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Commercial wisdom is not a matter of rhetoric but is denoting a well-considered decision by the CoC


The Supreme Court bench comprising Justices Dinesh Maheshwari and Vikram Nath was hearing a bunch of appeals against the common order of the NCLAT and held that the Commercial wisdom is not a matter of rhetoric but is denoting a well-considered decision by the protagonist of CIRP i.e., CoC.


These civil appeals were directed against the common order passed by the National Company Law Appellate Tribunal, Chennai Bench, whereby the Appellate Tribunal has reversed the order, as passed by the National Company Law Tribunal, Chennai; and while rejecting the resolution plan in question, has remanded the matter to the committee of creditors with directions to the resolution professional to proceed from the stage of publication of Form ‘G’, and invite the expression of interest afresh as per the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.


In the present case, CIRP against the corporate debtor got initiated on 05.05.2020, with the NCLT admitting an application moved under Section 7 of the Code by one of its financial creditors, Tourism Finance Corporation of India Limited. During proceedings, after various rounds of CoC meetings, ultimately, the resolution plan in question was approved with an 87.39% majority of voting share on 22.01.2021. However, the CoC recommended certain changes to be made in the resolution plan. After incorporating the changes as suggested by CoC, an application was moved before the Adjudicating Authority (NCLT) under Section 30(6) of IBC for approval of the resolution plan. During the proceedings before NCLT, several objections were raised by various financial creditors, other resolution applicants and the promoter and erstwhile director of the corporate debtor against the resolution plan. The promoter also stated his grievance about the want of consideration of his settlement proposal in terms of Section 12-A of the Code. However, the NCLT dismissed all the objections and approved the resolution plan declaring it binding on the corporate debtor and other stakeholders by the common order dated 15.07.2021.


Challenging approval of the resolution plan, several appeals were preferred before the Appellate Tribunal (NCLAT), which were decided in the impugned common judgment and order dated 17.02.2022. The Appellate Tribunal, while upholding several of the objections against the process of consideration of the resolution plan as also the eligibility of the successful resolution applicant, allowed all the appeals; set aside the aforesaid order dated 15.07.2021; rejected the resolution plan so approved by the NCLT; declared the resolution applicant ineligible in terms of Section 88 of the Indian Trusts Act, 1882 and disqualified in terms of Section 164(2)(b) of the Companies Act, 2013; and issued directions to the resolution professional to proceed with CIRP from the stage of publication of Form ‘G’ while inviting EOI afresh as per the CIRP Regulations. The Appellate Tribunal also issued directions to the resolution professional to place the settlement proposal of the promoter and erstwhile director of the corporate debtor for consideration before the CoC; and if such a proposal was approved with a 90% voting share of the CoC, to initiate the proceeding for withdrawal of CIRP under Section 12-A of the Code read with Regulation 30-A of the CIRP Regulations. The Appellate Tribunal also directed that the claim of the related party financial/operational creditors be not discriminated against from that of the unrelated financial/operational creditors.


In the present bunch of appeals, the aforesaid order of NCLAT dated 17.02.2022 was challenged before by the resolution applicant as also by the resolution professional on several counts, which could be broadly summarised: First, that Regulation 35 of the CIRP Regulations does not mandate sharing of the valuation report to the CoC and instead mandates only sharing of liquidation value. Second, the non-core assets were not significant in value and the valuation was communicated to and agreed upon by the members of the CoC on 15.12.2020. Third, the non-publication of Form G on the designated website was a mere procedural irregularity which did not prejudice the interests of any of the parties. Fourth, the commercial wisdom of the CoC was not justiciable and once the CoC had approved the resolution plan by the requisite majority, there was very limited scope of interference by the Courts. Fifth, the Appellate Tribunal has overstepped its jurisdiction by declaring the resolution applicant ineligible under Section 88 of the Trusts Act and disqualified under Section 164(2)(b) of the Companies Act. Sixth, the claims of related party creditors cannot be treated at par with the unrelated creditors. And seventh, that Section 12-A IBC application of the promoter was merely a dilatory tactic and that he was not entitled to file any such application. These and other grounds raised in these appeals have been duly contested by the respondents with their respective stands and positions in these cases. Apart, some of the financial creditors have also moved the applications for impleadment and have placed their respective viewpoints for consideration.


The disapproval of the resolution plan in question by the Appellate Tribunal (NCLAT) in the impugned order dated 17.02.2022 is not to be interfered with but, not for all the reasons which weighed with the Appellate Tribunal. The Supreme Court observed, the reasons and findings of the Appellate Tribunal in relation to the valuation process and alleged non-compliance of some of the procedural provisions as also the observations against the increase of fees of resolution professionals are not to be approved. Similarly, the Appellate Tribunal has not been right in holding the resolution applicant ineligible to submit a resolution plan with reference to Section 164(2)(b) of the Companies Act, 2013. The disapproval by the Appellate Tribunal, with reference to the settlement offer of the promoter in terms of Section 12A of the Code, and its purported non-consideration is also not approved by the Supreme Court and such findings of the Appellate Tribunal were set aside. Similarly, the Appellate Tribunal has erred in applying the principles of non-discrimination in relation to the related party. However, the other findings and the consequential order passed by the Appellate Tribunal were approved.


Therefore, the impugned judgment and order dated 17.02.2022 in relation to the issues covered by points for determination A, B, C1, D2, E and F are not approved and findings of the Appellate Tribunal in that regard are set aside. However, rejection of the resolution plan is maintained in view of the answers to points C2, C3 and D1.


The Supreme Court bench was clearly of the view that even while respecting the commercial wisdom of CoC, in the present case, the resolution plan in question could not have been approved by the Adjudicating Authority for two major reasons: one, for the ineligibility of the resolution applicant; and second, for not placing of the revised resolution plan in the CoC before seeking approval from the Adjudicating Authority. Of course, on the questions relating to the valuation reports, and want of publication of Form G on the website, The Supreme Court were with the Adjudicating Authority that these aspects were not of material bearing in the process in question and the resolution professional had taken reasonable steps as permissible in law and feasible in the circumstances.


The Supreme Court bench was not inclined to endorse the views of the Appellate Tribunal regarding the treatment of the related party in the resolution plan as also regarding the settlement offer of the promotor and the process in that relation cannot be said to be suffering from any illegality.


The SC Bench further noted that so far, the subsequent events concerning the invitation of fresh EOIs and approval of the fresh settlement proposal of the promoter by the CoC are concerned, and all the relevant aspects are kept open for consideration of the Adjudicating Authority.


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