2020 (8) TMI 750 - AT - Insolvency and Bankruptcy

Rejection of settlement proposal - reconsideration of the proposal - contention is that the Adjudicating Authority while passing the impugned orders, failed to consider whether the approved Resolution Plan conformed with Section 30 of I B Code and its objective i.e. maximization of value of assets of the Corporate Debtor - non-speaking order - principles of natural justice - HELD THAT - The Committee of Creditors, Acting on the basis of evaluation of Proposed Resolution Plan and assessment made by their team of experts, expressed their opinion after due deliberations in CoC Meetings through voting as per voting share which is a collective business decision. The commercial wisdom of the Financial Creditors individually or their collective decision is beyond the pale of challenge before the Adjudicating Authority and the same has been made non-justiciable. Hon ble Apex Court in K. SASHIDHAR VERSUS INDIAN OVERSEAS BANK OTHERS 2019 (2) TMI 1043 - SUPREME COURT , d ealing with the scope of an appeal under Section 61(1) of the I B Code, the Hon ble Apex Court noticed that apart from other grounds the appeal could be instituted against an order approving a Resolution Plan limited to six grounds noticed therein including that the approved Resolution Plan is in the contravention in the provisions of any law for the time being in force or that there has been any material irregularity in exercise of powers by the Resolution Professional during the Corporate Insolvency Resolution Process. Thus, it is clear that the jurisdiction bestowed upon this Appellate Tribunal too is expressly circumscribed. Thus, it is the settled proposition of law that the commercial wisdom of the Committee of Creditors in approving or rejecting a resolution plan is essentially based on a business decision, which involves evaluation of the Resolution Plan based on its feasibility besides the Committee of Creditors being fully informed about the viability of the Corporate Debtor. Such commercial wisdom of the Committee of Creditors with requisite voting majority is non-justiciable and the discretion on Adjudicating Authority is circumscribed to scrutiny of Resolution Plan as approved by the requisite majority voting share of the Financial Creditors - Merely because the Adjudicating Authority has declined to direct reconsideration of the already rejected settlement proposal of Appellants does not impinge upon the legality and conformity of the approved Resolution Plan with the conditions stated in Section 32 of the I B Code. The impugned orders have been passed on proper application of mind - there are no merits in the appeal - Appeal dismissed.

Summary

Issues involved:
1. Approval of Resolution Plan by Committee of Creditors
2. Rejection of settlement proposal by Adjudicating Authority
3. Compliance with Section 30 of Insolvency and Bankruptcy Code, 2016
4. Judicial review of business decisions of Committee of Creditors

Analysis:

Approval of Resolution Plan by Committee of Creditors:
The Resolution Plan submitted by 'Sterlite Power Transmission Ltd.' (SPTL) was approved by 95.15% of the voting share of the Committee of Creditors and further endorsed by the Adjudicating Authority. The appellant's application to direct the Committee of Creditors to consider a settlement proposal was rejected since the settlement proposal was already declined by the Committee of Creditors with the necessary majority. The appellant challenged both orders, leading to the appeal.

Rejection of settlement proposal by Adjudicating Authority:
The Adjudicating Authority was criticized for allegedly failing to assess whether the approved Resolution Plan complied with Section 30 of the Insolvency and Bankruptcy Code, 2016, and its objective of maximizing the value of the Corporate Debtor's assets. The orders were also challenged as being non-speaking cryptic orders without proper application of mind.

Compliance with Section 30 of Insolvency and Bankruptcy Code, 2016:
The Tribunal emphasized that the business decisions of the Committee of Creditors are beyond judicial review, citing legal precedents. The scope of the Tribunal's review is limited to specific grounds, excluding questioning the commercial wisdom of the Committee of Creditors. The Tribunal clarified that its jurisdiction is restricted and does not extend to reconsidering rejected settlement proposals or challenging the decisions made by the majority of the Committee of Creditors.

Judicial review of business decisions of Committee of Creditors:
Legal precedents, including 'K. Sashidhar vs. Indian Overseas Bank' and 'Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others,' were referenced to support the principle that the commercial wisdom of the Committee of Creditors in approving or rejecting a resolution plan is non-justiciable. The Tribunal highlighted that the Adjudicating Authority's scrutiny is limited to the Resolution Plan approved by the requisite majority of Financial Creditors and does not extend to questioning the Committee of Creditors' business decisions.

In conclusion, the Tribunal found that the impugned orders were passed after due consideration and aligned with established legal principles. The appeals were dismissed, emphasizing that the commercial wisdom of the Committee of Creditors is not subject to judicial review.