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SUPREME COURT OF INDIA
A.M. KHANWILKAR, AJAY RASTOGI, JJ.
K. Sashidhar - Appellant
Versus
Indian Overseas Bank & Ors. - Respondents
Civil Appeal No.10673 of 2018 With C.A. No.10719 of 2018, C.A. No.10971 of 2018 and SLP (C) No.29181 of 2018
Decided On : 05-02-2019
(2018) SCC Online SC 1921; (2018) SCCOnline 1733; (2018) 1 SCC 407; (1989) 2 SCC 95; (1995) Supp. 2 SCC 295; (1976) 3 SCC 71; (1986) 2 SCC 614; (1996) 6 SCC 651; (1987) 2 SCC 720; (1990) 3 SCC 223; (2000) 7 SCC 357; (1996) 7 SCC 559; (2005) 4 SCC 456; (2006) 2 SCC 740; (2001) 5 SCC 34 - Referred
(b) Insolvency and Bankruptcy Code, 2016 - Sections 31(2) r/w 31(1), and 61(3) - NCLT and NCLAT not empowered to enquire into wisdom of dissenting creditors in voting against the resolution plan - The prescribed authorities (NCLT/NCLAT) cannot act as a court of equity or exercise plenary powers. (Para 38)
(c) Insolvency and Bankruptcy Code, 2016 - Section 30(4) - Power of financial creditors to vote for or against a resolution plan - Duty to exercise that power with utmost care, caution and reason cannot be read into section 30(4). (Para 42)
(d) Insolvency and Bankruptcy Code, 2016 - Section 30(4) - Dissenting Financial creditors not recording reason for their stand - Was not required at relevant time - The requirement introduced by amendment in 2018 - No illegality. (Para 43, 44)
(e) Insolvency and Bankruptcy Code, 2016 - Sections 30(2) and 61(3) - Absence of any ground u/s 30(2) and 61(3) - Adjudicating Authority (NCLT) and Appellate Authority (NCLAT) had to record that the proposed resolution plan stood rejected - No properly approved resolution plan forthcoming within 270 days - Direction for initiation of liquidation process against the concerned corporate debtor had to be passed - No fault. (Para 45, 58, 64)
(f) Insolvency and Bankruptcy Code (Amendment) Act, 2017 - Section 6 - Not altering requirement regarding approval of a resolution plan, by a vote of not less than 75% of voting share of the financial creditors. (Para 47)
(g) Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 - Section 23(iii)(a) amendment in section 30(4) Insolvency and Bankruptcy Code, 2016 - Words “75%” substituted by “66%” - Amendment brought into force when appeals were pending - Whether retrospective - Merely envisaging a new norm of threshold for considering the decision of the CoC as approval of the resolution plan - Amendment not declaratory/clarificatory or stricto sensu procedural matter - Amendment deemed to have come into force on the 6th day of June, 2018 - Mere use of expression “substituted” would not make the provision retrospective in operation or having retroactive effect - Legislature not intending to undo and/or govern the decisions already taken by the CoC of the concerned corporate debtors prior to 6-06-2018 - Held the amendment is prospective. (Para 51, 53, 55)
(2018) SCC Online SC 1386; (2005) 7 SCC 396; (2004) 8 SCC 1; (2018) SCC Online SC 1921; (2018) SCC Online SC 963; (2011) 6 SCC 739; (2012) 7 SCC 462; (2015) 1 SCC 1; (1976) 3 SCC 37 - Relied upon
(h) Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Regulation 39(3) - Amendment - Amendment to regulation cannot have retrospective effect. (Para 60)
(i) Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Regulation 39(3), Amended - Dissenting financial creditors rejecting resolution plan in exercise of business/ commercial decision - Not required to record reason - Amended regulation will not apply. (Para 61)
(2004) 4 SCC 311 - Distinguished
(j) Constitution of India - Article 142 - Power under - Cannot be exercised for issuing directions in the teeth of the provisions. (Para 65)
Facts of the case:
The NCLAT affirmed the order passed by the National Company Law Tribunal, Mumbai Bench recording rejection of the resolution plan concerning IIL and directing initiation of liquidation process under Chapter-III of Part II of the I&B Code. As regards KS&PIPL, the NCLAT reversed the decision of the National Company Law Tribunal, Hyderabad which had approved its resolution plan and instead remanded the proceedings to NCLT Hyderabad for initiation of liquidation process in terms of Section 33 and 34 of the I&B Code.
The NCLAT held that as, in both the cases, the resolution plan did not garner support of not less than 75% of voting share of the financial creditors constituting the Committee of Creditors the same stood rejected and thereby warranted initiation of liquidation process of the concerned corporate debtor, namely, KS&PIPL and IIL.
Finding of the case:
There is no error in the NCLAT judgment.
Result: Appeals dismissed.
JUDGMENT :
A.M. KHANWILKAR, J.
1. Leave granted in SLP (C) No.29181 of 2018.
2. All appeals were taken up for hearing at the notice stage with the consent of the contesting respondents.
3. These appeals have arisen from the common judgment and order of the National Company Law Appellate Tribunal (for short “NCLAT”), New Delhi, dated 6th September, 2018, rendered in appeals filed in relation to the insolvency resolution process under the provisions of the Insolvency and Bankruptcy Code, 2016 (for short “I&B Code”) concerning Kamineni Steel & Power India Pvt. Ltd. (for short “KS&PIPL”), having its registered office at Hyderabad, Telangana and Innoventive Industries Ltd. (for short “IIL”) having its registered office at Pune, Maharashtra.
4. The NCLAT affirmed the order passed by the National Company Law Tribunal, Mumbai Bench (for short “NCLT Mumbai”) recording rejection of the resolution plan concerning IIL and directing initiation of liquidation process under Chapter-III of Part II of the I&B Code. As regards KS&PIPL, the NCLAT reversed the decision of the National Company Law Tribunal, Hyderabad (for short “NCLT Hyderabad”) which had approved its resolution plan and instead remanded the proceedings to NCLT Hyderabad for initiation of liquidation process in terms of Section 33 and 34 of the I&B Code.
5. The NCLAT held that as, in both the cases, the resolution plan did not garner support of not less than 75% of voting share of the financial creditors constituting the Committee of Creditors (for short “CoC”) the same stood rejected and thereby warranted initiation of liquidation process of the concerned corporate debtor, namely, KS&PIPL and IIL.
6. For considering the grounds of challenge in the respective appeals, we deem it appropriate to advert to the relevant facts concerning the respective corporate debtor.
7. KS&PIPL was incorporated as a private limited company on 20th October, 2008. Its steel division commenced operation on 30th March, 2013. The company was functional till the Financial Year 2014-15. However, it could not continue beyond this period due to deficient working capital and various other factors including financial crisis, leading to heavy operational losses and consequent erosion of the entire net worth. Attempts were made to revive the company by forming a joint lenders forum by the consortium of banks. As that attempt did not fructify, the company filed an application with BIFR under Section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 on 15th November, 2016. The said proceedings abated due to a notification dated 25th November, 2016, as to the repeal of the Act. Eventually, the company filed a petition under Section 10 of the I&B Code read with Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking to initiate Corporate Insolvency Resolution Process (CIRP) concerning the said company. That petition was admitted on 10th February, 2017, by the NCLT Hyderabad and an Interim Resolution Professional (for short “IRP”) came to be appointed with directions to constitute a CoC. The CoC was constituted and the first meeting was held on 8th March, 2017 to confirm the appointment of IRP and authorise the lead bank, namely the Indian Bank to inform the approved valuers that they should proceed with their valuation. The second meeting of CoC was held on 6th April, 2017, for taking on record the predicated expenses and essential costs and factory maintenance costs and to confirm about the operation of the bank account with lead Bankers, Indian Bank by IRP and Chief Financial Officer. In the third meeting of CoC, convened on 12th May, 2017, the corporate debtor made a presentation for a resolution plan, giving three options. In that meeting, it was resolved to appoint SBI Capital Markets Limited to determine the sustainable debt of the corporate debtor to enable the creditors to assess the viability of the resolution plan. In the fourth meeting of CoC, held on 2
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