Supreme Court Sets Aside NCLT’s Order To Re-Evaluate Corporate Debtor's Assets; States That Commercial Wisdom of CoC Cannot Be Interfered With

Supreme Court Sets Aside NCLT’s Order To Re-Evaluate Corporate Debtor's Assets; States That Commercial Wisdom of CoC Cannot Be Interfered With

The Supreme Court has set aside the National Company Law Tribunal (NCLT) order, which kept the approval of a resolution plan in abeyance while directing an official liquidator to conduct a re-valuation of the corporate debtor’s assets. As a result, the National Company Law Appellate Tribunal (NCLAT) order, affirming NCLT’s order has also been set aside.

An application under Section 30(6) of the Insolvency and Bankruptcy Code (IBC), 2016 was filed by the Resolution Professional (RP) before the NCLT. It sought approval of the resolution plan submitted by the Successful Resolution Applicant (SRA). The valuation of the corporate debtor’s assets was already done by the RP as per the IBC provisions.

However, the NCLT kept the resolution plan in abeyance and appointed an official liquidator (OL) to conduct the re-valuation of assets.

The bench comprising Justice Vikram Nath and Justice Ahsanuddin Amanullah held, “There was no occasion before the adjudicating authority, the NCLT, to be swayed on the ground that the haircut would be about 94.25 percent and that it was not convinced that the fair value of the assets have been projected in a proper manner, as the bid of the appellant was very close to the fair value of the assets of ACIL. Ordering re-valuation of the assets, by the OL, Ministry of Corporate Affairs, Government of India, in-charge of the area, cannot be justified.”

ACIL (corporate debtor) was admitted into the Corporate Insolvency Resolution Process (CIRP) by the NCLT under the IBC.

The resolution plan submitted by Ramkrishna Forgings Limited (SRA) was approved by the Committee of Creditors (CoC) for the corporate debtor. Accordingly, the RP filed an application under Section 30(6) before the NCLT, seeking approval of the plan.

On 01 September 2021, the NCLT kept the approval of SRA’s resolution plan in abeyance and directed the OL to provide exact figures/value of assets. The SRA filed an appeal before the NCLAT, which, vide the 19 January 2022 order, dismissed the appeal. It observed that an avoidance transaction of approximately Rs.1000 crores was seen and the case justified interference.

Thereafter, SRA filed an appeal before the Supreme Court. It argued that the IBC had an inbuilt mechanism for the valuation of assets of the corporate debtor under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Therefore, the appointment of an OL, a creation of the Companies Act, 2013, was unwarranted. Also, the NCLT was not entitled to appeal over the CoC’s commercial decision.

The Court was faced with the issue of the extent of NCLT’s jurisdiction on the re-valuation of assets when no objection was raised about any irregularity committed by the RP, SRA, or CoC in approving the resolution plan sent for the approval of the NCLT.

The judges noted that the RP had complied with the statutory requirement of involving two approved valuers for giving reports apropos the fair market value and liquidation value. None of the reports showed much variance and were placed before the CoC.

The bench viewed that the NCLT and the NCLAT erred in recognizing that under the resolution plan, the corporate debtor was set to be revived and not liquidated. Therefore, casual interference was unjustified on SRA’s commercial decision to approve the resolution plan with 88.56 percent votes, after several rounds of negotiations.

The Court stated, “It is now well-settled that it is within the CoC’s domain to deal with the entire debt of the corporate debtor. 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 is approved by the CoC with a majority vote of 88.56 percent, such commercial wisdom was not required to be called into question.”

While reprimanding the unwarranted interference by NCLT and NCLAT, Justice Nath and Justice Amanullah added, “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 the Court to understand as to what other reasons, grounded in the Code’s provisions, compelled the NCLT to embark upon the novel path of ordering revaluation by the OL.

“Nobody had moved before the NCLT or raised any objection challenging the resolution plan pending approval. Even the NCLAT only indicated that when ‘figures of crores’ are emerging stage-wise, ‘there is no harm to look at the expert opinion’, which the NCLT asked for.”

The bench referred to the top Court’s judgments in the Maharashtra Seamless Ltd vs Padmanabhan Venkatesh case, the K Sashidhar vs. Indian Overseas Bank case, the Kalparaj Dharamshi and Another vs Kotak Investment Advisors Ltd case, and the Pratap Technocrats (P) Ltd. vs. Monitoring Committee of Reliance Infratel Limited case.

Thus, while setting aside the orders of the NCLT and the NCLAT, the Court directed the NCLT to pass appropriate orders in an application for approval of the resolution plan.