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2024 (10) TMI 831 - AT - IBCRejection of liquidation application filed by the Resolution Professional for liquidation of the Corporate Debtor as recommended by the Committee of Creditors - wrong action of the Appellant in advising wrong insurance policy which was for a completed project against the policy required by the Corporate Debtor for a project which was under implementation. Whether the Adjudicating Authority can discard the recommendation of the CoC and rather give its own directives overriding the commercial wisdom of the CoC? HELD THAT - The Adjudicating Authority was lured by the fact that the Resolution Plan submitted by the Respondents was more than 20 times of the liquidation value of the unit and also that amount of EMD was more than the liquidation value. The Impugned Order relied on the doctrine of prudence to justify that resolution of the Corporate debtor is preferred option over the liquidation of the Corporate Debtor. It is worth noting that according to the Adjudicating Authority the other issues like pending writ before the Hon ble High Courts suits file by the Corporate Debtor, FIR filed by the investigation agencies (perhaps referred to CBI) report submitted to RBI for declaring the Corporate Debtor and the promoter directors as wilful defaulter are not related to the matter and cannot be grounds or factors relevant to decide about rejection of the Resolution Plan - From reasoning recorded by the Adjudicating Authority, it is seen the Adjudicating Authority was not impressed by the commercial wisdom of the CoC and sought it fit to start fresh process for the resolution of the Corporate Debtor. In catena of judgements by the Hon ble Supreme Court of India including K. Sashidhar 2019 (2) TMI 1043 - SUPREME COURT and Kalpraj Dharamshi 2021 (3) TMI 496 - SUPREME COURT , it has been stipulated that there is hardly any scope for judicial interference on the part of the Adjudicating Authority or the Appellate Tribunal except ensuring that the Resolution Plan meets the requirements of the Code and the related regulations. There are no violation in the present case and therefore there were no occasion for judicial interference by the Adjudicating Authority. Thus, the Impugned Order is not in consonance of law or in spirit of the Hon ble Supreme Court of India judgements. It is beyond doubt that the commercial wisdom of the CoC is required to be honoured in letter and spirit. There is no role for Adjudicating Authority to interfere on such unfounded reasoning as recorded in the Impugned Order. The Impugned Order is found to be perverse and illegal. The Impugned Order deserves to be set aside - Appeal allowed.
Issues Involved:
1. Rejection of liquidation application by the Adjudicating Authority. 2. Commercial wisdom of the Committee of Creditors (CoC). 3. Jurisdiction of the Adjudicating Authority in overriding CoC's decision. 4. Viability and acceptance of the Resolution Plan. 5. Allegations of mala fide actions by the sole Financial Creditor. Issue-wise Detailed Analysis: 1. Rejection of Liquidation Application by the Adjudicating Authority: The appeal was filed against the order of the National Company Law Tribunal (NCLT), Guwahati Bench, which rejected the application for liquidation of the Corporate Debtor. The application was filed by the Resolution Professional based on the CoC's decision to liquidate the Corporate Debtor after rejecting the Resolution Plan submitted by the Promoters. The Adjudicating Authority directed the Resolution Professional to negotiate further with the Promoters to find a viable Resolution Plan, emphasizing the importance of resolution over liquidation, especially for an MSME unit. 2. Commercial Wisdom of the Committee of Creditors (CoC): The CoC, with 100% voting rights held by the Appellant, exercised its commercial wisdom to reject the Resolution Plan submitted by the Promoters of the Corporate Debtor, citing issues such as the non-viability of the plan and the insistence on releasing personal and corporate guarantees. The CoC's decision to liquidate was based on the belief that the proposed Resolution Plan did not meet the necessary requirements and would result in significant financial losses for the Appellant. 3. Jurisdiction of the Adjudicating Authority in Overriding CoC's Decision: The Adjudicating Authority's decision to reject the liquidation application and direct further negotiations was challenged on the grounds that it exceeded its jurisdiction by overriding the CoC's commercial decision. The Appellant argued that the Adjudicating Authority is obligated under section 33(2) of the Insolvency and Bankruptcy Code to accept the CoC's recommendation for liquidation. The judgment emphasized that the Adjudicating Authority does not have the jurisdiction to evaluate the commercial decision of the CoC. 4. Viability and Acceptance of the Resolution Plan: The Resolution Plan submitted by the Promoters offered an amount significantly higher than the liquidation value but was rejected by the CoC due to concerns over its viability and the conditions attached, such as the release of guarantees. The Adjudicating Authority, however, was persuaded by the higher value offered in the Resolution Plan and viewed liquidation as a last resort for an MSME unit. The Appellant argued that the plan was not viable and did not provide a clear methodology for the revival of the Corporate Debtor. 5. Allegations of Mala Fide Actions by the Sole Financial Creditor: The Respondents, who were the Promoters and suspended directors of the Corporate Debtor, alleged that the Appellant acted in a mala fide manner by rejecting the Resolution Plan and initiating liquidation proceedings. They argued that the Appellant's actions were against the spirit of the Code and that the Adjudicating Authority's decision was justified in protecting the interests of all stakeholders and the MSME unit. Conclusion: The Appellate Tribunal set aside the Impugned Order, emphasizing the paramount supremacy of the CoC's commercial wisdom. It held that the Adjudicating Authority had no jurisdiction to interfere with the CoC's decision unless there was a violation of the Code or related regulations, which was not the case here. The Tribunal directed the parties to appear before the NCLT, Guwahati Bench, for further proceedings.
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