2021 (6) TMI 85 - Tri - Insolvency and Bankruptcy

Direction to Respondent to conduct immediate forensic audit of the books of accounts of the Corporate Debtor - direction to issue fresh EOI so as to invite prospective Resolution Applicant(s) in accordance with the Code - HELD THAT - It is to be mentioned herein that the Hon'ble Supreme Court has reiterated on number of occasion that National Company Law Tribunal (NCLT) or National Company Appellate Tribunal(NCLAT) cannot interfere with the Commercial wisdom of the CoC under limited scope as provided under Section 30 and 31 of IBC, which recently has been observed by the Hon'ble Supreme Court, in KALPRAJ DHARAMSHI ANR. VERSUS KOTAK INVESTMENT ADVISORS LTD. ANR. 2021 (3) TMI 496 - SUPREME COURT , referring to precedent such as COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS 2019 (11) TMI 731 - SUPREME COURT , K. SASHIDHAR VERSUS INDIAN OVERSEAS BANK OTHERS 2019 (2) TMI 1043 - SUPREME COURT - While passing the order, it is further observed that the NCLT and NCLAT cannot review the commercial decision exercised by CoC of approving the resolution Plan or rejecting the same and thereby, has given the paramount importance to the decision of the CoC which is to be taken on the basis of the commercial wisdom. There are no merit in the instant application - application not allowed.

Summary

Issues:
1. Application under Section 60(5) of the Insolvency and Bankruptcy Code for forensic audit and fresh EOI.
2. Allegations of defeating the CIRP procedure by CoC.
3. Opposition by erstwhile RP regarding the application.
4. CoC decision for liquidation and its finality.
5. Jurisdiction of NCLT/NCLAT to interfere with CoC's commercial wisdom.

Analysis:
1. The application was filed under Section 60(5) of the Insolvency and Bankruptcy Code, seeking a forensic audit of the Corporate Debtor's accounts and issuance of a fresh Expression of Interest (EOI). The CoC, in its 6th meeting, decided against a forensic audit, fresh EOI, and instead opted for liquidation. The Applicant raised concerns about the CoC's decisions impacting the CIRP process.

2. The Applicant alleged that the CoC's decisions, particularly regarding the liquidation, were influenced by a related party, casting doubt on the transparency and fairness of the process. The erstwhile RP opposed the application, claiming it was filed with ulterior motives and that the CoC's decision for liquidation was final and binding.

3. The NCLT noted the sequence of events leading to the CoC's decision for liquidation, emphasizing the limited scope for interference in CoC's commercial decisions as highlighted by the Hon'ble Supreme Court in various judgments. The NCLT highlighted the importance of CoC's commercial wisdom in approving or rejecting resolution plans, as reiterated by the Supreme Court in recent cases.

4. Considering the legal precedents and the commercial autonomy of the CoC, the NCLT found no merit in the Applicant's application. The NCLT declined to delve into the detailed arguments presented in the application, ultimately dismissing the application and upholding the CoC's decision for liquidation as final.

5. The judgment emphasized the principle that NCLT and NCLAT should not interfere with the commercial decisions made by the CoC unless there are exceptional circumstances. The NCLT's decision was guided by the Supreme Court's stance on respecting the commercial wisdom of the CoC in insolvency proceedings, underscoring the importance of upholding the decisions made by the creditors' committee within the framework of the Insolvency and Bankruptcy Code.