VALLAL RCK VS M/S SIVA INDUSTRIES AND HOLDING LTD : CASE SUMMARY
The Supreme Court in Vallal RCK Vs M/s Siva Industries and Holding Ltd. (2022) SCC Online SC 717 held that if more than 90% or more of members of CoC it their wisdom have permitted settlement and withdrawal of Corporate Insolvency Resolution Process (CIRP), the Adjudicating Authority cannot sit in appeal over it.
FACTS OF THE CASE
IDBI Bank Ltd filed Application under Section 7 IBC for initiation of insolvency proceedings against the Corporate Debtor, which was admitted by NCLT vide order dated 4th July, 2019. The Resolution Professional submitted plan before the CoC but the same was not approved. The Resolution Professional filed application for initiation of liquidation proceedings on 8th May, 2020.
In the meantime the Promotor filed an application before NCLT for one time settlement. Settlement Plan was approved the Committee of Creditors with more than 90% voting share.
RP filed an application before the Hon’ble NCLT for withdrawal of Resolution Plan. NCLT held that it was not a Settlement Plan simpliciter but a “business restructuring plan” and rejected the application for withdrawal of the CIRP and passed order for liquidation of the Corporate Debtor. Appeals against the same was filed before the NCLAT which was dismissed.
FINDINGS OF THE SUPREME COURT
It was contended before the Supreme Court that NCLT cannot sit in appeal over commercial wisdom of the Committee of Creditors. When Committee of Creditors has approved the Settlement Plan with the voting majority of 94.23%, the NCLT and NCLAT have erred in rejecting the settlement plan.
The Supreme Court noted that Section 12A has been introduced vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 on recommendation of Insolvency Law Committee which was of the view that in exceptional circumstances, withdrawal of CIRP in post-admission stage should be allowed with at least 90% voting share of CoC.
The Court noted that Section 12 A requires 90% voting share of CoC for withdrawal of CIRP on account of settlement. Such application has to be made through the Resolution Professional if the CoC has been constituted. If such application is made after publication of Expression of Interest, reasons have to be given for withdrawal of Application. RP is required to place such Application before the CoC for approval. If CoC approves the Application with at least 90% majority, the same has to be filed with NCLT for approval.
The Supreme Court noted that in Swiss Ribbons Pvt. Ltd Vs. Union of India ( 2019) 4 SCC 17 validity of Section 12 A was challenged on the ground that figure of 90% voting share was arbitrary. The Supreme Court rejected this contention and held Section 12 A valid.
The Supreme Court observed that commercial wisdom of the Committee of Creditors has been given paramount status in several judgments. There is intrinsic presumption that Financial Creditors are fully informed about the viability of the Corporate Debtor and feasibility of the proposed Resolution Plan.
When 90% or more of the CoC Members in their wisdom after due deliberation permit settlement and withdrawal of the CIRP, NCLT cannot sit over appeal over the same. Interference could be only warranted in case the decision of the CoC is capricious, arbitrary, irrational and de hors the provisions of statues or rules.
The Supreme Court noted that in the instant case there were wide deliberation among members of CoC on the Settlement Plan. NCLT or NCLAT was not justified in not respecting the commercial wisdom of the Committee of Creditors.
The Supreme Court noted that it has time and again emphasized the need for minimal judicial interference by NCLT and NCLAT. The Supreme Court allowed the appeal and permitted withdrawal of Corporate Insolvency Resolution Process.
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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.