Introduction
In a significant reaffirmation of the exclusive domain of the Insolvency and Bankruptcy Code, 2016 (IBC), the Supreme Court in CoC of KSK Mahanadi Power Co. Ltd. v. UPPCL & Ors., Civil Appeal No. 11086 of 2024, has ruled that a High Court exercising jurisdiction under Article 226 of the Constitution cannot order deferment of a Corporate Insolvency Resolution Process (CIRP) once initiated under the IBC. The Court decisively held that such judicial intervention violates the discipline established by the IBC and its special procedures.
1. Factual Background and Procedural History
KSK Mahanadi Power Company Ltd. (KSK MPCL), a public limited company engaged in power generation, is undergoing CIRP. The present appeal was filed by its Committee of Creditors (CoC) challenging a direction of the Telangana High Court deferring the CIRP proceedings.
The dispute arose when the first respondent, Uttar Pradesh Power Corporation Ltd. (UPPCL), filed a writ petition under Article 226 seeking consolidation of CIRP proceedings for KSK MPCL and two other related companies—KSK Water Infrastructure Pvt. Ltd. and Raigarh Champa Rail Infrastructure Pvt. Ltd.—arguing that a unified resolution would serve the interests of stakeholders.
Although the High Court rejected the prayer for consolidation, it proceeded to direct the National Company Law Tribunal (NCLT) to defer the CIRP of KSK MPCL pending a decision on an application to be filed by UPPCL.
The CoC challenged this order on the grounds that the High Court had no jurisdiction to halt a CIRP once initiated under the IBC.
2. Identification of Legal Issues
The Supreme Court addressed the following key legal issue:
Whether a High Court, in exercise of its jurisdiction under Article 226 of the Constitution, can direct the deferment of CIRP proceedings governed by the Insolvency and Bankruptcy Code, 2016.
3. Arguments of the Parties
Appellant (CoC of KSK MPCL):
- Argued that the High Court overstepped its jurisdiction by intervening in an IBC process.
- Submitted that the order of deferment was passed ex parte, without notice to the CoC.
- Emphasized that the IBC is a special legislation with self-contained mechanisms that exclude such interference.
Respondent (UPPCL):
- Defended the High Court’s interim measure as a necessary step to facilitate an application for consolidation of CIRPs.
- Argued that NCLT had previously stayed resolution activities and that UPPCL had a legitimate interest in the consolidation process.
4. Court’s Analysis and Reasoning
The Court, speaking through a bench comprising Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, found that:
- The High Court rightly declined to grant the substantive relief of CIRP consolidation.
- However, after denying that relief, it erred in directing the deferral of the CIRP without notice to the CoC or other parties.
- Such an order contravenes the statutory scheme of the IBC, which provides a specialised adjudicatory framework through the NCLT and NCLAT.
- The High Court’s direction breached the principle of judicial discipline mandated by the Code.
The Court reiterated that:
“The High Court had no justification to direct the deferment of the CIRP in the exercise of its jurisdiction under Article 226.”
It concluded that once the High Court refused the main relief, it should have refrained from granting any interim orders affecting the IBC process.
5. Final Conclusion and Holding
The Supreme Court allowed the appeal and set aside the impugned order of the High Court to the extent it deferred the CIRP. The CIRP of KSK Mahanadi Power Company Ltd. will now proceed in accordance with the IBC.
The Court reaffirmed the following legal principle:
“Judicial intervention in IBC proceedings must remain within the confines of the Code. High Courts cannot pass orders that interrupt or override the procedural structure of the IBC.”
This judgment strengthens the primacy of the IBC in insolvency matters and limits constitutional interventions that may disrupt its implementation.
FAQs:
1. Can High Courts stay or defer CIRP under the IBC?
No. The Supreme Court has ruled that High Courts cannot stay or defer ongoing CIRPs under the IBC, as doing so disrupts the specialised adjudication framework of the Code.
2. What happens if the High Court refuses to consolidate CIRPs?
If the High Court rejects a plea for CIRP consolidation, it cannot thereafter pass interim directions affecting the process. The resolution must continue as per the IBC mechanism.
3. Is CIRP governed solely by the IBC?
Yes. The Corporate Insolvency Resolution Process is governed by the IBC and regulated by the NCLT and NCLAT. Interference by other forums is discouraged unless extraordinary circumstances exist.
4. Can parties challenge CIRP-related decisions through writ petitions?
While writ jurisdiction is constitutionally available, the Supreme Court discourages such challenges where the IBC provides adequate remedies through the NCLT/NCLAT hierarchy.
5. What is the role of the Committee of Creditors in a CIRP?
The CoC is a decision-making body comprising financial creditors. It plays a central role in assessing resolution plans, approving restructuring, and guiding the insolvency process.
Stay informed with insights that matter. Follow us for more updates on key legal developments.
Disclaimer
The content provided here is for general information only; it does not constitute legal advice. Reading them does not create a lawyer-client relationship, and Mahendra Bhavsar & Co. disclaims all liability for actions taken or omitted based on this content. Always obtain advice from qualified counsel for your specific circumstances. © Mahendra Bhavsar & Co.
[ad_1]
Source link