JUDICIAL REVIEW ON COMMERCIAL WISDOM OF COMMITTEE OF CREDITORS IN RESPECT OF APPROVED RESOLUTION PLAN

Resolution plan

In a corporate insolvency resolution process (‘CIRP’ for short) against a corporate debtor, the Resolution Professional has to publish express of interest inviting prospective resolution applicants for the purpose of submitting resolution plan.  On calling for the resolution plan from the resolution applicants, the resolution applicants shall prepare the resolution in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short).  The Resolution Professional has to verify the resolution plans and submit the eligible plans before the Committee of Creditors (‘CoC’ for short) for its consideration. 

Approval of resolution plan by CoC

The process of consideration and approval of resolution plan is essentially within the commercial wisdom of Committee of Creditors.  The CoC may approve a resolution plan by a vote of not less than 66% of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in of section 53(1), including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board.

Approval by Adjudicating Authority

The resolution professional shall submit the resolution plan as approved by the CoC to the Adjudicating Authority.    If the Adjudicating Authority is satisfied that the resolution plan as approved by the CoC under section 30(4) meets the requirements as referred to in section 30(2), it shall by order approve the resolution plan.  If the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements, it may, by an order, reject the resolution plan.

Limited judicial review

In respect of the approved resolution plan the Adjudicating Authority is not sitting on an appeal against the decision of CoC.  The Supreme Court held in K. Sashidhar Versus Indian Overseas Bank & Others - 2019 (2) TMI 1043 - Supreme Court, that the discretion of the adjudicating authority is circumscribed by Section 31 limited to scrutiny of the resolution plan ‘as approved’ by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements.

The Supreme Court observed that Section 30(2) of the Code provides that the Resolution Professional shall examine each resolution plan received by him to confirm that each resolution plan-

• provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;
• provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-

1. the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or
2. the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in of section 53 (1),

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with  of section 53(1) in the event of a liquidation of the corporate debtor.

• does not contravene any of the provisions of the law for the time being in force,
• conforms to such other requirements as may be specified by the Board.

Then the Supreme Court noted the powers and functions of the Insolvency and Bankruptcy Board of India (‘IBBI’ for short).  None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the Code.  The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors.  The feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality.   The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the Code.

The Supreme Court in Committee of Creditors of Essar Steel India Limited Through Authorised Signatory Versus Satish Kumar Gupta & Others - 2019 (11) TMI 731 - Supreme Court, observed that the CIRP regulation fleshes out Section 30(4) of the Code, making it clear that ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such creditors to be the best resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants.

In JAYPEE KENSINGTON BOULEVARD APARTMENTS WELFARE ASSOCIATION & ORS. Versus NBCC (INDIA) LTD. & ORS. - 2021 (3) TMI 1143 - Supreme Court, the Supreme Court held that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised by the CoC. The limited judicial review available to adjudicating authority lies within the four corners of Section 30(2) of the Code, which would essentially be to examine that the resolution plan does not contravene any of the provisions of law.

The Supreme Court, in PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED (FORMERLY KNOWN AS DEWAN HOUSING FINANCE CORPORATION LIMITED) Versus 63 MOONS TECHNOLOGIES LIMITED & OTHERS - 2025 (4) TMI 188 - Supreme Court, has examined the issue of scope of Judicial Review in the matter of approval of Resolution Plan.  The Supreme Court, in this regard, considered its various judgments passed in the earlier periods.  The Supreme Court held that it is no more res integra that the legislature has given paramount importance to the ‘commercial wisdom’ of CoC, and that the scope of the judicial review by the Adjudicating Authority is limited to the extent provided under Section 31, and that of the Appellate Authority (NCLAT) is limited to the extent provided under Section 61(3) of the Code. 

The Supreme Court further held that while considering the feasibility and viability of the Prospective Resolution Plans, the CoC can always suggest a modification therein and exercise its commercial wisdom. However, once the resolution plan is approved by the requisite majority of CoC, and when such resolution plan is placed before the Adjudicating Authority for its approval under Section 31, the Adjudicating Authority has to only see whether such resolution plan, as approved by the CoC, meets the requirements as referred to in Section 30(2). It is only where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements of sub-section (1) of Section 31, it may by an order reject the resolution plan. It is true that the Adjudicating Authority has to decide all the questions on law or fact arising out of or in relation to the insolvency resolution or liquidation under the residuary jurisdiction vested in Adjudicating Authority under Section 60(5), however as held in Essar Steel, such residual jurisdiction does not in any manner impact Section 30(2) of the Code, which circumscribes the jurisdiction of the Adjudicating Authority, when it comes to the confirmation of resolution plan, as has been mandated by Section 31(1) of the Code.

Conclusion    

From the judgments cited supra, it is amply clear that only limited judicial review is available to the Adjudicating Authority under Section 30(2) read with Section 31 of the Code, 2016 and this Adjudicating Authority cannot venture into the commercial aspects of the decisions taken by the committee of the creditors.