Summary – No provision has been envisaged by the legislature to empower the RP, the NCLT or NCLAT, to reverse the commercial decision of the CoC- K. Sashidhar Vs. Indian Overseas Bank & Ors.-Supreme Court

I. Case Reference
Case Citation : [2019] 08 SC
Case Name : K. Sashidhar Vs. Indian Overseas Bank & Ors.
Appeal : Civil Appeal No.10673 Of 2018
Appeal Ref. : C.A. N O.10719 Of 2018, C.A. No.10971 Of 2018 And Slp (C) No.29181 Of 2018
Appellant(s) : K. Sashidhar
Respondent(s) : Indian Overseas Bank & Ors.
Date of Judgment : 05-Feb-19
Tribunal/Court : Supreme Court of India
NCLAT Judgment   Kamineni Steel & Power India Pvt. Ltd. Vs. Indian Bank & Ors. [2018] 64 NCLAT
II. Full text of the judgment

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III. Brief about the decision
Facts of the Case

In the case of the corporate debtor KS&PIPL, the resolution plan, when it was put to vote in the meeting of CoC held on 27th October, 2017, could garner approval of only 55.73% of voting share of the financial creditors and even if the subsequent approval accorded by email (by 10.94%) is taken into account, it did not fulfill the requisite vote of not less than 75% of voting share of the financial creditors. On the other hand, the resolution plan was expressly rejected by 15.15% in the CoC meeting and later additionally by 11.82% by email.

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

The Managing Director of the corporate debtor (KS&PIPL) appeared before the adjudicating authority (NCLT) on 6th November, 2017, and also filed a memo on 17th November, 2017, inter alia submitting that for the financial creditor who chose not to participate in the voting, the votes and the majority be counted without their vote.

NCLAT Decision

The NCLAT held that as, in both the cases, the resolution plan did not garner support of not less than 75% of voting share of the financial creditors constituting the Committee of Creditors (for short “CoC”) the same stood rejected and thereby warranted initiation of liquidation process of the concerned corporate debtor, namely, KS&PIPL and IIL.

Supreme Court Ruling

1. If the CoC had approved the resolution plan by requisite percent of voting share, then as per Section 30(6) of the I&B Code, it is imperative for the resolution professional to submit the same to the adjudicating authority (NCLT). On receipt of such a proposal, the adjudicating authority (NCLT) is required to satisfy itself that the resolution plan as approved by CoC meets the requirements specified in Section 30(2). No more and no less. Thus, the resolution plan was expressly rejected by not less than 25% of voting share of the financial creditors. In such a case, the resolution professional was under no obligation to submit the resolution plan under Section 30(6) of the I&B Code to the adjudicating authority. Instead, it was a case to be proceeded by the adjudicating authority under Section 33(1) of the I&B Code.

2. The word “may” occurring in Section 30(4) of the I&B Code is ascribable to the discretion of the CoC to approve the resolution plan or not to approve the same. What is significant is the second part of the said provision, which stipulates the requisite threshold of “not less than seventy five percent of voting share of the financial creditors” to treat the resolution plan as duly approved by the CoC. That stipulation is the quintessence and made mandatory for approval of the resolution plan. Any other interpretation would result in rewriting of the provision and doing violence to the legislative intent.

3. Regulations 25 and 39 must be read in light of Section 30(4) of the I&B Code, concerning the process of approval of a resolution plan. For that, the “percent of voting share of the financial creditors” approving visàvis dissenting is required to be reckoned. It is not on the basis of members present and voting as such. At any rate, the approving votes must fulfill the threshold percent of voting share of the financial creditors. Keeping this clear distinction in mind, it must follow that the resolution plan concerning the respective corporate debtors, namely, KS&PIPL and IIL, is deemed to have been rejected as it had failed to muster the approval of requisite threshold votes, of not less than 75% of voting share of the financial creditors. It is not possible to countenance any other construction or interpretation, which may run contrary to what has been noted herein before. Indeed, in terms of Section 31 of the I&B Code, the adjudicating authority (NCLT) is expected to deal with two  situations. The first is when it does not receive a resolution plan under subsection (6) of Section 30 or when the resolution plan has been rejected by the resolution professional for noncompliance of Section 30(2) of the I&B Code or also when the resolution plan fails to garner approval of not less than seventy five percent of voting share of the financial creditors, as the case may be; and there is no alternate plan mooted before the expiry of the statutory period. The second is when a resolution plan duly approved by the CoC by not less than 75% of voting share of the financial creditors is submitted before it by the resolution professional under Section 30(6) of the Code, for its approval.

The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC muchless to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors.

4. Commercial viability  of Resolution:

The discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan “as approved” by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements.  The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. Even the jurisdiction of the NCLAT being in continuation of the proceedings would be circumscribed in that regard and more particularly on account of Section 32 of the I&B Code, which envisages that any appeal from an order approving the resolution plan shall be in the manner and on the grounds specified in Section 61(3) of the I&B Code.

On a bare reading of the provisions of the I&B Code, it would appear that the remedy of appeal under Section 61(1) is against an “order passed by the adjudicating authority (NCLT)” – which we will assume may also pertain to recording of the fact that the proposed resolution plan has been rejected or not approved by a vote of not less than 75% of voting share of the financial creditors. Indubitably, the remedy of appeal including the width of jurisdiction of the appellate authority and the grounds of appeal, is a creature of statute. The provisions investing jurisdiction and authority in the NCLT or NCLAT as noticed earlier, has not made the commercial decision exercised by the CoC of not approving the resolution plan or rejecting the same, justiciable. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers. i.e. neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors.

5. Justness of the approach of the dissenting financial creditors:

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. At best, 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.

The scope of enquiry and the grounds on which the decision of “approval” of the resolution plan by the CoC can be interfered with by the adjudicating authority (NCLT), has been set out in Section 31(1) read with Section 30(2) and by the appellate tribunal (NCLAT) under Section 32 read with Section 61(3) of the I&B Code. No corresponding provision has been envisaged by the legislature to empower the resolution professional, the adjudicating authority (NCLT) or for that matter the appellate authority (NCLAT), to reverse the “commercial decision” of the CoC muchless of the dissenting financial creditors for not supporting the proposed resolution plan.

The action of liquidation process postulated in ChapterIII of the I&B Code, is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October, 2017) of voting share of the financial creditors. Section 30(2) or under Section 61(3) of the I&B Code are regarding testing the validity of the “approved” resolution plan by the CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by the CoC in exercise of its business decision.

6. Amendment in Sec. 30(4) by Insolvency and Bankruptcy Code (Amendment) Act, 2017(w.e.f. 23.11.2017)

The change brought about by this amendment is insertion of words “after considering its feasibility and viability, and such other requirements as may be specified by the Board”. In addition, three provisos have been added to subsection (4). For considering the issue on hand, the three provisos are not relevant. As regards the insertion of the above quoted words in subsection (4), that does not alter the requirement regarding approval of a resolution plan, by a vote of not less than 75% of voting share of the financial creditors. The amendment is only to declare that the financial creditors ought to consider the feasibility and viability and such other requirements as may be specified by the Board, while exercising their option on the resolution plan to approve or not to approve the same. 

7. Amendment in Sec. 30(4) by the Insolvency and Bankruptcy Code (Second amendment) Act, 2018 (No.8 of 2018)(w.e.f 06.06.2018):

The Amendment Act of 2018 having come into force w.e.f. 6th day of June, 2018, therefore, will have prospective application and apply only to the decisions of CoC taken on or after that date concerning the approval of resolution plan.

III. Full text of the judgment

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