gap between these two events is almost three years. The initiation and continuation of proceedings before the Adjudicating Authority, NCLT, or the Supreme Court cannot lend any justification whatsoever in approaching the High Court so late.”
3. Minimal Judicial Interference: The Court criticized the High Court for entertaining the writ petition despite the availability of statutory remedies under the IBC. It reiterated that judicial intervention in CIRP proceedings must be limited to exceptional circumstances. The High Court’s reliance on procedural irregularities, such as inadequate notice, was deemed insufficient to warrant interference.
4. Autonomy of the CoC: The Court upheld the autonomy of the CoC, emphasizing that its decisions are based on commercial considerations and must not be lightly interfered with. The unanimous approval of the appellant’s resolution plan by the CoC demonstrated its credibility and adherence to statutory requirements.
5. Expeditious Resolution: The Supreme Court directed the Adjudicating Authority to resume proceedings from the stage at which they were disrupted by the High Court. It underscored the need to prioritize timely resolution, aligning with the IBC’s objective of maximizing asset value and equitable treatment of stakeholders.

Conclusion:

The Supreme Court’s judgment in Mohammed Enterprises (Tanzania) Ltd. Vs. Farooq Ali Khan & Ors. is a landmark decision that reinforces the procedural sanctity and legislative intent of the IBC. By dismissing the High Court’s intervention, the Court emphasized the importance of timely resolution and minimal judicial interference in insolvency proceedings.

This ruling serves as a crucial precedent, safeguarding the autonomy of the CoC and ensuring that the IBC continues to function as an efficient and effective framework for resolving corporate insolvencies.

Disclaimer:

This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional.