Supreme Court

K. Sashidhar Vs. Indian Overseas Bank and Ors.

MANU/SC/0189/2019

05.02.2019

Company

NCLT or NCLAT are not empowered under IBC, 2016 to reverse commercial decision of CoC

Appeals was against impugned order of NCLAT and High Court dismissing appeal filed by Appellant observing that, requirement of approval of resolution plan by vote of not less than 75% of voting share of financial creditors was mandatory. The question raised in present matter is whether resolution plan of concerned corporate debtor(s) had not been approved by requisite percent of voting share of financial creditors.

Admittedly, in case of corporate debtor KS & PIPL, resolution plan, when it was put to vote in meeting of CoC held on 27th October, 2017, could garner approval of only 55.73% of voting share of financial creditors and even if subsequent approval accorded by email (by 10.94%) was taken into account, it did not fulfill requisite vote of not less than 75% of voting share of financial creditors. On other hand, resolution plan was expressly rejected by 15.15% in CoC meeting and later additionally by 11.82% by email. Thus, resolution plan was expressly rejected by not less than 25% of voting share of financial creditors. In such a case, resolution professional was under no obligation to submit resolution plan under Section 30(6) of I & B Code to adjudicating authority. Instead, it was a case to be proceeded by adjudicating authority under Section 33(1) of I & B Code.

Similarly, in case of corporate debtor IIL, resolution plan received approval of only 66.57% of voting share of financial creditors and 33.43% voted against resolution plan. This being indisputable position, NCLAT opined that, resolution plan was deemed to be rejected by CoC and concomitant was to initiate liquidation process concerning two corporate debtors.

In the I & B Code and the Regulations framed thereunder as applicable in October 2017, there was no need for the dissenting financial creditors to record reasons for disapproving or rejecting a resolution plan. Further, there is no provision in the I & B Code which empowers the adjudicating authority (NCLT) to oversee the justness of the approach of the dissenting financial creditors in rejecting the proposed resolution plan or to engage in judicial review thereof. Concededly, the inquiry by the resolution professional precedes the consideration of the resolution plan by the CoC. The resolution professional is not required to express his opinion on matters within the domain of the financial creditor(s), to approve or reject the resolution plan, under Section 30(4) of the I & B Code.

The Adjudicating Authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I & B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors-be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the Appellate Authority (NCLAT) is limited to the grounds Under Section 61(3) of the I & B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting.

If the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non-justiciable, is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT). If so, non-recording of any reason for taking such commercial decision will be of no avail. In the present case, admittedly, the dissenting financial creditors have rejected the resolution plan in exercise of business/commercial decision and not because of non-compliance of the grounds specified in Section 30(2) or Section 61(3) of I & B Code, as such. Resultantly, the amended Regulation pressed into service, will be of no avail.

There was no indication either in report of Committee or in Amendment Act of 2018 that, legislature intended to undo decisions of the CoC already taken prior to 6th day of June, 2018. As regards application by resolution applicant for taking his revised resolution plan on record, same was also devoid of merits as it was not open to Adjudicating Authority to entertain a revised resolution plan after expiry of statutory period of 270 days. Accordingly, no fault could be found with NCLAT for not entertaining such application.

NCLAT had justly concluded in impugned decision that, resolution plan of concerned corporate debtor(s) had not been approved by requisite percent of voting share of financial creditors; and in absence of any alternative resolution plan presented within statutory period of 270 days, inevitable sequel was to initiate liquidation process under Section 33 of I & B Code. Appeals dismissed.

Tags : Rejection Resolution plan Legality

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