The Supreme Court, on Friday, held that when 90% or more of the creditors decide that it will be in the interest of all the stakeholders to permit Settlement Plan filed by promoter of the Corporate Debtor and withdraw Corporate Insolvency Resolution Process as per Section 12A of the Insolvency and Bankruptcy Code, 2016, the adjudicating authority (NCLT) or the appellate authority (NCLAT) cannot sit in appeal over such commercial wisdom of Committee of Creditors (CoC).
A Bench comprising Justices B.R. Gavai and Hima Kohli allowed the appeals filed assailing the order of the National Company Law Appellate Tribunal, Chennai Bench (NCLAT), which had dismissed appeals against orders of the National Company Law Tribunal, Chennai (NCLT) rejecting the application filed by the Resolution Professional under Section 12A of the Insolvency and Bankruptcy Code, 2016 seeking withdrawal of the application filed by financial creditor under Section 7 seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The appellant, promoter of the Corporate Debtor, had also come up against NCLAT's dismissal of the appeal challenging the order of the NCLT to initiate liquidation proceedings. While allowing the appeals, the Apex Court had cited Ajay Kumar Jagatramka v. Jindal Steel and Power Limited And Anr. to emphasise -
"This Court has, time and again, emphasized the need for minimal judicial interference by the NCLAT and NCLT in the framework of IBC."
IDBI Bank Limited had filed an application under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Siva Industries and Holdings Limited (Corporate Debtor). On 04.07.2019, the application was admitted by the NCLT and CIRP was initiated. The Resolution Professional (RP) presented a resolution plan before the CoC which was not approved as it did not receive 66% votes, as per the requirement of the statue. The RP filed an application for initiating liquidation. Subsequently, Vallal Rck, the promoter of the Corporate Debtor filed a settlement application under Section 60(5) IBC to offer a one-time settlement plan. Thereafter, the CoC considered the Settlement plan in its 13th, 14th and 15th meeting held between October and December, 2020. The final settlement proposal was submitted by the promoter and was considered by the CoC on 18.01.2021. Ultimately, the settlement plan was approved on 01.04.2021. Consequently, the RP filed an application seeking withdrawal of CIRP. However, the NCLT rejected the said application stating that the Settlement Plan was only a Business Restructuring Plan. Moreover, it initiated the liquidation process. The appeals filed before the NCLAT were dismissed.
Contentions raised by the appellant
Senior Advocate, Mr. Abhishek Manu Singhvi, appearing on behalf of the promoter of the Corporate Debtor argued that neither the adjudicating authority nor the appellate authority can sit in an appeal over the commercial wisdom of the CoC, which had accepted the Settlement Plan by 94.32% voting share. He emphasised that the impugned orders are in the teeth of the object of IBC to permit the Corporate Debtor to continue as on-going concern, while clearing the dues of the creditor to the best of its ability.
The appeal was unopposed. However, since it involved an important question with regard to interpretation of Section 12A IBC the Court was inclined to consider the issue.
Analysis by the Supreme Court
Referring to Section 12A, which deals with withdrawal of applications admitted under Section 7, 9 or 10, the Court noted that the provision was inserted by way of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 after much deliberation by the Insolvency Law Committee. The Committee had recommended that an exit should be allowed provided the CoC approves it by 90% voting share. The recommendation reads as under -
"(vii) in order to cater to exceptional circumstances warranting withdrawal of an application for CIRP post admission, it has been recommended to allow such exit provided the CoC approves such action by ninety per cent of voting share;"
The Court observed that the recommendation was made as the Committee reckoned that the intent of the IBC is to discourage individual actions for enforcement and settlement. In the light of the same, it had opined that the settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted. Pursuant to the insertion of Section 12A in the IBC, Regulation 30A was added to the Regulations, 2016 which lays down the detailed procedure for withdrawal of application. It was further noted that in Swiss Ribbons Private Limited And Anr. v. Union of India And Ors., validity of Section 12A was upheld. Moreover, considering that a catena of judgments of the Apex Court had already held that commercial wisdom of CoC is not to be interfered with by NCLT and NCLAT, it opined -
"When 90% 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 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."
Case Name: Vallal Rck v. M/s. Siva Industries And Holdings Limited And Ors.
Citation: 2022 LiveLaw (SC) 541
Case No. and Date: Civil Appeal Nos. 1811-1812 of 2022 | 03 June 2022
Corum: Justices B.R. Gavai and Hima Kohli
Appearances : Dr Abhishek Manu Singhvi, Sr Adv, PH Arvind Pandian Sr Adv, Ankur Kashyap AOR, Ajith S Ranganathan Adv, Aavishkar Singhvi Adv, Avinash Krishnan Ravi Adv, Aman Bajaj Adv, Aadarsh Prakash Adv - for appellants; Anish R Shah AOR, Abhishek Swaroop Adv, Shashank Manish AOR, Palash Agarwal Adv - for respondents.
Insolvency and Bankruptcy Code, 2016; Section 12A -When 90% 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 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 - Para 24