High Court Non-Interference in Corporate Insolvency Proceedings: A New Judicial Principle

1. Introduction

The Supreme Court of India in Mohammed Enterprises (Tanzania) Ltd. v. Farooq Ali Khan & Ors. (2025 INSC 25) clarified the limited scope of judicial interference by the High Courts under Article 226 in matters arising from corporate insolvency proceedings. This judgment arose out of three connected appeals filed against the decision of the High Court of Karnataka, which had set aside a resolution plan approved by the Committee of Creditors (CoC). The controversy centered around alleged violation of the principles of natural justice and a perceived lack of adequate notice for certain stakeholders.

The key players were:

Mohammed Enterprises (Tanzania) Ltd. (METL), the successful resolution applicant.
Oriental Bank of Commerce (later merged with Punjab National Bank), representing the financial creditors forming the CoC.
Associate Decor Ltd., the corporate debtor.
Farooq Ali Khan, one of the suspended directors of the corporate debtor, who challenged the process before the High Court.

By invoking its powers under Article 136 of the Constitution, the Supreme Court overturned the High Court’s exercise of judicial review, reinforcing that the Insolvency and Bankruptcy Code (IBC) is a comprehensive framework providing adequate remedies.

2. Summary of the Judgment

In upholding the Corporate Insolvency Resolution Process (CIRP) and explicitly disapproving repeated High Court interventions, the Supreme Court:

Set Aside the High Court Order: The Court reversed the High Court’s judgment that canceled the resolution plan for alleged violation of natural justice.
Reaffirmed the IBC as a Complete Code: The Supreme Court declared that parties must exhaust adequate remedies within the IBC instead of resorting to constitutional writs.
Noted Delay and Laches: The respondent’s significant delay of almost three years in approaching the High Court was deemed unjustifiable, diminishing the merits of the challenge.
Directed Quick Completion: The Adjudicating Authority (NCLT) was directed to resume proceedings from where they had been interrupted and conclude expeditiously, honoring the core objective of the IBC—fast resolution.

3. Analysis

3.1 Precedents Cited

The Supreme Court referenced several previous decisions to reinforce its stance that the High Court’s extraordinary writ jurisdiction should not be used to interrupt insolvency proceedings:

CoC of KSK Mahanadi Power Company Ltd. v. M/S UP Power Corporation Ltd.
This judgment highlighted that unjustified interference in IBC proceedings under High Court writ jurisdiction undermines the “discipline of law” and the specialized mechanism provided by the IBC.
Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta
Here, the Supreme Court underscored how the Adjudicating Authority under Section 60(5)(c) of the IBC has comprehensive jurisdiction to address grievances arising out of the CIRP, dissuading parallel or duplicative proceedings before other forums.
Gujarat Urja Vikas Nigam Limited v. Amit Gupta
Reiterated that the NCLT’s powers in handling insolvency disputes are expansive, signifying that High Court intervention should be rare and limited to exceptional circumstances.
Whirlpool Corporation v. Registrar Of Trade Marks, Mumbai & Ors.
Although used by the respondent to argue in favor of Article 226 jurisdiction for alleged natural justice violations, the Supreme Court distinguished that, given alternative statutory remedies under the IBC, the High Court’s exercise of discretion was unwarranted.

3.2 Legal Reasoning

First, the Court stressed that the IBC is a self-contained Code with its own set of checks, balances, and dedicated adjudicatory mechanisms (NCLT and NCLAT). By approaching the High Court, the respondent bypassed statutory remedies designed specifically for disputes arising during CIRP.

Second, the Court rejected the contention that notice for the 19th CoC meeting was inadequate and thereby violated the principles of natural justice. Even assuming there was some procedural shortfall, the respondent waited nearly three years to file the writ petition—an inordinate delay which undermined the claim of prejudice.

Third, despite the argument that the respondent’s alternative proposal was potentially superior to the approved resolution plan, the Supreme Court declined to venture into comparing commercial viability, given that commercial wisdom of the CoC ordinarily prevails unless there is a clear legal infirmity.

3.3 Impact

This decision signals firm judicial restraint regarding interference by High Courts in IBC matters. It articulates the principle that delay, parallel proceedings, and attempts to re-litigate resolved questions will not be countenanced. In effect, the judgment:

Encourages Adherence to IBC Mechanisms: Stakeholders must rely on the specialized forums, namely the NCLT and NCLAT, discouraging forum shopping or belated constitutional writ petitions.
Reinforces Timely Resolution: Emphasizes the importance of swift conclusion of CIRP, a fundamental tenet of the IBC.
Harmonizes National Insolvency Regime: With the Supreme Court’s stamp of approval, lower courts will be cautious in granting relief through Article 226 that might disrupt or delay the CIRP.

4. Complex Concepts Simplified

Corporate Insolvency Resolution Process (CIRP): The legal mechanism under the IBC for resolving insolvency of a company. An appointed Resolution Professional manages the affairs of the corporate debtor while creditors evaluate resolution plans.

Committee of Creditors (CoC): A specified group of financial creditors, having a crucial stake in the debtor company, that votes on finalizing the resolution plan. Its commercial wisdom is typically conclusive unless there is legal noncompliance.

Section 12(A) of the IBC: This provision allows withdrawal of an application admitted under the IBC if 90% of the CoC agrees. The respondent attempted to make a settlement offer under Section 12(A), but it did not ultimately replace the unanimously approved resolution plan.

Natural Justice: The principle that individuals must have a fair opportunity to be heard with reasonable notice. While it is a fundamental concept, the Supreme Court underscored the significance of procedural discipline and the availability of alternate statutory remedies, particularly under the IBC.

5. Conclusion

The Supreme Court unequivocally restored the primacy of the IBC as the single-window mechanism for insolvency and reorganization of corporate entities. Its decision in Mohammed Enterprises (Tanzania) Ltd. v. Farooq Ali Khan & Ors. amplifies the message that High Courts should not interfere lightly in CIRP, especially where petitioners have alternate, more appropriate remedies. The judgment clarifies procedural underscoring that speed, certainty, and adherence to the statutorily prescribed path remain paramount objectives of the IBC. It serves as an authoritative reminder that timelines and processes within the CIRP framework must be respected to ensure a fair, efficient, and value-maximizing outcome for all parties involved.

By reinforcing these principles, the Supreme Court has added yet another layer of certainty and stability to India’s insolvency regime, ensuring that the system works effectively, free from unnecessary judicial interventions.