NCLAT Upholds CoC’s Discretion to Forego Swiss Challenge, Validates Resolution Plan Approval
- REEDLAW
- Aug 12
- 3 min read
REEDLAW Legal News Network reports: The National Company Law Appellate Tribunal (NCLAT) upheld that the Committee of Creditors (CoC) enjoys absolute discretion under the Insolvency and Bankruptcy Code (IBC) and the Request for Resolution Plan (RFRP) to decide whether to adopt the Swiss Challenge Mechanism. The Tribunal emphasised that the CoC’s commercial decision to approve a compliant resolution plan with the requisite majority is non-justiciable and cannot be interfered with by the Adjudicating Authority or the Appellate Tribunal.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a Company Appeal, held that the Committee of Creditors has absolute discretion under the IBC and the RFRP to decide whether to adopt a Swiss Challenge Mechanism, and its commercial decision to approve a compliant Resolution Plan with the requisite majority is non-justiciable and cannot be interfered with by the Adjudicating or Appellate Authority.
The National Company Law Appellate Tribunal, Principal Bench, dismissed the appeal filed by an Unsuccessful Resolution Applicant challenging the order of the Adjudicating Authority approving the Resolution Plan of the Successful Resolution Applicant in the CIRP of the Corporate Debtor. The CIRP had commenced upon an application under Section 7 of the IBC. Initially, a Resolution Plan submitted by a different entity was withdrawn due to changes in its constitutional structure, prompting the Resolution Professional to invite fresh Expressions of Interest. The Appellant was eventually permitted by the Adjudicating Authority to submit its Resolution Plan, which was revised multiple times in line with the CoC’s directions, the final version being submitted on 24.06.2024.
Subsequently, in the 35th CoC meeting, the Resolution Plans of the Appellant and the Successful Resolution Applicant were evaluated and put to a vote. The CoC approved the latter’s plan with an overwhelming majority of 98.94% voting share. The Appellant contended that the CoC and the Resolution Professional ought to have conducted a Swiss Challenge Mechanism as contemplated in the RFRP to maximise value, and further alleged that it was prevented from enhancing its financial offer despite expressing willingness. The CoC, however, maintained that the Swiss Challenge Mechanism was discretionary and that all plans were duly considered before exercising its commercial judgment in favour of the Successful Resolution Applicant.
The Tribunal observed that the RFRP vested discretion in the CoC to adopt a Swiss Challenge Mechanism, and the CoC’s decision not to conduct such a process could not be faulted. The Appellant’s revised plan had been duly considered and voted upon alongside the Successful Resolution Applicant’s plan, and the commercial wisdom of the CoC, having approved the latter with the requisite majority, was non-justiciable. Citing the Supreme Court’s ruling in K. Sashidhar v. Indian Overseas Bank and Others, REEDLAW 2019 SC 02502, the Tribunal reiterated that neither the Adjudicating Authority nor the Appellate Authority could interfere with the CoC’s commercial decision unless the plan was non-compliant with Section 30(2) of the IBC, which was not the case here.
The Tribunal further held that Regulation 39(1A) of the CIRP Regulations, 2016 was only enabling in nature and did not impose an obligation to permit modification of plans beyond what the CoC directed. As the Appellant had already been given opportunities to revise its plan within prescribed timelines, there was no procedural irregularity. Finding no merit in the grounds urged, the Tribunal upheld the Adjudicating Authority’s order approving the Resolution Plan of the Successful Resolution Applicant and dismissed the appeal without costs.
Mr. Gaurav Mitra, Mr. Harsh Vardhan Sharma and Ms. Arushi Mishra, Advocates, represented the Appellant.
Mr. Ankur Mittal and Ms. Preety Choudhary, Advocates, appeared for the Respondent No. 3.
Mr. Vaijayant Paliwal and Ms. Tanya Chib, Advocates, appeared for the erstwhile Resolution Professional (RP).
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