The Supreme Court has ruled that the National Company Law Tribunal (NCLT) has no authority to evaluate the commercial decision of the committee of creditors (CoC) to approve or reject a proposed resolution plan as there is complete autonomy regarding the commercial decision or wisdom of the financial creditors.
While considering a batch of appeal led by the case, K. Sashidhar vs. Indian Overseas Bank, a bench led by Justice AM Khanwilkar said that there is no provision in the Insolvency and Bankruptcy Code that empowers the resolution professional, the adjudicating authorities (NCLT & NCLAT), to reverse the “commercial decision” of the CoC.
Upon receipt of a rejected resolution plan, the bankruptcy court is obligated to initiate liquidation process under Section 33(1) of the Code, it said, while rejected the appeals against the NCLAT’s September 6 order that upheld the order of the NCLT, Mumbai Bench, which rejected the resolution plan of Pune-based Innoventive Industries and directed initiation of liquidation process. The appellate tribunal had also reversed the decision of the NCLT, Hyderabad, which had approved its resolution plan related to Hyderabad-based Kamineni Steel & Power India.
The NCLAT held that in both the cases the resolution plan did not garner support of not less than 75% of voting share of the financial creditors constituting the CoC, a pre-requite according to the Insolvency and Bankruptcy Code (IBC) to get the plan endorsed by the court.
“As a result, we hold that the NCLAT has justly concluded in the impugned decision that the resolution plan of the concerned corporate debtor(s) has not been approved by requisite percent of voting share of the financial creditors; and in absence of any alternative resolution plan presented within the statutory period of 270 days, the inevitable sequel is to initiate liquidation process under Section 33 of the Code. That view is unexceptional.”
The apex court said that the outer limit for resolution process has been specified as 270 days and if the resolution plan is not approved by the CoC with requisite number of votes of the financial creditors (not less than of 75%), then there is no other option but to order liquidation. It accepted the stand that it is not open to NCLT to enquire into the justness of the reason or the commercial decision taken by the financial creditors to approve or not to approve the proposed resolution plan, it said, adding there is complete autonomy regarding the commercial decision or wisdom of the financial creditors.
“What is significant is the second part of the said provision, which stipulates the requisite threshold of “not less than 75% of voting share of the financial creditors” to treat the resolution plan as duly approved by the CoC. That stipulation is the quintessence and made mandatory for approval of the resolution plan. Any other interpretation would result in rewriting of the provision and doing violence to the legislative intent.”
It also said that non-recording of reasons for approving or rejecting the resolution plan by the financial creditor during the voting would not render the final collective decision of CoC nullity per se.
Source: Financial Express, February 7, 2019