NCLT/NCLAT Has No Residual Equity Jurisdiction While Dealing With Resolution Plan Approved By CoC: Supreme Court

The Supreme Court observed that there is no residual equity based jurisdiction in the Adjudicating Authority or the Appellate Authority while dealing with the resolution plan approved by the Committee of Creditors.

The bench of Justices DY Chandrachud and MR Shah reiterated that these authorities can not enter into the commercial wisdom underlying the approval granted by the CoC to the resolution plan.

"To argue that a residuary jurisdiction must be exercised to alter the delicate economic coordination that is envisaged by the statute would do violence on its purpose and would be an impermissible exercise of the Adjudicating Authority's power of judicial review.", the bench observed, adding that the jurisdiction of the authorities are confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. 

The bench observed thus while upholding orders passed by National Company Law Appellate Authority and National Company Law Tribunal which approved the resolution plan formulated in the course of the insolvency resolution process of the Corporate Debtor.

One of the contentions raised in the appeal was that certain foreign jurisdictions allow resolution/reorganization plans to be challenged on grounds of fairness and equity [United States' US Bankruptcy Code , United Kingdom's Insolvency Act, 1986]. It was also contended that the guarantees of fair procedure and non-arbitrariness as emanating from the decision of this Court in Maneka Gandhi vs Union of India into the provisions of the IBC. 

The IBC, in our view, is a complete code in itself. It defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by the IBC is a direct representation of certain economic goals of the Indian economy. It is enacted after due deliberation in Parliament and accords rights and obligations that are strictly regulated and coordinated by the statute and its regulations. To argue that a residuary jurisdiction must be exercised to alter the delicate economic coordination that is envisaged by the statute would do violence on its purpose and would be an impermissible exercise of the Adjudicating Authority's power of judicial review. ..Hence, once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the Adjudicating Authority nor the Appellate Authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework.

Referring to the procedure under the IBC, in the matter of approval of resolution plan, the court noted as follows:

"26 The jurisdiction which has been conferred upon the Adjudicating Authority in regard to the approval of a resolution plan is statutorily structured by sub-Section (1) of Section 31. The jurisdiction is limited to determining whether the requirements which are specified in sub-Section (2) of Section 30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equated with a jurisdiction in equity, that operates independently of the provisions of the statute. The Adjudicating Authority as a body owing its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute itself."

29 These provisions indicate that the ambit of the Adjudicating Authority is to determine whether the amount that is payable to the operational creditors under the resolution plan is consistent with the above norms which have been stipulated in clause (b) of sub-clause (2) of Section 30. Significantly, Explanation-1 to clause (b), which is clarificatory in nature, provides that a distribution which is in accordance with the provisions of the clause ―shall be fair and equitable‖ to such creditors. Fair and equitable treatment, in other words, is what is fair and equitable between the operational creditors as a class, and not between different classes of creditors. The statute has indicated that once the requirements of Section 30(2)(b) are fulfilled, the distribution in accordance with its provisions is to be treated as fair and equitable to the operational creditors.

The bench also has referred to the observations on this aspect in K Sashidhar vs India Overseas Bank and Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta:

"39 ...These decisions have laid down that the jurisdiction of the Adjudicating Authority and the Appellate Authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the Adjudicating Authority or the Appellate Authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of the IBC and the Regulations under the enactment"

Dismissing the appeal, the bench observed that, in the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with Section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC, it said.

Case: Pratap Technocrats (P) Ltd. vs. Monitoring Committee of Reliance Infratel Limited ; CA  676 of 2021

Citation: LL 2021 SC 368

Coram: Justices DY Chandrachud and MR Shah

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