Summary
The Supreme Court set aside orders keeping ACIL’s resolution-plan approval in abeyance for a fresh valuation by the Official Liquidator. Two registered valuations had been obtained, no stakeholder had objected, and the CoC had approved the negotiated plan by 88.56%. A large haircut alone did not justify intervention. The NCLT was directed to decide the approval application promptly within its statutory jurisdiction, while avoidance applications proceeded separately.
Issues
- Whether the NCLT could suspend consideration of a CoC-approved plan and order revaluation on the stated grounds.
- How far judicial scrutiny could extend into the CoC’s commercial assessment.
- What effect pending avoidance proceedings and proposed monetisation proceeds had on the approval process.
Provisions considered
- Sections 30(2), 30(6) and 31, Insolvency and Bankruptcy Code, 2016Plan scrutiny is confined to statutory compliance and effective implementation, not independent reassessment of the CoC’s commercial bargain. Rejection or identification of shortcomings requires reasons grounded in the Code. (¶¶ 5, 27–32)
- Section 26, Insolvency and Bankruptcy Code, 2016Pending avoidance applications did not warrant stalling the resolution process; proceeds were separately provided for the financial creditors and the applications were directed to proceed on their merits. (¶¶ 14, 26, 29, 34)
- Regulations 27 and 35, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016The prescribed two-registered-valuer process had been followed and the reports were not greatly divergent. There was no established defect justifying the impugned revaluation exercise. (¶¶ 9, 27, 29–32)
- Section 60(5), Insolvency and Bankruptcy Code, 2016The NCLT’s powers remain within the Code; the Court declined a categorical exclusion of remedial valuation powers in a future case with stark facts, while rejecting their unsupported exercise here. (¶¶ 24–25, 31–32, 36)
Held
- The CoC’s commercial decision cannot be replaced by a tribunal’s independent fairness or equity assessment when the plan complies with the Code and regulations. Here repeated negotiations, statutory valuations and approval by 88.56% supported respect for the commercial decision. (¶¶ 27–28, 30–31)
- A haircut of about 94.25% and proximity between the bid and assessed fair value did not, without demonstrated irregularity or statutory deficiency, justify ordering a new valuation through the Official Liquidator. No stakeholder had challenged the valuation or plan. (¶¶ 27, 29–32)
- The plan contemplated revival rather than liquidation and directed land-monetisation and avoidance recoveries to financial creditors. Comparing only the initial payment with total claims failed to account for those provisions and created unjustified delay. (¶ 29–30)
- Courts and tribunals must give cogent reasons. The cryptic orders lacked both a sufficient factual explanation and a jurisdictional basis for the direction actually made. (¶ 31–32)
- The decision did not impose an absolute prohibition on every future revaluation direction. Stark facts would have to be addressed within the powers and limits of the Code, with due regard to the circumstances. (¶¶ 32, 36)
- A fresh general remand would prolong the stalemate. The NCLT was instead required to pass appropriate orders on the approval application within three weeks; avoidance proceedings were to continue independently and expeditiously. (¶ 33–34)
Result
Appeal allowed. NCLT order dated 1 September 2021 and NCLAT judgment dated 19 January 2022 set aside. NCLT to pass appropriate orders on the approval application within three weeks of production of the judgment. Avoidance applications to proceed on merits expeditiously. No costs; interlocutory applications dealt with as specified.