2021 (6) TMI 684 - SC - Insolvency and Bankruptcy

Approval of the resolution plan - dissenting financial creditor - order of priority among the creditors as also the priority and value of the security interest of a secured creditor - Section 62 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - As regards the process of consideration and approval of resolution plan, it is now beyond a shadow of doubt that the matter is essentially that of the commercial wisdom of Committee of Creditors and the scope of judicial review remains limited within the four-corners of Section 30(2) of the Code for the Adjudicating Authority; and Section 30(2) read with Section 61(3) for the Appellate Authority. The NCLAT was right in observing that such amendment to sub-section (4) of Section 30 only amplified the considerations for the Committee of Creditors while exercising its commercial wisdom so as to take an informed decision in regard to the viability and feasibility of resolution plan, with fairness of distribution amongst similarly situated creditors; and the business decision taken in exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment. The extent of value receivable by the appellant is distinctly given out in the resolution plan i.e., a sum of INR 2.026 crores which is in the same proportion and percentage as provided to the other secured financial creditors with reference to their respective admitted claims. Repeated reference on behalf of the appellant to the value of security at about INR 12 crores is wholly inapt and is rather ill-conceived - It needs hardly any emphasis that if the propositions suggested on behalf of the appellant were to be accepted, the result would be that rather than insolvency resolution and maximisation of the value of assets of the corporate debtor, the processes would lead to more liquidations, with every secured financial creditor opting to stand on dissent. Such a result would be defeating the very purpose envisaged by the Code; and cannot be countenanced. Appeal dismissed.

Issues Involved:
1. Approval of the resolution plan by the Committee of Creditors (CoC).
2. The appellant's dissent to the resolution plan.
3. The role and commercial wisdom of the CoC.
4. Judicial review of the CoC's decision.
5. Compliance with Section 30(4) of the Insolvency and Bankruptcy Code (IBC).

Detailed Analysis:

1. Approval of the Resolution Plan by the Committee of Creditors (CoC):
The resolution plan submitted by Amit Metaliks Limited was approved by a substantial majority of 95.35% of the CoC. The Adjudicating Authority found the plan feasible, viable, and compliant with all mandatory requirements, including judicious distribution of financial bids according to stakeholders' entitlements. The plan provided for the payment of insolvency resolution process costs, operational creditors' debts, management of the corporate debtor's affairs, and implementation and supervision of the resolution plan.

2. The Appellant's Dissent to the Resolution Plan:
India Resurgence ARC Private Limited, holding a 3.94% voting share in the CoC, dissented to the resolution plan. The appellant argued that the value of the secured asset was not considered, and the proposed share was lower than the security interest held. The appellant contended that the plan failed to consider the priority and value of the security interest as required by the amended Section 30(4) of the IBC.

3. The Role and Commercial Wisdom of the CoC:
The CoC's decision to approve the resolution plan is based on its commercial wisdom, considering the feasibility, viability, and the manner of distribution proposed in the plan. The Supreme Court emphasized that the CoC's discretion in approving the resolution plan is a business decision, and the considerations regarding the priority and value of security interest are within the exclusive domain of the CoC.

4. Judicial Review of the CoC's Decision:
The scope of judicial review of the CoC's decision is limited. The Adjudicating Authority and the Appellate Authority can only examine if the resolution plan complies with the mandatory requirements of the IBC. The Supreme Court reiterated that the commercial wisdom of the CoC is not subject to judicial review unless the plan contravenes provisions of the law or denies fair and equitable treatment to similarly situated creditors.

5. Compliance with Section 30(4) of the Insolvency and Bankruptcy Code (IBC):
The appellant argued that the CoC failed to consider the priority and value of the security interest as mandated by the amended Section 30(4). However, the Supreme Court clarified that the amendment to Section 30(4) only amplifies the considerations for the CoC and does not mandate a specific outcome. The CoC's decision, based on commercial wisdom, was found to be compliant with the IBC, and the appellant's entitlement was satisfied in accordance with the resolution plan.

Conclusion:
The Supreme Court dismissed the appeal, affirming that the resolution plan was approved by the CoC based on commercial wisdom, and the judicial review of such decisions is limited. The appellant's arguments regarding the value of the security interest and the distribution of the resolution plan were found to lack merit. The decision reinforces the principle that the CoC's business decisions in insolvency resolution processes are paramount and not subject to extensive judicial scrutiny.

← Previous Next →