Supreme Court emphasizes the dangers of unjustified interference with CIRP, stating 'an unjustified interference with the proceedings breaches the discipline of law, Read Judgment

In a recent ruling, the Supreme Court emphasized the need for timely action in corporate insolvency proceedings noting the importance of adhering to statutory remedies under the Insolvency and Bankruptcy Code (IBC), stating, "The importance of concluding the CIRP proceedings was highlighted by this Court, on a number of occasions," and warned that "an unjustified interference with the proceedings initiated under the Insolvency and Bankruptcy Code 2016, breaches the discipline of law."

This judgment arises from appeals filed against the Karnataka High Court’s intervention in the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) of Associate Decor Ltd. The key issue revolved around the alleged delay in filing the writ petition challenging the process and the jurisdiction of the High Court over matters already under the purview of the Adjudicating Authority.

The petitioner, represented by METL and the Committee of Creditors, argued that the resolution process was conducted in accordance with the law, with all notices being duly issued, including the one for the adjourned meeting on 11.02.2020. They contended that the High Court erred in exercising its jurisdiction under Article 226, violating the principle of alternative remedies under the Insolvency and Bankruptcy Code (hereinafter referred to as “IBC”). The petitioners also emphasized that the decision to approve METL's resolution plan was made with 100% CoC approval and had been upheld by the NCLAT.

Contentions of the Respondent:

The respondent, represented by the suspended director and Swamitva, contended that the writ petition under Article 226 was valid due to a violation of natural justice, as they did not receive the required 24-hour notice for the meeting. They argued that the resolution plan submitted by METL was inferior to the proposal made by the respondent under Section 12(A) of the IBC, which would have been a more favorable option for creditors. They also claimed that the writ petition was filed without delay, as the contest between Swamitva and the CoC had yet to be resolved.

The Court observed that the argument presented by Mr. Shyam Divan regarding the lack of delay in approaching the High Court must be rejected. The CIRP proceedings had started on 26.10.2018, and the issue concerning the notice for the 19th COC meeting arose on 11.02.2020. However, the High Court's jurisdiction was invoked only on 04.01.2023, nearly three years later, and the Court noted, "The time gap between these two events is almost three years." The Court emphasized that the ongoing proceedings by Swamitva Consortium before other authorities did not justify such a delay in approaching the High Court.

The Court further pointed out that respondent no. 1 had filed an interlocutory application on 06.10.2022, seeking the rejection of the resolution plan, raising the same grounds as in the current appeal. "It is not as if the High Court was unaware of respondent no. 1 availing the statutory remedy under the Code." The Court stressed that the High Court should have relegated respondent no. 1 to the procedure under the Code rather than entertaining the writ petition.

The Court reiterated the jurisdiction and power of the Adjudicating Authority under Section 60(5)(c) of the Insolvency and Bankruptcy Code, citing previous judgments. The Court observed, "The importance of concluding the CIRP proceedings was highlighted by this Court, on a number of occasions," and warned that "an unjustified interference with the proceedings initiated under the Insolvency and Bankruptcy Code 2016, breaches the discipline of law."

The Court found that due to the delay in approaching the High Court, especially when respondent no. 1 had already pursued a statutory remedy, "the High Court committed an error in entertaining the writ petition." The Court emphasized that the Insolvency and Bankruptcy Code is a complete code in itself, with sufficient checks and balances, and that the High Court's supervisory powers should be exercised with "rigorous scrutiny and judicious application." The Court firmly stated, "This is certainly not a case for the High Court to interdict CIRP proceedings under the Insolvency and Bankruptcy Code."

The Court allowed the appeals and set aside the final judgment and order passed by the High Court in Writ Petition No. 483 of 2023 (GM-RES) dated 22.04.2024. The Court directed the Adjudicating Authority to resume the proceedings from the point where they were interrupted by the High Court and complete them as expeditiously as possible, in line with the spirit of the Code. No order was made regarding costs.