NCLT/NCLAT Not To Interfere With The Collective Wisdom Of Committee Of Creditors (COC)

OVERVIEW

A three-judge bench of the Supreme Court comprising Justices A.M. Khanwilkar, B.R. Gavai and Krishna Murari, on the 10th of March, 2021 held that the National Company Law Tribunal (NCLT) or the Appellate Authority, i.e., the National Company Law Appellate Tribunal (NCLAT) cannot interfere in the collective wisdom of the Committee of Creditors (CoC) except within the limited scope under Sections 30 and 31 of the Insolvency and Bankruptcy Code (IBC).

Such a principle was reiterated by the Apex Court in the case of Kalparaj Dharamshi and another vs Kotak Investment Advisors Ltd and Others and connected cases, while it set aside an order of NCLAT which had annulled the decision of Committee of Creditors (CoC) in order to accept a certain resolution plan, and the original order of NCLT was made applicable. 

BACKGROUND 

The appellants in the instant case before the Supreme Court were Kalparaj Dharamshi and Rekha Jhunjhunwala.

They were successful resolution applicants for a Corporate Insolvency Resolution Process (CIRP). 

The respondent, Kotak Investment Advisories Ltd (KIAL), who was also a resolution applicant, challenged before the NCLT, the acceptance of such resolution plan, contending that it was accepted beyond the time-period.

The NCLT dismissed such challenge.

However, in further appeal by KIAL, the NCLAT interfered with the decision and rejected such order of NCLT.

Being aggrieved with the NCLAT decision, the respondent, Kotak Investment Advisories Ltd. approached the Supreme Court of India.

The Supreme Court held in the judgement authored by Justice B. R. Gavai, “It will therefore be clear, that this Court, in unequivocal terms, held, that the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same.”  

FURTHER DETAILS 

In the case of Kalparaj Dharamshi and another vs Kotak Investment Advisors Ltd and Others and connected cases, the Apex Court observed, “It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code.”

This Court observed, that the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. This Court clearly held, that the appellate authority ought not to have interfered with the order of the adjudicating authority by directing the successful resolution applicant to enhance their fund inflow upfront.

“We are of the considered view, that in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of ‘commercial wisdom’, NCLAT was not correct in law in interfering with the commercial decision taken by CoC by a thumping majority of 84.36 per cent,” the Court commented in the order.

CONCLUSION 

The Apex court, on Thursday, held that the decision of NCLT or its Appellate Authority, NCLAT, cannot interfere with the decisions reached by the Committee of Creditors on CoC except within the limited scope of the Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016.
The order, in this regard, states that “this Court has held, that it is not open to the

Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Sections 30(2) or 61(3) of the I&B Code. It has further been held, that the commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the I&B Code.”

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