IBC's Overriding Effect Does Not Automatically Bar Proceedings Under Other Laws: Karnataka High Court

The Karnataka High Court has held that the mere pendency of Corporate Insolvency Resolution Process against a developer does not automatically render recovery proceedings initiated under another statute illegal.

Justice Suraj Govindaraj held that questions as to whether a RERA Recovery Certificate can be executed during CIRP, whether the property forms part of the insolvency estate and whether the Section 14 moratorium is attracted are matters falling within the jurisdiction of the National Company Law Tribunal.

The petitioners, M Govind Reddy and M Yashodamma, who claimed to be the owners of the subject property, had entered into a Joint Development Agreement with Venkat Estates Private Limited, the developer. The developer was subsequently admitted into CIRP under the Insolvency and Bankruptcy Code in June 2025, with the proceedings pending before the NCLT.

The petitioners challenged a Public Auction Notice dated June 6, 2026, issued by the Special Tahsildar pursuant to a Recovery Certificate under Section 41 of Real Estate (Regulation and Development) Act, 2016. They contended that the auction concerned a parallel recovery process outside the insolvency proceedings and therefore could not be permitted. They further argued that the IBC would prevail over the RERA Act.

Rejecting the plea, the Court noted that the auction notice had not been issued independently but was merely a step towards enforcing a Recovery Certificate issued under Section 41 of RERA. It further noted that the Recovery Certificate remained in force and there was no material to show that it had been stayed, modified or set aside by any competent forum.

Referring to Section 2(zk) of RERA Act, the Court observed that a landowner who permits development through a developer under a JDA is also treated as a promoter/co-promoter and assumes the statutory responsibilities under RERA. It therefore held the petitioners could not claim the benefits of the JDA while arguing that the RERA proceedings concerned only the developer.

The Court further noted that the petitioners had challenged only the auction notice, and not the RERA order or Recovery Certificate. It stated that since the auction was merely an execution step, the authority was bound to proceed as long as the Recovery Certificate remained valid.

The Bench observed:

“28. There can be no quarrel with the proposition that Section 238 of the IBC gives overriding effect to the provisions of the Code wherever there is an inconsistency with any other enactment.”

However it clarified “29….those principles do not automatically render every proceeding initiated under another statute illegal”

It further noted that the petitioners themselves claimed to be stakeholders in the pending insolvency proceedings and therefore had an effective remedy before the NCLT.

The Court held that it could not, while exercising jurisdiction under Article 226, assume the role assigned by Parliament to the NCLT under the IBC.

Accordingly, the Court dismissed the writ petition, leaving it open to the petitioners to approach the NCLT for appropriate relief.

For Petitioners: Advocate Adith S Jahgirdar

For Respondents: Advocates Mohammed Jafar Shah and Gouthamdev Ulla