2023 Supreme(SC) 462

SUPREME COURT OF INDIA
DINESH MAHESHWARI, VIKRAM NATH, JJ.
M.K. Rajagopalan – Appellants
VERSUS
Dr. Periasamy Palani Gounder & Anr. – Respondents
Civil Appeal Nos. 1682-1683 OF 2022 With C.A. No. 1756/2022, C.A. No. 1759/2022, C.A. No. 1757/2022, C.A. No. 1807/2022, C.A. No. 1810/2022, C.A. No. 1827/2022
Decided On : 03-05-2023

Commercial wisdom of the committee of creditors is paramount and non-justiciable but remains subject to mandatory statutory compliance; failure to present a final revised plan to the committee for approval and the presence of disqualifying fiduciary conflicts regarding the resolution applicant constitute material irregularities nullifying the plan.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 12-A, 21, 29-A, 30, 31, 61, 238 - Companies Act, 2013 - Sections 164, 166 - Indian Trusts Act, 1882 - Section 88 - Insolvency Resolution Process - Commercial wisdom of Committee of Creditors - Primacy of commercial wisdom is subject to mandatory statutory compliance - Non-compliance with essential procedural requirements like approval of final revised resolution plan by Committee of Creditors vitiates the process (Paras 47-50) - Ineligibility of resolution applicant due to conflict of interest and breach of fiduciary duties - Operation of statutory prohibitions regarding fiduciary gain under trust and company law acts as an absolute bar to eligibility (Paras 44, 45).

(B) Corporate Insolvency Resolution Process - Valuation - Procedural regularity - Where valuation reports and processes met minimum regulatory threshold, detailed individual asset verification and technical challenges regarding valuation methodology do not necessarily constitute material irregularity - Procedural provisions not governing core rights or mandates may be read as directory rather than mandatory (Paras 41-42).

(C) Insolvency Resolution - Settlement proposal - Section 12-A of the Code - Withdrawal of application - Mechanism for withdrawal is subject to approval by the Committee of Creditors - Eleventh-hour settlement tactics lacking transparency or consensus in the committee of creditors are subject to judicial scrutiny, and mere subsequent events do not automatically mandate the acceptance of late-stage withdrawal proposals (Paras 57-66).

Facts of the case:
The corporate insolvency resolution process was initiated against a defaulting company. A resolution plan was approved by the committee of creditors and subsequently by the adjudicating authority. The appellate tribunal reversed this approval, citing the ineligibility of the resolution applicant, improper valuation, procedural irregularities regarding public advertisement, and failure to consider a settlement proposal. The resolution applicant and professional appealed against this reversal, while the promoter filed for settlement under the relevant insolvency provisions.

Findings of Court:
The court held that commercial wisdom of the committee of creditors is paramount but cannot override mandatory procedural requirements, such as the necessity of placing a finally revised resolution plan before the committee of creditors for approval. The resolution applicant was deemed ineligible due to conflicts of interest arising from fiduciary breaches. However, the court disagreed that all procedural irregularities (such as valuation method details and minor publication issues) rendered the entire process void, categorizing some as directory.

Issues: Whether the commercial wisdom of the committee of creditors justifies overlooking mandatory statutory compliance; whether the resolution applicant was ineligible based on fiduciary conflicts; and whether the failure to place a revised plan before the committee of creditors constitutes a material irregularity.

Ratio Decidendi: The decision establishes that commercial wisdom is non-justiciable only when the resolution process complies with all mandatory statutory requirements. A failure to present a final revised plan to the committee of creditors for approval is a material irregularity that renders the plan void. Furthermore, an applicant in breach of fiduciary duties under established commercial or trust laws is ineligible to participate in the corporate insolvency resolution process.

Result: Appeals disposed of; the rejection of the resolution plan by the appellate tribunal is upheld on the grounds of applicant ineligibility and procedural failure in plan approval, while other findings on valuation and directory procedures are set aside. Subsequent settlement proposals are left for consideration by the adjudicating authority.