NCLT and NCLAT cannot interfere in the commercial wisdom of CoC except for limited grounds u/s 30-31

A Full Bench of the Hon’ble Supreme Court comprising of Justices A.M. Khanwilkar, B.R. Gavai and Krishna Murari in the case titled Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another, REED 2021 SC 03545, vide its judgment has reiterated that the commercial wisdom of Committee of Creditors (CoC) is not to be interfered with, excepting the limited scope as provided under sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 (IBC). A brief background of this case, the issues involved and the judgment pronounced by the SC have been discussed below.

BACKGROUND

The National Company Tribunal (NCLT) admitted an application filed by Corporate Debtor under section 10 of IBC for initiation of its Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) invited resolution applicants to submit their Resolution Plans on or before 8 January 2019. In pursuance thereof, the following applicants submitted the Resolution Plan: (i) Kotak Investment Advisors Limited (KIAL), the Respondent No. 1, and Karvy Data Management System Ltd. on 8 January 2019; (ii) Kalpraj, the Appellant herein on 27 January 2019.

On 29 January 2019, KIAL placed its objections before RP regarding Kalpraj submitting the Resolution Plan beyond prescribed time limit. In the meeting of CoC held on 30 January 2019, the Resolution Plan of Kalpraj was placed before it and CoC directed the applicants to submit revised plans. Accordingly, KIAL and Kalpraj submitted the revised plan and in the meeting of CoC, plan of Kalpraj came to be approved by majority which was placed by RP before NCLT for approval.

Aggrieved, KIAL filed an application objecting to the plan of Kalpraj on the ground that RP was not justified in permitting Kalpraj to submit a plan beyond the prescribed date and and that the decision of CoC to approve the plan submitted by Kalpraj was not in accordance with the IBC. Although NCLT dismissed this application filed by KIAL on 28 November 2019, in an appeal against the order, National Company Law Appellate Tribunal (NCLAT) by a judgment dated 5 August 2020, allowed the appeal filed by KIAL. NCLAT also rejected the Kalpraj argument that the appeals were filed beyond the limitation period prescribed in IBC. Being aggrieved by the aforesaid order of NCLAT, four appeals were filed before Supreme Court.

ANALYSIS

To facilitate analysis, this judgment by Supreme Court has been discussed in the following three parts:

(i) Whether the appeals filed by KIAL before NCLAT were within limitation?

In the present case, the certified copy of judgment by NCLT was made available on 18 December 2019 and hence, as per Section 61(2) of the IBC, the appeal before NCLAT was to be filed within 45 days i.e. prior to 2 February 2020. However, the same was made on 18 February 2020 and the reason for the delay, as contended by KIAL, was that it approached the Bombay High Court in a writ petition against judgment of NCLT with a bona-fide intention. However, this writ petition was rejected in an elaborate judgment. Hence, on the basis of Section 14 of Limitations Act, 1963 which can be invoked in an appropriate case for exclusion of the time, during which the aggrieved person may have prosecuted with due diligence a remedy before a wrong forum, KIAL argued that provisions of Section 14 or at least the principles laid down therein, would be available to it and as such, the appeals, as filed will have to be held to be within limitation.

The Supreme Court after a detailed discussion on various judicial precedents, particularly M.P Steel Corporation v. Commissioner of Central Excise, (2015) 7 SCC 58, noted that though strictly, the provisions of Section 14 of Limitations Act would not be applicable to the proceedings before a quasi-judicial tribunal, however the principle underlying would be applicable i.e. the proper approach will have to be of advancing the cause of justice, rather than abort the proceedings. Since in the present case, KIAL approached the High Court promptly on ground of violation of principles of natural justice, the Supreme Court concluded that KIAL approached High Court with a bona-fide intention with due diligence. Hence, KIAL was entitled to extension of the period stipulated under Section 14 of Limitation Act and consequently, appeals filed by KIAL before NCLAT was within limitation.

 

(ii) Whether there was waiver and acquiescence by KIAL so as to estop it from challenging the participation of Kalpraj?

The Supreme Court observed that taking into consideration the fact that KIAL on 29 January 2019, KIAL had objected the participation of any other applicant by submitting resolution plan after the due date and also reiterated its objection later on, it cannot be held that having participated by submitted the revised plans, KIAL is stopped from challenging the process on the ground of acquiescence and waiver. KIAL had no option but to submit its revised plan or else it would have been out of the resolution application process and hence, it cannot be established that KIAL had given up/ surrendered its rights to take recourse to the legal remedies. In the light of this, Supreme Court concluded that KIAL did not acquiesced its rights to challenge the decision of RP or CoC.

(iii) Whether NCLAT was right in law in interfering with the decision of CoC of accepting the resolution plan of Kalpraj?

Placing reliance on a catena of rulings, including Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REED 2019 SC 11505 and Maharasthra Seamless Limited v. Padmanabhan Venkatesh and Others, REED 2020 SC 01501, the SC noted that the legislature has consciously not provided any jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same. For deciding key economic questions in the bankruptcy process, the only one correct forum to evaluate such possibilities, and making a decision is, a CoC, wherein all financial creditors have votes in proportion to the magnitude of debt that they hold. 

Further, the discretion of NCLT, circumscribed by Section 31, is limited to scrutiny of the resolution plan ‘as approved’ by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which NCLT can reject the Resolution Plan is in reference to matters specified in Section 30(2) when the resolution plan does not conform to the stated requirements. Under Section 30(2), the enquiry to be done is in respect of whether the Resolution Plan, inter alia, provides the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor and the repayment of the debts of operational creditors in prescribed manner. Accordingly, the Supreme Court held that the legislative scheme is unambiguous that the commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the IBC.

In the context of the present case, the Supreme Court noted that it has been the consistent stand of RP as well as CoC, that all actions of RP, including acceptance of resolution plans of Kalpraj after the due date, albeit before the expiry of timeline specified by the IBC for completion of the process, have been consciously approved by CoC with a thumping majority of 84.3%. Hence, in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of ‘commercial wisdom’, NCLAT was not correct in law in interfering with the commercial decision taken by CoC. Consequently, the present appeal filed by Kalpraj was allowed by the Supreme Court.