Insolvency and Bankruptcy Code, 2016: s. 12A – Withdrawal of application admitted u/s. 7 – On facts, application u/s. 12A r/w Regulation 30A for withdrawal of application filed u/s. 7, in view of settlement plan submitted by the promoter of the Corporate Debtor, being approved by 94.23% of the voting shares of the Committee of Creditors – NCLT and NCLAT rejected the application – On appeal, held: When 90% and more of the creditors, in their wisdom after due deliberations, find that it would be in the interest of all the stake-holders to permit settlement and withdraw CIRP, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC – Interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules – In the instant case, the decision of the COC was taken after due deliberations of pros and cons of the settlement plan and took the decision exercising their commercial wisdom – Thus, interference of the NCLT and the NCLAT not justified – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Regulation 30A.
Allowing the appeals, the Court
HELD: 1.1 Section 12A of the IBC was brought in the statute book vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act No. 26 of 2018). The Statement of Objects and Reasons of the Act No. 26 of 2018 would reveal that after the IBC was enacted in 2016, it had emerged that further fine tuning of the IBC would be required. The Government therefore constituted an Insolvency Law Committee to review the functioning and implementation of the IBC. The SOR would further reveal that the recommendations of the said Committee were examined by the Government and it was accordingly decided to amend the IBC. One of the amendments proposed was for making a provision for withdrawal of application for initiation of CIRP admitted by Adjudicating Authority. It was recommended that such an exit should be allowed provided the CoC approves such action by 90% voting share. [Para 12][584-C-F]
1.2 Section 12A of the IBC was brought in the statute book on the basis of the said Committee’s Report. Though by the Amendment Act No. 26 of 2018, the voting share of 75% of CoC for approval of the Resolution Plan was brought down to 66%, Section 12A of the IBC which was brought in the statute book by the same amendment, requires the voting share of 90% of CoC for approval of withdrawal of CIRP. It could thus clearly be seen that a more stringent provision has been made insofar as withdrawal of CIRP is concerned. [Para 16][586-E-F]
1.3 A perusal of the Regulation 30A would reveal that where an application for withdrawal under Section 12A of the IBC is made after the constitution of the Committee, the same has to be made through the interim resolution professional or the resolution professional, as the case may be. The application has to be made in Form-FA. It further provides that when an application is made after the issue of invitation for expression of interest under Regulation 36A, the applicant is required to state the reasons justifying withdrawal of the same. The RP is required to place such an application for consideration before the Committee. Only after such an application is approved by the Committee with 90% voting share, the RP shall submit the same along with the approval of the Committee to the adjudicating authority. It could thus be seen that a detailed procedure is prescribed under Regulation 30A of the 2016 Regulations as well. [Para 18][588-C-D]
1.4 If the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT and thereafter the NCLAT can always set aside such decision under the provisions of the IBC. [Para 20][589-C]
1.5 The commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. There is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. [Para 21][589D-E]
1.6 The provisions under Section 12A of the IBC have been made more stringent as compared to Section 30(4) of the IBC. Whereas under Section 30(4) of the IBC, the voting share of CoC for approving the Resolution Plan is 66%, the requirement under Section 12A of the IBC for withdrawal of CIRP is 90%. [Para 23][590-A]
1.7 When 90% and more of the creditors, in their wisdom after due deliberations, find that it would be in the interest of all the stake-holders to permit settlement and withdraw CIRP, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules. [Para 24][590-B-C]
1.8 In the instant case, the proceedings of the 13th, 14th and 15th meetings of CoC would clearly show that there were wide deliberations amongst the members of the CoC while considering the Settlement Plan as submitted by the appellant. Not only that, the proceedings would also reveal that after suggestions were made by some of the members of the CoC, suitable amendments were carried out in the Settlement Plan by the appellant. One of the members of the CoC having voting share of 23.60%, though initially opposed the Settlement Plant, subsequently decided to support the same. Accordingly, the NCLT itself directed the RP to reconvene the CoC meeting. As per the directions of the NCLT, the 17th meeting of the CoC was reconvened, wherein the Settlement Plan was approved by 94.23% votes. [Para 25][590-D-E]
1.9 The decision of the CoC was taken after the members of the CoC, had due deliberation to consider the pros and cons of the Settlement Plan and took a decision exercising their commercial wisdom. Therefore, neither the NCLT nor the NCLAT were justified in not giving due weightage to the commercial wisdom of CoC. The impugned judgment delivered by the NCLAT and the orders passed by the NCLT are quashed and set aside; and the application filed by the Resolution Professional before the NCLT for withdrawal of CIRP is allowed. [Paras 26, 28][590-F; 591-D-E]
Swiss Ribbons Privated Limited and Another v. Union of India and Others (2019) 4 SCC 17 : [2019] 3 SCR 535; K. Sashidhar v. Indian Overseas Bank and Others (2019) 12 SCC 150 : [2019] 3 SCR 845; Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta and Others (2020) 8 SCC 531 : [2019] 16 SCR 275; Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Others (2020) 11 SCC 467 : [2020] 2 SCR 1157; Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another (2021) 10 SCC 401; Jaypee Kensington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others (2022)
1 SCC 401; Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another (2021) 7 SCC 474 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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