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2022 (6) TMI 173 - SC - Insolvency and BankruptcyJurisdiction - approval of resolution plan - Power of NCLT / NCLAT over commercial wisdom of the Committee of Creditors (CoC) - seeking withdrawal of the application filed under Section 7 of the IBC in view of the Settlement Plan submitted by the appellant - whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC) or not? - HELD THAT - Section 12A of the IBC was brought in the statute book on the basis of the said Committee s Report. It could be noticed that though by the Amendment Act No. 26 of 2018, the voting share of 75% of CoC for approval of the Resolution Plan was brought down to 66%, Section 12A of the IBC which was brought in the statute book by the same amendment, requires the voting share of 90% of CoC for approval of withdrawal of CIRP. It could thus clearly be seen that a more stringent provision has been made insofar as withdrawal of CIRP is concerned. Where an application for withdrawal under Section 12A of the IBC is made after the constitution of the Committee, the same has to be made through the interim resolution professional or the resolution professional, as the case may be. The application has to be made in FormFA. It further provides that when an application is made after the issue of invitation for expression of interest under Regulation 36A, the applicant is required to state the reasons justifying withdrawal of the same. The RP is required to place such an application for consideration before the Committee. Only after such an application is approved by the Committee with 90% voting share, the RP shall submit the same along with the approval of the Committee to the adjudicating authority. It could thus be seen that a detailed procedure is prescribed under Regulation 30A of the 2016 Regulations as well. This Court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that 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 provisions under Section 12A of the IBC have been made more stringent as compared to Section 30(4) of the IBC. Whereas under Section 30(4) of the IBC, the voting share of CoC for approving the Resolution Plan is 66%, the requirement under Section 12A of the IBC for withdrawal of CIRP is 90%. It is thus clear that the decision of the CoC was taken after the members of the CoC, had due deliberation to consider the pros and cons of the Settlement Plan and took a decision exercising their commercial wisdom. Neither the learned NCLT nor the learned NCLAT were justified in not giving due weightage to the commercial wisdom of CoC. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC). 2. The validity and application of Section 12A of the Insolvency and Bankruptcy Code (IBC) in the context of withdrawal of Corporate Insolvency Resolution Process (CIRP). Issue-Wise Detailed Analysis: 1. Authority of NCLT/NCLAT Over CoC's Commercial Wisdom: The core issue in the appeal was whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC). The judgment emphasized that the CoC's commercial decisions should not be interfered with by judicial bodies unless they are found to be "wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules." The judgment cited various precedents where the Supreme Court had consistently held that the commercial wisdom of the CoC is paramount and should be given due weightage without judicial intervention. The court reiterated that the CoC, being fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan, acts on the basis of thorough examination and expert assessment. 2. Validity and Application of Section 12A of the IBC: The judgment delved into the interpretation and application of Section 12A of the IBC, which allows for the withdrawal of a CIRP application with the approval of 90% voting share of the CoC. The court referred to the Insolvency Law Committee's recommendations and the legislative intent behind Section 12A, emphasizing that it was introduced to allow withdrawal of CIRP in exceptional circumstances where a settlement is reached among all creditors and the debtor. The court noted that Section 12A was brought into the statute book to ensure that the liabilities of all creditors are met in any negotiated solution, discouraging individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. The court also highlighted that Regulation 30A of the 2016 Regulations provides a detailed procedure for withdrawal under Section 12A, including the requirement for the application to be approved by the CoC with a 90% voting share. The judgment referenced the case of *Swiss Ribbons Pvt. Ltd. v. Union of India*, where the Supreme Court upheld the validity of Section 12A, stating that the high threshold of 90% voting share was justified to ensure collective decision-making by all financial creditors. Conclusion: The Supreme Court allowed the appeals, quashing the impugned judgment of the NCLAT and the orders of the NCLT. The court concluded that the decision of the CoC, which had approved the settlement plan with a 94.23% voting majority, was taken after due deliberation and exercise of commercial wisdom. The NCLT and NCLAT were not justified in rejecting the settlement plan and the withdrawal of CIRP. The court emphasized the need for minimal judicial interference in the framework of the IBC, aligning with the legislative intent to ensure the efficacy of the insolvency and bankruptcy regime in India.
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