Writ Jurisdiction Cannot Override Statutory IBC Process: Calcutta HC Dismisses Guarantors’ Challenge to Personal Insolvency Proceedings [Read Order]

The Calcutta High Court, in a recent judgement, dismissed a writ petition filed by guarantors challenging personal insolvency proceedings initiated against them under Section 95 of the Insolvency and Bankruptcy Code, 2016, holding that writ jurisdiction cannot override the statutory process under the Insolvency and Bankruptcy Code of India,2016 (IBC)

The petitioners, led by Sanjay Jhunjhunwala, had provided personal guarantees securing credit facilities availed by a corporate borrower. They argued that since the borrower had repaid the outstanding dues along with penal interest, no claim remained against them as guarantors, and initiation of insolvency proceedings was illegal.

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The petitioners contended that the invocation of IBC proceedings violated the Reserve Bank of India’s Master Circular on classification of non‑performing assets (NPAs). According to them, a loan account becomes an NPA only if interest remains unpaid for 90 consecutive days, and until then, no default arises.

They maintained that the borrower had cleared dues and even prepaid future instalments, leaving only a small portion outstanding but not yet due. On this basis, they argued that the guarantors could not be proceeded against once the principal borrower had discharged obligations.

The respondents, Piramal Finance Limited and its security trustee, countered that the loan agreement expressly permitted proceedings against guarantors. They highlighted that two sets of proceedings were pending before the NCLT: one under Section 7 against the corporate debtor, and another under Section 95 against the guarantors.

They argued that whether the invocation of IBC was contrary to RBI circulars was a matter for the NCLT to decide, not the High Court in writ jurisdiction.

Justice Krishna Rao examined the statutory framework and precedents. The Court referred to the Supreme Court’s ruling in Bank of Baroda v. Farooq Ali Khan (2025), which held that High Courts should not exercise writ jurisdiction to interdict personal insolvency proceedings before the Resolution Professional’s report and adjudication by the NCLT.

The Court also cited Dilip B. Jiwrajka v. Union of India (2024), where the Supreme Court upheld the constitutionality of Sections 95–100 of the IBC and clarified the distinct roles of Resolution Professionals and adjudicating authorities under Part III of the Code.

The High Court noted that statutory tribunals like the NCLT are constituted to adjudicate questions of law and fact under the IBC. Interference by High Courts at the writ stage would preclude the statutory mechanism from taking its course. The Court highlighted that petitioners had adequate remedies before the NCLT and, if aggrieved, before the National Company Law Appellate Tribunal (NCLAT).

On the petitioners’ reliance on RBI circulars and the Swiss Ribbons judgment, the Court observed that such arguments could be raised before the adjudicating authority. It held that writ jurisdiction cannot be used to quash proceedings merely because petitioners dispute the existence of default.

The Court also noted that, except for the RBI, the respondents were private companies not amenable to writ jurisdiction under Article 12 of the Constitution.

Justice Rao concluded that no fundamental rights of the petitioners had been violated. The reliefs sought, including directions to the RBI and quashing of insolvency petitions, could not be granted in writ proceedings. The Court held that the petition was not maintainable and dismissed it, directing parties to pursue remedies within the IBC framework.

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