1. Initiation of Corporate Insolvency Resolution Process — Approval of Settlement Plan by Committee of Creditors — Application for withdrawal under Section 12A, IBC. (Para 1 , 3 , 4 , 5 , 6 )
Back
Next 
2022 Supreme(SC) 514
SUPREME COURT OF INDIA
B.R. GAVAI, HIMA KOHLI, JJ.
Vallal RCK - Appellant
Versus
M/s Siva Industries and Holdings Limited and Others - Respondents
Civil Appeal Nos. 18111812 of 2022
Decided On : 03-06-2022
Important Points
IMPORTANT POINT
Corporate Insolvency Resolution Process – Adjudicating authority (NCLT) or appellate authority (NCLAT) can sit in appeal over commercial wisdom of Committee of Creditors (“CoC”) – There is need for minimal judicial interference by NCLAT and NCLT in framework of IBC.
Corporate Insolvency Resolution Process – Adjudicating authority (NCLT) or appellate authority (NCLAT) can sit in appeal over commercial wisdom of Committee of Creditors (“CoC”) – There is need for minimal judicial interference by NCLAT and NCLT in framework of IBC.
Subject
Insolvency and Bankruptcy Code - Withdrawal of CIRP
Act Referred
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 12A read with Regulation 30A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Appellate Jurisdiction – Initiation of Corporate Insolvency Resolution Process – Withdrawal of application under Section 7 of IBC – If CoC arbitrarily rejects a just settlement and/or withdrawal claim, NCLT and thereafter NCLAT can always set aside such decision under provisions of IBC – Commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of stated processes within timelines prescribed by IBC – There is intrinsic assumption that financial creditors are fully informed about viability of corporate debtor and feasibility of proposed resolution plan – They act on the basis of thorough examination of proposed resolution plan and assessment made by their team of experts – There is need for minimal judicial interference by NCLAT and NCLT in framework of IBC – In present case, decision of CoC was taken after members of CoC had due deliberation to consider pros and cons of Settlement Plan and took a decision exercising their commercial wisdom – Impugned judgment delivered by NCLAT in Company Appeal and orders passed by NCLT quashed and set aside. (Paras 20, 21, 26, 27 and 28)
Facts of the case:
Present appeals challenge the common judgment dated 28th January 2022 passed by National Company Law Appellate Tribunal, Chennai Bench, Chennai in Company Appeal (AT)(CH)(Insolvency) Nos. 211 and 212 of 2021, thereby dismissing the appeals filed by the present appellant, which were in turn filed, challenging the two orders dated 12th August 2021 passed by the learned National Company Law Tribunal, Division Bench-II, Chennai, thereby rejecting the application filed by Resolution Professional (“RP” ) under Section 12A of Insolvency and Bankruptcy Code, 2016 (“IBC”) read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, for withdrawal of the application filed under Section 7 of the IBC in view of the Settlement Plan submitted by the appellant. The appellant has also challenged the order passed by the learned NCLAT of even date vide which the appeal filed by the present appellant against the order passed by NCLT directing initiation of liquidation proceedings in respect of M/s Siva Industries and Holdings Limited-respondent No.1 herein (Corporate Debtor), was dismissed.
Short question that falls for consideration in present appeal is as to whether the adjudicating authority (NCLT) or appellate authority (NCLAT) can sit in appeal over commercial wisdom of Committee of Creditors (“CoC”) or not.
Findings of Court:
Impugned judgment dated 28th January 2022 delivered by NCLAT in Company Appeal (AT)(CH)(Insolvency) Nos. 211 and 212 of 2021 and orders dated 12th August 2021 passed by NCLT in MA/43/CHE/2021 in IBA/453/2019 and in IA/837/IB/2020 in IBA/453/2019 are quashed and set aside and application bearing No. MA/43/CHE/2021 in IBA/453/2019 filed by the Resolution Professional before NCLT for withdrawal of CIRP is allowed.
Result : Appeals allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) :Abhishek Manu Singhvi, P.H.Arvind Pandian, Ankur Kashyap, Ajith S.Ranganathan, Aavishkar Singhvi, Rohit Rajershi, Avinash Krishnan Ravi, Aman Bajaj, Aadarsh Prakash, Advocates
For the Respondent(s):Anish R. Shah, Abhishek Swaroop, Shashank Manish, Palash Agarwal, Advocates
For the Appellant(s) :Abhishek Manu Singhvi, P.H.Arvind Pandian, Ankur Kashyap, Ajith S.Ranganathan, Aavishkar Singhvi, Rohit Rajershi, Avinash Krishnan Ravi, Aman Bajaj, Aadarsh Prakash, Advocates
For the Respondent(s):Anish R. Shah, Abhishek Swaroop, Shashank Manish, Palash Agarwal, Advocates
Table of Contents
2. Whether adjudicating or appellate authorities can override the commercial wisdom of the Committee of Creditors regarding the approval of a settlement plan and withdrawal of insolvency proceedings. (Para 2 , 9 , 10 )
3. The high voting threshold for withdrawal under Section 12A reflects legislative policy to ensure broad creditor consensus, emphasizing minimal judicial interference in the CoC's commercial wisdom. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 25 , 26 , 27 )
4. Adjudicating or appellate authorities cannot override the commercial wisdom of the Committee of Creditors unless the decision is wholly capricious, arbitrary, irrational, or contrary to statute. (Para 24 )
5. Appeals allowed — Impugned judgments and orders quashed — Application for withdrawal of Corporate Insolvency Resolution Process allowed. (Para 28 )
6. Can the NCLT or NCLAT review the commercial wisdom of the CoC regarding the withdrawal of CIRP under Section 12A?
Generally, no. The adjudicating or appellate authority cannot sit in appeal over the CoC's commercial wisdom. Interference is only warranted if the decision is found to be wholly capricious, arbitrary, irrational, or contrary to the provisions of the statute or Rules. (Para 24 )
7. What is the significance of the 90% voting threshold for withdrawal under Section 12A of the IBC?
The 90% threshold is a stringent requirement reflecting legislative policy. It ensures that an omnibus settlement involving substantially all financial creditors is reached, discouraging individual settlements to the exclusion of the general benefit of all creditors. (Para 12 , 13 , 14 , 15 , 16 , 19 )
8. Under what circumstances can the NCLT or NCLAT set aside a CoC's decision to reject a settlement or withdrawal claim?
If the Committee of Creditors arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT and subsequently the NCLAT have the power to set aside such a decision under Section 60 of the IBC. (Para 19 , 20 )
9. What is the general judicial approach toward the framework of the IBC regarding NCLT and NCLAT interventions?
The court emphasizes minimal judicial interference. NCLT and NCLAT should avoid judicially interfering in the carefully considered framework of the IBC to ensure its efficacy and avoid disturbing its foundational principles. (Para 21 , 27 )
JUDGMENT :
B.R. Gavai, J.
1. These appeals challenge the common judgment dated 28th January 2022 passed by the learned National Company Law Appellate Tribunal, Chennai Bench, Chennai (hereinafter referred to as the “NCLAT”) in Company Appeal (AT)(CH)(Insolvency) Nos. 211 and 212 of 2021, thereby dismissing the appeals filed by the present appellant, which were in turn filed, challenging the two orders dated 12th August 2021 passed by the learned National Company Law Tribunal, Division Bench-II, Chennai (hereinafter referred to as the “NCLT”), thereby rejecting the application filed by the Resolution Professional (“RP” for short) under Section 12A of the Insolvency and Bankruptcy Code, 2016 (“IBC” for short) read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the “2016 Regulations”), for withdrawal of the application filed under Section 7 of the IBC in view of the Settlement Plan submitted by the appellant. The appellant has also challenged the order passed by the learned NCLAT of the even date vide which the appeal filed by the present appellant against the order passed by the learned NCLT directing initiation of liquidation proceedings in respect of M/s Siva Industries and Holdings Limited-respondent No.1 herein (hereinafter referred to as the “Corporate Debtor”), was dismissed.
2. A short question that falls for consideration in the present appeal is as to whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (hereinafter referred to as the “CoC”) or not.
3. The facts in brief giving rise to the present appeals are as under :
IDBI Bank Limited had filed an application under Section 7 of the IBC for initiation of Corporate Insolvency Resolution Process (hereinafter referred to as the “CIRP”) in respect of the Corporate Debtor. The learned NCLT, vide its order dated 4th July 2019, admitted the said application. As a result of which, CIRP in respect of the Corporate Debtor was initiated. The RP had 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 and could not meet the requirement of receiving 66% votes, the said Plan could not be approved.
4. The RP, on 8th May 2020, filed an application being IA/837/IB/2020 under Section 33(1)(a) of the IBC seeking initiation of liquidation process of the Corporate Debtor. The appellant, who is the promoter of the Corporate Debtor, filed a settlement application being IA/647/IB/2020 before the NCLT under Section 60(5) of the IBC, showing his willingness to offer one-time settlement plan. The appellant sought necessary directions to the CoC to consider the terms of Settlement Plan as proposed by him. From the month of October to December 2020, the 13th, 14th and 15th meetings of the CoC were held to consider the Settlement Plan as submitted by the appellant. Deliberations took place in the said meetings with regard to the said Settlement Plan and the final settlement proposal which was submitted by the appellant came to be considered by the CoC in its 16th meeting held on 18th January 2021. Initially, the said Settlement Plan received only 70.63% votes. However subsequently, one of the Financial Creditors viz. International Assets Reconstruction Co. Ltd. (hereinafter referred to as “IARCL”) having voting share of 23.60%, decided to approve the said Settlement Plan and intimated the RP about the same.
5. Since the said Settlement Plan stood approved by more than 90% voting share, the RP filed an application before the learned NCLT seeking necessary directions based on the request of IARCL. Vide its order dated 29th March 2021, the learned NCLT ordered the RP to reconvene a meeting of CoC and place the e-mail of IARCL before it. Accordingly, the 17th CoC meeting w
