Commercial Wisdom Of CoC In Opting For Liquidation And Rejecting Resolution Plan Of Ineligible Applicant Is “Non-Justiciable”: NCLAT

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi has held that the commercial wisdom of the Committee of Creditors (CoC) in rejecting a resolution plan and opting for liquidation is “non-justiciable”. The Appellant-Director was disqualified under Section 164(2) of the Companies Act, thereby rendering the him ineligible to be a Resolution Applicant under Sections 29A(e) and 29A(j) of Insolvency & Bankruptcy Code, 2016 (IBC). The Tribunal held that the decision of the CoC to reject the Appellant's Resolution Plan cannot be interfered with. Brief Facts Corporate Insolvency Resolution Process (CIRP) was initiated against Aarya Industrial Products Private Limited (Corporate Debtor) on 17.09.2019. The Appellant submitted a resolution plan along with an Earnest Money Deposit of ₹25 lakh on 19.02.2021. On 03.04.2021, the Resolution Professional (RP) informed the Appellant via email that the resolution plan was not approved by the CoC due to non-compliance with Section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC). The CoC decided to liquidate the Corporate Debtor. The earnest money deposited was refunded to the Appellant on 10.05.2021 on request of the Appellant. On 01.10.2021, the Appellant filed an application before NCLT, Kolkata, seeking direction on the Resolution Professional to accept the Resolution Plan of the applicant. The NCLT dismissed the application by order dated 13.09.2022 on the ground that after accepting the amount of EMD, the Appellant had no right or locus to file the application. The application was filed after an inordinate and unexplained delay of six months. Submissions of the Parties Appellant's Submissions: Liquidation should be the last resort and every effort should be made to revive the Corporate Debtor and this view is supported by the judgment in the case of K.N. Rajakumar Versus v. Nagarajan & Ors. NCLT failed to appreciate the fact that the resolution plan was viable and compliant, and its non-consideration will result in the liquidation/death of the Corporate Debtor. Respondent No. 1 (RP) Submissions: The Appellant is ineligible under the provisions of Section 29A of IBC to submit a resolution plan. Mr. Avanish Kumar Singh, a director of the Appellant, was disqualified under Section 164(2) of the Companies Act, 2013, thereby rendering the Appellant ineligible under Sections 29A(e) and 29A(j) of IBC. In K. Sashidhar v. Indian Overseas Bank & Ors., the Supreme Court held that the commercial wisdom of the CoC in accepting or rejecting a resolution plan is 'non-justiciable,' and judicial intervention is very limited. Respondent No. 2 (CoC) Submissions: The State Bank of India, the only financial creditor, stated that the Appellant had frequently defaulted in adhering to timelines. The Appellant's resolution plan was non-compliant with Section 29A, Section 30(2)(a) (CIRP costs) and Section 30(2)(e), and Regulation 38(3) and 38(3)(a). Observations The Tribunal noted that only one resolution plan was submitted in the CIRP of the Corporate Debtor. The plan was not compliant with the eligibility requirements of Section 29A of IBC. One of the directors of the appellant company, who was the Prospective Resolution Applicant, Mr. Avanish Kumar Singh, was also director of a company which had failed to file financial statements for three continuous years. The Tribunal noted that under Section 164 of the Companies Act, 2013, such a director was ineligible for reappointment as a Director in any company for five years. Consequently, the appellant company was ineligible under Clause (e) of Section 29A of the IBC, 2016. The Tribunal held that the CoC, in its commercial wisdom, had not accepted the resolution plan and had directed the liquidation of the Corporate Debtor. It observed that the commercial wisdom of the CoC regarding acceptance/rejection of the resolution plan is “non-justiciable” as held by the Supreme Court in K. Sashidhar v Indian Overseas bank & Ors. and the Tribunal in Harkirat Singh Bedi v Oriental Bank of Commerce & Ors. The Tribunal also referred to Kanoria Energy & Infrastructure Ltd. v. Avishek Gupta, which held that a resolution applicant whose plan is not approved by the CoC cannot claim to be aggrieved by the approval of another plan. With these observations, the Tribunal dismissed the appeal. Case Title: Fortune Chemicals Limited vs. Ashok Kumar Jaiswal & Anr. Case Number: Company Appeal (AT) (Insolvency) No. 1263 of 2022 For Appellant : Mr. Joy Saha, Sr. Advocate with Mr. Rishav Banerjee, Shambo Nandy, Anoushka Dey, Aishwarya Awasthi, Advocate. For Respondents : Mr. K. Datta, Sr. Advocate with Siddharth Sangal, Ms. Richa, Mishra, Ms. Harshita Agrwal, Advocates for R-2. Mr. Shreedhar Gaggar, Advocates for R-1. Date of Judgment: 06.01.2025Click Here To Read/Download The Order

Commercial Wisdom Of CoC In Opting For Liquidation And Rejecting Resolution Plan Of Ineligible Applicant Is “Non-Justiciable”: NCLAT

Tazeen Ahmed

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