Date of Judgement:
10 August 2021
Bench:
Justice Dr. Dhananjaya Y Chandrachud
Justice M R Shah
Parties:
Appellant – Pratap Technocrats (P) Ltd.
Respondent – Monitoring Committee Of Reliance Infratel Limited & Anr.
Subject
The following judgement summarized the power and jurisdiction of the NCLT/NCLAT while going through the process of approving a resolution plan (a plan to resolve the insolvency and payback to creditors).
Overview
- In this case, the respondents are corporate debtors, and the appellants are operational creditors. The CIRP (Corporate Insolvency Resolution Process) of the corporate debtor was instituted on 7 May 2019 inviting claims from various creditors. Later, the Company of Creditors (CoC) was constituted and the Resolution Professional (RP) was appointed on 21 June 2019. All the definitions are given under Section 5 of IBC.
- Amongst the creditors, the resolution plan submitted by Reliance Digital Platform and Project Services Limited was taken forward as a preferred resolution plan based on its feasibility, viability, and applicability. The resolution plan was approved by the CoC with 100% voting in favour. A letter of intent (LoI) was issued by the RP, and it was unconditionally accepted by the Resolution Applicant on 6 March 2020.
- This resolution plan was submitted to the NCLT (National Company Law Tribunal ) for its approval under Section 31 of IBC. During the course of its approval, Doha Bank which was one of the financial creditors raised an objection that the RP has failed to recognize indirect lenders of the Corporate Debtor as financial creditors. However, since the resolution plan was unanimously accepted by the CoC, it was passed by the NCLT.
- The appellants in this case, challenged the order of NCLT before the NCLAT (National Company Law Appellate Tribunal) on various grounds mainly that they did not receive fair and equitable treatment in the process of CIRP. However, the NCLAT rejected the appeal and noted that there was no substance in the appeal. Aggrieved by this, the appellants came before the Supreme Court.
Issues
- Does the exclusion of some indirect financial creditors from the CoC bear any consequence on the credibility of the resolution plan?
- What is the extent of jurisdiction of the Adjudicating and Appellate Authority while dealing with the approval of a resolution plan?
Legal Provision
- Section 5 of Insolvency and Bankruptcy Code, 2016 (IBC) – Definitions.
- Section 30(2)(b) of the IBC – Manner of repayment of debts to the operational debtors.
- Section 30(4) IBC – The resolution plan must be approved by the CoC with a majority of at least 70%.
- Section 31 IBC – Resolution plan must be approved by the Adjudicating Authority.
Judgement
- The learned counsel for the appellants (Mr. Dushyant Dave) said that the CIRP ought to be just, fair and equitable to all, and it cannot place the interests of the operational creditors lower than the financial creditors. He believed that his clients, who are the operational creditors in this case, did not receive due consideration for their interests.
- He also contended that the CIRP was conducted in a secretive manner, which violates the principles of natural justice, and that information was not given to the operational creditors about the contents of the resolution plan. He also claimed that NCLT has failed to consider the result of the exclusion of certain creditors from the CoC.
- The learned counsel for the respondent submitted that since the resolution plan has been approved by 100% of the voting shares and that the exclusion of some financial creditors from the CoC would be of no consequence. He also said that CoC had approved the resolution plan based on its commercial wisdom. Hence, the decision of NCLT was in accordance with the provisions of the IBC.
- The Counsel also drew the Court's attention to Section 30(2)(b) of the IBC, which stated that the payment of debts to the operational creditors in the resolution plan shall not be less than the amount to be paid in the event of liquidation under Section 53. He also claimed that the principle of equitable treatment applies to the creditors belonging to the same class.
- Before making its legal submissions, the Supreme Court cleared some points. It said that the appellant's contention that preference shares have not been included in the liquidation value of the Corporate Debtor is incorrect. It said the liquidation value including the preference shares shall be Rs.4,520 Crores. The NCLT was well within its jurisdiction in approving a resolution plan as per the IBC.
- The Honourable Court reiterated its observations in judgments like K Sashidhar vs Indian Overseas Bank, Essar Steel India Limited case, Swiss Ribbons case, etc. It held that the decisions of the Adjudicating and the Appellate Authority were in conformity with the IBC. It held that the resolution was duly approved by the majority of the CoC as per Section 30(4).
- It also decided that whether or not some financial creditors were excluded from the CoC is of no consequence, as the resolution plan was approved by 100% of the voters. The jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determine whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. Hence, on the ground that there is no merit, the appeal was dismissed.
Conclusion
The Insolvency and Bankruptcy Code was enacted to facilitate reorganization and regulate the insolvency resolution. For this purpose, the CIRP system was established which provides a time-bound process (within 330 days) for resolving the insolvency of corporate debtors.Its main purpose is to expedite the insolvency proceedings so that no loss is caused to the creditors of the corporate debtor.
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