Supreme Court: NCLT has Jurisdiction Only to Disapprove Resolution Plan Approved by Committee of Creditor under IBC

Supreme Court: NCLT has Jurisdiction Only to Disapprove Resolution Plan Approved by Committee of Creditor under IBC

The Supreme Court (SC) in the case titled Jaypee Kensington Boulevard Apartments Welfare Association & Ors. (Appellants) v. NBCC (India) Limited & Ors. (Respondents) held that if the National Company Law Tribunal (NCLT) i.e. the Adjudicating Authority finds any inadequacy based on specified parameters in the resolution plan (RP) approved by the Committee of Creditors (CoC) then the NCLT may ask for re-submission.

The SC bench comprising of Justices AM Khanwilkar, Dinesh Maheshwari, and Sanjiv Khanna ruled that the adjudicating authority has limited jurisdiction regarding approval of the RP by the CoC. It added that the concept is well-explained u/s 30(2) (Examination of resolution plan) and 31 (Approval of Resolution Plan) of the Insolvency and Bankruptcy Code (IBC).

The Top Court passed the said judgment on receiving a batch of appeals and petitions in the case relating to the insolvency of Jaypee Infratech. The Apex Court clarified that in the adjudicatory process regarding the RP there is no scope for the interference of the adjudicating authority with the commercial aspects of the decision of the CoC that also includes the substitution of any commercial term.

The factual matrix of the case is that a dispute arose regarding the RP in the corporate insolvency resolution process (CIRP) concerning the corporate debtor, Jaypee Infratech Limited (JIL) that has impacted several individuals and entities which also included the buyers of flats/apartments in its real estate development projects.

The RP was submitted by the resolution applicant, NBCC (India) Limited and it was duly approved by the CoC by a substantial majority of 97.36% of the voting share of the financial creditors.

The adjudicating authority approved the RP however it did certain modifications to the same. The NCLT also gave certain directions while accepting some of the objections of the dissenting financial creditor bank and the land providing agency but while rejecting some other, including those of the holding company of JIL and while leaving a few propositions open for adjudication in the appropriate forum.

An appeal was filed by the resolution applicant NBCC against the order of the adjudicating authority before the National Company Law Appellate Tribunal, New Delhi (NCLAT). The Appellate Authority issued notice to the unrepresented parties and it passed an interim order wherein it approved the resolution plan that should be implemented subject to the outcome of the appeal.

The Appellate Tribunal also directed that the RP may constitute an 'Interim Monitoring Committee' that shall comprise of NBCC and three major institutional financial creditors, who were the members of the CoC.

Various appeals were filed against the interim order of the Appellate Tribunal before the Apex Court.

Issue before the SC

Whether the Adjudicating Authority can modify or substitute the commercial terms and aspects of the Resolution Plan approved by the CoC? Are there any limitations on the adjudicating authority regarding the same?

The SC put reliance on various precedents including- K. Sashidhar v. Indian Overseas Bank and Ors.: (2019) 12 SCC 150, Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors.: (2020) 8 SCC 531, and Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors.: (2020) 11 SCC 467 and stated that the jurisdiction of the Appellate Authority is circumscribed by the limited grounds of appeal provided in Section 61 of the IBC that deals with 'Appeals and Appellate Authority'.

The Court further clarified that in the adjudicatory process regarding an RP under the IBC, the adjudicating authority has no scope for interference with the commercial aspects of the decision of the CoC.

The Top Court while dealing with the said issue ruled that "If within its limited jurisdiction, the Adjudicating Authority (NCLT) finds any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court."

The SC has set aside the order of the adjudicating authority wherein the NCLT had made certain alterations to the RP (approved by the CoC). The NCLT further directed that the Interim Resolution Profession (IRP) should complete the insolvency proceedings of Jaypee within 45 days.

The Apex Court stated that "The matter regarding approval of the resolution plan stands remitted to the Committee of Creditors of JIL and the time for completion of the process relating to CIRP of JIL is extended by another period of 45 days from the date of this judgment."

It further stated that it shall be open to the IRP for inviting fresh RP only from Suraksha Realty and NBCC, respectively by giving them time to submit it within 2 weeks from the date of the judgment.

The Court emphasized that IRP would be restrained to entertain any 'expression of interest' by any other person.

The SC ruled the following in its judgment-

o The Adjudicating Authority has not defaulted in disapproving the proposed treatment of dissenting financial creditor in the RP;

o The Adjudicating Authority erred in substituting the terms of the RP and did not send the RP back to the CoC for further consideration rather it suggested the same without a reconsideration of CoC.

o The Adjudicating Authority erred by giving directions to the resolution applicant for making provision for clearance of dues of unclaimed fixed deposit holders.

o The NCLT erred in concluding that the RP did not aptly deal with the interests of minority shareholders. The grievance of the minority shareholders is not a legal grievance and hence their objections are rejected.

o Regarding the issue of objections raised by YES Bank Limited and about JHL, the subsidiary of the corporate debtor JIL, are left 361 for resolution by the parties concerned, a viable solution will be given.

o The homebuyers as a class having assented to the resolution plan of NBCC, any individual homebuyer or any association of homebuyers cannot maintain a challenge to the resolution plan and cannot be treated as a dissenting financial creditor or an aggrieved person; the question of violation of the provisions of the RERA does not arise.

The RP in hand is not violative of the mandatory requirements of the CIRP Regulations, when the RP deal with all the assets and liabilities of the corporate debtor, no housing project of the corporate debtor could be segregated merely for the reason that same has been completed or is nearing completion.

o Jaiprakash Associates Limited (JAL, the holding company of Jaypee) deposited the amount of Rs. 750 crore under the orders passed by this Court in the case titled Chitra Sharma and Ors. v. Union of India and Ors. (2018) 18 SCC 575, and accrued interest thereupon, is the property of JAL and stipulation in the resolution plan concerning its usage by JIL or the resolution applicant cannot be approved. The part order of the adjudicating authority is set aside wherein it placed this amount in the asset pool of JIL.

The SC issued a slew of directions for ensuring complete justice in the cause while exercising its powers under Article 142 of the Constitution of India-

- The Court remits the matter regarding approval of RP to the CoC of JIL and it extends the time by another 45 days from the date of the judgment for the completion process.

- Provided for a further extended period for the conclusion of CIRP; for constitution of CoC afresh; and permitting the IRP to invite fresh expressions of interest for the submission of resolution plans.

- The Court directed that the amount of Rs. 750 crore, 'which has been deposited in this Court by JAL/JIL shall together with the interest accrued thereon' be transferred to NCLT, which would abide by the directions as may be issued by NCLT.

- After receiving the RP, the IRP shall take all further steps in the manner that the processes of voting by the CoC and his submission of the report to the NCLT are accomplished in all respects within the extended period of 45 days from the date of this judgment.

- The proceedings relating to CIRP of JIL were initiated by the Allahabad Bench of the NCLT but, later on, the same were transferred to its Principal Bench at New Delhi. Therefore, the proceedings contemplated by this judgment shall be taken up by the Principal Bench of the NCLT at New Delhi.