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NCLT/ NCLAT cannot intermeddle with the commercial wisdom and intelligence of Committee of Creditors


The Hon’ble Supreme court in the case of Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another, REED 2021 SC 03545 has again reiterated that the National Company Law Tribunal/ National Company Law Appellate Tribunal cannot intermeddle with the commercial wisdom and intelligence of Committee of Creditors (CoC), except under Section 30 and Section 31 of the Insolvency and Bankruptcy Code, 2016.


This Judgement was delivered on Wednesday by a three-judge Bench of Supreme Court comprising of Justices A.M. Khanwilkar, B.R. Gavai and Krishna Murari.


In the present case, the three-judge Bench on the basis of well settled principle of insolvency law set aside the order passed by the NCLAT which had invalidated the decision of the Committee of Creditors to accept a resolution plan.


The Hon’ble Apex Court in its clear sense has thus stated that the appeal is not an inherent right, it is a creation of the Statute and such a statute does not confers any inherent jurisdiction and authority either with the NCLT or NCLAT to examine the decision exercised by the Committee of Creditors of approving or rejecting the resolution plan. Hon’ble Justice B.R. Gavai stated this in the judgement.


The learned Bench further averred the fact that they are of the view of the utmost importance being given to the decision of the Committee of Creditors (CoC). It further stated that the decision has been taken by the Committee of Creditors on the basis of applied sense of knowledge and their commercial wisdom . The court also holded the opinion that the NCLAT was not right in interfering with the decision of the CoC, and it was moreover an abuse of power on the part of the NCLAT.


The decision taken by the Committee of Creditors of accepting the resolution plan was supported by a thumping majority of 84.36%.


Facts of the Case

The Appellants Kalparaj Dharamshi and Rekha Jhunjhunwala were resolution applicants in a corporate insolvency resolution process. The Supreme court has given the judgement in the favour of the appellants. The respondents, Kotak Investment Advisory Limited, another resolution applicant challenged the approval of the resolution plan of the appellants contending the fact that the acceptance of the resolution plan was time barred, and therefore the appellants could not have in any case accepted the resolution plan.


The respondents filed the petition regarding the same before NCLT. The NCLT dismissed the petition of the respondent finding it to be baseless.


Kotak Investment Advisory Limited further appealed before NCLAT. NCLAT in its judgement ruled in the favour of the respondent, and annulled the decision of the committee of creditors of accepting the resolution plan. Hence NCLAT in this way intervened with the decision of the CoC.


Statement of Issues raised in the judgement

There were three issues raised in this case:

  1. Whether the Appeal filed before NCLAT was within the period of limitation.

  2. Whether KIAL was estopped from challenging the acceptance of Resolution Plan, by the virtue of being a member of Committee of Creditors.

  3. Whether NCLAT was right on its part in interfering with the decision of CoC of the acceptance of the Resolution Plan.

Answers to the Issues


FIRST ISSUE

The First issue was related to the fact that KIAL had first approached the High Court challenging the NCLT decision. When the appeal was filed before the High Court, the Hon'ble High Court refused to entertain the matter saying that the NCLAT is an appropriate forum to appeal before from the decision of the NCLT. The Hon’ble Supreme Court answered this issue in the favour of KIAL. The supreme Court ruled that the time spent in pursuing the case in High Court could be regarded as bona fide prosecution on the part of the respondent. And the said time period in which appeal has been made before the High Court for the purpose of exclusion of limitation period under section 14 of the Limitation Act, 1963.


SECOND ISSUE

The Second issue was also ruled in the favour of KIAL by holding the fact that any indulgence in the CoC process did not restrain it from challenging the decision to accept the resolution plan of the Appellants.


THIRD ISSUE

However, the third issue was answered against the KIAL, the respondents by holding the fact that the NCLAT had exceed its jurisdiction with the CoC decision.



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