Calcutta High Court Dismisses Writ Petition Challenging Personal Insolvency Proceedings

Court Upholds NCLT as the Appropriate Forum for Insolvency Adjudication, Stresses on Statutory Mechanisms

In a significant judgment, the Calcutta High Court, presided over by Justice Krishna Rao, dismissed the writ petition filed by Sanjay Jhunjhunwala and others against Piramal Finance Limited and others. The petition challenged the initiation of personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), asserting that the National Company Law Tribunal (NCLT) is the appropriate forum for such matters.

The petitioners, guarantors of credit facilities availed by the principal borrower, contended that the borrower had cleared the outstanding dues, thus nullifying any claim against them. Despite this, the respondents initiated insolvency proceedings, which the petitioners claimed were intended to harass them.

Justice Rao emphasized that the IBC provides a comprehensive mechanism for resolving such disputes, underscoring the role of the NCLT and National Company Law Appellate Tribunal (NCLAT) as the statutory bodies to adjudicate these matters. The court noted that the High Court could not substitute itself for the NCLT, especially when the adjudication process was already underway.

The judgment highlighted the procedural framework under Section 95 of the IBC, where a resolution professional is appointed to examine applications and submit reports to the adjudicating authority. The court observed that the petitioners had adequate remedies available within the statutory framework, and judicial intervention at this stage was unwarranted.

Furthermore, the court held that private companies like the respondents do not fall under the "State" category under Article 12 of the Constitution, thus challenging the maintainability of the writ petition.

Citing precedents, the court reiterated that statutory tribunals are constituted to address specific questions of law and fact, and High Courts should not intervene in their processes. The dismissal of the petition reaffirms the legislative intent behind the IBC to resolve insolvencies efficiently and effectively through designated forums.

The court's decision underscores the importance of adhering to statutory mechanisms for insolvency resolution, affirming the NCLT's role as the primary forum for such matters.

Bottom Line:

Writ petition challenging the initiation of personal insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 against guarantors dismissed as National Company Law Tribunal is the appropriate statutory forum to adjudicate such matters.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 95, 100; Constitution of India, 1950 Article 226

Sanjay Jhunjhunwala v. Piramal Finance Limited, (Calcutta) : Law Finder Doc id # 2817721