The Supreme Court in its recent judgment has categorically held that the commercial know how of the Committee of Creditors (CoC) is unimpeachable and not subject to judicial review.
The bench consisting of Justices AM Khanwilkar and Ajay Rastogi, while hearing appeals in two cases wherein liquidation orders were passed under the Insolvency and Bankruptcy Code, 2016 (“IBC”) against Kamineni Steel & Power India and Innoventive Industries, observed –
“Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan”.
The facts of case are that while Innoventive Industries went straight into liquidation for their inability to get the requisite 75% of voting share of financial creditors constituting the CoC, Kamineni’s resolution plan, despite having only 66% of voting share, was approved by the Hyderabad Bench of NCLT. In case of Kamineni, NCLAT, overturned the and remanded the case back to NCLT for liquidation. In the case of Innoventive, appeals were filed by the worker’s union as well as promoter contending that the dissenting financial creditors did not specify ‘reasons’ for opting out of the resolution plan.
The Apex Court, while strictly interpreting the law, found that the 75% threshold is compulsory and that “any other interpretation would result in rewriting of the provision and doing violence to the legislative intent”.
The Apex Court further held that both NCLT and NCLAT can only consider factors enumerated in Section 30(2) and 61(3) respectively at the time of admitting a resolution plan. Section 30(2) requires the Resolution Professional (“RP”) to confirm whether the resolution plan is in compliance with certain enumerated matters and NCLT is entrusted to ensure that the same has been done by the RP. Section 61(3) provides the limited grounds on which NCLAT may hear appeals from NCLT orders.
However, in both the instant cases, the applications were filed under Section 33, which provides for initiation of liquidation. In such a situation, the NCLT is bound to initiate liquidation process under Section 33(1) of the IBC. As stated earlier, under section 61(3), the Code limits the grounds under which the NCLAT may hear an appeal from orders passed by NCLT. The Court found that upon receiving a “rejected” resolution plan, NCLT is not expected to do anything except fulfilling its obligation to initiate liquidation process under Section 33(1) of IBC.
In light of the aforementioned, the Court held the following –
- “The legislature has not endowed the NCLT with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors“
- “The legislature, consciously, has not provided any ground to challenge the ‘commercial wisdom’ of the individual financial creditors or their collective decision before the adjudicating authority. That is made non justiciable.”