Adjudicating Authority Cannot Substitute Any Commercial Term Of Resolution Plan Approved By Committee Of Creditors: Supreme Court

The Supreme Court observed that adjudicating authority cannot substitute any commercial term of the resolution plan approved by Committee of Creditors. 

If, within its limited jurisdiction, the Adjudicating Authority finds any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission, the bench comprising Justices AM Khanwilkar, Dinesh Maheshwari and Sanjiv Khanna said.

The court observed thus while disposing a batch of cases relating to the resolution plan  in the corporate insolvency resolution process  under the Insolvency and Bankruptcy Code, concerning the corporate debtor, Jaypee Infratech Limited. The Adjudicating Authority (NCLT), in this case, had approved the resolution plan with some modifications.

One of the issues considered by the Apex Court was about the extent of, and limitations over, the powers and jurisdiction of the Adjudicating Authority while dealing with the resolution plan approved by the Committee of Creditor? Regarding this, the bench referred to various precedents [ K. Sashidhar v. Indian Overseas Bank and Ors.: (2019) 12 SCC 150 ; Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors.: (2020) 8 SCC 531 and Maharashtra Seamless Limited v. Padmanabhan Venkatesh : (2020) 11 SCC 467] and said:

To put in a nutshell, the Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code read with the parameters delineated by this Court in the decisions above referred. The jurisdiction of the Appellate Authority is also circumscribed by the limited grounds of appeal provided in Section 61 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the CoC. Within its limited jurisdiction, if the Adjudicating Authority or the Appellate Authority, as the case may be, would find any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by Code and exposited by this Court.

Regarding the other issues, the bench concluded thus:

1. The process of simultaneous voting over two plans for electing one of them cannot be faulted in the present case; and approval of the resolution plan of NBCC is not vitiated because of simultaneous consideration and voting over two resolution plans by the Committee of Creditors.
2. The stipulations in the resolution plan, as regards dealings with YEIDA and with the terms of Concession Agreement, have rightly not been approved by the Adjudicating Authority but, for the stipulations which have not been approved, the only correct course for the Adjudicating Authority was to send the plan back to the Committee of Creditors for reconsideration.
3. The Adjudicating Authority has not erred in disapproving the proposed treatment of dissenting financial creditor like ICICI Bank Limited in the resolution plan; but has erred in modifying the related terms of the resolution plan and in not sending the matter back to the Committee of Creditors for reconsideration.
4. The Adjudicating Authority has erred in issuing directions to the resolution applicant to make provision to clear the dues of unclaimed fixed deposit holders. Paragraph 125 of the impugned order dated 03.03.2020 is set aside.
5. The issues related with the objections of YES Bank Limited and pertaining to JHL, the subsidiary of the corporate debtor JIL, are left 361 for resolution by the parties concerned, who will work out a viable solution in terms of paragraphs 141 and 142 of this judgment.
6. In the overall scheme of the resolution plan, the stipulation in Clause 21 of Schedule 3 thereof cannot be said to be unfair; and the observations in paragraphs 132 and 133 of the order dated 03.03.2020 justly take care of the right of any aggrieved party (agreement holder) to seek remedy in accordance with law and ensures viability of the resolution plan.
7. It cannot be said that the resolution plan does not adequately deal with the interests of minority shareholders. The grievances as suggested by the minority shareholders cannot be recognised as legal grievances. Their objections stand rejected.
8. The homebuyers as a class having assented to the resolution plan of NBCC, any individual homebuyer or any association of homebuyers cannot maintain a challenge to the resolution plan and cannot be treated as a dissenting financial creditor or an aggrieved person; the question of violation of the provisions of the RERA does not arise; the resolution plan in question is not violative of the mandatory requirements of the CIRP Regulations; and when the resolution plan comprehensively deals with all the assets and liabilities of the corporate debtor, no housing project of the corporate debtor could be segregated merely for the reason that same has been completed or is nearing completion. 362
9. (i) The amount of INR 750 crores (which was deposited by JAL pursuant to the orders passed by this Court in the case of Chitra Sharma) and accrued interest thereupon, is the property of JAL and stipulation in the resolution plan concerning its usage by JIL or the resolution applicant cannot be approved. The part of the order of NCLT placing this amount in the asset pool of JIL is set aside. (ii) The question as to whether any amount is receivable by JIL and/or its homebuyers from JAL, against advance towards construction and with reference to the admitted liability to the tune of INR 195 crores as on 31.03.2020, shall be determined by NCLT after reconciliation of accounts in terms of the directions contained in paragraphs 189 to 191.1 of this judgment. The amount, if found receivable by JIL, be made over to JIL and the remaining amount together with accrued interest be refunded to JAL in an appropriate account. It is made clear that the present matter being related to CIRP of JIL, no other orders are passed in relation to the amount that would be refunded to JAL because treatment of the said amount in the asset pool of JAL shall remain subject to such orders as may be passed by the competent authority dealing with the affairs of JAL.
10. (i) Clause 23 of Schedule 3 of the resolution plan, providing for extinguishment of security interest of the lenders of JAL could not have been approved by the Adjudicating Authority, particularly in 363 relation to the security interest that has not been discharged. This part of the order dated 03.03.2020 is set aside. (ii) Adequate provision is required to be made in the resolution plan as regards utilisation of the land bank of 758 acres, that has become available to JIL free from encumbrance, in terms of the judgment dated 26.02.2020 of this Court in the case of Anuj Jain (supra).
11. (i) The impugned order dated 03.03.2020 shall be read as modified in relation to Clause 7 of Schedule 3 of the resolution plan; and the said clause shall stand approved. (ii) As regards possession/control over the project sites/lands of JIL, it is left open for the resolution applicant to take recourse to the appropriate proceedings in accordance with law, whenever occasion so arise.
12. The Appellate Authority was not justified in providing for an Interim Monitoring Committee for implementation of the resolution plan in question during the pendency of appeals. The impugned order dated 22.04.2020 passed by NCLAT is set aside.

Invoking Article 142 of the Constitution, the bench issued the following directions while disposing the appeals:

225.1. The matter regarding approval of the resolution plan stands remitted to the Committee of Creditors of JIL and the time for completion of the process relating to CIRP of JIL is extended by another period of 45 days from the date of this judgment.

225.2. We direct the IRP to complete the CIRP within the extended time of 45 days from today. For this purpose, it will be open to the IRP to invite modified/fresh resolution plans only from Suraksha Realty and NBCC respectively, giving them time to submit the same within 2 weeks from the date of this judgment.

225.3. It is made clear that the IRP shall not entertain any expression of interest by any other person nor shall be required to issue any new information memorandum. The said resolution applicants shall be expected to proceed on the basis of the information memorandum already issued by IRP and shall also take into account the facts noticed and findings recorded in this judgment.

225.4. After receiving the resolution plans as aforementioned, the IRP shall take all further steps in the manner that the processes of voting by the Committee of Creditors and his submission of report to the Adjudicating Authority (NCLT) are accomplished in all respects within the extended period of 45 days from the date of this judgment. The Adjudicating Authority shall take final decision in terms of Section 31 of the Code expeditiously upon submission of report by the IRP.

225.5. These directions, particularly for enlargement of time to complete the process of CIRP, are being issued in exceptional circumstances of the present case and shall not be treated as a precedent.

225.6. As noticed in paragraphs 4.5 and 38.3 hereinabove, the proceedings relating to CIRP of JIL were initiated by the Allahabad Bench of National Company Law Tribunal but, later on, the same were transferred to its Principal Bench at New Delhi. Therefore, the proceedings contemplated by this judgment shall be taken up by the Principal Bench of the National Company Law Tribunal at New Delhi.

Case: Jaypee Kensington Boulevard Apartments Welfare Association vs. NBCC (India) Ltd.
Coram: Justices AM Khanwilkar, Dinesh Maheshwari and Sanjiv Khanna
Citation: LL 2021 SC 178

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