Adjudicating Authority Decides Fairness And Reasonableness While Approving Resolution Plan, High Court Cannot- Delhi High Court

Brief Facts

It was claimed by the petitioner who was one of the Resolution Applicants (RA) that it was the highest bidder in the Corporate Insolvency Resolution Process (CIRP) with respect to Corporate Debtor but its bid was not accepted by the Committee of Creditors (CoC) comprising of Respondent No. 2,4 and 5 in a meeting held on May 5, 2024. The petitioner offered amount of Rs. 109.87 crores in the plan proposed to be paid over 12 months. Whereas Successful Resolution Applicant (SRA) proposed only Rs. 99 crores It is important to note that Punjab National Bank, respondent No. 3, is lead secured creditor.

Contentions of Both Parties

Mr Rajiv Nayar representing the petitioner submitted that the CoC betrayed a lack of commercial prudence by rejecting the highest bid. It was further argued that in a revised the petitioner promised to give 75 crores in second instalment within 90 days was also not accepted despite being a superior proposal. The petitioner relied on the judgement delivered by a coordinate bench of the Delhi High Court in Kunwar Sachdev v. IDBI Bank & Ors W.P. (C) 10599/2021 dated 12.02.2024 in which fiduciary duties of the CoC was emphasised. In this judgment, the court also observed that the time has come for a code of conduct to ensure fairness and reasonableness in decision making of the CoC.

It was further contended that decision of the CoC while exercising its commercial wisdom must align with the objectives of the IBC that is to revive the company and maximise the assets value.

On the other hand, it was submitted by Senior Advocate Mr. Jayant Mehta representing respondent No. 2- National Asset Reconstruction Company Limited, that when it comes to the domain of private contract and bidding process, it is not always mandatory that the highest bidder should be preferred for Resolution Plan. The resolution plan approved by the CoC shall be placed before National Company Law Tribunal (NCLT) for final acceptance where petitioner can raise its grievances and it cannot approach the High Court in writ jurisdiction.

High Court Decision

The court held that it is not proper to issue notice in the writ filed by the petitioner when it already has an efficacious and alternative remedy before the NCLT where it can air its grievances with respect to action or inaction of the CoC.

It was noted by the court that the NCLT alone has jurisdiction to regulate the conduct of the CoC and take any decision in relation to resolution plan. It was further observed by the court that it is the duty of the NCLT to also whether the CoC is functioning in accordance with provisions of the IBC therefore the court is not a proper authority to raise grievances against the conduct and functions of the CoC. The NCLT supervises entire insolvency process and is empowered to take any action under section 60 of the IBC with respect to insolvency proceedings. The court further stated that the resolution plan accepted by the CoC shall be put before the NCLT for consideration and it will decide whether the plan has been approved as per the provisions of the IBC or not. The court held as under:

“12 Thus, the resolution plan decided by the CoC shall be put up for consideration before the Adjudicating Authority, which forum alone shall finally decide whether the CoC has performed its fiduciary duty as per the legislative mandate of the IBC”.

The court further held that in light of guidelines for the CoC issued by Insolvency and Bankruptcy Board of India (IBBI) on August 6, 2024, this court is not mandated to exercise its power of judicial review and usurp the power of the NCLT to enquire into the commercial wisdom of the CoC wherein the plan of the petitioner was rejected by a letter dated September 18, 2024.

The last argument of the petitioner was also rejected by the court in which it tried to persuade the court to allow it to renew the offer and match it in every aspect with the offer given by the SRA. In matter of public funds auction, the primary focus should be to maximize the recovery and the decision of the CoC should be considered by the NCLT in a fair and expedient manner. If the plan seems unfair, the NCLT can go to the extent of allowing Open Court Bidding in accordance with law.

“15 Although there is no gainsaying that in matters of public funds auction the best methodology for discovering fair value and the principle criteria is to ensure maximizing the recovery, the bottom line is that the decision of the CoC shall definitely be considered by the NCLT in a just and expedient manner, and if it deems fit it, may even allow “Open Court Bidding” in accordance with law”.

The court finally held that “In view of the foregoing discussion, the present writ petition is dismissed with liberty to the petitioner to take appropriate recourse before the NCLT, which forum alone shall decide the objections of the petitioner, if any preferred, on its own merits in accordance with law”.

Conclusion

The court concluded that appropriate authority to air grievances relating to the conduct of the CoC and the court cannot usurp the power of the NCLT to enquire into the commercial wisdom of the CoC. The NCLT will analyse and see whether the CoC has complied all rules and regulations while approving a resolution plan. Thus, the present petition was dismissed.

Case Title: Gateway Investment Management Services Ltd. v. Reserve Bank of India and Ors.

Court: High Court, New Delhi

Case Reference: W.P.(C) 13278/2024 & CM APPL. 55477/2024

Judgment Date: 23/09/2024

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