"Supreme Court Criticizes HC for Deferring CIRP Under Article 226"

The Supreme Court recently criticized the Telangana High Court for ordering a delay in the Corporate Insolvency Resolution Process (CIRP) using its powers under Article 226 of the Constitution. A bench led by Chief Justice of India DY Chandrachud, along with Justice J.B. Pardiwala and Justice Manoj Misra, stated that the High Court was not justified in delaying the CIRP when it had already refused the main request in the petition, which was to consolidate the CIRP of two companies. Background:- The Committee of Creditors (CoC) of KSK Mahanadi Power Company Limited filed an appeal. The Uttar Pradesh Power Corporation Limited (UPPCL) had earlier filed a petition seeking to combine the CIRP of two companies, KSK Water Infrastructure Private Limited and Raigarh Champa Rail Infrastructure Private Limited, before the National Company Law Tribunal (NCLT). This request was denied by the NCLT in February 2021, and an appeal was pending. Despite refusing to combine the CIRP of the two companies, the High Court ordered that the CIRP of KSK Mahanadi should be postponed until a new application was filed and decided by the NCLT, without notifying the CoC. Arguments:- The CoC argued that the High Court exceeded its powers under Article 226 by delaying the CIRP without giving them a fair hearing. They said that this action contradicted the Insolvency and Bankruptcy Code (IBC), which is designed to ensure a quick and structured resolution for companies in financial trouble. On the other hand, the UPPCL argued that consolidating the CIRP was necessary due to the linked financial matters between the companies. They believed that delaying the CIRP was fair, as it would prevent conflicting judgments from separate legal processes. Supreme Court's Decision:- The Supreme Court found that the High Court acted beyond its authority by ordering a delay in the CIRP after already denying the main request to consolidate the cases. The Court noted that the High Court's decision affected the stakeholders' interests and violated the IBC's rules, which are in place to ensure timely resolutions of insolvency cases. The Supreme Court also highlighted that the High Court's order was unfair because it did not give the CoC a chance to present their case. It concluded that the High Court's action breached legal principles and natural justice by not following the procedures outlined in the IBC. Conclusion:- The Supreme Court ruled that the Telangana High Court overstepped its jurisdiction by deferring the CIRP of KSK Mahanadi Power Company Limited. As a result, the Supreme Court allowed the appeal and set aside the High Court's order to delay the CIRP. Case Title: CoC of KSK Mahanadi Power Company Ltd. v. Uttar Pradesh Power Corporation Ltd. and Ors. Case Reference: Civil Appeal No. 11086 of 2024 (Arising out of SLP (C) No. 23339 of 2024) www.legalmeet.in