Commercial Wisdom of the CoC To Prevail, Unless The Same Is In Contravention Of Any Law, Reiterates NCLAT

The Appellant is an Operational Creditor of the Corporate Debtor and preferred an appeal against the order of the Adjudicating Authority which dismissed the application filed by the Appellant, challenging the Resolution Plan. The Adjudicating Authority approved the Resolution Plan u/s 31(1) and 60(5).

Appellant's contentions

It was contended that the approval of the Resolution Plan is in contravention of Section 30(2)(e) as the claim admitted is of Rs. 6 crores, and the amount paid is only Rs. 50 Lacs. It was also contended that the Resolution Plan exempted payment to Noida Special Economic Zone (NSEZ) of any type of fees/ penalty for renewal of sublease and/or transfer charges and this was in direct contravention of established rules and principles of the functions of NSEZ. It was argued that the Resolution Applicant was seeking to bypass the statutory fees, which would lead to unjust enrichment and the Resolution Plan is in direct contravention of Section 34(2)(d) of the Special Economic Zone Act, 2018.

The Appellant was also aggrieved by the valuation of the land and building, the value of which had been significantly shown to have depreciated in a span of one year.

Analysis and Decision

The Bench noted the decision in 'Duncan Industries Pvt Ltd. Vs. State of U.P. & Ors.' where it was held that 'the question of valuation is basically question of facts and this Court is normally reluctant to interfere with the finding on such a question of fact if it is based on relevant material on record'.

The Tribunal analysed Section 30(2)(e) of the Code which states that the Resolution Professional shall examine each resolution plan received by him to confirm that it does not contravene any provisions of law for the time being in force.

Section 31 of the Code makes the approved Resolution Plan binding on the corporate debtor and its employees, members, creditors, including the Central Government, State Government or any local authority.

It noted the Supreme Court judgment in Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors, wherein the SC held that- "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. We, per se, do not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan."

It also relied on the judgment of Ghanashyam Mishra & Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Limited & Ors which held-"once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;"

The Tribunal observed that the commercial wisdom of the CoC is non-justiciable except on the grounds of Section 30(2).

Based on these, the Tribunal held that as held by the Supreme Court, it is clear that all statutory dues including statutory dues owed to the Central Government, State Government and 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 date on which the Adjudicating Authority has approved the Resolution Plan, could be continued.

As regards the contention of violation of the Special Economic Zones Act, the Tribunal relied on Section 238 of the IBC, which gives the Code an overriding effect over other laws.

It held-

"It is well settled that Insolvency and Bankruptcy Code overrides other law and under Section 31 of the Code, the Resolution Plan approved by the CoC and meeting the requirements under Section 30(2) has to be approved by the Adjudicating Authority. Commercial Wisdom of the CoC with respect to viability and financial decision taken while evaluating the Resolution Plan has to prevail, unless the Plan approved by the CoC is in conflict with any provision of the law and the distribution mechanisation suppressed the interest of the stakeholders besides taking care of the maximisation of the value of the assets of the corporate debtor, judicial intervention would not be warranted."

The NCLAT refused to set aside the order of the Adjudicating Authority, approving the Resolution Plan.

Counsel for the Appellant: Mr. Anshul Rawat & Ms. Namrata Langade, Advocates

Counsel for the Respondent: Mr. Abhishek Anand, for R-1 Mr. Kunal Godhwani, for R-3