When CoC accepts a resolution plan and all mandatory requirements complied with, judicial review cannot be extended to analyse and look into the dissatisfaction evinced by any particular creditor or stakeholder – NCLAT
In a recent judgment, NCLAT Delhi has held that it is the commercial wisdom of the requisite majority of the Committee of Creditors (CoC) which is to negotiate and accept a resolution plan. Once all the mandatory requirements have been duly complied with and taken care of, judicial review cannot be extended to analyse and look into the dissatisfaction evinced by any particular creditor or stakeholder.
ABCAUS Case Law Citation:
4456 (2025) (03) abcaus.in NCLAT
In the instant case, the operational creditor had filed an appeal under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’) challenging the Order passed by the Adjudicating Authority (NCLT) approving the resolution plan of the Corporate Debtor as submitted by the Resolution Professional.
Before the NCLAT, the appellant submitted that the NCLT approved the resolution plan in violation of Section 12 of the IBC by allowing repeated extensions of CIRP even beyond 330 days. Extension had been allowed beyond the period of 330 days without adequate justification. It was submitted that the Hon’ble Supreme Court in its clearly provided that the resolution process was required to be completed within the outer limit of 330 days from insolvency commencement date including extension.
It was also contended that the RP did not circulate the valuation report of the Corporate Debtor either to the Appellant or to other members of the CoC but only furnished bare figures of fair value and liquidation value. In the absence of valid and detailed valuation reports, the CoC would have been handicapped to exercise its commercial wisdom judiciously. However, the Adjudicating Authority overlooked these procedural irregularities in approving the resolution plan.
It was also pointed out that as against a composite claim of nearly 20 crores of the Operational Creditors as admitted by the Resolution Professional (RP), the Successful Resolution Applicant had offered barely four percent payment to Operational Creditors which was shockingly low. It was submitted that the resolution plan therefore prejudiced the interests of Operational Creditors and amounted to non-compliance with Section 30(2)(b) of IBC.
The NCLAT observed that in terms of Section 24(3)(c) of the IBC, it is the duty of the RP to give notice to the Operational Creditors or their representatives regarding the CoC meetings if the amount of their aggregate due is not less than 10% of the debt. It is also well settled that such Operational Creditors whose aggregate due is not less than 10% of the debt have a right to watch the proceedings of the CoC and express their views in the meetings without however any right to vote.
The NCLAT further observed that in the present case, there was no denial of the fact that the Appellant received notice of the CoC meetings from the RP. As the Appellant was kept informed of the CoC meetings and records show their regular participation in such meetings, they had full knowledge of the CIRP proceedings. They were therefore equally aware of the extensions of CIRP time-lines approved by the CoC but these extensions by the CoC were not questioned by them at the appropriate time. The issue was neither agitated before the Adjudicating Authority at the right point of time and is now being raked up belatedly.
The NCLAT further noted that the CoC approved seeking further extension of CIRP period. Clearly enough, CoC having taken a considered decision in this regard, this constituted sufficient grounds for the Adjudicating Authority to extend further time beyond 330 days for completion of the CIRP process. The judgment relied upon by the Appellant does not completely rule out the possibility of CIRP extension beyond 330 days particularly so when a short period is left for completion of CIRP.
The NCLAT observed that CoC meeting proceedings, showed that the issue of sharing of the detailed valuation report had been raised therein by one of the CoC members. The CoC had considered this issue in the meeting and minuted the reasons for only sharing the bare figures of the fair value and liquidation value of the Corporate Debtor. Besides the fact that this matter was duly considered, deliberated and decided upon by the CoC in its commercial wisdom, it was also pertinent to note that since the Operational Creditor had no right to vote in the meeting of the CoC, they cannot be said to have suffered from any prejudice for not being provided with the valuation report. Whether the detailed valuation report was placed before the Appellant or not was immaterial since it was the members of the CoC who were required to exercise the commercial wisdom on the valuation reports placed before them and not the Appellant who did not have the right to exercise their vote.
Further, the NCLAT noted that a plain reading of the Section 30(2)(b) of the IBC shows that the entitlement of an Operational Creditor is to receive the amount as provided under Section 30(2)(b) of IBC which is not less than the amount which the Appellant would have been entitled to receive in the event of a liquidation of the Corporate Debtor under Section 53 of the IBC. The amount provided for operational creditors was clearly more than the liquidation value which was their minimum entitlement. That being so, the resolution plan cannot be said to be in dissonance with the provisions of Section 30(2)(b) of IBC.
The NCLAT further pointed out that the resolution plan having been approved by more than 66% of vote share by the CoC, such plan cannot be interfered with by the Adjudicating Authority merely on the grounds that the Operational Creditors were being paid less amount at a time when no amount had been specified for Operational Creditors in terms of liquidation value. Further, the resolution plan was approved with a majority of 97.36% of vote share. The plan having been approved by majority of votes, the Operational Creditor was clearly bound by the approved resolution plan.
The NCLAT further observed that Law is now well settled that the jurisdiction of the Adjudicating and Appellate Authorities to interfere with approval of the resolution plan is limited. The scope of judicial review is confined to the provisions contained in Section 30(2) of the IBC for the Adjudicating Authority and Section 30(2) read with Section 61(3) for the Appellate Authority. There is only limited review which can be exercised by the Adjudicating Authority or the Appellate Authority. There can be no fetters on the commercial wisdom of CoC. The supremacy of commercial wisdom of CoC has been reaffirmed time and again by the Hon’ble Supreme Court in a catena of judgements.
The NCLAT opined that so long the statutory provisions of the IBC and the CIRP Regulations framed thereunder are complied with, it is the commercial wisdom of the requisite majority of the CoC which is to negotiate and accept a resolution plan. Once all the mandatory requirements have been duly complied with and taken care of, judicial review cannot be extended to analyse and look into the dissatisfaction evinced by any particular creditor or stakeholder. The Adjudicating Authority cannot substitute its views with the commercial wisdom of the CoC nor deal with the merits of Resolution Plan unless it is found it to be contrary to the express provisions of law and against the public interest.
Accordingly, the appeal was dismissed.
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