Case Note & Summary
The case involves appeals by the financial creditor, Karad Urban Cooperative Bank Ltd., and the Resolution Professional against an order of the National Company Law Appellate Tribunal (NCLAT) dated 02.06.2020. The NCLAT had set aside the approval granted by the National Company Law Tribunal (NCLT) to a resolution plan submitted by M/s. Sai Agro (India) Chemicals for the corporate debtor, M/s. Khandoba Prasanna Sakhar Karkhana Limited, and remanded the matter back to the NCLT with a direction to resubmit the plan to the Committee of Creditors (CoC). The NCLAT based its decision on four grounds: (i) the resolution plan suffered from issues of viability and feasibility; (ii) there was an alleged breach of confidentiality as the liquidation value mentioned by the successful resolution applicant (SRA) exactly matched the value obtained by the Resolution Professional, violating Regulation 35(2); (iii) the plan did not account for the fact that an ethanol plant and machinery, shown as assets of the corporate debtor, actually belonged to Sarvadnya Industries Private Limited and were under possession of Janata Sahkari Bank Limited under the SARFAESI Act; and (iv) the advertisement inviting Expression of Interest was vitiated as it called for outright sale of the company as a going concern, violating Regulation 36A. The appellants contended that the NCLAT exceeded its limited jurisdiction by interfering with the commercial wisdom of the CoC, relying on the Supreme Court's decisions in Essar Steel India Ltd. and K. Sashidhar. The respondents supported the NCLAT's order, arguing that the plan was tainted due to collusion and inclusion of third-party assets. The Supreme Court, after hearing both sides, held that the viability and feasibility of a resolution plan are matters of commercial wisdom of the CoC and are non-justiciable except on limited grounds under Section 30(2) read with Section 31(1) and Section 61(3) of the Insolvency and Bankruptcy Code, 2016. The court found that the NCLAT's interference on the grounds of viability, feasibility, and breach of confidentiality was not justified, as mere suspicion cannot replace proof. The court also noted that the issue of third-party assets was a matter for the CoC to consider, and the advertisement complied with regulations. Consequently, the Supreme Court allowed the appeals and set aside the NCLAT's order, restoring the NCLT's approval of the resolution plan.
Headnote
A) Insolvency Law - Commercial Wisdom of Committee of Creditors - Non-Justiciable - Section 30(2), 31, 61(3) of the Insolvency and Bankruptcy Code, 2016 - The court held that the viability and feasibility of a resolution plan are matters of commercial wisdom of the Committee of Creditors and are not justiciable before the NCLT or NCLAT, except on limited grounds under Section 30(2) read with Section 31(1) and Section 61(3) of the IBC. The NCLAT erred in interfering with the approved plan on these grounds. (Paras 12-13) B) Insolvency Law - Breach of Confidentiality - Need for Proof - Regulation 35(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - The court observed that a mere suspicion of breach of confidentiality cannot take the place of proof; the NCLAT's finding of breach based on exact tally of liquidation values was insufficient without concrete evidence. (Paras 9, 10) C) Insolvency Law - Inclusion of Third-Party Assets - Effect on Resolution Plan - The court noted that the issue of ownership of the ethanol plant and machinery was a matter to be considered by the CoC, and the SRA had taken note of it; the NCLAT's interference on this ground was not warranted. (Paras 9, 11) D) Insolvency Law - Advertisement for Expression of Interest - Compliance with Regulation 36A - The court found that the advertisement issued by the Resolution Professional was in tune with the regulations, including Regulation 36A, and the NCLAT's contrary view was erroneous. (Paras 9, 10)
Issue of Consideration
Whether the NCLAT was justified in setting aside the NCLT's approval of a resolution plan on grounds of viability, feasibility, alleged breach of confidentiality, and inclusion of third-party assets, given the limited scope of judicial review under the Insolvency and Bankruptcy Code, 2016.
Final Decision
The Supreme Court allowed the appeals, set aside the order of the NCLAT dated 02.06.2020, and restored the order of the NCLT dated 01.08.2019 approving the resolution plan. The court held that the NCLAT erred in interfering with the commercial wisdom of the Committee of Creditors on grounds that were non-justiciable.
Law Points
- Commercial wisdom of Committee of Creditors is non-justiciable
- Limited judicial review under Section 30(2) and Section 61(3) of IBC
- Breach of confidentiality must be proved not suspected
- Viability and feasibility are business decisions
