NCLT/NCLAT cannot sit in an appeal over commercial wisdom of Committee of Creditors: Supreme Court

The Supreme Court recently highlighted the need for minimal judicial interference within the framework of the Insolvency and Bankruptcy Code (IBC) by reiterating that National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) should not sit in appeal over the commercial wisdom of the Committee of Creditors (CoC) (Vallal RCK v M/s Siva Industries and Holdings Limited & Ors)..The Bench of Justices B R Gavai and Hima Kohli held that interference by the NCLT and NCLAT is not warranted unless it is found that the decision of the CoC is capricious, arbitrary, irrational or violative of the statute and rules."... in our view, 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," the Court said in its judgment..The top court was considering an appeal against an order of the NCLT rejecting the application filed by a Resolution Professional under Section 12A of the IBC read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, for withdrawal of the application filed under Section 7 of the IBC in view of the settlement plan submitted by the appellantThe NCLT, while rejecting the application, said that the said settlement plan was not a settlement simpliciter under Section 12A of the IBC, but a “Business Restructuring Plan”. The Tribunal also ordered initiation of the Corporate Insolvency Proceedings (CIRP) against the corporate debtor, of which the the appellant is the promoter, even after the CoC had passed the settlement plan with voting majority of 94.23%.The order was later upheld by the NCLAT, prompting the instant appeal before the Supreme Court..Senior Advocate Abhishek Manu Singhvi, appearing for the appellant, submitted that it is more than a well-settled principle that the NCLT/NCLAT cannot sit in an appeal over the commercial wisdom of CoC. Since the settlement plan was approved by the CoC, the NCLT and NCLAT have erred in rejecting the settlement plan, he argued..The Court found merit in this argument and reiterated that 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.In the instant case, the settlement plan was passed by more than 90% of the CoC, as required by the statute. Further, referring to its judgment in Swiss Ribbons Privated Limited and Another v. Union of India and Others, the Court held that the CoC in the present case was not acting arbitrarily in accepting the settlement plan. Hence, the appeal was allowed and the orders of the NCLT and NCLAT were quashed..[Read Judgment]