IBC | No Casual Interference With Commercial Wisdom Of CoC : Supreme Court Sets Aside NCLT Direction To Reevaluate Corporate Debtor's Assets

The Supreme Court has set aside an order whereby the National Company Law Tribunal (“NCLT”) kept the approval of a resolution plan in abeyance while directing an Official Liquidator to conduct re-valuation of the Corporate Debtor’s assets. Consequently, the order of National Company Law Appellate Tribunal (“NCLAT”) affirming the NCLT’s order has also been set aside.

An application under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) was filed by the Resolution Professional before NCLT, seeking approval of the resolution plan submitted by Successful Resolution Applicant(SRA). The valuation of Corporate Debtor’s assets was already done Resolution Professional as per the provisions of IBC and its Regulations. However, the NCLT kept the resolution plan in abeyance and appointed an Official Liquidator to conduct re-valuation of assets.

The Bench comprising Justice Vikram Nath and Justice Ahsanuddin Amanullah, has held, “In the case at hand, we find that there was no occasion before the Adjudicating Authority NCLT to be swayed only on the per se ground that the hair-cut would be about 94.25% and that it was not convinced that the fair value of the assets have been projected in proper manner as the bid of the appellant was very close to the fair value of the assets of ACIL. Ordering revaluation of the assets, by the OL, Ministry of Corporate Affairs, Government of India, in-charge of the particular area, cannot be justified.”

BACKGROUND FACTS

ACIL (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) under the IBC by the NCLT.

The Resolution Plan submitted by Ramkrishna Forgings Limited (“Successful Resolution Applicant/SRA”) was approved by the Committee of Creditors (CoC) for the Corporate Debtor. Accordingly, the Resolution Professional filed an application under Section 30(6) of IBC before the NCLT, seeking approval of resolution plan.

On 01.09.2021, the NCLT kept the approval of SRA’s Resolution Plan in abeyance and directed the Official Liquidator (OL) to provide exact figures/value of assets. The SRA filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”) against the order dated 01.09.2021. The NCLAT vide order dated 19.01.2022 dismissed the appeal, while observing that an avoidance transaction of approximately Rs. 1000 Crores had come to light and the case justifies interference since figures of crores are involved.

The SRA filed an appeal before the Supreme Court against NCLAT order dated 19.01.2022. It was argued that IBC has an inbuilt mechanism for valuation of assets of the Corporate Debtor which is provided under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Therefore, appointment of an Official Liquidator for valuation, which is otherwise a creation of the Companies Act, 2013 is unwarranted. Further, NCLT cannot sit in appeal over commercial decision of CoC.

SUPREME COURT VERDICT

The issue before the Bench was regarding the extent of NCLT’s jurisdiction to go on the issue of revaluation of assets, when no objection was raised by any quarter regarding any irregularity committed by the Resolution Professional, SRA or CoC in approving the Resolution Plan, which was sent to the NCLT for approval.

The Bench observed that the Resolution Professional has complied with the statutory requirement of involving two approved valuers for giving reports apropos fair market value and liquidation value. Both reports did not show much variance and the same was placed before the CoC.

“In the case at hand, we find that there was no occasion before the Adjudicating Authority NCLT to be swayed only on the per se ground that the hair-cut would be about 94.25% and that it was not convinced that the fair value of the assets have been projected in proper manner as the bid of the appellant was very close to the fair value of the assets of ACIL. Ordering revaluation of the assets, by the OL, Ministry of Corporate Affairs, Government of India, in-charge of the particular area, cannot be justified.”

The Bench took the view that the NCLT and NCLAT erred to recognize that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated.

It was held that the SRA’s commercial decision to approve the resolution plan with 88.56% votes, after several rounds of negotiations, cannot be casually interfered with.

“Stricto sensu, it is now well-settled that it is well within the CoC’s domain as to how to deal with the entire debt of the Corporate Debtor. In this background, if after repeated negotiations, a Resolution Plan is submitted, as was done by the appellant (Resolution Applicant), including the financial component which includes the actual and minimum upfront payments, and has been approved by the CoC with a majority vote of 88.56%, such commercial wisdom was not required to be called into question or casually interfered with.”

The Bench reprimanded the unwarranted interference by NCLT and NCLAT since no objection was raised by any party with respect to the approval of SRA’s resolution plan.

“Surprisingly, the discussion in both orders is wanting, except for the difference in the figure of the total outstanding dues and the amount of money which the appellant was to put up initially for taking over the Corporate Debtor, for this Court to understand as to what other reasons, grounded in the Code’s provisions, compelled the Adjudicating Authority-NCLT to embark upon the novel path of ordering revaluation by the OL. At the cost of repetition, nobody had moved before the NCLT or raised any objection challenging the Resolution Plan pending approval. Even the NCLAT has only indicated that when “figures of crores” are emerging stage-wise, “then there is no harm to look at the Expert opinion”, which the Adjudicating Authority-NCLT in this case has asked for.”

Reference was made to the recent Supreme Court judgments in Maharashtra Seamless Ltd v Padmanabhan Venkatesh, K Sashidhar v. Indian Overseas Bank, Kalparaj Dharamshi and another vs Kotak Investment Advisors Ltd, Pratap Technocrats (P) Ltd. vs. Monitoring Committee of Reliance Infratel Limited etc.

The Bench has set aside the orders dated 01.09.2021 and 19.01.2022 passed by NCLT and NCLAT. The NCLT has been directed to pass appropriate orders in application for approval of resolution plan.

Case Title: Ramkrishna Forgings Limited v Ravindra Loonkar & Anr.

Citation: 2023 LiveLaw (SC) 1007

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