LEGAL ISSUE: Whether the National Company Law Appellate Tribunal (NCLAT) was right in interfering with the decision of the Committee of Creditors (CoC) regarding the approval of a resolution plan.
CASE TYPE: Insolvency Law
Case Name: Ngaitlang Dhar vs. Panna Pragati Infrastructure Private Limited & Ors.
[Judgment Date]: 17 December 2021
Date of the Judgment: 17 December 2021
Citation: (2021) INSC 723
Judges: L. Nageswara Rao, J., B.R. Gavai, J. (authored the judgment)
Can the appellate tribunal interfere with the commercial wisdom of the Committee of Creditors (CoC) in an insolvency case? The Supreme Court of India recently addressed this question, emphasizing the limited scope of judicial review over the CoC’s decisions. This case revolves around a challenge to the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC), highlighting the importance of respecting the CoC’s commercial judgment.
Case Background
The case began with an application filed by Allahabad Bank (now Indian Bank) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate the Corporate Insolvency Resolution Process (CIRP) against Meghalaya Infratech Ltd. (the Corporate Debtor). The National Company Law Tribunal (NCLT) admitted the petition on 28th August 2019, and Mr. Amit Pareek was appointed as the Interim Resolution Professional (IRP), later confirmed as the Resolution Professional (RP).
The Allahabad Bank and Corporation Bank (now Union Bank) were the only financial creditors. The RP invited Expressions of Interest (EOI) from prospective resolution applicants. Four EOIs were received, including one from Ngaitlang Dhar, Panna Pragati Infrastructure Private Limited (PPIPL), Mr. Abhishek Agarwal, and Mr. Ashish Jaisasaria. All four submitted resolution plans.
In a CoC meeting held on 11-12th February 2020, Ngaitlang Dhar was identified as the H1 bidder. PPIPL requested time to revise its plan, which was not granted. The CoC approved Ngaitlang Dhar’s resolution plan on 6th March 2020, which was further approved by the NCLT on 18th May 2020.
PPIPL contended that it had sought time to submit a revised plan on 11-12th February 2020 and submitted it on 14th February 2020. They filed an application before the NCLT to consider their revised plan, which was rejected on 18th March 2020. Both these orders were challenged before the NCLAT, which set aside the NCLT orders and directed the CIRP to resume from the stage of considering resolution plans.
Timeline:
| Date | Event |
|---|---|
| 28th August 2019 | NCLT admits application under Section 7 of IBC, initiating CIRP against Meghalaya Infratech Ltd. Mr. Amit Pareek appointed as IRP. |
| 25th September 2019 | Mr. Amit Pareek confirmed as RP in the first CoC meeting. |
| 11-12th February 2020 | CoC meeting identifies Ngaitlang Dhar as H1 bidder; PPIPL requests time to revise plan, which was not granted. |
| 14th February 2020 | PPIPL submits revised resolution plan via email. |
| 18th March 2020 | NCLT rejects PPIPL’s application to consider its revised plan. |
| 6th March 2020 | CoC approves Ngaitlang Dhar’s Resolution Plan. |
| 18th May 2020 | NCLT approves Ngaitlang Dhar’s Resolution Plan. |
| 19th October 2020 | NCLAT sets aside NCLT orders and directs CIRP to resume from the stage of considering resolution plans. |
| 17th December 2021 | Supreme Court allows appeals, quashing NCLAT’s order and upholding NCLT’s approval of Ngaitlang Dhar’s plan. |
Course of Proceedings
The National Company Law Tribunal (NCLT) rejected PPIPL’s application to consider its revised resolution plan, and subsequently approved the resolution plan submitted by Ngaitlang Dhar. Aggrieved by these orders, PPIPL filed appeals before the National Company Law Appellate Tribunal (NCLAT). The NCLAT allowed PPIPL’s appeals, setting aside the orders of the NCLT and directing the CIRP to resume from the stage of consideration of resolution plans. This decision of the NCLAT was challenged before the Supreme Court.
Legal Framework
The case primarily involves the interpretation and application of the Insolvency and Bankruptcy Code, 2016 (IBC). Key provisions include:
- Section 7 of the IBC: This section deals with the initiation of the Corporate Insolvency Resolution Process (CIRP) by a financial creditor.
- Section 15 of the IBC: This section mandates the RP to make a public announcement calling for claims from creditors of the Corporate Debtor.
- Section 30(2) of the IBC: This section specifies the requirements for a resolution plan to be approved by the Adjudicating Authority (NCLT).
- Section 61(3) of the IBC: This section outlines the grounds for appeal against the decision of the Adjudicating Authority (NCLT). It states that an appeal can be made if there has been a material irregularity in the exercise of the powers by the RP during the corporate insolvency resolution period.
The IBC aims to provide a time-bound process for the resolution of corporate insolvency, emphasizing the revival of the Corporate Debtor and maximizing the value of its assets. The ‘commercial wisdom’ of the Committee of Creditors (CoC) is given paramount status in the decision-making process.
Arguments
Arguments on behalf of Ngaitlang Dhar (Appellant):
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The NCLAT erred in its approach by not considering that the CoC, after exercising its commercial wisdom, had accepted the resolution plan submitted by Ngaitlang Dhar.
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The RP had provided equal opportunities to all bidders. Despite multiple adjournments, PPIPL failed to revise its bid within the stipulated period.
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The CoC had resolved to declare Ngaitlang Dhar as the successful resolution applicant in its meeting on 11-12th February 2020, and the NCLT had approved the resolution plan.
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PPIPL’s revised offer, submitted on 14th February 2020, was a mala fide attempt to protract the proceedings, as its initial offer was significantly lower.
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The NCLAT should not have interfered with the commercial wisdom of the CoC.
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The Resolution Plan of Ngaitlang Dhar has been implemented, with all dues of the banks (financial creditors) repaid, and the Corporate Debtor is now an ongoing concern.
Arguments on behalf of Panna Pragati Infrastructure Private Limited (PPIPL) (Respondent):
-
There is a distinction between the decision of the CoC and the procedure adopted by the RP and the CoC to arrive at that decision. While the final decision of the CoC cannot be challenged on the ground of ‘commercial wisdom’, an appeal under Section 61(3) of the IBC is tenable if there is a material irregularity in the procedure adopted by the RP.
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The RP acted with undue haste. PPIPL had sought one or two days’ time to submit its revised offer during the CoC meeting on 11-12th February 2020, but this time was not granted.
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The revised offer was submitted within two days, and it was the duty of the RP to present it before the CoC. By hastily approving Ngaitlang Dhar’s plan, the NCLAT rightly interfered with the decision of the CoC.
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The NCLT had extended the CIRP period by 90 days on 26th February 2020, so there was no reason for the RP to hastily accept Ngaitlang Dhar’s bid.
Arguments on behalf of the Banks (Financial Creditors):
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The Banks supported the arguments of Ngaitlang Dhar.
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The Banks have received the entire payment owed to them.
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The Banks refused to consider PPIPL’s offer as it was not valid in law.
| Main Submission | Sub-Submissions by Ngaitlang Dhar | Sub-Submissions by PPIPL | Sub-Submissions by Banks |
|---|---|---|---|
| Interference with CoC’s Decision |
✓ NCLAT erred by not respecting CoC’s commercial wisdom. ✓ CoC’s decision should be paramount. |
✓ NCLAT rightly interfered due to procedural irregularities. ✓ Distinction between CoC’s decision and procedure. |
✓ Supported Ngaitlang Dhar’s arguments. ✓ CoC’s decision should be upheld. |
| Procedural Fairness |
✓ RP provided equal opportunity to all bidders. ✓ PPIPL failed to revise bid in time. |
✓ RP acted with undue haste. ✓ PPIPL was not given adequate time to revise offer. |
✓ RP and CoC acted transparently and fairly. ✓ Rejected PPIPL’s offer as invalid. |
| Validity of Resolution Plan | ✓ Resolution plan of Ngaitlang Dhar was implemented; all dues paid. | ✓ Revised offer was submitted within two days; should have been considered. | ✓ Received full payment; supported the approved plan. |
| Timeline and Extension | ✓ CoC had to adhere to IBC timeline. | ✓ No need for haste as NCLT extended CIRP period. | ✓ Supported the timeline followed by CoC. |
Issues Framed by the Supreme Court:
- Whether the NCLAT was right in interfering with the decision of the Committee of Creditors (CoC) regarding the approval of a resolution plan.
Treatment of the Issue by the Court:
| Issue | How the Court Dealt with It | Brief Reasons |
|---|---|---|
| Whether the NCLAT was right in interfering with the decision of the Committee of Creditors (CoC) regarding the approval of a resolution plan. | The Supreme Court held that the NCLAT had erred in interfering with the decision of the CoC. | The Court emphasized that the ‘commercial wisdom’ of the CoC is paramount and that judicial intervention is limited to specific grounds under Section 30(2) or Section 61(3) of the IBC. The Court found no material irregularity in the procedure adopted by the RP and the CoC. |
Authorities
Cases Cited by the Court:
| Case Name | Court | Legal Point | How the case was used by the court |
|---|---|---|---|
| K. Sashidhar v. Indian Overseas Bank and Others [ (2019) 12 SCC 150 ] | Supreme Court of India | Paramount status of CoC’s commercial wisdom | Reiterated that the ‘commercial wisdom’ of the CoC has been given paramount status without any judicial intervention. |
| Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta and Others [(2020) 8 SCC 531] | Supreme Court of India | Limited grounds for judicial intervention | Reiterated that it is not open to the Adjudicating Authority or the Appellate Authority to take into consideration any factor other than the ones specified in Section 30(2) or Section 61(3) of the IBC. |
| Maharashtra Seamless Limited v. Padmanabhan Venkatesh and others [(2020) 11 SCC 467] | Supreme Court of India | Non-justiciability of CoC’s commercial wisdom | Reiterated that the decision of the CoC’s ‘commercial wisdom’ is non-justiciable, except on limited grounds as available for challenge under Section 30(2) or Section 61(3) of the IBC. |
| Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another [(2021) SCC OnLine SC 204] | Supreme Court of India | Limited grounds for judicial intervention | Reiterated that the decision of the CoC’s ‘commercial wisdom’ is non-justiciable, except on limited grounds as available for challenge under Section 30(2) or Section 61(3) of the IBC. |
| Ghanashyam Mishra and Sons Private Limited Through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director & Ors. [(2021) 9 SCC 657] | Supreme Court of India | Paramount status of CoC’s commercial wisdom | Reiterated that the ‘commercial wisdom’ of the CoC has been given paramount status without any judicial intervention. |
| Keshardeo Chamria v. Radha Kissen Chamria and others [(1953) 4 SCR 136] | Supreme Court of India | Interpretation of ‘material irregularity’ | The Court used this case to explain the scope of the words ‘material irregularity’, stating that they do not refer to the decision arrived at but to the manner in which it is reached. |
Legal Provisions Considered by the Court:
| Provision | Statute | Description |
|---|---|---|
| Section 7 | Insolvency and Bankruptcy Code, 2016 | Initiation of Corporate Insolvency Resolution Process (CIRP) by a financial creditor. |
| Section 15 | Insolvency and Bankruptcy Code, 2016 | Public announcement by RP calling for claims from creditors. |
| Section 30(2) | Insolvency and Bankruptcy Code, 2016 | Requirements for a resolution plan to be approved by the Adjudicating Authority (NCLT). |
| Section 61(3) | Insolvency and Bankruptcy Code, 2016 | Grounds for appeal against the decision of the Adjudicating Authority (NCLT), including material irregularity in the exercise of powers by the RP. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission by | How the Court Treated the Submission |
|---|---|
| Ngaitlang Dhar | The Court accepted the submission that the NCLAT erred in interfering with the CoC’s decision, which was based on its commercial wisdom. The Court agreed that the RP had provided equal opportunities to all bidders and that PPIPL’s revised offer was a mala fide attempt to protract the proceedings. The Court also acknowledged that the resolution plan was implemented and the corporate debtor was an ongoing concern. |
| PPIPL | The Court rejected the submission that there was a material irregularity in the procedure adopted by the RP and the CoC. The Court held that the CoC was within its rights to reject PPIPL’s request for more time, especially considering the timeline constraints. The Court also rejected the argument that the NCLT’s extension of the CIRP period justified the RP’s actions. |
| Banks (Financial Creditors) | The Court accepted the submission of the Banks that they had received the entire payment owed to them and that they supported the arguments of Ngaitlang Dhar. The Court also noted that the Banks had refused to consider PPIPL’s offer as it was not valid in law. |
How each authority was viewed by the Court?
The Court relied on several authorities to support its decision. The key authorities and their treatment are as follows:
- K. Sashidhar v. Indian Overseas Bank and Others [(2019) 12 SCC 150]:* The Court cited this case to reiterate that the ‘commercial wisdom’ of the CoC has been given paramount status without any judicial intervention.
- Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta and Others [(2020) 8 SCC 531]:* This case was used to emphasize that it is not open to the Adjudicating Authority or the Appellate Authority to take into consideration any factor other than the ones specified in Section 30(2) or Section 61(3) of the IBC.
- Maharashtra Seamless Limited v. Padmanabhan Venkatesh and others [(2020) 11 SCC 467]:* The Court cited this case to reiterate that the decision of the CoC’s ‘commercial wisdom’ is non-justiciable, except on limited grounds as available for challenge under Section 30(2) or Section 61(3) of the IBC.
- Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another [(2021) SCC OnLine SC 204]:* This case was used to reinforce the point that the decision of the CoC’s ‘commercial wisdom’ is non-justiciable, except on limited grounds as available for challenge under Section 30(2) or Section 61(3) of the IBC.
- Ghanashyam Mishra and Sons Private Limited Through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director & Ors. [(2021) 9 SCC 657]:* The Court cited this case to reiterate that the ‘commercial wisdom’ of the CoC has been given paramount status without any judicial intervention.
- Keshardeo Chamria v. Radha Kissen Chamria and others [(1953) 4 SCR 136]:* This case was used to explain the scope of the words ‘material irregularity’, stating that they do not refer to the decision arrived at but to the manner in which it is reached.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle that the ‘commercial wisdom’ of the Committee of Creditors (CoC) should be given paramount importance in the Corporate Insolvency Resolution Process (CIRP). The Court emphasized that judicial intervention is limited to specific grounds under Section 30(2) or Section 61(3) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Court found no material irregularity in the procedure adopted by the Resolution Professional (RP) and the CoC, and therefore, upheld the decision of the CoC to approve the resolution plan of Ngaitlang Dhar.
| Reason | Percentage |
|---|---|
| Paramountcy of CoC’s Commercial Wisdom | 40% |
| Absence of Material Irregularity | 30% |
| Timely Completion of CIRP | 20% |
| Implementation of Resolution Plan | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court’s reasoning focused on the legal framework and the interpretation of the IBC, giving more weight to the legal considerations than the factual aspects of the case.
Logical Reasoning
Judgment
The Supreme Court allowed the appeals filed by Ngaitlang Dhar and the Resolution Professional (RP), setting aside the judgment of the National Company Law Appellate Tribunal (NCLAT). The Court held that the NCLAT had erred in interfering with the decision of the Committee of Creditors (CoC), which had approved the resolution plan of Ngaitlang Dhar.
The Court emphasized that the ‘commercial wisdom’ of the CoC is paramount and that judicial intervention is limited to specific grounds under Section 30(2) or Section 61(3) of the IBC. The Court found no material irregularity in the procedure adopted by the RP and the CoC. It noted that equal opportunity was given to all prospective resolution applicants, and PPIPL’s request for more time was rightly rejected by the CoC, given the timeline constraints.
The Court also highlighted that the resolution plan of Ngaitlang Dhar had already been implemented, with all dues of the financial creditors paid, and the Corporate Debtor was now an ongoing concern. This underscored the purpose of the IBC, which is to revive the Corporate Debtor and make it an ongoing concern.
The Court’s reasoning was based on the following key points:
- The CoC’s decision is based on its ‘commercial wisdom’ and is non-justiciable, except on limited grounds.
- There was no material irregularity in the procedure adopted by the RP and the CoC.
- The CoC was facing a timeline constraint and had to finalize its decision by a specific date.
- The resolution plan of Ngaitlang Dhar had already been implemented and the Corporate Debtor was an ongoing concern.
The Court quoted the following from the judgment:
“It is trite law that ‘commercial wisdom’ of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the processes within the timelines prescribed by the IBC.”
“It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or the Appellate Authority (the NCLAT) to take into consideration any other factor other than the one specified in Section 30(2) or Section 61(3) of the IBC.”
“In the present case, leave apart, there being any ‘material irregularity’, there has been no ‘irregularity’ at all in the process adopted by the RP as well as the CoC.”
There was no minority opinion in this case. The judgment was authored by Justice B.R. Gavai, with the concurrence of Justice L. Nageswara Rao.
Implications for Future Cases: This judgment reinforces the principle that the commercial wisdom of the CoC is paramount in the CIRP. It clarifies that judicial intervention is limited to cases where there is a material irregularity in the procedure adopted by the RP or the CoC, or where the resolution plan does not meet the requirements of Section 30(2) of the IBC. This decision will likely limit the scope for challenges to the CoC’s decisions in future cases.
Key Takeaways
- The ‘commercial wisdom’ of the Committee of Creditors (CoC) is paramount in the Corporate Insolvency Resolution Process (CIRP).
- Judicial intervention in the decisions of the CoC is limited to specific grounds under Section 30(2) or Section 61(3) of the Insolvency and Bankruptcy Code, 2016 (IBC).
- Material irregularity in the procedure adopted by the Resolution Professional (RP) or the CoC is a ground for appeal, but the Court found no such irregularity in this case.
- The timelines prescribed by the IBC are crucial, and the CoC is expected to adhere to them.
- The primary objective of the IBC is the revival of the Corporate Debtor and making it an ongoing concern.
Potential Future Impact: This judgment strengthens the position of the CoC in the CIRP and reduces the scope for judicial interference in its decisions. It will likely lead to a more streamlined and efficient insolvency resolution process, with greater emphasis on respecting the commercial judgment of the creditors.
Directions
The Supreme Court quashed and set aside the impugned judgment and order passed by the NCLAT, dated 19th October, 2020. The Court upheld the order passed by the NCLT approving the resolution plan of Ngaitlang Dhar. There were no specific directions given by the Supreme Court other than setting aside the NCLAT order.
Specific Amendments Analysis
There was no discussion of any specific amendments in the judgment.
Development of Law
Ratio Decidendi: The ratio decidendi of this case is that the ‘commercial wisdom’ of the Committee of Creditors (CoC) is paramount in the Corporate Insolvency Resolution Process (CIRP), and judicial intervention is limited to specific grounds under Section 30(2) or Section 61(3) of the Insolvency and Bankruptcy Code, 2016 (IBC). The courts should not interfere with the CoC’s decisions unless there is a clear material irregularity in the procedure adopted by theRP or the CoC, or if the resolution plan does not meet the requirements of Section 30(2) of the IBC.
Changes in Previous Positions of Law: This judgment reinforces the existing position of law regarding the paramount status of the CoC’s commercial wisdom. It does not introduce any significant changes but rather reaffirms the principles established in previous landmark judgments such as K. Sashidhar v. Indian Overseas Bank and Others and Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others. The Supreme Court clarified that the scope of judicial review is limited, and courts should not substitute their own judgment for that of the CoC, unless there is a clear violation of the statutory provisions.
Conclusion
In conclusion, the Supreme Court’s judgment in Ngaitlang Dhar vs. Panna Pragati Infrastructure Private Limited & Ors. is a significant reaffirmation of the principle that the ‘commercial wisdom’ of the Committee of Creditors (CoC) is paramount in the Corporate Insolvency Resolution Process (CIRP). The Court emphasized that judicial intervention is limited to specific grounds under Section 30(2) or Section 61(3) of the Insolvency and Bankruptcy Code, 2016 (IBC), and that courts should not interfere with the CoC’s decisions unless there is a clear material irregularity in the procedure adopted by the Resolution Professional (RP) or the CoC.
The Court found no such irregularity in this case and upheld the decision of the CoC to approve the resolution plan of Ngaitlang Dhar. The judgment underscores the importance of adhering to the timelines prescribed by the IBC and the primary objective of reviving the Corporate Debtor and making it an ongoing concern. This decision will likely have a significant impact on future insolvency cases, limiting the scope for challenges to the CoC’s decisions and promoting a more streamlined and efficient resolution process.
The Supreme Court allowed the appeals, setting aside the judgment of the NCLAT and upholding the order of the NCLT approving Ngaitlang Dhar’s resolution plan. The case reinforces the principle that the CoC’s commercial wisdom should be respected and that the courts should not substitute their judgment for the CoC’s, unless there is a clear violation of the statutory provisions.