The Supreme Court set aside the impugned judgment of the National Company Law Appellate Tribunal (NCLAT), which had affirmed the Resolution Plan (RP) for ACIL Limited and ordered a revaluation of the assets of the Corporate Debtor. The Supreme Court emphasised the importance of adhering to the statutory framework of the Insolvency and Bankruptcy Code, 2016 (IBC) and ensuring a quick and time-bound resolution of insolvency while allowing the appeal.
Facts of the Case:
The appellants filed an appeal under Section 62 of the IBC challenging a judgment by the NCLAT. The NCLAT had affirmed the order of the NCLT which kept the approval of the Resolution Plan for ACIL Limited in abeyance. The NCLT had directed the Official Liquidator (OL) to re-value the assets of the Corporate Debtor and provide exact valuation details.
ACIL underwent Corporate Insolvency Resolution Process (CIRP), with a total claim of approximately Rupees one thousand eight hundred and thirty crores. The RP included the benefit of carrying forward losses for ACIL in accordance with Section 79 of the Income Tax Act, 1961 (hereinafter referred to as ‘the ITA’). This RP, approved by 88.56% of the Committee of Creditors, faced a setback when the NCLT suspended this approval directing a re-valuation of ACIL's assets by the Official Liquidator.
Contentions of the Appellant:
The appellant cited the extensive negotiation process already undergone by the RP, stating that the final plan was approved by the Committee of Creditors (CoC) with an 88.56% majority vote after multiple revisions, resulting in a 48% increase in the payout compared to the initial proposal.
It was contended that the NCLT had exceeded its jurisdiction by directing re-valuation without specific non-conformities under the IBC referencing to the decision of the Supreme Court in Pratap Technocrats Private Limited vs. Monitoring Committee of Reliance Infratel Limited[1], highlighting the limited power of judicial review conferred upon the NCLT.
The appellant challenged the NCLT's appointment of the Official Liquidator (OL) for re-valuation, arguing that it deviated from the established mechanism outlined in the Code. It was asserted that the NCLT's observations on the offered amount being close to fair value were unwarranted and had no basis, citing the decision in Maharashtra Seamless Limited vs. Padmanabhan Venkatesh[2], which discusses that aspects related to the valuation of the Corporate Debtor are not open to judicial scrutiny.
The appellant pointed to the provisions of the IBC and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, governing asset valuation and argued that the NCLT's interference lacked justification and was arbitrary, relying on K Sashidhar vs. Indian Overseas Bank[3], which establishes the supremacy of the CoC's commercial wisdom.
The Solicitor General and Additional Solicitor General concurred with the appellant's position, emphasizing the CoC's paramount role and the NCLT's restricted jurisdiction. They cited Supreme Court's decision in Arun Kumar Jagatramka vs. Jindal Steel and Power Limited[4] to underline the need for minimal judicial intervention in insolvency proceedings.
Contentions of the Respondent:
The respondents reiterated the finality of the CoC's decision post-approval. They aligned with the appellant's stand on the NCLT's limited jurisdiction and cited legal precedents, including the decision in Vallal RCK vs. Siva Industries and Holdings Limited[5] , emphasizing the binding and final nature of the Resolution Plan after CoC approval.
Observations of the Court:
The Supreme Court decided on the issues relating to the jurisdiction and powers of the NCLT to order a revaluation, given that no objections were raised by any party regarding deficiencies or irregularities in the RP. The Court emphasised that the statutory requirements of appointing two approved valuers for providing reports on fair market value and liquidation value were duly fulfilled.
The Court affirmed the arguments presented by the appellant that the commercial wisdom of the CoC is not subject to unnecessary judicial scrutiny. The Court reiterated that “NCLT would have no jurisdiction or power to sit in appeal over the commercial wisdom of the CoC and interference would be warranted only when the NCLT or NCLAT finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions in the Code or the Regulations.”
In Pratap Technocrats Case[6] (supra), the Court highlighted that the Indian legislature intentionally departed from foreign insolvency regimes by not conferring independent equity-based jurisdiction on the adjudicating authority. The Court rejected the notion of challenging a Resolution Plan on grounds of fairness and equity, as seen in foreign jurisdictions, emphasizing that such considerations are not within the scope of the Indian insolvency regime.
The Court emphasised the importance of adhering to the statutory framework of the IBC and ensuring a quick and time-bound resolution of insolvency, discouraging unnecessary impediments that could delay or derail the CIRP.
The Decision of the Court:
The Supreme Court found the order of the NCLT lacking detailed reasoning and suffered from a jurisdictional error. The Court said that it is the duty of courts and tribunals to record cogent reasons for their decisions. The Court allowed the appeal, setting aside the NCLT's order and the NCLAT's judgment. The NCLT was directed to pass appropriate orders on the approval application.
Case Title: Ramkrishna Forgings Limited vs. Ravindra Loonkar, Resolution Professional of ACIL Limited and Anr.
Coram: Hon'ble Mr. Justice Vikram Nath and Hon'ble Mr. Justice Ahsanuddin Amanullah
Case no.: Civil Appeal No.1527 of 2022
Citation: 2023 Latest Caselaw 880 SC
Advocates for the Appellant: Mr. Shyam Divan, Sr. Adv, Mr. Parateek Kumar, Adv., Ms. Raveena Rai, Adv., Ms. Smriti Nair, Adv., Ms. Saloni Gupta, Adv., M/s. Khaitan & Co., AOR.
Advocates for the Respondents: Mr. Balbir Singh, ASG, Ms. Swarupama Chaturvedi, Adv., Mr. Arvind Kumar Sharma, AOR, Ms. Kritya Sinha, Adv., Mr. Alok Tripathi, AOR, Mr. Rajesh Kumar Chaurasia, AOR, Mr. Rajive R Raj, Adv., Mr. Onkar Prasad, Adv., Mr. Anurag Jain, Adv., Mr. Shymal Kumar, Adv., Mr. Sujeet Kumar, Adv., Mr. Hem Kumar, Adv., Mrs. Soni, Adv.
Read Judgment @LatestLaws.com
[1] 2021 Latest Caselaw 321 SC
[2] 2020 Latest Caselaw 66 SC
[3] (2019) 12 SCC 150
[4] 2021 Latest Caselaw 143 SC
[5] 2022 Latest Caselaw 481 SC
[6] Supra note 1
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