NCLT / NCLAT has no residual equity jurisdiction while dealing with the resolution plan approved by the CoC: Supreme Court
The Supreme Court observed that there is no residual fairness-based jurisdiction in the adjudicating authority or the appeals authority when dealing with the resolution plan approved by the creditors committee. the commercial wisdom behind the CoC’s endorsement of the …
The Supreme Court observed that there is no residual jurisdiction based on equity in the adjudication or appeal authority when it comes to the resolution plan approved by the committee of creditors.
The bench of judges DY Chandrachud and MR Shah reiterated that these authorities cannot enter into the commercial wisdom which underlies the approval granted by the CoC to the resolution plan.
âTo assert that a suppletive competence must be exercised to modify the delicate economic coordination envisaged by the law would undermine its objective and would constitute an inadmissible exercise of the power of judicial control of the contracting authority.. “, observed the judiciary, adding that the competence of the authorities is limited by the provisions of Article 31 (1) to determine whether the requirements of Article 30 (2) have been met in the plan as approved. by the CdC.
The judiciary thus observed while maintaining the orders issued by the National Company Law Appeal Authority and the National Company Law Tribunal which approved the resolution plan formulated during the resolution process of the insolvency of the debtor company.
One of the claims made in the appeal was that some foreign jurisdictions allow challenge of resolution / reorganization plans for reasons of justice and equity. [United States’ US Bankruptcy Code , United Kingdom’s Insolvency Act, 1986]. It has also been argued that the guarantees of due process and non-arbitrariness emanating from the decision of this Court in Maneka Gandhi v. Union of India in the provisions of the IBC.
The IBC, in our opinion, is a complete code in itself. It defines what a fair and equitable treatment is by constituting a global framework within which the actors participate in the insolvency process. The process envisioned by the IBC is a direct representation of some economic objectives of the Indian economy. It is promulgated after deliberation by Parliament and confers rights and obligations strictly regulated and coordinated by law and its regulations. To claim that a suppletive power must be exercised to modify the delicate economic coordination envisaged by the law would undermine its objective and would constitute an inadmissible exercise of the power of judicial control of the contracting authority. ..Therefore, once the requirements of the IBC have been met, the adjudicating authority and the appeal authority are bound to adhere to the discipline of the statutory provisions. It is not necessary to insist on the fact that neither the adjudicating authority nor the appellate authority has an indeterminate jurisdiction in equity. Competence arises in and as a product of a statutory framework.
Referring to the procedure provided by the IBC, regarding the approval of the resolution plan, the court noted the following:
â26 The competence which has been conferred on the adjudicating authority with regard to the approval of a resolution plan is statutorily structured by subsection (1) of article 31. The competence is limited to determining if the requirements which are specified in subsection It has been fulfilled in article (2) of article 30. This is a competence which is defined by law, recognized and conferred, and cannot therefore not be assimilated to a jurisdiction in equity, which operates independently of the provisions of the law. a body which owes its existence to the statute must conform to the nature and extent of its competence as defined in the statute itself.
29 These provisions indicate that the jurisdiction of the adjudicating authority is to determine whether the amount that is payable to operational creditors under the resolution plan complies with the above standards which have been stipulated in clause (b) of the sub-clause (2) of Article 30. It is important to note that Explanation 1 of clause (b), which is of a clarifying nature, provides that distribution in accordance with the provisions of the clause “must be fair. and fair âfor these creditors. Fair and equitable treatment, in other words, is what is fair and equitable among operational creditors as a category, and not between different categories of creditors. The law has indicated that once the requirements of Article 30 (2) (b) are met, distribution in accordance with its provisions should be treated as fair and equitable to operational creditors.
The judiciary also referred to comments on this aspect in K Sashidhar vs India Overseas Bank and Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta:
“39 … These decisions have established that the competence of the decision-making authority and the appellate authority cannot extend to the substantive examination of a business decision taken by a required majority of the CoC in commercial wisdom. Nor is there residual equity. jurisdiction of the adjudicating or appellate authority to intervene in this decision, provided it otherwise complies with the provisions of the IBC and the regulations under the promulgation â
Dismissing the appeal, the chamber observed that in this case the resolution plan was duly approved by a required majority of the CoC in accordance with Article 30 (4). Whether or not some of the financial creditors had to be excluded from the CoC does not matter, once the plan is approved by 100% of the CoC voting shares, he said.
Case: Pratap Technocrats (P) Ltd. vs. Supervisory Board of Reliance Infratel Limited; CA 676 of 2021
Reference: LL 2021 SC 368
Coram: Judges DY Chandrachud and MR Shah
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