The Insolvency & Bankruptcy Code, 2016 ('IBC/ Code') has over the years proved, that this piece of legislation is a creditor driven regime. One of the most striking features of the Code is that all the major decisions from the initiation till the end of the Corporate Insolvency Resolution Process ('CIRP') is taken by the Committee of Creditors ('CoC') which constitutes financial creditors of a Corporate Debtor, wherein the Resolution Professional ('RP') acts as only a medium between the CoC and the Adjudicating Authority ('AA') i.e., the National Company Law Tribunal ('NCLT'). Further the role of AA is to ensure that decisions taken by the CoC are in accordance with the provisions and basic principle of the Code i.e., maximization of assets values.
Towards the end of the CIRP, a Resolution Applicant ('RA') proposes a Resolution Plan ('plan') which is placed before CoC by the RP and upon several deliberations by CoC, the crucial decision pertaining to approval or rejection of a Resolution Plan is taken. Thereafter, if a rejected plan is placed before the NCLT, the Tribunal is expected to do nothing more, but to initiate liquidation process under section 33(1) of IBC, but if the plan is approved by at least 66% of CoC and is placed before the NCLT for its approval, the NCLT has to look into two basic check boxes, only then the plan stands approved and binding on all the stakeholders. Firstly, whether the plan has been approved by not less than 66% of CoC members or not and secondly, whether the requirements stated under section 30(2) of the Code are being complied with or not. However, there are no provisions under the Code, which authorizes NCLT to modify or interfere with the merits of the plan. Hence the creditors has an upper-hand in the approval of the plan. Not only the legislature has been clear with primacy of creditors over the AA for approval of plan but even the judiciary through several judgments has stated that no AA or Appellant Authority i.e. National Company Law Appellate Tribunal ('NCLAT') has been empowered to question the decision makers of the plan. Hence the NCLT/ NCLAT have to abide by the "commercial wisdom of the CoC" and do nothing else except approve or reject the plan after ensuring that the plan fulfills the criteria under section 30(2) of the Code. This concept was set as a bed-rock in one of the landmark judgments of IBC i.e. K. Sashidhar v. Indian Overseas Bank1, wherein the Apex Court held that:
"52. ......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. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. 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."
"64. .......The resolution professional is not required to express his opinion on matters within the domain of the financial creditor(s), to approve or reject the resolution plan, under Section 30(4) of the I&B Code. At best, the Adjudicating Authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2)read with Section 31(1) of the I&B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the Appellate Authority (NCLAT) is limited to the grounds under Section 61(3) of the I&B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting......"
Therefore, it is apparent that once a plan is approved by the requisite majority of the CoC, the plan must then pass the muster of the AA under Section 31(1) of the Code giving no authority to AA under the Code to question / modify the plan as per its will.
At this instance, it is also essential to understand that the NCLT & NCLAT has a limited judicial review while dealing with the approval of the resolution plan which has to be within four corners of section 30(2) of IBC, insofar as the AA is concerned and section 32 read with section 61(3) of the Code insofar the Appellate Tribunal is concerned and under no circumstances the AA or the Appellate Tribunal can trespass upon the commercial decision of the CoC. This concept was looked broadly in one of the most spectacular judgments of Apex Court i.e. in the matter of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors2 ., wherein it was held that:
"73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal."
Hence, from the decisions of the Supreme Court, it is clear that earlier in K.Sashidhar (supra) the AA was duty bound only to approve a plan or reject the plan, which was later on widened through the Essar Steel judgment (supra) wherein the aspect of limited judicial review was incorporated.
Adding to this, the NCLAT, Chennai Bench, recently through one of its distinctive judgment has now clarified that AA has the authority to record analytical subjective satisfaction and express its views/ opinions upon the resolution plan placed before it for approval. In the recent matter of Antanium Holdings Pte. Ltd., (Formerly known as Triterras Holdings Pte. Ltd.) Vs. M/s. Sujana Universal Industries Limited Through its RP Mr. Ramakrishnan Sadasivan3 , the NCLAT, Chennai Bench on 17.05.2021 dismissed the Appeal and upheld an admission order passed by the NCLT, Hyderabad on 24.12.2020. The NCLT approved the Resolution Plan which attained majority voting of 80.64% by the CoC, but added a condition as stated under para 22 of the NCLT order which was challenged before the NCLAT by the RA on being burdened with sudden undecided claims, which is reproduced herein below:
"22. However, the Resolution Plan approved shall not construe any waiver to any statutory obligations/liabilities arising out of the approved Resolution Plan and shall be dealt in accordance with the appropriate Authorities as per relevant Laws. This Adjudicating Authority is of the considered view that if any waiver is sought in the Resolution Plan, the same shall be subject to approval by the concerned Authorities. The same view has also been held by Hon'ble Principal Bench, NCLT in the case of Parveen Bansal Vs. Amit Spinning Industries Ltd. In CA No.360(PB) 2018 in CP No. (IB) 131 (PB)/2017."
From the above order of NCLT, it is evident that NCLT has not just travelled beyond the scope of its jurisdiction while saddling an additional condition and opening up the plan towards 'undecided claims', which goes against the settled law of the Code, that the RA should be provided with the business of a Corporate Debtor on a clean slate, but has also questioned the commercial wisdom of the CoC, who has substantial interest in the Resolution Plan. Therefore, with this order, the AA created a complicated situation wherein the fundamental principle of the Code laid down not only by the legislature but also by the judiciary, has been shaken.
It is the order of NCLAT in the above matter, which has managed to save the principle of the Code from going into shambles and has retrieved it from the state of confusion by holding that:
"26. The 'Adjudicating Authority' is to record analytical subjective satisfaction which is a precondition before according an 'Approval' to the 'Resolution Plan'. In short, the 'Approval' of 'Resolution Plan' is to be judged with utmost care, caution, circumspection and diligence. The threadbare examination of the scheme is to be studied astutely before arriving at a subjective satisfaction by the 'Adjudicating Authority'.
- .........this 'Tribunal' comes to a resultant conclusion that the said 'Observations' are not in the form of 'imposition of an additional condition' thereby opening up the plan in regard to the 'undecided claims', because of the reason that the 'Adjudicating Authority' is within its limits to express its views/opinion(s). The 'Instant Appeal' Sans merits."
Accordingly, from the order of NCLAT, it is appropriate to understand that that the order pronounced by NCLT with an additional condition is merely an observation/ view/ opinion of NCLT and not in the form of imposition of an additional condition into the plan. Thus, giving a leeway to the creditors to consider the same or not. Therefore, it is crystal clear that the order of NCLT would have constructed new doors regarding the power of AA for approval of plan, unless the same would not have been deconstructed by the order of NCLAT.
All in all, it is notable from the framework of the Code and judicial precedents that, though AA lacks the power to modify the plan approved by CoC, it is well within its authority to suggest or comment on the contents of the plan or even revert back the plan for further consideration by the CoC, as the plan is to be judged with utmost care, caution, circumspection and diligence. This is indeed a progressive step towards cementing the power of adjudication vested upon AA by the legislature.
Amir Bavani is a Principal Associate in the firm. He is a post graduate in MBA from ICFAI University and completed his LLB and LLM from Osmania University. His core expertise lies in Dispute Resolution especially involving Insolvency & Bankruptcy Code 2016, Banking Laws and General Corporate.
He regularly appears before various judicial/quasi-judicial authorities including High Court, Debt Recovery Tribunal and National Company Law Tribunal. He advises significant number of companies, creditors, other stakeholders to identify and adopt the most suitable approach to deal with a complex web of possible outcomes and legal strategies to effectively deal with the aspects of corporate insolvency and restructuring process.
Rishika Kumar is an Associate with the firm. Her expertise lies in Insolvency and Restructuring laws. She has been actively advising and representing Creditors, Corporate Debtors, Insolvency Professionals and investors, bidders in relation to the resolution, liquidation and restructuring process under the Insolvency and Bankruptcy Code, 2016.
1. (2019) 12 SCC 150.
2. (2020) 8 SCC 531
3. Company Appeal (AT) (CH) (Ins) No. 07 of 2021.
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