K SASHIDHAR VS INDIAN OVERSEAS BANK : CASE SUMMARY
The Supreme Court in K Sashidhar Vs Indian Overseas Bank (2019) 12 SCC 150 held that commercial wisdom of the individual financial creditors or their collective decision is non-justiciable. The Adjudicating authority has limited jurisdiction to reject resolution plan on the grounds given under Section 30 (2) of the Insolvency and Bankruptcy Code, 2016.
FACTS OF THE CASE
The Supreme Court was determining two separate appeals in this matter.
Kamineni Steel & Power India Ltd Pvt. Ltd. (KS & PIPL) was facing operational and financial issues. The Company had filed application before BIFR. After coming into force of Insolvency and Bankruptcy Code, 2016, the Company filed an application under Section 10 IBC. The Petition was admitted on 10th February, 2017. Resolution Plan submitted by Corporate Debtor could only garner support of 66.67% of CoC. Maharastra Bank having 6.36% of voting share had not either approved, rejected or abstained from voting. The proposed Resolution Plan did not garner approval of 75% of voting share as was then required. The NCLT approved the Resolution Plan. The NCLAT reversed the order of the NCLT and held that approval of resolution plan by a vote of not less than 75% of voting share of the Financial Creditors was mandatory and it was not open to the Adjudicating Authority to disregard the mandate of the Code.
In the second appeal, insolvency proceedings have been initiated by NCLT Mumbai vide order dated 17th January, 2017 in the matter of Innoventive Industries Ltd. Resolution Plan submitted by the Resolution Applicant garnered 66.57% voting share while 33.43% voted against Resolution Plan. The Resolution Professional filed Application for initiating liquidation proceedings as Resolution Plan did not get approval of 75 % voting share as required under the Code. The NCLT passed Liquidation Order. The NCLAT concurred with NCLT.
FINDINGS OF THE SUPREME COURT
The Supreme Court noted that the CoC is called upon to consider the Resolution Plan under Section 30 (4) of the Code after it is verified and vetted by the Resolution Professional as being compliant with the statutory requirements specified in Section 30 (2).
The Court observed that if the CoC had approved the Resolution Plan by requisite percentage of voting share, the Resolution Professional has to submit the same to the Adjudicating Authority. On receipt of the Resolution Plan, the Adjudicating Authority is required to satisfy itself that the Resolution Plan as approved by CoC meets requirement specified under Section 30 (2).
The Supreme Court observed that on a conjoint reading of these provisions it is clear that the stipulation is “voting share of the financial creditors” for the purposes of determining as to whether the proposed resolution plan has been approved by CoC or otherwise. The “percent of voting share of the financial creditors” approving vis-à-vis dissenting is required to be reckoned. It is not on the basis of members present and voting. The approving votes must fulfill the threshold percentage of voting share.
The Supreme Court observed that commercial wisdom has been given paramount status without any judicial intervention. There is presumption that financial creditors are fully informed of viability and feasibility of Resolution Plan. The decision of CoC is collective decision. The Legislature has consciously not provided any ground for challenging “commercial wisdom” of individual financial creditor or their collective decision making before the Adjudicating Authority. That has been made non-justiciable.
The Court noted that Report of the Bankruptcy Law Reforms Committee gives primacy to the CoC to evaluate the various possibilities and make a decision.
Adjudicating Authority has been empowered only to make inquiries regarding provision under Section 30 (2).The Jurisdiction of NCLAT will also be circumscribed being a proceeding in continuity. Further Section 61 (3) provides that an appeal against order approving Resolution Plan can only be filed on ground given therein.
The Supreme Court also dispelled the argument that decreasing the threshold from 75% to 66% voting share of CoC for passing of Resolution Plan vide the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 should be applied with retrospective effect. The Supreme Court was of the view that a new norm and qualifying standard for approval of Resolution Plan has been introduced. That cannot be treated as a declaratory /clarificatory or stricto sensu procedural matter as such.
The Supreme Court relied on Thirumalai Chemicals Limited Vs Union of India (2011) 6 SCC 739 and Purbanchal Cables & Conductors (P) Ltd. (2012) 7 SCC 462 and held that it is trite law that every statute is prospective unless it is expressly or by necessary implication made to have retrospective operation.
The Supreme Court affirmed the view of NCLAT that Resolution Plans have not been approved by requisite percent of voting share of financial creditors and in absence of alternate Resolution Plan liquidation proceedings has to be initiated under Section 33 of the Code.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.