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Neither NCLT nor NCLAT is endowed with the jurisdiction to reverse the commercial wisdom of the CoC

The National Company Law Appellate Tribunal (NCLAT), New Delhi bench comprising Justice M. Venugopal (Judicial Member), V. P. Singh (Technical Member) and Dr. Ashok Kumar Mishra (Technical Member) recently held that NCLT/NCLAT has been endowed with limited jurisdiction as specified in the I & B Code and not to act as a court of equity or exercise plenary powers.

The Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decisions above-referred. The jurisdiction of the Appellate Authority is also circumscribed by the limited grounds of appeal provided in Section 61 of the Code.

CoC’s commercial or business decisions are not open to judicial review by the Adjudicating Authority or the Appellate Authority. The Hon’ble Supreme Court has further placed reliance on the earlier judgement of the three-judge Bench in the case of Essar Steel India Limited, REED 2019 SC 11505 and observed that there is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such committee must reflect the fact that it has taken into account maximising the value of the assets of the Corporate Debtor and the fact that it has adequately balance the interests of all the stakeholders including Operational Creditors.

Hon’ble Supreme Court has observed that while exercising the interpretative task by the Adjudicating Authority and the Appellate Authority, the powers are limited, to the extent that infrastructure under the Code is sufficiently developed to enable to take critical decisions for maximisation of the value of the Corporate Debtor and to keep it as a going concern.

Based on the law laid down by the Hon’ble Supreme Court in various judgments, it is clear that the NCLT/NCLAT has been endowed with limited jurisdiction as specified in the I & B Code and not to act as a court of equity or exercise plenary powers.

The judicial review of the Adjudicating Authority that the Resolution Plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include a judicial review that is mentioned in Section 30(2)(e), of the Code and is also in compliance with the provisions of the law for the time being in force.

Thus, while the Adjudicating Authority cannot interfere on merits with the commercial wisdom taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the Corporate Debtor needs to keep going as a going concern during the Insolvency Resolution Process; that it needs to maximise the value of its assets; and that the interest of all the stakeholders including operational creditors has been taken care of.

The Hon’ble Supreme Court has further crystallised the powers of the NCLT/NCLAT by specifying that under Section 60(5)(c) of the IBC or rule 11 of NCLT Rules, powers are limited to the extent relating to the border compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms that have and must be cautious in granting reliefs may run counter to the timelines and centre to the IBC. Any judicial creation of a procedural or substantive remedy that is not envisaged raised by the statute would violate the principles of separation of powers and run the risk of altering the delicate coon designed by the IBC framework.

In the instant case, the RBI, in the exercise of its administrative discretion under Section 45-IE of the RBI Act, superseded the Board of DHFL and appointed an Administrator. Accordingly, it decided to initiate the corporate insolvency resolution proceedings with respect to DHFL under the I.B.C and not the RBI Act. Therefore, the appellant’s contention about the obligation of the Administrator and the successor in the interest of the DHFL to ensure full repayment of deposit to have FD holders under the RBI and NHB Act is not sustainable.

It is important to mention that the RBI Act and the NHB Act merely provides that the license of a Housing Finance Company or Non-Banking Finance Company may be cancelled if the deposit holders are not paid. Such a decision can be taken only after allowing the concerned HFC or NBFC to present its case. None of the legislation provides that FD holders are required to be paid in full. It is not the case of the Appellant’s that RBI is not empowered to act under the RBI Act or the FSP Rules. The appellant acknowledges that statutory mandate made available to the RBI under the RBI Act and the FSP rules. However, the appellants wish to advise the Regulator as to the course of action that ought to have been followed by the Regulator. This is legally impermissible, misconceived and untenable.

After elaborate discussion, the Appellate Authority had concluded that the F D holders are Financial Creditors of the DHFL and had been treated accordingly as per the provisions of the Code. It was also found that section 45Q of the RBI Act had no applicability in the facts of the present case. The decision about payments to the creditors falls within the commercial wisdom of the COC, subject to fair and equitable play, i.e. payment of minimum liquidation value to creditors. The commercial wisdom of COC is not amenable to judicial review of any kind.

The I & B Code being a subsequent enactment overwrites the provisions of the NHB Act, NHB directions and RBI Act. No right of full payment exists under the NHB Act or the RBI Act or under any other legislation. Even if it exists, any such right would be wholly repugnant to the provisions of the Code, which provide for a specific manner in priority of payment and sets out the right. The minimum amount a creditor is mandatorily required to be paid in the Resolution Plan, i.e. the liquidation value.

Based on the above discussion, the Appellate Tribunal held that The Adjudicating Authority had not erred on this count in approving the Resolution Plan that proposes extinguishing claims to the Fixed Deposits without discharging their payments in full to Holders of FD. Therefore, it did not contravene the statutory provisions of the NHB Act and RBI Act.

It was clear that there was nothing on record that needs interference by the Appellate Court. The Appeals were dismissed.


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