By observing, that Section 12 A of the IBC is a stringent provision which requires the voting share of 90 % of CoC on the settlement plan in order to withdraw the CIRP proceedings, thus once the approval of CoC is given after due deliberations, the NCLT and NCLAT should give due weightage to the commercial wisdom of the CoC, the Apex Court allows the present appeals preferred against the impugned judgments of the NCLT and NCLAT rejecting the approved settlement plan of the appellant and issued an order of initiation of liquidation proceedings against the appellant.
A Division Bench of Justice B.R. Gavai and Hima Kohli while reiterating the proposition that there should be minimal judicial intervention of the NCLT and NCLAT in the framework of IBC, allowed the present appeals instituted against the impugned judgment of the NCLT and NCLAT whereby the settlement plan submitted by the appellant was rejected by the NCLT and liquidation proceedings were initiated against him. The first appellate authority also rejected his appeal which was in turn filed to assail the NCLT order.
The present appeals assailed the common judgment dated January 28, 2022 passed by the National Company National Law Appellate Tribunal, Chennai in pursuance of a company appeal wherein the appeals files by the appellant, which were in turn filed, assailing the two orders dated August 12, 2021 passed by the National Company Tribunal, rejecting the application instituted by the Resolution Professional under Section 12A of the Insolvency Bankruptcy Code , 2016 read with Regulation 30 A of the Insolvency and Bankruptcy Board of India Regulations, 2016, for withdrawal of the application filed under Section 7 of the IBC in relation to the Settlement Plan submitted by the appellant.
The appellant also assailed the order passed by the NCLAT through which the appeal filed by the present appellant against the order passed by the NCLT directing commencement of liquidation proceedings in respect of M/s Siva Industries and Holdings Limited- the first respondent was dismissed.
Facts relevant for adjudication of the present appeal were that IDBI Bank instituted an application under Section 7 of the IBC for initiation of Corporate Insolvency Resolution Process in respect of the Corporate Debtor. The said application was accepted by the NCLT through its order dated July 4, 2019. Consequently, CIRP in respect of Corporate Debtor was initiated.
Thereafter, the RP appointed, filed an application under Section 33 (1) (a) of the IBC seeking commencement of the liquidation process of the Corporate Debtor. Subsequently, the appellant, who is the promoter of the Corporate Debtor, filed a settlement application before the NCLT under Section 60 (5) of the IBC, Showing his willingness to offer a onetime settlement plan. In view of the same, the appellant submitted the Settlement Plan which was approved by more than 90 % voting share. Accordingly, the RP filed an application before NCLT seeking withdrawal of CIRP initiated against the Corporate Debtor.
However, the NCLT via its order dated August 12, 2021 , held the Settlement Plan was not a settlement simpliciter under Section 12 A of the IBC but indeed a “ Business Restructuring Plan 'and thus, the above stated application was rejected and thereafter liquidation proceedings against the Corporate Debtor were initiated.
Aggrieved by the same, the appellant approached the NCLAT in the form of appeals, however they were dismissed by the common impugned judgment dated January 28, 2022. Hence, the appellant preferred the present appeals.
Notice was issued by this Court in the present appeals on March 11, 2022 and in pursuance of the same, the Court granted stay of the impugned judgment.
After giving anxious consideration to the submissions of the parties, the Court dealt with the question of law as to whether the adjudicating authority or the appellate authority can sit in an appeal over the commercial wisdom of the Committee of Creditors or not.
To deal with the same, the Court referred to Section 12 A of the IBC. In respect of the same, the Court observed that Section 12 A of the IBC was brought in the statute book by the amendment Act, 26 of 2018,stating that the voting share should be of 90 % of CoC for approval of withdrawal of CIRP. Thus, a stringent approach was being followed as far as withdrawal of CIRP was concerned, the Court noted.
Additionally, the Court submitted that given the large share of voting to CoC, if it acts arbitrarily and rejects the settlement, then the same can be set aside by the NCLT and NCLAT.
At the outset, the Court observed that when 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, then the same should not be called into question by the adjudicating or the appellate authority, judging the commercial wisdom of CoC. The intervention can only be justified and entertained in those circumstances wherein the adjudicating authority or the appellate authority finds the decision of CoC to be wholly capricious, arbitrary, and irrational and de hors the provisions of the statute or the Rule, Court remarked.
Reverting back to the facts of the present case, the Court stated that the proceedings of the 13th, 14th and 15th meetings of CoC would clearly indicate that there were wide deliberations amongst the members of the CoC while considering the Settlement Plan as submitted by the appellant. Also, the proceedings would also reveal that after suggestions were made by some of the members of the CoC, suitable amendments were carried out in the Settlement Plan by the appellant, the Court noted.
It was further observed by the Court that one of the members of the CoC having a voting share of 23.60%, though initially opposed the Settlement Plant, and subsequently decided to support the same. Accordingly, as per the directions of the NCLT, on April 1, 2021, the 17th meeting of the CoC was reconvened, wherein the Settlement Plan was approved by 94.23% votes.
Analyzing the facts of the case closely, the Court concluded that the decision of the CoC was taken after the members of the CoC had extensive discussion on the pros and cons of the Settlement Plan in question and applied their commercial acumen while taking the final decision. Thus, by observing the same, the Court was of the considerate view that the NCLAT and NCLT failed to pay heed to the commercial wisdom of the CoC.
Reliance was placed in the case of Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another, wherein it was observed however, we do take this opportunity to offer a note of caution for NCLT and NCLAT, functioning as the adjudicatory authority and appellate authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC.
In light of the aforesaid observations, the Court allowed the present appeals and the impugned judgments were quashed and set aside.
Case name: VALLAL RCK Vs. M/S SIVA INDUSTRIES AND HOLDINGS LIMITED AND OTHERS
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