2024 (9) TMI 1362 - HC - IBC

Invocation of writ jurisdiction of this Court under Article 226 of the Constitution of India, 1950 - initiation of process of fresh voting on the Resolution Plan of the Petitioner after taking into consideration - principle of equality and fairness - HELD THAT - This Court is not inclined to issue notice for the elementary reason that the petitioner has an alternative and efficacious remedy to assail the impugned action or inaction on the part of the CoC, if any, before the NCLT. It is well ordained in law that the Adjudicating Authority alone has the jurisdiction to regulate the conduct of the CoC and finally adjudicate upon the resolution plan through the powers of judicial review and thereby ensure that the CoC functions as per the role and responsibilities delineated under the IBC. In other words, the Adjudicating Authority maintains a supervisory role over the entire CIRP proceedings and is empowered under Section 60 of the IBC to take action on any issue relating to the insolvency proceedings. Thus, the resolution plan decided by the CoC shall be put up for consideration before the Adjudicating Authority, which forum alone shall finally decide whether the CoC has performed its fiduciary duty as per the legislative mandate of the IBC. This Court is not enjoined upon to exercise its power of judicial review and thereby usurp upon the powers of the NCLT to inquire into the commercial wisdom of the CoC whereby the Resolution Plan of the petitioner was rejected vide impugned letter dated 18.09.2024. In the end, a last desperate attempt is made by the petitioner that it is willing to renew its offer and match the offer given by the SRA in every aspect, but the same cannot be entertained by this Court. Although there is no gainsaying that in matters of public funds auction the best methodology for discovering fair value and the principle criteria is to ensure maximizing the recovery, the bottom line is that the decision of the CoC shall definitely be considered by the NCLT in a just and expedient manner, and if it deems fit it, may even allow Open Court Bidding in accordance with law - the present writ petition is dismissed with liberty to the petitioner to take appropriate recourse before the NCLT, which forum alone shall decide the objections of the petitioner, if any preferred, on its own merits in accordance with law. Petition dismissed.

Issues Involved:
1. Jurisdiction of the High Court under Article 226 of the Constitution of India.
2. Validity of the CoC's decision under the IBC framework.
3. Alternative remedy before the NCLT.
4. Code of conduct for the CoC.
5. Commercial wisdom of the CoC.

Detailed Analysis:

1. Jurisdiction of the High Court under Article 226 of the Constitution of India:
The petitioner invoked the writ jurisdiction of the High Court under Article 226, seeking several reliefs, including the development of a framework under the Banking Regulation Act, 1949, and the initiation of a fresh voting process on the Resolution Plan. The Court, however, emphasized that the petitioner has an alternative and efficacious remedy before the NCLT, which is the appropriate forum to address grievances related to the CoC's decision.

2. Validity of the CoC's decision under the IBC framework:
The petitioner claimed that its bid, being the highest in terms of monetary value and net present value, was arbitrarily rejected by the CoC. The petitioner argued that the CoC exhibited a complete lack of 'commercial wisdom' by not accepting its bid, which offered a higher value compared to the Successful Resolution Applicant (SRA). The petitioner relied on the decision in Kunwar Sachdev v. IDBI Bank & Ors., highlighting the fiduciary duties of the CoC and the need for a code of conduct ensuring fairness and objectivity in decision-making.

3. Alternative remedy before the NCLT:
The Court reiterated that the Adjudicating Authority (NCLT) alone has the jurisdiction to regulate the conduct of the CoC and adjudicate upon the resolution plan. The NCLT maintains a supervisory role over the entire CIRP proceedings and is empowered under Section 60 of the IBC to take action on any issue relating to insolvency proceedings. The Court emphasized that the petitioner should approach the NCLT to challenge the CoC's decision.

4. Code of conduct for the CoC:
The petitioner argued for the necessity of an effective code of conduct for the CoC, based on principles of integrity, objectivity, professional competence, due care, and confidentiality. The Court referred to the guidelines for the CoC framed by the IBBI, which require CoC members to follow relevant provisions of the Code, maintain integrity and objectivity, and disclose any potential conflicts of interest.

5. Commercial wisdom of the CoC:
The respondents contended that the CoC's decision, taken in its 'commercial wisdom,' should not be interfered with by the Court. They argued that the IBC is a complete Code, and the CoC's decision, after thorough deliberations, favored the SRA's plan, which envisaged a total payment of Rs. 99 crores within 30 days. The Court referred to the Supreme Court's decision in M.K. Rajagopalan v. Dr. Periasamy Palani Gounder, which upheld the primacy of the CoC's commercial wisdom, provided the decision is well-considered and based on all relevant information.

Conclusion:
The High Court dismissed the writ petition, granting the petitioner liberty to approach the NCLT. The Court underscored that the NCLT is the appropriate forum to address the petitioner's grievances and ensure that the CoC functions according to the legislative mandate of the IBC. The Court also noted that the CoC's decision would be considered by the NCLT in a just and expedient manner, potentially allowing "Open Court Bidding" if deemed fit.

← Previous Next →