2021 (8) TMI 553 - SC - Insolvency and Bankruptcy

Approval of Resolution plan - jurisdiction to approve resolution plan - compliance with the requirements of Section 30(2) of IBC - HELD THAT - The resolution plan was approved by the CoC, in compliance with the provisions of the IBC. The jurisdiction of the Adjudicating Authority under Section 31(1) is to determine whether the resolution plan, as approved by the CoC, complies with the requirements of Section 30(2). The NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC. There is no equity-based jurisdiction with the NCLT, under the provisions of the IBC. The RP has to present to the CoC, for its approval, such resolution plans which conform to the conditions specified in sub-Section (2) of Section 30. The approval of the resolution plan is a statutory function which is entrusted to the CoC, under sub-Section (4) of Section 30. The CoC may approve a resolution plan with a voting percentage of not less 66 per cent of the voting shares of financial creditors after considering (i) its feasibility and viability; (ii) the manner of distribution proposed having regard to the order of priority amongst creditors laid down in Section 53(1) of the IBC, including priority and value of the security interest of the secured creditors; and (iii) such other requirements as may be specified by the Insolvency and Bankruptcy Board of India. In other words, the decision to approve a resolution plan is entrusted to the CoC. The jurisdiction which has been conferred upon the Adjudicating Authority in regard to the approval of a resolution plan is statutorily structured by sub-Section (1) of Section 31. The jurisdiction is limited to determining whether the requirements which are specified in sub-Section (2) of Section 30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equated with a jurisdiction in equity, that operates independently of the provisions of the statute. The Adjudicating Authority as a body owing its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute itself. Once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the Adjudicating Authority nor the Appellate Authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework. Conclusion - In the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with Section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law. Appeal dismissed.

Issues Involved:
1. Jurisdiction to approve a Resolution Plan.
2. Exercise of jurisdiction by the Adjudicating Authority and Appellate Authority.
3. Fair and equitable treatment of operational creditors.
4. Impact of the exclusion of certain financial creditors from the Committee of Creditors (CoC).
5. Valuation of preference shares and liquidation value.

Issue-wise Detailed Analysis:

1. Jurisdiction to approve a Resolution Plan:
The Supreme Court emphasized that the jurisdiction of the Adjudicating Authority under Section 31(1) of the Insolvency and Bankruptcy Code (IBC) is to determine whether the resolution plan approved by the CoC complies with the requirements of Section 30(2). The Adjudicating Authority does not possess an equity-based jurisdiction beyond the statute. The approval of the resolution plan is a statutory function entrusted to the CoC, which must be approved with a voting percentage of not less than 66%.

2. Exercise of jurisdiction by the Adjudicating Authority and Appellate Authority:
The Court reiterated that the jurisdiction of the Adjudicating Authority is limited to ensuring compliance with Section 30(2) of the IBC. The commercial wisdom of the CoC in approving a resolution plan is not justiciable. The Appellate Authority's jurisdiction under Section 61(3) is similarly structured on specified grounds, including contravention of law, material irregularity by the resolution professional, and non-compliance with the criteria specified by the Board.

3. Fair and equitable treatment of operational creditors:
The Court held that the amount payable to operational creditors must be at least what is provided in Section 30(2)(b). The explanation to this section clarifies that a distribution in accordance with its provisions is deemed fair and equitable to operational creditors as a class. The Court emphasized that equitable treatment of creditors is only within the same class, and operational creditors are distinct from financial creditors. The resolution plan provided for payments to operational creditors at 19.62%, while financial creditors received 10.32%.

4. Impact of the exclusion of certain financial creditors from the Committee of Creditors (CoC):
The Supreme Court noted that the exclusion of certain financial creditors from the CoC, pursuant to the order of the NCLT in the Doha Bank proceedings, had no practical implication since the resolution plan was approved with a 100% majority. The exclusion affected only the inter se distribution among financial creditors and had no consequence for the operational creditors.

5. Valuation of preference shares and liquidation value:
The Court clarified that the realisable value from the sale of preference shares held by Reliance Bhutan Limited was included in the liquidation value of the Corporate Debtor. The liquidation value due to the unsecured operational creditors would remain nil in all scenarios, including if the corpus of ?800 crores is separately considered. The liquidation value of the Corporate Debtor was ?4339.58 crores, and the value being distributed under the approved resolution plan was ?4520 crores.

Conclusion:
The Supreme Court concluded that the resolution plan was duly approved by a requisite majority of the CoC in conformity with Section 30(4). The jurisdiction of the Adjudicating Authority was confined to determining whether the requirements of Section 30(2) were fulfilled. The decisions of the Adjudicating Authority and the Appellate Authority were in conformity with the law. The appeal was dismissed, and pending applications, if any, were disposed of.

← Previous Next →