 "Supreme Court")
The Supreme Court Friday said the adjudicating or the appellate authority cannot sit in an appeal over the commercial wisdom of the committee of creditors (CoC) when 90 per cent or more creditors have found that it would be in the interest of all stakeholders to permit settlement and withdraw Corporate Insolvency Resolution Process (CIRP).
The apex court observed that interference would be warranted only when the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) finds the decision of CoC to be wholly capricious and arbitrary.
A bench of Justices B R Gavai and Hima Kohli delivered its judgement on the plea challenging the verdict of NCLAT, which in January this year dismissed the appeals against two orders of the NCLT Chennai.
The NCLT had rejected the application filed by the resolution professional (RP) for withdrawal of application under section 7 of the IBC in view of the settlement plan.
Section 7 of the Insolvency and Bankruptcy Code (IBC) pertains to the initiation of CIRP by financial creditors.
The top court noted that a short question that falls for its consideration is whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the CoC.
When 90 per cent and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC, the bench said.
The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the rules, it said.
The bench noted that in the present case, the proceedings of meetings of the CoC clearly show that there were wide deliberations amongst the CoC members while considering the settlement plan and after suggestions were made by some members, suitable amendments were also carried out.
It said that as per the NCLT's directions, the meeting of the CoC was reconvened and the settlement plan was approved by 94.23 per cent votes.
It is thus clear that the decision of the CoC was taken after the members of the CoC, had due deliberation to consider the pros and cons of the settlement plan and took a decision exercising their commercial wisdom, the bench said.
We are therefore of the considered view that neither the NCLT nor the NCLAT were justified in not giving due weightage to the commercial wisdom of CoC, it said.
The bench said the apex court has, time and again, emphasised the need for minimal judicial interference by the NCLAT and NCLT in the framework of IBC.
While allowing the appeal, the top court set aside the judgement of the NCLAT as well as the August 2021 orders of the NCLT in the matter.
The bench allowed the application filed by the RP before the NCLT for withdrawal of CIRP.
It noted that a bank had filed an application under section 7 of the IBC for initiation of CIRP in respect of the corporate debtor and the NCLT had admitted the application in July 2019.
The top court said the RP had presented a resolution plan before the CoC but the said plan could not be approved as it received only 60.90 per cent votes and could not meet the requirement of receiving 66 per cent votes.
Later, meetings of the CoC were held to consider the settlement plan as submitted by the appellant and deliberations took place with regard to the plan.
The settlement plan stood approved by more than 90 per cent voting share and the RP filed an application before the NCLT.
After the settlement plan was approved with a voting majority of 94.23 per cent, the RP filed an application before the NCLT seeking withdrawal of CIRP initiated against the corporate debtor in view of the approval of the plan by the CoC.
The NCLT rejected the application for withdrawal of CIRP and approval of the settlement plan and also initiated the liquidation process of the corporate debtor.
Thereafter, two appeals were filed before the NCLAT which dismissed them.
In its judgement, the bench noted that the apex court has consistently held that the commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC.
It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan, the apex court observed.
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