The Bombay High Court has dismissed a writ petition filed at the eleventh hour to obstruct personal insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, holding that litigants cannot bypass statutory adjudicatory forums by raising belated allegations of arbitrariness against state instrumentalities. The judgment reinforces the primacy of the IBC’s structured resolution process over collateral constitutional challenges.
Background & Facts
The Dispute
The petitioner, Yudhishthir Khatau, was the promoter of Varun Shipping Group and had executed a Deed of Personal Guarantee dated 31.03.2015 in favor of lenders under a Joint Lenders Forum (JLF), securing obligations arising from a Letter of Comfort (LoC) issued by State Bank of India (SBI) for USD 118 million (approximately Rs. 536.50 crores) in favor of SBI Singapore. This LoC facilitated a Foreign Currency Term Loan to Varun Asia Private Limited (VAPL), a group company. When VAPL defaulted, SBI, as lead bank, transferred funds from the overdraft account of Varun Resources Limited (VRL), another group company, to honor the LoC under the Amended Master Restructuring Agreement (MRA) and Trust and Retention Account Agreement (TRA) dated 24.09.2015.
Key Facts
- The petitioner became aware of the fund transfers in August 2016.
- The loan account of VRL was declared a Non-Performing Asset (NPA) on 28.08.2016.
- Indian Bank initiated Corporate Insolvency Resolution Process (CIRP) against VRL under Section 7 of the IBC on 01.06.2017.
- The NCLT admitted the CIRP on 01.06.2017.
- VRL was dissolved on 29.10.2025.
- On 22.05.2024, the NCLT partly allowed an application by Mauritius Commercial Bank, directing VAPL to refund certain amounts, but made no adverse findings against SBI.
- On 01.04.2021, SBI filed Company Petition No. 525 of 2021 before the NCLT under Section 95 of the IBC for personal insolvency of the petitioner, claiming debt of Rs. 2950 crores.
- SBI also filed a recovery application before the Debts Recovery Tribunal (DRT), Mumbai, which resulted in a recovery certificate dated 14.10.2022 for Rs. 2982 crores after the petitioner failed to appear.
- The Resolution Professional (RP) submitted his report on 17.12.2025, recommending admission of the personal insolvency petition.
- The NCLT fixed the final hearing for 29.04.2026.
- The petitioner filed the present writ petition in April 2026, seeking to restrain SBI from enforcing the Deed of Guarantee and from prosecuting the NCLT petition.
Procedural History
- 28.08.2016: VRL’s loan account declared NPA.
- 01.06.2017: NCLT admitted CIRP against VRL.
- 22.05.2024: NCLT ordered VAPL to refund amounts; no adverse findings against SBI.
- 01.04.2021: SBI files Company Petition No. 525 of 2021 under Section 95 IBC.
- 30.09.2022: DRT issues order in favor of SBI.
- 14.10.2022: Recovery certificate issued by DRT.
- 17.12.2025: RP submits report recommending admission of personal insolvency petition.
- 06.04.2026: NCLT fixes final hearing for 29.04.2026.
- April 2026: Petitioner files writ petition before Bombay High Court.
- 07.05.2026: Writ petition circulated.
- 29.04.2026: NCLT adjourns hearing to 01.06.2026.
- 01.06.2026: NCLT adjourns to 19.06.2026.
- 16.06.2026: Bombay High Court hears writ petition.
- 18.06.2026: Judgment pronounced.
The Parties' Positions
For the Petitioner
The petitioner alleged that SBI’s transfer of funds to VAPL under the LoC was fraudulent, unauthorized, and violated the Amended MRA and TRA. He claimed this conduct amounted to arbitrary action by a state instrumentality, invoking Article 226. He argued that the NCLT lacked jurisdiction to adjudicate such public law issues and that the guarantee was discharged due to SBI’s alleged illegality.
For the Respondent (SBI)
SBI contended that the fund transfers were lawful under the Amended MRA and TRA, aimed at preserving the JLF restructuring package. It argued that the petitioner had ample opportunity to raise these issues during the CIRP of VRL, before the DRT, and in the five-year pendency of the personal insolvency petition. The filing of the writ petition at the final hearing stage was a deliberate tactic to derail the statutory process.
Relief Sought
The petitioner sought:
- A direction to restrain SBI from enforcing the Deed of Personal Guarantee dated 31.03.2015.
- A direction to restrain SBI from prosecuting Company Petition No. 525 of 2021 before the NCLT.
- A declaration that the guarantee was discharged due to SBI’s alleged fraudulent conduct.
The Legal Issue
Can a writ petition under Article 226 of the Constitution be maintained to challenge the conduct of a state instrumentality in contractual matters, when the same issues are pending adjudication before the NCLT under the Insolvency and Bankruptcy Code, and the petition is filed only after the statutory process has reached its final hearing stage?
Arguments Presented
For the Petitioner
The petitioner relied on ABL International Limited v. Export Credit Guarantee Corporation of India (2004) 3 SCC 553, A A Estates Private Limited v. Kher Nagar Sukhsadan Co-operative Housing Society (2025 SCC OnLine SC 2579), and S. Rajendran v. Deputy Commissioner of Income-Tax (2026 SCC OnLine SC 298) to argue that where a state instrumentality acts arbitrarily, even in contractual contexts, the writ court retains jurisdiction. He contended that the NCLT, being a statutory tribunal, lacks the power to examine allegations of fraud and arbitrariness against SBI as a public entity. He asserted that the delay in filing was excusable because the NCLT had not addressed these issues in its 22.05.2024 order.
For the Respondent
SBI relied on Bank of Baroda v. Farooq Ali Khan (2025 SCC OnLine SC 374) to argue that the IBC’s statutory adjudicatory framework is exclusive for resolving factual disputes, document interpretations, and allegations of fraud arising from financial transactions. It emphasized that the petitioner had not raised these issues during the CIRP of VRL, before the DRT, or in the five years of the personal insolvency proceedings. The filing of the writ petition at the final hearing stage was a dilatory tactic designed to stall the process.
The Court's Analysis
The Court undertook a rigorous analysis of the statutory scheme under the IBC and the limits of writ jurisdiction under Article 226. It observed that the NCLT, as the designated adjudicatory authority under the IBC, is fully equipped to examine complex factual disputes, including allegations of fraud, breach of contractual obligations, and interpretation of restructuring agreements such as the Amended MRA and TRA.
"The NCLT is not denuded of jurisdiction merely because the petitioner raises allegations of arbitrariness against a state instrumentality. The statutory framework of the IBC contemplates comprehensive adjudication of such disputes, including the validity of guarantees and the legality of fund transfers under restructuring agreements."
The Court rejected the petitioner’s attempt to invoke the "public law element" doctrine to bypass the IBC’s adjudicatory process. It distinguished the precedents cited by the petitioner: ABL International involved repudiation of an insurance contract without any statutory forum; A A Estates concerned protection of housing society members from abuse of IBC; and S. Rajendran dealt with sovereign action under the Benami Act - all factually inapposite to a commercial dispute between private parties where the IBC provides a complete remedy.
The Court emphasized the petitioner’s inordinate delay: he was aware of the fund transfers since August 2016, yet took no action for nearly a decade. He failed to appear before the DRT, allowing a recovery certificate to be issued. He did not challenge SBI’s conduct during the CIRP of VRL or in the five years of the personal insolvency proceedings. The filing of the writ petition only after the RP’s report and the NCLT’s fixation of the final hearing was deemed a deliberate strategy to derail the statutory process.
The Court noted that the NCLT had already taken note of the disputed transactions in its 22.05.2024 order and had not found SBI liable, indicating that the issues were properly before it. The Court held that the petitioner’s apprehensions about the NCLT’s ability to adjudicate were unfounded and that the statutory forum must be allowed to conclude its proceedings.
The Verdict
The writ petition is dismissed. The NCLT shall proceed with the final hearing of Company Petition No. 525 of 2021 on 19.06.2026 without delay. All contentions raised by the petitioner regarding the validity of the Deed of Guarantee, the legality of fund transfers, and the interpretation of the Amended MRA and TRA shall be adjudicated strictly on merits by the NCLT. The petitioner’s rights to contest these issues before the NCLT are preserved. No costs are awarded.
What This Means For Similar Cases
Statutory Forums Prevail Over Belated Writs
- Practitioners must raise all factual and contractual disputes within the IBC’s adjudicatory framework at the earliest opportunity.
- Delay in filing writ petitions after statutory proceedings have reached advanced stages will be viewed as an abuse of process.
- Allegations of arbitrariness against state banks will not automatically invoke writ jurisdiction if a statutory remedy exists.
NCLT Has Broad Adjudicatory Powers
- The NCLT is empowered to examine allegations of fraud, breach of contract, and misuse of restructuring agreements under the IBC.
- Courts will not entertain collateral challenges to NCLT proceedings unless there is a clear lack of jurisdiction or violation of natural justice.
- The 22.05.2024 NCLT order in this case confirms that even adverse findings against third parties (like VAPL) do not preclude the NCLT from later examining the conduct of lenders.
Strategic Timing Matters in Insolvency Litigation
- Filing writ petitions at the final hearing stage of an IBC proceeding is likely to be dismissed summarily.
- Parties must exhaust remedies within the IBC framework before seeking constitutional remedies.
- Failure to appear before DRT or during CIRP will be held against the petitioner in subsequent proceedings.
