NCLAT upheld the Committee of Creditors' decision on the resolution plan, affirming the primacy of commercial wisdom and the limited scope of judicial review.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra reviewed a bunch of two appeals and upheld the Committee of Creditors' (CoC) decision to approve a resolution plan based on its commercial wisdom, affirming that judicial review should not interfere with CoC decisions unless there is a clear statutory violation or material irregularity.
The National Company Law Appellate Tribunal (NCLAT) examined two appeals under Section 61 of the Insolvency and Bankruptcy Code (IBC), challenging an order dated March 29, 2023, from the National Company Law Tribunal (NCLT) Mumbai Bench-IV. The NCLT had approved a resolution plan submitted by KGK Realty (India) Pvt. Ltd. in the Corporate Insolvency Resolution Process (CIRP) of Anudan Properties Pvt. Ltd., a company struggling with a stalled construction project. The Corporate Debtor, which entered CIRP on March 15, 2021, faced insolvency due to its inability to complete the project, prompting LICHFL, a major creditor, to initiate the process under Section 7.
The appellants contended that the Resolution Professional (RP) and the Committee of Creditors (CoC) neglected their duties by failing to consider the benefits of increased Floor Space Index (FSI) and Transferable Development Rights (TDR) in the resolution plans. They alleged that the plan favoured LICHFL at the expense of other stakeholders, including home-buyers and slum dwellers, and that the CoC's decision was unduly influenced by LICHFL’s voting power, ignoring a potentially better plan from Aanya Real Estate Pvt. Ltd.
The NCLAT reviewed the CoC's commercial decisions and found that the RP had adequately provided opportunities for all potential resolution applicants. The CoC's decision-making was scrutinized through the minutes of its 17th meeting on April 24, 2022. By the deadline of April 3, 2022, the RP had received plans from three applicants, and after extensive negotiations and revisions, the plan from the Successful Resolution Applicant (SRA) was approved by a 76.35% majority, surpassing the required threshold. The NCLAT noted that the CoC's process involved thorough deliberations and adhered to statutory requirements, demonstrating democratic decision-making aligned with corporate governance principles.
The appellants argued that the decision was excessively influenced by Respondent No. 2 and failed to maximize stakeholder value, citing the Supreme Court's ruling in Miheer H. Mafatlal v. Mafatlal Industries Ltd. to argue for judicial scrutiny of fairness and legality. However, the NCLAT deemed this judgment inapplicable as it pertained to schemes under the Companies Act rather than resolution plans under the IBC. The Tribunal referred to Supreme Court decisions affirming the primacy of the CoC's commercial wisdom, including cases like K. Sashidhar v. Indian Overseas Bank and Others, REEDLAW 2019 SC 02502 and Committee of Creditors of Essar Steel India v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505.
The NCLAT also addressed the appellants' concerns regarding the distribution to unsecured creditors, emphasizing that the CoC's decisions on allocations, including haircuts, fell within its commercial discretion. No material irregularities or breaches of IBC provisions were found. Consequently, the NCLAT upheld the Adjudicating Authority's approval of the resolution plan, dismissed the appeals as meritless, and made no order as to costs.
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