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SUPREME COURT OF INDIA
R.F. NARIMAN, SURYA KANT, V. RAMASUBRAMANIAN, JJ.
Committee of Creditors of Essar Steel India Limited Through Authorised Signatory - Appellant
Versus
Satish Kumar Gupta & Ors - Respondents
Civil Appeal Nos.8766-69, 5634-5637, 5716-5719, 5996, 6266, 6269, 6409, 6433-6434, 7266, 7260 of 2019, Writ Petition (Civil) No.1055, 1064, 1049, 1050, 1057, 1058, 1061, 1060, 1056, 1063, 1066, 1087, 1110, 1113, 1121, 1246, 1296 of 2019, Diary No.24417, 31409, 36838 of 2019
Decided On : 15-11-2019
(a) Insolvency and Bankruptcy Code, 2016 - Sections 29-A, 30(2)(e) and 25(2)(i) r/w Regulation 36-A, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Role of Resolution Professional - To ensure that a resolution plan is complete in all respects - And, to conduct a due diligence in order to report to the Committee of Creditors whether or not it is in order - Though not necessary, the Resolution Professional should append the due diligence report carried out by him with respect to each of the resolution plans under consideration, and to state briefly as to why it does or does not conform to the law. (Para 28)
(b) Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Regulation 36-B and 36-A(7), 37 and 38 - After evincing an expression of interest, prospective resolution applicant must submit a plan providing for measures as may be necessary for the insolvency resolution of the corporate debtor for maximisation of the value of its assets including transfer or sale of assets or part thereof, whether subject to security interests or not - The plan may provide for either satisfaction or modification of any security interest of a secured creditor and may also provide for reduction in the amount payable to different classes of creditors. (Para 29)
(c) Insolvency and Bankruptcy Code, 2016 - Section 21(2) and 30(4) r/w Regulation 39(3), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Role of the committee of creditors - Comprising all financial creditors - Distinction between financial creditors and operational creditors - Committee of creditors, after “feasibility and viability” of a resolution plan, may or may not approve the resolution plan submitted by Resolution Professional - If the Committee approves the plan, the adjudicating authority and appellate authority, NCLT and NCLAT, approves the same. (Para 31, 40, 41)
(d) Insolvency and Bankruptcy Code, 2016 - Section 30(2) and 32 - Jurisdiction of NCLT and NCLAT - Of limited judicial review - Cannot trespass upon a business decision of the majority of the Committee of Creditors - Jurisdiction is limited to provisions of Section 30(2) for NCLT and Section 32 read with Section 61(3) for NCLAT. (Para 42)
(e) Insolvency and Bankruptcy Code, 2016 - Section 60(5) - Non obstante clause - “Any other law” - Cannot include provisions of the Code itself - Section 60(5)(c) in the nature of a residuary jurisdiction vested in the NCLT enabling it to decide all questions of law or fact arising out of or in relation to insolvency resolution or liquidation under the Code - Such residual jurisdiction has no impact on Section 30(2) circumscribing jurisdiction of the Adjudicating Authority when it comes to the confirmation of a resolution plan - Residual jurisdiction of NCLT u/s 60(5)(c) cannot whittle down Section 31(1) by the investing some discretionary or equity jurisdiction in the Adjudicating Authority outside Section 30(2). (Para 43)
(f) Insolvency and Bankruptcy Code, 2016 - Section 30(2)(b) and 53 - Minimum value required to be paid to operational creditors under a resolution plan - Is the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53. (Para 44)
(g) Insolvency and Bankruptcy Code, 2016 - Preamble and Sections 5(26), 14(2), 20(1), 20(2)(d) and (e) r/w Regulations 37 and 38, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Corporate debtor has to run as a going concern during insolvency period - Corporate debtor must therefore make past and present payments to various operational creditors - Resolution plan must deal with interest of all stakeholders - Emphasis on maximising value of the assets of the corporate debtor - Adjudicating Authority though cannot interfere on merits with the commercial decision taken by the Committee of Creditors, it has the jurisdiction to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. (Para 45, 46)
(h) Regulations, 2016 - Regulations 13(1), 36(2)(d) and 39(4) - The Code and the regulations distinguishing between financial creditors and operational creditors - Financial creditors in turn are classified into Secured or unsecured - All these, secured or unsecured financial or operational creditors cannot be treated equally in matter of payment of dues - They should be treated equally in their class. (Para 57)
(i) Insolvency and Bankruptcy Code 2016 - Section 30(2) r/w Regulation 39(3), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Jurisdiction of Appellate Tribunal, NCLAT - Not supervisory as available to High court u/s 392, Companies Act, 1956 - Tribunal cannot refuse to approve a Resolution plan approved by CoC on the ground that it is unfair or unjust to a class of creditors. (Para 58)
(j) Insolvency and Bankruptcy Code 2016 - Section 21(8) - Powers of CoC administrative in nature - Section 28(1)(h) or section 30(4) - Cannot be delegated - However, sub-committees can be appointed for the purpose of negotiating with resolution applicants, or for the purpose of performing other ministerial or administrative acts, subject to approval of CoC. (Para 62)
(k) Insolvency and Bankruptcy Code, 2016 - Section 31(1) - Resolution plan approved by the Committee of Creditors - Binding on all stakeholders, including guarantors - All claims must be submitted to and decided by the resolution professional after which the Resolution plan is approved by CoC and Tribunal. (Para 66, 67)
(l) Constructional law - Separation of power - Judgment of NCLT under appeal before Supreme Court - Code, 2016 amended in 2019 during pendency of the appeal - Legislature laying down laws of general application to all persons affected, for curing a defective reading of the law by an Appellate Tribunal - Enacting sections 4 and 6 of Amendment Act 2019 well within legislative competence - Section 4 and 6 cannot be struck down. (Para 73)
(m) Interpretation of statute - Speech of the Hon’ble Minister on the floor of the House - Only indicating the object for which the amendment was made and containing certain useful data - Can be taken aid of - Not for construing the amended Section, but only in order to explain why the Amending Act was brought about. (Para 77)
(n) Insolvency and Bankruptcy Code 2016 - Section 12 (Section 4, Insolvency and Bankruptcy Code (Amendment) Act, 2019) - Providing for ‘mandatory’ completion of Corporate Insolvency Resolution Process (CIRP) within a period of 330 days from the insolvency commencement date including time spent in legal proceedings - Making it ‘mandatory’ held manifestly arbitrary under Article 14 of the Constitution and excessive and unreasonable restriction on litigant’s right to carry on business under Article 19(1)(g) of the Constitution - Word ‘mandatorily’ struck down - Further held, ‘ordinarily’ CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. (Para 79)
(o) Insolvency and Bankruptcy Code 2016 - Section 30(2)(b) (Section 6, Insolvency and Bankruptcy Code (Amendment) Act, 2019), Explanation 1 and 2 - Fixing a minimum amount to be paid to operational creditors and dissentient financial creditors - Beneficial provision in favour of operational creditors and dissentient financial creditors - Explanation 1 prohibiting Adjudicating Authority and the Appellate Tribunal into merits of a business decision of CoC - Explanation 2 applying the substituted Section to pending proceedings either at the level of the Adjudicating Authority or the Appellate Authority or in a Writ or Civil Court - Not having any retrospective operation so as to impair vested rights - Explanations 1 and 2 held constitutionally valid. (Para 80, 81, 82)
(p) Administration of justice - Doctrine of merger - An appellate proceeding is a continuation of an original proceeding - A change in law can always be applied to an original or appellate proceeding. (Para 82)
(q) Insolvency and Bankruptcy Code (Amendment) Act, 2019 - Section 6(b) - Use of word ‘may’ - Giving discretion to CoC - Only a guideline which may be applied by the CoC in arriving at a business decision as to acceptance or rejection of a resolution plan -Constitutionally not infirm. (Para 83)
(r) Insolvency and Bankruptcy Code 2016 - Section 53 - Applies only during liquidation - Not at the stage of resolving insolvency. (Para 92)
(s) Insolvency and Bankruptcy Code 2016 - Section 28(3) and 30(4) - The Committee of Creditors does not act in any fiduciary capacity to any group of creditors, as is sought to be suggested by Shri Sibal. On the contrary, it is to take a business decision based upon ground realities by a majority, which then binds all stakeholders, including dissentient creditors. (Para 93)
(t) Administration of justice - NCLAT cannot substitute its wisdom for the commercial wisdom of the Committee of Creditors. (Para 94)
Facts of the case:
This group of appeals and writ petitions raises important questions as to the role of resolution applicants, resolution professionals, the Committee of Creditors that are constituted under the Insolvency and Bankruptcy Code, 2016, and the jurisdiction of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), qua resolution plans that have been approved by the Committee of Creditors. The constitutional validity of Sections 4 and 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 have also been challenged. These appeals and writ petitions are an aftermath of this Court’s judgment dated 04.10.2018, reported as ArcelorMittal India Private Limited v. Satish Kumar Gupta (2019) 2 SCC 1
On 02.08.2017, the NCLT, Ahmedabad admitted Company Petition (I.B.) filed by Standard Chartered Bank together with a Petition filed by the State Bank of India under Section 7 of the Code. One Satish Kumar Gupta was appointed as the resolution professional. On 02.04.2018, resolution plans were then submitted by ArcelorMittal, Numetal and one Vedanta Limited. On 19.04.2018, the Adjudicating Authority directed the Committee of Creditors of the corporate debtor to consider the eligibility of the aforesaid resolution applicants.
On 10.09.2018, Standard Chartered Bank was classified as a secured financial creditor of the corporate debtor by the resolution professional. On 18.10.2018, ArcelorMittal informed the resolution professional and the Committee of Creditors that it had made payments as per the Supreme Court’s judgment dated 04.10.2018. On 19.10.2018, ArcelorMittal resubmitted its resolution plan of 02.04.2018, which was then evaluated by the Committee of Creditors on the same date - ArcelorMittal being declared as the highest evaluated resolution-applicant vis-à-vis Vedanta. On 25.10.2018, the final negotiated resolution plan of ArcelorMittal was approved by the Committee of Creditors by a 92.24% majority. After several proceedings before the NCLT and the NCLAT, the NCLT, by its judgment dated 08.03.2019 disposed of the application to allow the resolution plan filed by ArcelorMittal.
By its final judgment dated 04.07.2019, the NCLAT held that there is no difference in financial creditors and operational creditors in matter of payment of dues.
Finding of the Court:
No claim survives after approval of Resolution plan.
Result: The appeals filed by the Committee of Creditors of Essar Steel Limited and other Civil Appeals allowed. Civil Appeal No. 6409 of 2019, Civil Appeal No. 7266 of 2019, Civil Appeal No. 7260 of 2019 dismissed. Civil Appeal No. 6266 of 2019 and Civil Appeal No. 6269 of 2019 partly allowed.
Key Points: - The Committee of Creditors holds commercial discretion to approve or reject a resolution plan, and such decisions are not subject to judicial review except on limited grounds (!) (!) . - Financial creditors and operational creditors must be treated equally within their respective classes, but different classes may receive different payments based on the nature and security of their claims (!) (!) (!) . - Secured creditors retain priority based on the value of their security interest, and the law does not require equal distribution between secured and unsecured creditors (!) (!) (!) . - The National Company Law Tribunal’s jurisdiction is limited to verifying compliance with the Code and cannot interfere with the substantive commercial decisions of the Committee of Creditors (!) (!) . - Appeals to the National Company Law Appellate Tribunal are restricted to the grounds specified in the Code, which do not include challenging the fairness of the Committee’s commercial decision (!) (!) . - The Code prioritizes the resolution of insolvency within a specified timeframe, with an outer limit of 330 days for the corporate insolvency resolution process (!) (!) .
JUDGMENT :
R.F. NARIMAN, J.
Delay Condoned in Civil Appeal Diary No. 31409 of 2019 and Civil Appeal Diary No. 36838 of 2019. I.A. No. 102638 of 2019 in Civil Appeal Diary No. 24417 of 2019 for Permission to File Appeal allowed. Appeal Admitted.
1. This group of appeals and writ petitions raises important questions as to the role of resolution applicants, resolution professionals, the Committee of Creditors that are constituted under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”), and last, but by no means the least, the jurisdiction of the National Company Law Tribunal (hereinafter referred to as “NCLT”/“Adjudicating Authority”) and the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”/“Appellate Tribunal”), qua resolution plans that have been approved by the Committee of Creditors. The constitutional validity of Sections 4 and 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (hereinafter referred to as the “Amending Act of 2019”) have also been challenged. These appeals and writ petitions are an aftermath of this Court’s judgment dated 04.10.2018, reported as ArcelorMittal India Private Limited v. Satish Kumar Gupta (2019) 2 SCC 1.
2. On 02.08.2017, the NCLT, Ahmedabad admitted Company Petition (I.B.) No. 39 of 2017 filed by Standard Chartered Bank together with a Petition filed by the State Bank of India under Section 7 of the Code. One Satish Kumar Gupta was appointed as the interim resolution professional, who was later confirmed as resolution professional. On 06.10.2017, the resolution professional by way of an advertisement in the Economic Times, invited expressions of interest from all interested resolution applicants to present resolution plans for rehabilitating the corporate debtor, namely, Essar Steel India Limited. On 24.12.2017, the resolution professional issued a request for proposal (hereinafter referred to as “RFP”), inter alia, inviting resolution plans for the aforesaid corporate debtor, which was later amended on 08.02.2018. Two resolution plans were submitted on 12.02.2018, one by ArcelorMittal India Private Limited (hereinafter referred to as “ArcelorMittal”) and another by Numetal Limited (hereinafter referred to as “Numetal”) both of which were found to be ineligible under Section 29-A of the Code. On 02.04.2018, resolution plans were then submitted by ArcelorMittal, Numetal and one Vedanta Limited (hereinafter referred to as “Vedanta”). The resolution plan of ArcelorMittal specifically provided for an upfront payment of INR 35,000 crores in order to resolve debts amounting to INR 49,213 crores. It was stated that unsecured financial creditors shall be paid an aggregate amount of 5% of their admitted claims. Apart from the above, INR 8,000 crores of fresh capital infusion by way of capex and working capital was also to be infused. INR 3,339 crores - being the aggregate admitted claims of operational creditors, other than workmen and employees, was to be paid to the extent of INR 196 crores, but only to trade creditors and government creditors. Small trade creditors, defined as “having claims of less than one crore” were to be honoured in full, as was the claim of workmen and employees of the corporate debtor, amounting to INR 18 crores. Importantly, the resolution applicant empowered the Committee of Creditors to decide the manner in which the financial package being offered would be distributed among the secured financial creditors. Standard Chartered Bank, which was stated to be an unsecured creditor, was to be paid an aggregate amount of 5% of its admitted claims. On 19.04.2018, the Adjudicating Authority directed the Committee of Creditors of the corporate debtor, which by then had been set up by the interim resolution professional, to consider the eligibility of the aforesaid resolution applicants.
3. On 10.09.2018, Standard Ch
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