NCLT/NCLAT should not sit on appeal on CoC business wisdom to allow CIRP withdrawal: Supreme Court

0

On Friday, the Supreme Court ruled that when 90% or more of creditors decide that it will be in the interests of all stakeholders to authorize the settlement plan filed by the debtor company’s promoter and withdraw the process. resolution of the company’s insolvency in accordance with Article 12A. of the Insolvency and Bankruptcy Code, 2016, the Contracting Authority (NCLT) or the Appellate Authority (NCLAT) cannot sit on appeal on such commercial wisdom of the Committee of Creditors (CoC).

A bench comprising Judges BR Gavai and Hima Kohli upheld the appeals filed against the order of the National Company Law Appellate Tribunal, Chennai Bench (NCLAT), which had dismissed the appeals against the orders of the National Company Law Tribunal, Chennai (NCLT) dismissing the claim filed by the resolution professional under Section 12A of the Insolvency and Bankruptcy Code, 2016 requesting the withdrawal of the application filed by the financial creditor under Section 7 requesting the initiation of the insolvency resolution process (CIRP) against the corporate debtor. The appellant, promoter of the Debtor Company, had also come up against the dismissal by the NCLAT of the appeal challenging the order of the NCLT to initiate liquidation proceedings. While allowing the appeals, the Supreme Court cited Ajay Kumar Jagatramka v. Jindal Steel and Power Limited And Anr. underline –

This Court has repeatedly emphasized the need for minimal judicial interference by the NCLAT and NCLT in the IBC.”

Factual background

IDBI Bank Limited had filed an application under Section 7 of the IBC requesting the commencement of a Corporate Insolvency Resolution Process (CIRP) against M/s Siva Industries and Holdings Limited (debtor of company). On 04.07.2019, the request was admitted by the NCLT and the CIRP was launched. The resolution professional (RP) presented a resolution plan to the CoC which was not approved because it did not receive 66% of the votes, as required by law. The RP filed a request for the opening of liquidation. Subsequently, Vallal Rck, the promoter of the debtor company filed a settlement request under Section 60(5) IBC to propose a single settlement plan. Subsequently, the CoC reviewed the settlement plan at its 13th, 14th and 15th meetings held between October and December 2020. The final settlement proposal was submitted by the sponsor and was reviewed by the CoC on 18.01.2021 . Finally, the settlement plan was approved on 01.04.2021. Consequently, the PR filed a request to withdraw the CIRP. However, the NCLT denied the said claim stating that the settlement plan was only a corporate restructuring plan. In addition, he initiated the liquidation process. The appeals filed with the NCLAT were dismissed.

Grounds raised by the appellant

Lead Attorney, Mr. Abhishek Manu Singhvi, appearing on behalf of the debtor company’s promoter argued that neither the contracting authority nor the appeals authority can sit on appeal on the commercial wisdom of the CoC, which had agreed to the settlement plan with 94.32 % voices. He pointed out that the contested orders run counter to BAC’s goal of allowing the debtor company to continue in business, while discharging the creditor’s debts to the best of its ability.

The appeal was unopposed. However, since this was an important issue regarding the interpretation of IBC Section 12A, the Court was inclined to consider the matter.

Analysis by the Supreme Court

Referring to Section 12A, which deals with the withdrawal of claims admitted under Section 7, 9 or 10, the Court noted that the provision had been inserted by way of the Insolvency Act 2018 and bankruptcy (Second Amendment) after long deliberations of insolvency law. Committee. The Committee had recommended that an exit be authorized provided that the CdC approves it with 90% of the votes. The recommendation reads as follows –

“(vii) in order to respond to exceptional circumstances justifying the withdrawal of a request for post CIRP admission, it was recommended that such an exit be authorized provided that the CoC approves this action at ninety percent shares with voting rights;”

The Court observed that the recommendation was made because the Committee believed that BAC’s intent was to discourage individual enforcement and settlement actions. In view of the foregoing, it had expressed the opinion that the transaction could be concluded between all the creditors and the debtor, for the purposes of a waiver to consent. In line with the insertion of Section 12A into the IPC, Regulation 30A was added to the 2016 Regulations, which set out the detailed procedure for withdrawing an application. It was further noted that in Swiss Ribbons Private Limited And Anr. v. Union of India and Ors., the validity of Article 12A was confirmed. Further, considering that a series of Apex Court judgments had already ruled that CoC’s business wisdom should not be interfered with by NCLT and NCLAT, it held –

Where 90% or more of the creditors, in their wisdom after deliberation, believe that it will be in the interests of all parties to allow settlement and withdraw the CIRP, in our opinion, the adjudicating authority or appeal cannot sit appeal on commercial wisdom of CoC. Interference would only be justified where the adjudicative authority or appellate authority finds the CoC’s decision to be wholly capricious, arbitrary, irrational and contrary to the provisions of the statute or rules.”

Case Name: Vallal Rck v. M/s. Siva Industries And Holdings Limited And Ors.

Citation: 2022 LiveLaw (SC)

Case No. and Date: Civil Appeals No. 1811-1812 of 2022 | June 03, 2022

Corum: Judges BR Gavai and Hima Kohli

Summaries

Insolvency and Bankruptcy Code, 2016; Section 12A – Where 90% or more of the creditors, in their wisdom after deliberations, believe that it will be in the interests of all parties to permit settlement and withdraw the CIRP, in our opinion, the contracting authority or the appeal authority cannot sit in an appeal on the commercial wisdom of the CoC. Interference would only be justified when the decision-making authority or appeals authority finds that the decision of the CoC is totally capricious, arbitrary, irrational and contrary to the provisions of the law or the Regulations – Para 24

Click here to read/download the judgment

Share.

Comments are closed.