Summary
After the corporate insolvency resolution process of Siva Industries and Holdings Ltd failed to produce an approved resolution plan, the promoter offered a one-time settlement; the Committee of Creditors approved it with 94.23% voting share and the resolution professional applied under Section 12A of the Insolvency and Bankruptcy Code, 2016 to withdraw the Section 7 application. The NCLT refused, characterising the proposal as a 'business restructuring plan' rather than a settlement, and ordered liquidation; the NCLAT affirmed. The Supreme Court allowed the appeals and permitted withdrawal.
Issues
- Whether the NCLT or the NCLAT can sit in appeal over the commercial wisdom of the Committee of Creditors which has approved, by more than 90% voting share, a settlement plan and withdrawal of the corporate insolvency resolution process under Section 12A of the IBC.
- Whether a settlement proposal approved under Section 12A can be rejected by the adjudicating authority on the ground that it amounts to a business restructuring plan rather than a simple settlement.
Provisions considered
- Section 12A (with Sections 7, 30(4), 33(1)(a) and 60(5)), Insolvency and Bankruptcy Code, 2016Section 12A, inserted by the 2018 Amendment on the Insolvency Law Committee's recommendation, permits withdrawal of an admitted application with the approval of 90% of the CoC — a threshold more stringent than the 66% for approving a resolution plan — because after admission the proceeding involves all creditors and an omnibus settlement is intended. A CoC decision meeting that threshold, reached after due deliberation, binds the adjudicating authority absent capriciousness, arbitrariness or illegality. (¶¶ 11, 12, 13, 14, 15, 16, 23, 24)
- Regulation 30A, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Prescribes the detailed procedure for a Section 12A application after constitution of the committee: made through the resolution professional in Form FA, considered by the committee within seven days and, if approved by 90% voting share, submitted to the adjudicating authority, which may approve it. (¶¶ 17, 18)
Held
- The commercial wisdom of the CoC enjoys paramount status without judicial intervention (K. Sashidhar, Essar Steel, Maharashtra Seamless, Kalpraj Dharamshi, Jaypee Kensington); although those decisions concerned approval of resolution plans, the same principle applies with greater force to withdrawal under Section 12A, which requires a more stringent 90% majority. When 90% or more of the creditors in their wisdom find settlement and withdrawal to be in the interest of all stakeholders, the NCLT and NCLAT cannot sit in appeal over that decision, and may interfere only if it is wholly capricious, arbitrary, irrational or de hors the statute or rules. (¶¶ 21, 22, 23, 24)
- The CoC deliberated on the settlement plan over its 13th to 17th meetings, secured amendments from the promoter, and a creditor holding 23.60% changed its stance to approve it, resulting in 94.23% approval; the decision was taken after weighing the pros and cons in the exercise of commercial wisdom, and the NCLT and NCLAT were not justified in refusing it due weight. Judicial intervention by the NCLT and NCLAT in the IBC framework must be kept to the bare minimum (Arun Kumar Jagatramka). (¶¶ 25, 26, 27)
Result
Appeals allowed; the NCLAT's judgment of 28.01.2022 in Company Appeal (AT)(CH)(Ins) Nos. 211 and 212 of 2021 and the NCLT's orders of 12.08.2021 rejecting withdrawal and directing liquidation set aside; the resolution professional's application MA/43/CHE/2021 for withdrawal of the CIRP against Siva Industries and Holdings Ltd allowed. No order as to costs.