2023 (11) TMI 910 - SC - Insolvency and Bankruptcy

Approval of Resolution Plan - NCLAT / NCLT kept the application pending - Application seeking approval of a Resolution Plan for ACIL Limited (ACIL or Corporate Debtor) was kept in abeyance while directing the Official Liquidator (OL) to carry out a re-valuation of the assets of the Corporate Debtor and to provide exact figures/value of the assets and exact valuation details - HELD THAT - In the case at hand, there was no occasion before the Adjudicating Authority- NCLT to be swayed only on the per se ground that the hair-cut would be about 94.25% and that it was not convinced that the fair value of the assets have been projected in proper manner as the bid of the appellant was very close to the fair value of the assets of ACIL. Ordering revaluation of the assets, by the OL, Ministry of Corporate Affairs, Government of India, in-charge of the particular area, cannot be justified. As explained in M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK ANR. 2017 (9) TMI 58 - SUPREME COURT and SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. 2019 (1) TMI 1508 - SUPREME COURT , the Code was specifically introduced by Parliament for ensuring quick and time-bound resolution of insolvency of corporate entities in financial trouble, by first attempting to revive the Corporate Debtor, failure whereof would entail liquidation of the Corporate Debtor s assets, and no unnecessary impediment should be created to delay or derail the CIRP. In the present case, both the NCLT and NCLAT erred to fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated. Thus, the minimum mandatory component in the Resolution Plan was only a reflection of the actual money, including upfront payment, which would go towards the FC(s). As discussed previously, the final Resolution Plan provided for the monetization proceeds of the land as also the avoidance amounts to go to the FC(s) of the Corporate Debtor. At this juncture, it also cannot be lost sight of that it is for the FC(s) who constitute the CoC to take a call, one way or the other. Stricto sensu, it is now well-settled that it is well within the CoC s domain as to how to deal with the entire debt of the Corporate Debtor. In this background, if after repeated negotiations, a Resolution Plan is submitted, as was done by the appellant (Resolution Applicant), including the financial component which includes the actual and minimum upfront payments, and has been approved by the CoC with a majority vote of 88.56%, such commercial wisdom was not required to be called into question or casually interfered with - It is worthwhile to note that the Adjudicating Authority has jurisdiction only under Section 31(2) of the Code, which gives power not to approve only when the Resolution Plan does not meet the requirement laid down under Section 31(1) of the Code, for which a reasoned order is required to be passed. Under the circumstances, while this Court could have adopted the course of remanding the matter back to the NCLT for fresh/de novo consideration, but being conscious of the fact that such course would impede quick resolution as the CIRP is in a stalemate right from 01.09.2021 and after having applied our minds to the factual aspects also, it is not found that remand for consideration afresh, now, would serve the purpose of justice or aid the objects of the Code. The order dated 01.09.2021 of the NCLT and the Impugned Judgment dated 19.01.2022 of the NCLAT are set aside - appeal allowed.

Summary

Issues Involved:
1. Jurisdiction and powers of the Adjudicating Authority (NCLT) in ordering revaluation.
2. Compliance with the statutory requirements under the Insolvency and Bankruptcy Code (IBC).
3. The role and supremacy of the Committee of Creditors (CoC).
4. Impact of avoidance transactions on the Corporate Insolvency Resolution Process (CIRP).

Summary:

Jurisdiction and Powers of the Adjudicating Authority (NCLT) in Ordering Revaluation:
The Supreme Court found that the NCLT exceeded its jurisdiction by ordering a revaluation of the assets of ACIL Limited by the Official Liquidator. The NCLT's order was based on the premise that the bid amount was very close to the fair value of the assets, which the Court found to be an unsubstantiated and erroneous observation. The Supreme Court emphasized that the NCLT's jurisdiction is limited to ensuring compliance with Sections 30 and 31 of the Code and does not extend to revaluation unless there are glaring deficiencies, which were not present in this case.

Compliance with the Statutory Requirements under the Insolvency and Bankruptcy Code (IBC):
The Resolution Professional (RP) had complied with the statutory requirement of involving two approved valuers to determine the fair market value and liquidation value of the Corporate Debtor's assets. The CoC, which has the paramount decision-making authority under the Code, had approved the final Resolution Plan by a majority of 88.56% votes. The Supreme Court reiterated that the NCLT's role is to ensure that the Resolution Plan meets the requirements of Section 30(2) of the Code and not to interfere with the CoC's commercial decisions.

The Role and Supremacy of the Committee of Creditors (CoC):
The Supreme Court upheld the principle that the commercial wisdom of the CoC is supreme and should not be subjected to unnecessary judicial scrutiny. The CoC had undertaken repeated negotiations and approved the Resolution Plan, which was then presented to the NCLT for approval. The Court emphasized that the CoC's decision is not to be interfered with unless it fails the tests of the Code's provisions, particularly Sections 30 and 31.

Impact of Avoidance Transactions on the Corporate Insolvency Resolution Process (CIRP):
The Supreme Court noted that the pendency of avoidance applications does not affect the CIRP proceedings. The Resolution Plan provided that proceeds from avoidance transactions would go to the Financial Creditors (FCs), ensuring that the Resolution Applicant would not benefit from such transactions. The Court found that the NCLT and NCLAT erred in considering the avoidance transaction as a factor for revaluation.

Conclusion:
The Supreme Court set aside the orders of the NCLT dated 01.09.2021 and the NCLAT dated 19.01.2022. The NCLT was directed to pass appropriate orders on the Approval Application within three weeks. The Court emphasized the need for quick and time-bound resolution of insolvency cases, as envisaged by the Code, and highlighted the limited scope of judicial intervention in the commercial decisions of the CoC.