Case Note & Summary
The case involves appeals by Vallal RCK, the promoter of M/s Siva Industries and Holdings Limited (Corporate Debtor), against the common judgment of the National Company Law Appellate Tribunal (NCLAT) dated 28 January 2022, which dismissed his appeals challenging two orders of the National Company Law Tribunal (NCLT) dated 12 August 2021. The NCLT had rejected an application by the Resolution Professional (RP) under Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC) for withdrawal of the Corporate Insolvency Resolution Process (CIRP) initiated against the Corporate Debtor, and also ordered initiation of liquidation proceedings. The CIRP was initiated on 4 July 2019 upon an application by IDBI Bank under Section 7 IBC. The RP presented a resolution plan from M/s Royal Partners Investment Fund Limited, which failed to get the required 66% votes. Subsequently, the appellant submitted a settlement plan, which after deliberations in multiple Committee of Creditors (CoC) meetings, was approved with a 94.23% voting majority. The RP then filed an application for withdrawal of CIRP under Section 12A. The NCLT rejected the application, holding that the settlement plan was not a settlement simpliciter but a 'Business Restructuring Plan', and also ordered liquidation. The NCLAT upheld these orders. The Supreme Court, while noting that the appeals could have been allowed as uncontested, considered the important question of law regarding the scope of judicial review over the commercial wisdom of the CoC. The Court referred to Section 12A IBC, which allows withdrawal of CIRP application with the approval of 90% voting share of the CoC, and the Insolvency Law Committee Report emphasizing that once CIRP is initiated, it involves all creditors, and withdrawal should be allowed only with CoC approval. The Court held that the adjudicating authority cannot sit in appeal over the commercial wisdom of the CoC. Since the CoC had approved the settlement plan with the requisite majority, the NCLT and NCLAT erred in rejecting the withdrawal application. The Supreme Court allowed the appeals, set aside the impugned orders of NCLAT and NCLT, and directed the NCLT to pass consequential orders in accordance with law.
Headnote
A) Insolvency Law - Withdrawal of CIRP - Section 12A IBC - Commercial Wisdom of CoC - The issue was whether NCLT/NCLAT could reject a settlement plan approved by 94.23% voting share of CoC. The Supreme Court held that the adjudicating authority cannot sit in appeal over the commercial wisdom of the CoC. The CoC, having approved the settlement plan with the requisite majority, the NCLT and NCLAT erred in rejecting the withdrawal application. The Court allowed the appeals and set aside the impugned orders. (Paras 2, 9, 15-16) B) Insolvency Law - Interpretation of Section 12A - Withdrawal Post-Admission - Section 12A IBC - The provision allows withdrawal of CIRP application with 90% voting share approval of CoC. The Court noted that the Insolvency Law Committee recommended such exit to cater to exceptional circumstances. The CoC's decision is binding on the adjudicating authority. (Paras 11-14) C) Insolvency Law - Object of IBC - Revival of Corporate Debtor - The IBC aims to permit the corporate debtor to continue as a going concern while maximizing creditor dues. The settlement plan approved by CoC furthers this objective. (Para 10)
Issue of Consideration
Whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC) in the context of withdrawal of Corporate Insolvency Resolution Process under Section 12A of the Insolvency and Bankruptcy Code, 2016.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned judgment of NCLAT dated 28 January 2022 and the orders of NCLT dated 12 August 2021, and directed the NCLT to pass consequential orders in accordance with law.
Law Points
- Commercial wisdom of Committee of Creditors is paramount
- Adjudicating Authority cannot substitute its decision
- Section 12A withdrawal requires 90% voting share approval
- Settlement Plan approved by CoC must be accepted
- NCLT/NCLAT cannot sit in appeal over CoC's commercial decision
