WHETHER THE APPROVAL OF A RESOLUTION PLAN FALLS EXCLUSIVELY IN THE DOMAIN OF THE COMMERCIAL WISDOM OF COC WITH LIMITED SCOPE OF JUDICIAL REVIEW?
In the instant case, the Supreme court held that the process of consideration and approval of resolution plan is essentially within the commercial wisdom of Committee of Creditors (CoC).The scope of judicial review remains limited under Section 30(2) of the Insolvency and Bankruptcy Code (IBC), 2016 by which the court would examine that the resolution plan does not contravene any statutory provisions and it conforms to such other requirements as may be specified by the Board. The court held that the process of judicial review cannot be stretched if all the above-mentioned requirements have been duly complied with and that dissenting financial creditor, expressing dissent over the value of security interest held by it, cannot seek to challenge an approved Resolution Plan. Lastly, it was held that Section 30 of the IBC, 2016only amplified the considerations for the CoC while exercising its commercial wisdom so as to take an informed decision in regard to the viability and feasibility of resolution plan, with fairness of distribution amongst similarly situated creditors; and that the business decision taken in exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment.
India Resurgence Arc Private Limited vs. Amit Metaliks Limited and Ors. (13.05.2021 - SC) : MANU/SC/0367/2021
WHETHER THE IMPUGNED NOTIFICATION IS CONSTITUTIONALLY VALID AND WHETHER THE SANCTION OF A RESOLUTION PLAN OPERATES AS A DISCHARGE OF THE GUARANTOR'S LIABILITY UNDER THE CONTRACT OF GUARANTEE?
In the instant case, the Supreme Court held that the impugned notification is legal and valid since it is not an instance of excessive legislative exercise, as there is no compulsion in the Code for it to be applicable in its entirety to all individuals at the same time. The exercise of power in issuing the impugned notification under Section 1(3) the Insolvency and Bankruptcy Code, 2016 is therefore, not ultra vires. Further, it was held that the resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. Further, it was clarified by the court that the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e., by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, arising out of an independent contract. Consequently, it was held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors).
Lalit Kumar Jain vs. Union of India and Ors. (21.05.2021 - SC) : MANU/SC/0352/2021
WHETHER ALL CREDITORS (INCLUDING THE CENTRAL GOVERNMENT, STATE GOVERNMENT OR ANY LOCAL AUTHORITY) ARE BOUND BY THE RESOLUTION PLAN AFTER IT HAS BEEN APPROVED BY THE NCLT? WHETHER ANY CREDITOR IS ENTITLED TO INITIATE PROCEEDINGS FOR RECOVERY OF ANY OF THE DUES FROM THE CORPORATE DEBTOR WHICH DO NOT PART OF THE RESOLUTION PLAN AFTER APPROVAL OF THE SAME BY THE NCLT?
In the instant case, the Supreme Court held that once a resolution plan is duly approved by the Adjudicating Authority under Sub-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016, the claims as provided in the resolution plan will be binding on the Corporate Debtor and its employees, members, creditors, or any local authority, guarantors and other stakeholders. Once the resolution plan has been approved by the Adjudicating Authority, all such claims, which are not a part of the resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to such claim. Consequently, it was held by the court of law that all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the approvalby the Adjudicating Authority could be allowed.
Ghanashyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited and Ors. (13.04.2021 - SC) : MANU/SC/0273/2021
WHETHER IN A RESOLUTION PLAN AUTOMATIC WAIVER OF LEGAL PROCEEDINGS AGAINST/BY CORPORATE DEBTOR IS ALLOWED?
The National Company Law Tribunal has held that automatic waiver or abetment of legal proceedings which may be pending against or by the Corporate Debtor cannot be allowed in a Resolution Plan under the Insolvency & Bankruptcy Code, 2016.
We are of the view that approval of the Resolution Plan does not mean automatic waiver or abetment of legal proceedings, if any, which are pending by or against the Company/Corporate Debtor as those are the subject matter of the concerned Competent Authorities having their proper/own jurisdiction to pass any appropriate order as the case may be. The Resolution Applicant(s) on approval of the Plan may approach those Competent Authorities/Courts/Legal Forums/Offices -Govt. or Semi Govt./State or Central Govt. for appropriate relief(s) sought for in Clause No. e of Chapter IV of the Resolution Plan.
Bhavi Shreyans Shah, Resolution Professional for V S Texmills Private Limited vs. Canara Bank and Ors. (01.01.2020 - NCLT - Ahmedabad) : MANU/NC/0003/2020
WHETHER THE SCHEME OF THE CODE CONTEMPLATES THAT THE SUM FORMING PART OF THE RESOLUTION PLAN SHOULD MATCH THE LIQUIDATION VALUE OR NOT?
Hon'ble Supreme Court held that no provision in the Code or Regulations has been brought to notice under which the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This point has been dealt with in the case of Essar Steel. It appears to us that the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. The Appellate Authority has proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel 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. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel, the relevant passage (para 54). The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have interfered with the order of the Adjudicating Authority in directing the successful Resolution Applicant to enhance their fund inflow upfront.
Maharashtra Seamless Limited vs. Padmanabhan Venkatesh and Ors. (22.01.2020 - SC) MANU/SC/0066/2020
WHAT IS THE RESOLUTION PLAN OF ARCELOR MITTAL?
Ultimately it is the commercial wisdom of the requisite majority of the CoC that must prevail on the facts of any given case, which would include distribution of assets. It is, therefore, not possible that the AA and consequently, the NCLAT would be vested with the discretion that is vested in the CoC.
The CoC does not act in any fiduciary capacity to any group of creditors. On the contrary, it is to take a business decision based upon ground realities by a majority, which then binds all stakeholders, including dissenting creditors.
The NCLAT judgment which substitutes its wisdom for the commercial wisdom of the CoC and which also directs the admission of a number of claims which was done by the resolution applicant, without prejudice to its right to appeal against the aforesaid judgment, must therefore be set aside.
The appeals filed by the CoC of Essar Steel Limited and other Civil Appeals are allowed. The impugned NCLAT judgment is set aside. The CIRP of the CD in the case will take place in accordance with the resolution plan of Arcelor Mittal, as amended and accepted by the CoC, as it has provided for amounts to be paid to different classes of creditors by following section 30(2) and regulation 38 of the CIRP Regulations.
Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019
National Company Law Tribunal, Principal Bench has directed that Secretary, Ministry of Corporate Affairs, Government of India shall be made a party to all the cases under the Insolvency & Bankruptcy Code as well as the Company petitions before the Tribunals.
The order passed by a two-member Bench of President, Chief Justice (Retd.) MM Kumar and Member (Technical) SK Mohapatra reads,
"We further direct that in all cases of Insolvency & Bankruptcy Code and Company Petition, the Union of India, Ministry of Corporate Affairs through the Secretary be impleaded as a party respondent so that authentic record is made available by the officers of the Ministry of Corporate Affairs for proper appreciation of the matters.
This shall be applicable throughout the country to all the benches of the National Company Law Tribunal. The Registrar shall send a copy of this order to all NCLT benches so that respective Deputy Registrar may ensure that proper parties are impleaded."
Oriental Bank of Commerce Vs. Sikka Papers Ltd. and Ors. (22.11.2019 - NCLT) : MANU/NC/9308/2019
WHETHER AUTOMATIC WAIVER OF LEGAL PROCEEDINGS AGAINST/BY CORPORATE DEBTOR ARE NOT ALLOWED IN A RESOLUTION PLAN OR NOT?
The National Company Law Tribunal has held that automatic waiver or abetment of legal proceedings which may be pending against or by the Corporate Debtor cannot be allowed in a Resolution Plan under the Insolvency & Bankruptcy Code, 2016.
The NCLT, however, pointed out that a section of the resolution plan titled 'Clause No. e of Chapter IV: Assumption and Limitations of Resolution Plan' could not be allowed.
The clause read as follows,
"..All business permits required by the Corporate Debtor to conduct its business and which have no been granted, cancelled, terminated, revoked, suspended or not renewed; having been granted or reinstated, as the case may be, at no additional cost to the Resolution Applicant or Corporate Debtor.."
The NCLT noted that the clause could not be allowed as the issue of business permits was a subject matter of various Competent Authorities which had their own jurisdiction.
It remarked,
"..we are of the view that approval of the Resolution Plan does not mean automatic waiver or abetment of legal proceedings, if any, which are pending by or against the Company/Corporate Debtor as those are the subject matter of the concerned Competent Authorities having their proper/own jurisdiction to pass any appropriate order as the case may be. The Resolution Applicant(s) on approval of the Plan may approach those Competent Authorities/ Courts/Legal Forums/ Officers- Govt or Semi Govt / State or Central Govt for appropriate relief(s) sought for in Clause No. e of Chapter IV of the Resolution Plan."
NCLT
In view of the above, the Resolution Plan was therefore approved sans 'Clause No. e' by the NCLT.
Bhavi Shreyans Shah, Resolution Professional for V S Texmills Private Limited vs. Canara Bank and Ors. (01.01.2020 - NCLT - Ahmedabad) : MANU/NC/0003/2020
WHETHER THE RESOLUTION PLANS SHOULD BE GIVEN TO THE SUSPENDED MEMBERS OF BOARD OF DIRECTORS OF CORPORATE DEBTOR TO ATTEND COC MEETINGS?
The Hon'ble Supreme Court recognized the right of members of the suspended Board of Directors of a corporate debtor to receive insolvency resolution plans submitted before the Resolution Professional, in order to effectively participate in the meetings of Committee of Creditors (CoC).
Vijay Kumar Jain vs. Standard Chartered Bank and Ors. (31.01.2019 - SC) : MANU/SC/0111/2019
WHAT FACTORS REQUIRE CONSIDERATION WHILE DETERMINING THE RESOLUTION PLAN?
Given that resolution plans are complex financial structures that require analysis by commercial minds in order to maximise the value of the assets, they cannot be treated at par with a sale or auction where the only measure for value is the monetary value.
Resolution plans are expected to be structured, in the following order of priority -
- For resolution;
- For value maximisation of the debtor's assets for all its creditors; and
- To promote entrepreneurship, the availability of credit and balance the interests.
The NCLAT has held this order of objective to be sacrosanct. [In Binani Industries vs. Bank of Baroda MANU/NL/0284/2018]
WHETHER THE ADJUDICATING AUTHORITY CAN APPROVE THE AMENDED RESOLUTION PLAN, IF IT IS IN CONSONANCE WITH SECTION 30(2) OF IBC & IS UNANIMOUSLY APPROVED BY COC?
The NCLAT held that the original application was wrongly rejected & that the Adjudicating Authority should have amended Resolution Plan. The impugned order of the Adjudicating Authority was set aside, and the amended Resolution Plan was approved.
Tomorrows Sales Agency Pvt. Ltd. vs. Rajiv Khurana and Ors. (05.07.2018 - NCLAT) : MANU/NL/0141/2018
WHETHER THERE CAN BE A SCOPE OF NEGOTIATION IN RESOLUTION PLAN AFTER BEING APPROVED BY COMMITTEE OF CREDITORS (COC) UNDER THE INSOLVENCY AND BANKRUPTCY CODE 2016?
In the instant case resolution plan submitted by DVI was approved by the CoC. Thereafter, DVI filed an application before the Supreme Court seeking extension of time so as to enable DVI to renegotiate the resolution plan in light of the COVID-19 Pandemic. However, the Supreme Court dismissed an application stating that after CoC approves a resolution plan under section 30(4) of the IBC, the Adjudicating Authority's role is limited to ensuring that the resolution plan complies with section 30(2) and determining whether the resolution plan contains provisions for its effective implementation. As a result, there is no scope for renegotiation of the resolution plan once it has been approved by the CoC.
Committee of Creditors of Amtek Auto Limited through Corporation Bank vs. Dinkar T. Venkatsubramanian and Ors. (01.12.2021) : MANU/SC/1171/2021
