1. Resolution Plan approval under Insolvency and Bankruptcy Code — NCLT order keeping approval in abeyance and directing asset re-valuation by Official Liquidator — Challenge to said order. (Para 2 , 3 , 4 , 5 , 6 )
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2023 Supreme(SC) 1172
SUPREME COURT OF INDIA
VIKRAM NATH, AHSANUDDIN AMANULLAH, JJ.
Ramkrishna Forgings Limited - Appellant
Versus
Ravindra Loonkar, Resolution Professional of ACIL Limited & Anr.
R1 : Ravindra Loonkar, Resolution Professional of ACIL Limited
R2 : Committee of Creditors of ACIL Ltd. & Ors. - Respondents
Civil Appeal No. 1527 of 2022
Decided On : 21-11-2023
Advocates appeared:
For the Appellant(s) : Mr. Shyam Divan, Sr. Adv Mr. Parateek Kumar, Adv. Ms. Raveena Rai, Adv. Ms. Smriti Nair, Adv. Ms. Saloni Gupta, Adv. M/s. Khaitan & Co., AOR
For the Respondent(s): Mr. Balbir Singh, ASG Ms. Swarupama Chaturvedi, Adv. Mr. Arvind Kumar Sharma, AOR Ms. Kritya Sinha, Adv. Mr. Alok Tripathi, AOR Mr. Rajesh Kumar Chaurasia, AOR Mr. Rajive R Raj, Adv. Mr. Onkar Prasad, Adv. Mr. Anurag Jain, Adv. Mr. Shymal Kumar, Adv. Mr. Sujeet Kumar, Adv. Mr. Hem Kumar, Adv. Mrs. Soni, Adv.
For the Appellant(s) : Mr. Shyam Divan, Sr. Adv Mr. Parateek Kumar, Adv. Ms. Raveena Rai, Adv. Ms. Smriti Nair, Adv. Ms. Saloni Gupta, Adv. M/s. Khaitan & Co., AOR
For the Respondent(s): Mr. Balbir Singh, ASG Ms. Swarupama Chaturvedi, Adv. Mr. Arvind Kumar Sharma, AOR Ms. Kritya Sinha, Adv. Mr. Alok Tripathi, AOR Mr. Rajesh Kumar Chaurasia, AOR Mr. Rajive R Raj, Adv. Mr. Onkar Prasad, Adv. Mr. Anurag Jain, Adv. Mr. Shymal Kumar, Adv. Mr. Sujeet Kumar, Adv. Mr. Hem Kumar, Adv. Mrs. Soni, Adv.
The Supreme Court held that the NCLT cannot interfere with the CoC's commercial wisdom regarding asset valuation if statutory procedures under the IBC are followed. The NCLT's jurisdiction is limited to ensuring compliance with Section 30(2) and does not extend to exercising residual equity jurisdiction to order re-valuation.
Headnote:
Insolvency and Bankruptcy Code, 2016 - Sections 62, 30, 31 - The NCLT's jurisdiction is limited to determining whether a Resolution Plan meets the requirements of the Code and should not extend to interfering with the commercial decisions of the CoC. The NCLT should not order revaluation of assets without valid reasons. Courts and Tribunals have a duty to record reasons for their decisions.
Fact of the Case:
The present appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 is directed against the Judgment passed by the National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT)(Ins) No.845 of 2021 which has upheld the order passed by the Adjudicating Authority (National Company Law Tribunal) (NCLT), Principal Bench by which the application seeking approval of a Resolution Plan for ACIL Limited was kept in abeyance while directing the Official Liquidator to carry out a re-valuation of the assets of the Corporate Debtor and to provide exact figures/value of the assets and exact valuation details.
Finding of the Court:
The Court held that the NCLT exceeded its jurisdiction by ordering revaluation of the assets of the Corporate Debtor without any valid reason. The commercial wisdom of the Committee of Creditors (CoC) should not be interfered with unless the Resolution Plan fails to meet the requirements of the Code. The Court emphasized that the NCLT's jurisdiction is limited to determining whether the Resolution Plan meets the requirements of the Code and should not extend to interfering with the CoC's decision based on commercial considerations. The Court also highlighted the importance of recording reasons for orders and the duty of Courts and Tribunals to do so.
Ratio Decidendi: The NCLT's jurisdiction is limited to determining whether a Resolution Plan meets the requirements of the Code and should not extend to interfering with the commercial decisions of the CoC. The NCLT should not order revaluation of assets without valid reasons. Courts and Tribunals have a duty to record reasons for their decisions.
Result: The appeal is allowed, and the orders of the NCLT and NCLAT are set aside. The NCLT is directed to pass appropriate orders on the Approval Application within three weeks. Pending avoidance applications shall proceed on their own merits, but with expedition.
Legal Category Hierarchy
- insolvency and bankruptcy
- practice and procedure
Table of Contents
2. Whether NCLT can interfere with the commercial wisdom of the Committee of Creditors by ordering asset re-valuation despite compliance with statutory valuation regulations under the Code. (Para 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 )
3. NCLT's jurisdiction is limited to verifying compliance with Section 30(2) of the Code; it cannot substitute its own wisdom for the commercial wisdom of the Committee of Creditors. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 )
4. Adjudicating Authority cannot interfere with the commercial wisdom of the Committee of Creditors or order re-valuation unless the Resolution Plan contravenes Section 30(2) of the Code. (Para 27 , 28 , 31 )
5. Appeal allowed — Orders of NCLT and NCLAT set aside — NCLT directed to pass appropriate orders on the Approval Application within three weeks. (Para 33 , 34 , 35 )
6. What is the scope of the NCLT's jurisdiction regarding the approval of a Resolution Plan?
The NCLT's jurisdiction is limited to determining whether the requirements specified in Section 30(2) of the Code have been fulfilled. It cannot enter the merits of a business decision made by the CoC or exercise residual equity jurisdiction to interfere with the CoC's commercial wisdom. (Para 27 , 28 , 31 )
7. Can the NCLT order a re-valuation of assets if the Committee of Creditors is satisfied with the existing valuation?
No. If the CoC is satisfied with the valuation and statutory requirements for registered valuers are met, the NCLT cannot order re-valuation, as the valuation's purpose is to assist the CoC in its decision-making process, not to serve as a mandatory benchmark for bids. (Para 27 , 29 , 30 )
8. Do pending avoidance transaction applications affect the approval of a Resolution Plan?
Under Section 26 of the Code, the filing of avoidance applications does not affect the proceedings of the corporate insolvency resolution process. The treatment of proceeds from such applications is typically managed within the provisions of the Resolution Plan itself. (Para 14 , 26 , 29 )
9. What is the legal requirement for Adjudicating Authorities when passing orders that interfere with statutory processes?
Courts and quasi-judicial authorities have a duty to record cogent reasons for their decisions. A cryptic order lacking detailed reasoning for interfering with a statutory process, such as the commercial wisdom of the CoC, is unsustainable and constitutes a jurisdictional error. (Para 32 )
JUDGMENT :
Ahsanuddin Amanullah, J.
Heard learned counsel for the parties.
2. The present appeal under Section 62,2[‘62. Appeal to Supreme Court. - (1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.
(2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.’] of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) is directed against the Judgment dated 19.01.2022 (hereinafter referred to as the “Impugned Judgment”) passed by the National Company Law Appellate Tribunal (hereinafter referred to as the “NCLAT”) in Company Appeal (AT)(Ins) No.845 of 2021 which has upheld the order passed by the Adjudicating Authority (National Company Law Tribunal,3[The National Company Law Tribunal is a creature of Section 408 of the Companies Act, 2013. Under Section 60 of the Code, it has been designated as the Adjudicating Authority for corporate persons.]) [hereinafter referred to as the “Adjudicating Authority-NCLT” or “Adjudicating Authority” or “NCLT”], Principal Bench dated 01.09.2021 by which the application seeking approval of a Resolution Plan for ACIL Limited (hereinafter referred to as either “ACIL” or the “Corporate Debtor”) being I.A. No.1636 of 2019 in CP(IB) No.170(PB)/2018 (hereinafter referred to as the “Approval Application”) was kept in abeyance while directing the Official Liquidator (hereinafter referred to as the “OL”) to carry out a re-valuation of the assets of the Corporate Debtor and to provide exact figures/value of the assets and exact valuation details.
BRIEF FACTS:
3. ACIL is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. It was the subject-matter of a Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) which was initiated on an application filed by IDBI Bank Ltd. Mr. Ravindra Loonkar was appointed as the Interim Resolution Professional and subsequently confirmed as the Resolution Professional (hereinafter referred to as the “RP”) by the NCLT under order dated 16.10.2018. Against the total claim filed for about Rupees one thousand eight hundred and thirty crores, the amount of admitted claim in the CIRP was Rupees one thousand seven hundred and eighty-two crores.
4. The RP published Expression of Interest on 15.10.2018 which was subsequently revised on 31.10.2018, 28.01.2019 and 13.02.2019. The appellant-Resolution Applicant (hereinafter referred to as the “appellant”) submitted its first Resolution Plan on 11.04.2019 providing to pay Rupees seventy-four crores to all the stakeholders including Rupees sixty-three and a half crores to Financial Creditors (hereinafter referred to as the “FC(s)”). After a series of negotiations, the appellant submitted an Addendum to its Resolution Plan on 21.05.2019 by raising the payment to FC(s) to Rupees seventy-three crores and eighteen lacs. On and at the request of the Committee of Creditors (hereinafter referred to as the “CoC”), once again, the appellant submitted a Revised Plan on 27.05.2019 wherein the total pay-out was Rupees eighty crores and fifty-five lacs and the FC(s) were to be paid Rupees seventy five crores and forty-two lacs. The final Resolution Plan was submitted on 05.08.2019, in which the financial proposal/total pay-out was increased to Rupees one hundred twenty-nine and a half crores and FC(s) were to get upfront payment of Rupees eighty crores and forty-four lacs. This Resolution Plan further provided that proceeds from the monetization of the land situated at Manesar will go to the FC(s).
5. This final Resolution Plan s
