Supreme Court: The Division Bench of Dr Dhananjaya Y Chandrachud and M R Shah, JJ., observed that,
Jurisdiction of the Adjudicating Authority and the Appellate Authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom.
Under the Indian Insolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity-based jurisdiction on the Adjudicating Authority other than the statutory requirements laid down under Section 30 (2) of the IBC.
The Appeal
Present appeal arose under Section 62 of the Insolvency and Bankruptcy Code against the decision of the National Company Law Appellate Tribunal. Reliance Infratel Limited (RIL) was the corporate debtor and appellants the operational creditors.
NCLAT had upheld the decision of NCLT wherein it had approved the resolution plan formulated in the course of the insolvency resolution process of the Corporate Debtor.
Analysis, Law and Decision
Valuation of Preference Shares
The first aspect was in relation to the inclusion of realisable value from sale of preference shares held by Reliance Bhutan Limited, in Reliance Realty Limited, in determining the liquidation value of the Corporate Debtor. Earlier, it was clarified that under IBC and its regulations, the RP appointed two registered valuers to carry out the valuation of the Corporate Debtor and to determine the liquidation value and fair value.
Appellants submission that the realizable value from the preference shares was excluded from the liquidation value of the Corporate Debtor had been rebutted by a specific clarification contained in the Monitoring Committee’s affidavit.
Further, it was added that the realisable value for the Corporate Debtor on account of any proceeds realised from the preference shares held by its subsidiary (Reliance Bhutan Limited), is included in the determination of the liquidation value of the Corporate Debtor.
Hence, value of preference shares not being included in calculating the liquidation value of Corporate Debtor was factually incorrect.
Liquidation Value – To remain nil?
On this aspect, it had been clarified that the liquidation value due to the unsecured operational creditors would remain nil in all scenarios, including if the corpus of Rs 800 crores was separately considered.
Further, it was added that even if the liquidation value of the realizable value of preference shares were to be considered in isolation for distribution amongst all the operational creditors, in terms of the priority contained in Section 53 (1) of the Code, the liquidation value due to the appellants would still remain at nil.
Impact of Exclusion
Order of NCLT in Doha Bank proceedings
It was stated that, the exclusion of certain financial debts and hence, the exclusion of certain financial creditors from the CoC, pursuant to the order of the NCLT in the Doha Bank proceedings, has no practical implication since the resolution plan continues to be approved with a 100 per cent majority even after their exclusion.
Jurisdiction to approve a Resolution Plan
NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC, there is no equity-based jurisdiction with the NCLT, under the provisions of the IBC.
Adding to the above, it was expressed that the jurisdiction which had been conferred upon the Adjudicating Authority in regard to the approval of a resolution plan was statutorily structured by Section 31 (1).
The jurisdiction is limited to determining whether the requirements which are specified in Section 30 (2) have been fulfilled. This is a jurisdiction which is statutorily defined, recognised and conferred, and hence cannot be equated with jurisdiction in equity, that operates independently of the provisions of the statute.
Ambit of the Adjudicating Authority is to determine whether the amount that is payable to the operational creditors under the resolution plan is consistent with the norms provided stipulated in clause (b) of sub-clause (2) of Section 30.
Hence, the statute indicated that once the requirements of Section 30(2)(b) are fulfilled, the distribution in accordance with its provisions is to be treated as fair and equitable to the operational creditors.
Appellants challenged the treatments of operational creditors on the ground that it had not been fair and equitable.
It was added that as long as the payment under the resolution plan is fair and equitable amongst the operational creditors as a class, it satisfies the requirements of Section 30(2)(b).
Nature of the jurisdiction exercised by the Adjudicating Authority, while approving a resolution plan under Section 31, had been interpreted in the decision of a 2-Judge Bench in K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150.
Elaborating the above discussion, Supreme Court stated that the submission that there had been a failure to maximise the value of the assets was not substantiated by any concrete material before the Court, apart from the reference to the preference shares which had already been clarified earlier in this judgment.
It must be borne in mind that the jurisdiction of the Adjudicating Authority is circumscribed by the terms of the provisions conferring the jurisdiction.
“…jurisdiction of the Adjudicating Authority and the Appellate Authority cannot extend into entering upon the merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity-based jurisdiction in the Adjudicating Authority or the Appellate Authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of the IBC and the Regulations under the enactment.”
In Court’s opinion, IBC is a complete code in itself.
IBC defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by the IBC is a direct representation of certain economic goals of the Indian economy.
Therefore, once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty bound to abide by the discipline of the statutory provisions.
“…neither the Adjudicating Authority nor the Appellate Authority have an unchartered jurisdiction in equity.”
Conclusion
In the present matter, the resolution plan had been duly approved by a requisite majority of the CoC in conformity with Section 30(4).
- Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC.
- Jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law.
In view of the above discussion, appeal was dismissed. [Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Ltd., 2021 SCC OnLine SC 569, decided on 10-08-2021]
