Writ petition can't be used to halt personal insolvency proceedings under IBC: Calcutta High Court

The Calcutta High Court recently held that a writ petition before the High Court cannot be used to halt personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC) [Sanjay Jhunjhunwala Vs Pirmal Finance].

In a judgment delivered on December 3, Justice Krishna Rao ruled that the IBC provides a specialised, statutory mechanism for adjudication, complete with appellate remedies, which must be exhausted before invoking the High Court's constitutional powers.

Thus, questions relating to default, recall notices and Reserve Bank of India (RBI) norms must be decided exclusively by the National Company Law Tribunal (NCLT), the Court said.

"This Court finds that a proceeding under Section 95 of the IBC is pending before the Adjudicating Authority. The National Company Law Tribunal being the statutory forum under the Insolvency and Bankruptcy Code, 2016, is fully empowered to take all necessary measures within its jurisdiction. If the petitioners are aggrieved by any steps taken therein, the petitioners have an adequate remedy before the National Company Law Appellate Tribunal," the Court said.

The writ petitioners before the High Court had furnished personal guarantees for credit facilities extended by Piramal Finance.

They argued that the principal borrower had repaid the outstanding dues along with penal interest and had even prepaid future instalments.

They submitted that only a small portion of the facility remained outstanding but “not due and payable”, and that no default existed under RBI norms.

Thus, they contended that invocation of Section 95 was illegal and violative of Articles 14, 19(1)(g) and 21.

Piramal Finance opposed the writ petition, submitting that the contract expressly permitted initiation of IBC proceedings.

They said that the legality of default or recall notices must be determined by the NCLT where both a Section 7 proceeding against the borrower and the Section 95 proceeding against the guarantors are pending.

It was further argued that Piramal and the security trustee were private entities not amenable to writ jurisdiction under Article 12 of the Constitution.

The Court held that the specific factual and legal disputes raised by the petitioners must be settled by NCLT.

"The petitioners have an opportunity to raise all the issues before the Adjudicating Authority," the Court said.

The judgment noted that proceedings under Section 95 of the IBC had been initiated against the petitioners. In such case, the NCLT is the empowered statutory forum.

"The National Company Law Tribunal being the statutory forum under the Insolvency and Bankruptcy Code, 2016, is fully empowered to take all necessary measures within its jurisdiction," the judge ruled.

The NCLT's role includes making a factual determination, which requires the statutory process (including the Resolution Professional's report) to run its course.

The Court also said that the writ petition would not be maintainable given that the petitioners have an alternative remedy before NCLT and also due to the fact that lender and security trustee are private entities which are not amenable to the writ jurisdiction of the High Court.

The High Court concluded that it could not find a violation of fundamental or legal rights and that the petitioners failed to justify the Court's intervention.

The petitioners were represented by Senior Advocates Gopal Jain and Ratnanko Banerjee along with advocates Sankarsan Sarkar, Aditya Kanodia and Suparna Sardar.

The respondents were represented by Senior Advocates Tilak Kumar Bose and Krishnaraj Thaker and advocates Somdutta Bhattacharyya, Kiran Sharma and Sagnik Aditya.

[Read Judgment]