REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 18111812 OF 2022
VALLAL RCK ...APPELLANT(S)
VERSUS
M/S SIVA INDUSTRIES AND HOLDINGS
LIMITED AND OTHERS ...RESPONDENT(S)
J U D G M E N T
B.R. GAVAI, J.
1. These appeals challenge the common judgment
dated 28th January 2022 passed by the learned National
Company Law Appellate Tribunal, Chennai Bench, Chennai
(hereinafter referred to as the “NCLAT”) in Company Appeal
(AT)(CH)(Insolvency) Nos. 211 and 212 of 2021, thereby
dismissing the appeals filed by the present appellant, which
were in turn filed, challenging the two orders dated 12th
August 2021 passed by the learned National Company Law
Tribunal, Division BenchII, Chennai (hereinafter referred to
1
as the “NCLT”), thereby rejecting the application filed by the
Resolution Professional (“RP” for short) under Section 12A of
the Insolvency and Bankruptcy Code, 2016 (“IBC” for short)
read with Regulation 30A of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016 (hereinafter referred to as the
“2016 Regulations”), for withdrawal of the application filed
under Section 7 of the IBC in view of the Settlement Plan
submitted by the appellant. The appellant has also
challenged the order passed by the learned NCLAT of the
even date vide which the appeal filed by the present
appellant against the order passed by the learned NCLT
directing initiation of liquidation proceedings in respect of
M/s Siva Industries and Holdings Limitedrespondent No.1
herein (hereinafter referred to as the “Corporate Debtor”),
was dismissed.
2. A short question that falls for consideration in the
present appeal is as to whether the adjudicating authority
(NCLT) or the appellate authority (NCLAT) can sit in an
2
appeal over the commercial wisdom of the Committee of
Creditors (hereinafter referred to as the “CoC”) or not.
3. The facts in brief giving rise to the present appeals
are as under:
IDBI Bank Limited had filed an application under
Section 7 of the IBC for initiation of Corporate Insolvency
Resolution Process (hereinafter referred to as the “CIRP”) in
respect of the Corporate Debtor. The learned NCLT, vide its
order dated 4th July 2019, admitted the said application. As
a result of which, CIRP in respect of the Corporate Debtor
was initiated. The RP had presented a Resolution Plan before
the CoC, submitted by one M/s Royal Partners Investment
Fund Limited. However, since the said Plan received only
60.90% votes of the CoC and could not meet the requirement
of receiving 66% votes, the said Plan could not be approved.
4. The RP, on 8th May 2020, filed an application being
IA/837/IB/2020 under Section 33(1)(a) of the IBC seeking
initiation of liquidation process of the Corporate Debtor. The
appellant, who is the promoter of the Corporate Debtor, filed
3
a settlement application being IA/647/IB/2020 before the
NCLT under Section 60(5) of the IBC, showing his willingness
to offer onetime settlement plan. The appellant sought
necessary directions to the CoC to consider the terms of
Settlement Plan as proposed by him. From the month of
October to December 2020, the 13th, 14th and 15th meetings
of the CoC were held to consider the Settlement Plan as
submitted by the appellant. Deliberations took place in the
said meetings with regard to the said Settlement Plan and
the final settlement proposal which was submitted by the
appellant came to be considered by the CoC in its 16th
meeting held on 18th January 2021. Initially, the said
Settlement Plan received only 70.63% votes. However
subsequently, one of the Financial Creditors viz.
International Assets Reconstruction Co. Ltd. (hereinafter
referred to as “IARCL”) having voting share of 23.60%,
decided to approve the said Settlement Plan and intimated
the RP about the same.
5. Since the said Settlement Plan stood approved by
more than 90% voting share, the RP filed an application
4
before the learned NCLT seeking necessary directions based
on the request of IARCL. Vide its order dated 29th March
2021, the learned NCLT ordered the RP to reconvene a
meeting of CoC and place the email of IARCL before it.
Accordingly, the 17th CoC meeting was convened on 1st April
2021, wherein the said Settlement Plan was approved with a
voting majority of 94.23%. Accordingly, the RP filed an
application being MA/43/CHE/2021 in IBA/453/2019
before the learned NCLT seeking withdrawal of CIRP initiated
against the Corporate Debtor in view of the approval of the
said Settlement Plan by CoC.
6. The learned NCLT, vide its order dated 12th August
2021, while holding that the said Settlement Plan was not a
settlement simpliciter under Section 12A of the IBC but a
“Business Restructuring Plan”, rejected the application for
withdrawal of CIRP and approval of the Settlement Plan.
Vide another order of even date, the learned NCLT initiated
liquidation process of the Corporate Debtor in
IA/837/IB/2020 as well. Being aggrieved thereby, the
appellant preferred two appeals before the learned NCLAT.
5
Vide the common impugned judgment dated 28th January
2022, the same came to be dismissed. Hence, the present
appeals.
7. Notice was issued by this Court in the present
appeals on 11th March 2022. While issuing notice, this Court
also granted stay of the impugned judgment. Insofar as the
respondent No.1 is concerned, no one appeared. Shri
Abhishek Swaroop, learned counsel appearing on behalf of
the respondent No.2 also does not wish to contest the matter.
As such, we could have very well allowed the appeals as
being uncontested. However, since an important question
with regard to interpretation of Section 12A of the IBC arises,
we are inclined to consider the matter for deciding the said
issue.
8. We have heard Dr. Abhishek Manu Singhvi, learned
Senior Counsel appearing on behalf of the appellant.
9. Dr. Singhvi submits that it is more than wellsettled
that the adjudicating authority or the appellate authority
cannot sit in an appeal over the commercial wisdom of CoC.
6
He submitted that the CoC, having accepted the Settlement
Plan with the voting majority of 94.23%, the learned NCLT
and the learned NCLAT have grossly erred in rejecting the
Settlement Plan and withdrawal of CIRP.
10. Dr. Singhvi submitted that one of the main objects of
the IBC is permitting the Corporate Debtor to continue as an
ongoing concern and at the same time, paying the dues of
the creditors to the maximum. He submits that the
impugned judgment dated 28th January 2022 passed by the
learned NCLAT and the orders dated 12th August 2021
passed by the learned NCLT are totally contrary to the spirit
behind the IBC.
11. For considering these submissions, it will be
apposite to refer to Section 12A of the IBC, which reads thus:
“12A. Withdrawal of application admitted
under Section 7, 9 or 10.—The Adjudicating
Authority may allow the withdrawal of application
admitted under Section 7 or Section 9 or Section
10, on an application made by the applicant with
the approval of ninety per cent. voting share of
the committee of creditors, in such manner as
may be specified.”
7
12. It is relevant to note that Section 12A of the IBC was
brought in the statute book vide Insolvency and Bankruptcy
Code (Second Amendment) Act, 2018 (Act No. 26 of 2018).
The Statement of Objects and Reasons (for short “SOR”) of
the Act No. 26 of 2018 would reveal that after the IBC was
enacted in 2016, it had emerged that further fine tuning of
the IBC would be required. The Government therefore
constituted an Insolvency Law Committee (hereinafter
referred to as the “said Committee”) to review the functioning
and implementation of the IBC. The SOR would further reveal
that the recommendations of the said Committee were
examined by the Government and it was accordingly decided
to amend the IBC. One of the amendments proposed was for
making a provision for withdrawal of application for initiation
of CIRP admitted by Adjudicating Authority. It was
recommended that such an exit should be allowed provided
the CoC approves such action by 90% voting share.
13. It will be relevant to refer to Clause (vii) of the key
recommendations in the Report of the said Committee dated
26th March 2018, which reads thus:
8
“(vii) in order to cater to exceptional
circumstances warranting withdrawal of an
application for CIRP postadmission, it has been
recommended to allow such exit provided the CoC
approves such action by ninety per cent of voting
share;”
14. It will also be relevant to refer to paragraph (29) of
the Report of the said Committee, which reads thus:
“29. WITHDRAWAL OF CIRP PROCEEDINGS
PURSUANT TO SETTLEMENT
29.1 Under rule 8 of the CIRP Rules, the NCLT
may permit withdrawal of the application on a
request by the applicant before its admission.
However, there is no provision in the Code or the
CIRP Rules in relation to permissibility of
withdrawal post admission of a CIRP application.
It was observed by the Committee that there have
been instances where on account of settlement
between the applicant creditor and the corporate
debtor, judicial permission for withdrawal of CIRP
was granted. This practice was deliberated in
light of the objective of the Code as encapsulated
in the BLRC Report, that the design of the Code is
based on ensuring that “all key stakeholders will
participate to collectively assess viability. The law
must ensure that all creditors who have the
capability and the willingness to restructure their
liabilities must be part of the negotiation process.
The liabilities of all creditors who are not part of
the negotiation process must also be met in any
negotiated solution.” Thus, it was agreed that
once the CIRP is initiated, it is no longer a
proceeding only between the applicant creditor
and the corporate debtor but is envisaged to be a
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proceeding involving all creditors of the debtor.
The intent of the Code is to discourage individual
actions for enforcement and settlement to the
exclusion of the general benefit of all creditors.
29.2 On a review of the multiple NCLT and
NCLAT judgments in this regard, the consistent
pattern that emerged was that a settlement may
be reached amongst all creditors and the debtor,
for the purpose of a withdrawal to be granted,
and not only the applicant creditor and the
debtor. On this basis read with the intent of the
Code, the Committee unanimously agreed that
the relevant rules may be amended to provide
for withdrawal post admission if the CoC
approves of such action by a voting share of
ninety per cent. It was specifically discussed
that rule 11 of the National Company Law
Tribunal Rules, 2016 may not be adopted for this
aspect of CIRP at this stage (as observed by the
Hon’ble Supreme Court in the case of Uttara
Foods and Feeds Private Limited v. Mona
Pharmacem) and even otherwise, as the issue can
be specifically addressed by amending rule 8 of
the CIRP Rules.”
15. It could thus be seen from the Report of the said
Committee that, the said Committee had observed that there
have been instances where on account of settlement between
the applicant creditor and the corporate debtor, judicial
permission for withdrawal of CIRP was granted. The Report
would further reveal that it refers to Banking Law Reforms
10
Committee Report which emphasizes that the law must
ensure that all creditors who have the capability and the
willingness to restructure their liabilities must be part of the
negotiation process. It also emphasizes that the liabilities of
all creditors who are not part of the negotiation process must
also be met in any negotiated solution. The said Committee
states that once the CIRP is initiated, it is no longer a
proceeding only between the applicant creditor and the
corporate debtor but is envisaged to be a proceeding involving
all creditors of the debtor. The intent of the IBC is to
discourage individual actions for enforcement and settlement
to the exclusion of the general benefit of all creditors. The
Report would further reveal that a settlement may be reached
amongst all creditors and the debtor, for the purpose of a
withdrawal to be granted, and not only the applicant creditor
and the debtor. The said Committee therefore recommended
that the relevant rules may be amended to provide for
withdrawal post admission if the CoC approves of such action
by a voting share of ninety per cent.
11
16. It could thus be seen that Section 12A of the IBC was
brought in the statute book on the basis of the said
Committee’s Report. It could be noticed that though by the
Amendment Act No. 26 of 2018, the voting share of 75% of
CoC for approval of the Resolution Plan was brought down to
66%, Section 12A of the IBC which was brought in the
statute book by the same amendment, requires the voting
share of 90% of CoC for approval of withdrawal of CIRP. It
could thus clearly be seen that a more stringent provision
has been made insofar as withdrawal of CIRP is concerned.
17. It is further to be noted that after Section 12A of the
IBC was brought in the statute book, Regulation 30A of the
2016 Regulations came to be inserted vide notification dated
3
rd July 2018. The same came to be substituted vide
notification dated 25th July 2019. Regulation 30A of the 2016
Regulations reads thus:
“30A. Withdrawal of application.—(1) An
application for withdrawal under Section 12A
may be made to the Adjudicating Authority—
(a) before the constitution of the
committee, by the applicant through
the interim resolution professional;
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(b) after the constitution of the
committee, by the applicant through
the interim resolution professional or
the resolution professional, as the case
may be:
Provided that where the application is made
under clause (b) after the issue of invitation for
expression of interest under Regulation 36A, the
applicant shall state the reasons justifying
withdrawal after issue of such invitation.
(2) The application under subregulation (1) shall
be made in Form FA of the Schedule
accompanied by a bank guarantee—
(a) towards estimated expenses
incurred on or by the interim
resolution professional for purposes of
Regulation 33, till the date of filing of
the application under clause (a) of subregulation (1); or
(b) towards estimated expenses
incurred for purposes of clauses (aa),
(ab), (c) and (d) of Regulation 31, till
the date of filing of the application
under clause (b) of subregulation (1).
(3) Where an application for withdrawal is under
clause (a) of subregulation (1), the interim
resolution professional shall submit the
application to the Adjudicating Authority on
behalf of the applicant, within three days of its
receipt.
(4) Where an application for withdrawal is under
clause (b) of subregulation (1), the committee
shall consider the application, within seven days
of its receipt.
(5) Where the application referred to in subregulation (4) is approved by the committee with
13
ninety percent voting share, the resolution
professional shall submit such application along
with the approval of the committee, to the
Adjudicating Authority on behalf of the applicant,
within three days of such approval.
(6) The Adjudicating Authority may, by order,
approve the application submitted under subregulation (3) or (5).
(7) Where the application is approved under subregulation (6), the applicant shall deposit an
amount, towards the actual expenses incurred for
the purposes referred to in clause (a) or clause (b)
of subregulation (2) till the date of approval by
the Adjudicating Authority, as determined by the
interim resolution professional or resolution
professional, as the case may be, within three
days of such approval, in the bank account of the
corporate debtor, failing which the bank
guarantee received under subregulation (2) shall
be invoked, without prejudice to any other action
permissible against the applicant under the
Code.”
18. A perusal of the said Regulation would reveal that
where an application for withdrawal under Section 12A of the
IBC is made after the constitution of the Committee, the
same has to be made through the interim resolution
professional or the resolution professional, as the case may
be. The application has to be made in FormFA. It further
provides that when an application is made after the issue of
invitation for expression of interest under Regulation 36A, the
14
applicant is required to state the reasons justifying
withdrawal of the same. The RP is required to place such an
application for consideration before the Committee. Only
after such an application is approved by the Committee with
90% voting share, the RP shall submit the same along with
the approval of the Committee to the adjudicating authority.
It could thus be seen that a detailed procedure is prescribed
under Regulation 30A of the 2016 Regulations as well.
19. In the case of Swiss Ribbons Privated Limited and
Another v. Union of India and Others1
, one of the
challenges made was with regard to validity of Section 12A of
the IBC. It was argued that the figure of 90% voting share
was arbitrary. It was the contention that though the
withdrawal was just and proper, the CoC could exercise the
power arbitrarily to reject such a settlement. While rejecting
the said contention, this Court observed thus:
“83. The main thrust against the provision of
Section 12A is the fact that ninety per cent of the
Committee of Creditors has to allow withdrawal.
This high threshold has been explained in the ILC
Report as all financial creditors have to put their
heads together to allow such withdrawal as,
1 (2019) 4 SCC 17
15
ordinarily, an omnibus settlement
involving all creditors ought, ideally, to be entered
into. This explains why ninety per cent, which is
substantially all the financial creditors, have to
grant their approval to an individual withdrawal
or settlement. In any case, the figure of ninety per
cent, in the absence of anything further to show
that it is arbitrary, must pertain to the domain of
legislative policy, which has been explained by
the Report (supra). Also, it is clear, that under
Section 60 of the Code, the Committee of
Creditors do not have the last word on the
subject. If the Committee of Creditors arbitrarily
rejects a just settlement and/or withdrawal
claim, NCLT, and thereafter, NCLAT can always set
aside such decision under Section 60 of the Code.
For all these reasons, we are of the view that
Section 12A also passes constitutional muster.”
20. It could thus be seen that this Court has found that
if the CoC arbitrarily rejects a just settlement and/or
withdrawal claim, the learned NCLT and thereafter the
learned NCLAT can always set aside such decision under the
provisions of the IBC.
21. This Court has consistently held 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. It has
been held that there is an intrinsic assumption, that financial
16
creditors are fully informed about the viability of the
corporate debtor and feasibility of the proposed resolution
plan. They act on the basis of thorough examination of the
proposed resolution plan and assessment made by their team
of experts. A reference in this respect could be made to the
judgments of this Court in the cases of K. Sashidhar v.
Indian Overseas Bank and Others2
, Committee of
Creditors of Essar Steel India Limited through
Authorised Signatory v. Satish Kumar Gupta and
Others3
, Maharashtra Seamless Limited v.
Padmanabhan Venkatesh and Others4
, Kalpraj
Dharamshi and Another v. Kotak Investment Advisors
Limited and Another5
, and Jaypee Kensington Boulevard
Apartments Welfare Association and Others v. NBCC
(India) Limited and Others6
.
2 (2019) 12 SCC 150
3 (2020) 8 SCC 531
4 (2020) 11 SCC 467
5 (2021) 10 SCC 401
6 (2022) 1 SCC 401
17
22. No doubt that the aforesaid observations have been
made by this Court while considering the powers of the CoC
while granting its approval to the Resolution Plan.
23. As already stated hereinabove, the provisions under
Section 12A of the IBC have been made more stringent as
compared to Section 30(4) of the IBC. Whereas under Section
30(4) of the IBC, the voting share of CoC for approving the
Resolution Plan is 66%, the requirement under Section 12A
of the IBC for withdrawal of CIRP is 90%.
24. When 90% and more of the creditors, in their wisdom
after due deliberations, find that it will be in the interest of all
the stakeholders to permit settlement and withdraw CIRP, 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.
18
25. In the present case, the proceedings of the 13th, 14th
and 15th meetings of CoC would clearly show that there were
wide deliberations amongst the members of the CoC while
considering the Settlement Plan as submitted by the
appellant. Not only that, the proceedings would also reveal
that after suggestions were made by some of the members of
the CoC, suitable amendments were carried out in the
Settlement Plan by the appellant. One of the members of the
CoC having voting share of 23.60%, though initially opposed
the Settlement Plant, subsequently decided to support the
same. Accordingly, the NCLT itself, vide order dated 29th
March 2021, directed the RP to reconvene the CoC meeting.
As per the directions of the NCLT, on 1st April 2021, the 17th
meeting of the CoC was reconvened, wherein the Settlement
Plan was approved by 94.23% votes.
26. It is thus clear that the decision of the CoC was
taken after the members of the CoC, had due deliberation to
consider the pros and cons of the Settlement Plan and took a
decision exercising their commercial wisdom. We are
therefore of the considered view that neither the learned
19
NCLT nor the learned NCLAT were justified in not giving due
weightage to the commercial wisdom of CoC.
27. This Court has, time and again, emphasized the need
for minimal judicial interference by the NCLAT and NCLT in
the framework of IBC. We may refer to the recent observation
of this Court made in the case of Arun Kumar Jagatramka
v. Jindal Steel and Power Limited and Another7
:
“95. ….However, we do take this opportunity to
offer a note of caution for NCLT and NCLAT,
functioning as the adjudicatory authority and
appellate authority under the IBC respectively,
from judicially interfering in the framework
envisaged under the IBC. As we have noted
earlier in the judgment, the IBC was introduced
in order to overhaul the insolvency and
bankruptcy regime in India. As such, it is a
carefully considered and well thought out piece of
legislation which sought to shed away the
practices of the past. The legislature has also
been working hard to ensure that the efficacy of
this legislation remains robust by constantly
amending it based on its experience.
Consequently, the need for judicial intervention
or innovation from NCLT and NCLAT should be
kept at its bare minimum and should not disturb
the foundational principles of the IBC…..”
28. In the result, we pass the following order:
7 (2021) 7 SCC 474
20
(i) The appeals are allowed;
(ii) The impugned judgment dated 28th January 2022
delivered by the learned NCLAT in Company Appeal
(AT)(CH)(Insolvency) Nos. 211 and 212 of 2021 and
the orders dated 12th August 2021 passed by the
learned NCLT in MA/43/CHE/2021 in
IBA/453/2019 and in IA/837/IB/2020 in
IBA/453/2019 are quashed and set aside; and
(iii) The application bearing No. MA/43/CHE/2021 in
IBA/453/2019 filed by the Resolution Professional
before the learned NCLT for withdrawal of CIRP is
allowed.
29. Pending application(s), if any, shall stand disposed of
in the above terms. No order as to costs.
…..….......................J.
[B.R. GAVAI]
…….........................J.
[HIMA KOHLI]
NEW DELHI;
JUNE 03, 2022.
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