IBC - NCLT Or NCLAT Cannot Sit In An Appeal Over Commercial Wisdom Of CoC - SC Reiterates
The Supreme Court has held that the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC) when 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw Corporate Insolvency Resolution Process (CIRP).
The bench of Justice B.R. Gavai and Justice Hima Kohli reiterated the need for minimal judicial interference by the National Company Law Appellate Tribunal (NCLAT) and National Company Law Tribunal (NCLT) in the framework of the Insolvency and Bankruptcy Code (IBC).
In this case, IDBI Bank Limited had filed an application under Section 7 of the IBC for initiation of CIRP against M/s Siva Industries and Holdings Limited-Corporate Debtor. The said application was admitted by NCLT and CIRP was initiated against the corporate debtor.
The Resolution Professional presented a Resolution Plan before the CoC, submitted by one M/s Royal Partners Investment Fund Limited. However, since the said Plan received only 60.90% votes of the CoC, it could not be approved. The Resolution Professional filed an application seeking initiation of the liquidation process of the Corporate Debtor. Thereafter the appellant-promoter of the Corporate Debtor filed a settlement application before the NCLT under Section 60(5) of the IBC, offering a onetime settlement plan. The appellant sought necessary directions from the CoC to consider the terms of Settlement Plan as proposed by him. Consequently, the final settlement proposal which was submitted by the appellant was considered by the CoC.
The settlement plan was approved by more than 90% voting share hence the Resolution Professional filed an application before the NCLT seeking withdrawal of CIRP initiated against the Corporate Debtor in view of the approval of the said Settlement Plan by CoC.
However, NCLT held that the said Settlement Plan was not a settlement simpliciter under Section 12A of the IBC but a "Business Restructuring Plan", in view of which it rejected the application for withdrawal of CIRP and approval of the Settlement Plan. The NCLT also initiated the liquidation process of the Corporate Debtor. Aggrieved by this, appeals were filed before the NCLAT but came to be dismissed. Hence, the appellant-promoter of the Corporate Debtor moved Supreme Court. The appeals were uncontested but since an important question with regard to the interpretation of Section 12A of the IBC came up, the court considered the issue.
Senior Advocate Abhishek Manu Singhvi, while appearing for the appellant, argued that the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. He argued that NCLT and NCLAT have grossly erred in rejecting the Settlement Plan and withdrawal of CIRP. He further argued that the main object of the IBC is permitting the Corporate Debtor to continue as an ongoing concern and at the same time, paying the dues of the creditors to the maximum.
Here, the Apex Court noted the recommendation of the Insolvency Law Committee where it had recommended that withdrawal of an application for CIRP post admission should be allowed provided the CoC approves it by 90% voting share.
The Court held that if the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT and NCLAT can always set aside such a decision under the provisions of the IBC.
Reiterating its stand that the commercial wisdom of CoC is not to be interfered with by NCLT and NCLAT, the Supreme Court held "When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules."
The Court observed that the decision of the CoC was taken after the members of the CoC, had due deliberation to consider the pros and cons of the Settlement Plan and took a decision exercising their commercial wisdom. And to that end opined that "We are therefore of the considered view that neither the learned NCLT nor the learned NCLAT were justified in not giving due weightage to the commercial wisdom of CoC".
Accordingly, the Court allowed the appeals and set aside and quashed the impugned judgment of NCLAT.
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