2021 (3) TMI 496 - SC - Insolvency and Bankruptcy

Supreme Court restores NCLT order, upholds Kalpraj's resolution plan appeal

The Supreme Court allowed the appeals filed by Kalpraj, RP, and Deutsche Bank, setting aside NCLAT's order and restoring NCLT's order approving Kalpraj's ... Application of Section 14 principles to exclude time spent prosecuting bona fide proceedings before a court - limitation for appeals under Section 61(2) of the Insolvency and Bankruptcy Code - principle that the commercial wisdom of the Committee of Creditors is non justiciable except within the limited tests in Sections 30(2) and 31 - scope of judicial review by Adjudicating Authority and Appellate Tribunal under Sections 30, 31 and 61 - waiver and acquiescence - contractual/formal waiver clauses in prescribed process formats and their enforceability - unconscionability and unequal bargaining power affecting standard/form contract terms in the resolution process - remand for determination of pending appeal against approval orderApplication of Section 14 principles to exclude time spent prosecuting bona fide proceedings before a court - limitation for appeals under Section 61(2) of the Insolvency and Bankruptcy Code - Whether the period during which KIAL prosecuted a writ petition before the Bombay High Court could be excluded for computing limitation for the appeals under Section 61(2) of the I&B Code. - HELD THAT: - The Court held that Section 61(2) of the I&B Code fixes the appeal period (30 days with a discretionary additional 15 days) and that the I&B Code is a special statute for limitation purposes. However, consistent with precedents, although Section 14 of the Limitation Act may not apply literally to proceedings before a quasi judicial tribunal, the equitable principle underlying Section 14 - exclusion of time spent prosecuting bona fide proceedings before a wrong forum with due diligence - can be applied to advance justice. KIAL had promptly and bona fide filed a writ before the Bombay High Court alleging breach of natural justice in NCLT proceedings; the High Court heard the matter and dismissed it after detailed consideration. Applying the principles underlying Section 14, the period during which KIAL diligently pursued the writ in good faith was excluded and, on that basis, KIAL's appeals to NCLAT were held to be within limitation. (See reasoning and findings in paras 36-45, 51-65.) [Paras 37, 44, 51, 64, 65]Period spent by KIAL prosecuting the bona fide writ petition before the Bombay High Court was excluded in computing limitation; the appeals before NCLAT were within time.Waiver and acquiescence - contractual/formal waiver clauses in prescribed process formats and their enforceability - unconscionability and unequal bargaining power affecting standard/form contract terms in the resolution process - Whether KIAL, by accepting and signing the prescribed covering letter and by submitting revised plans after late participation by another applicant, had waived or acquiesced to the consideration of belated resolution plans so as to be estopped from challenging Kalpraj's participation. - HELD THAT: - The Court examined the Process Memorandum clauses relied upon by other parties and the covering letter signed by KIAL. It reiterated that waiver/acquiescence must be shown by clear conduct or agreement - intentional relinquishment of a known right - and that mere silence or participation does not automatically amount to waiver. The covering letter clause was part of a prescribed format supplied by the process and, given the unequal bargaining context of resolution applicants and the RP/CoC, such unilateral and broadly worded surrender clauses cannot be mechanically enforced; they may be unconscionable where the applicant has no meaningful choice. On facts, KIAL objected immediately when Kalpraj submitted a belated plan, continued to press its objections, and submitted revised plans only under compulsion (clause 11.2) to avoid being ousted. There was no forfeiture of rights, nor material detrimental reliance by others established. Therefore KIAL was not held to have waived or acquiesced its rights to challenge the participation of Kalpraj. (See reasoning and findings in paras 86-101, 116-134.) [Paras 95, 101, 126, 132, 134]KIAL had not waived or acquiesced its right to challenge Kalpraj's participation; waiver/acquiescence was not established.Principle that the commercial wisdom of the Committee of Creditors is non justiciable except within the limited tests in Sections 30(2) and 31 - scope of judicial review by Adjudicating Authority and Appellate Tribunal under Sections 30, 31 and 61 - Whether NCLAT was justified in setting aside NCLT's approval of the resolution plan on grounds of breach of natural justice and material irregularity, and whether NCLAT could review CoC's commercial decision. - HELD THAT: - Relying on the Code and precedents, the Court emphasised that the I&B Code entrusts business decisions about resolution to the Committee of Creditors; judicial review by NCLT/NCLAT is limited to the statutory tests in Sections 30(2), 31 and the specific grounds of appeal in Section 61(3). The commercial wisdom of CoC (feasibility and viability assessed by voting financial creditors) is not open to re appraisal by the Adjudicating Authority or Appellate Tribunal unless the resolution plan fails the statutory requirements. On the record, the CoC had expressly approved late consideration and RP's actions were backed by CoC; the approval was by a large majority (84.36%). The Court found that NCLAT exceeded its jurisdiction in interfering with CoC's commercial decision and setting aside NCLT orders; having regard to the limited scope of judicial review and the factual posture (majority approval, steps taken in implementation), NCLAT's interference was unsustainable. (See reasoning and findings in paras 136-158.) [Paras 142, 146, 156, 157, 158]NCLAT erred in interfering with CoC's commercial decision; NCLT's orders approving the resolution plan are restored.Remand for determination of pending appeal against approval order - Disposition of the separate appeal by Fourth Dimension Solutions Ltd. that was pending before NCLAT. - HELD THAT: - The Court did not decide the merits of Fourth Dimension's appeal. Observing that its challenge before NCLAT remained pending, the Court directed NCLAT to decide that appeal in accordance with law expeditiously and in any event within two months. This direction is procedural and results in remand to the appellate forum for final adjudication. [Paras 160]Fourth Dimension Solutions Ltd.'s appeal is remitted for decision by NCLAT within two months; merits left open.Final Conclusion: The appeals by Kalpraj, the erstwhile Resolution Professional and Deutsche Bank are allowed; NCLAT's order dated 5.8.2020 is quashed and the NCLT orders dated 28.11.2019 approving the resolution plan are restored. The period KIAL spent prosecuting a bona fide writ before the Bombay High Court was excluded for limitation purposes; KIAL did not waive or acquiesce its right to challenge Kalpraj's participation. The appeal of Fourth Dimension Solutions Ltd. remains pending before NCLAT and is directed to be decided within two months. Issues Involved:1. Limitation period for filing appeals before NCLAT.2. Waiver and acquiescence by KIAL.3. Interference by NCLAT with CoC's decision on the resolution plan.Detailed Analysis:1. Limitation Period for Filing Appeals Before NCLAT:The primary issue was whether the appeals filed by KIAL before NCLAT were within the limitation period. The judgment emphasized that the I&B Code is a complete code in itself, and the limitation for appeals is governed by Section 61(2) of the I&B Code, which prescribes a 30-day period for filing appeals with a possible extension of 15 days if sufficient cause is shown. KIAL filed a writ petition before the Bombay High Court on 11.12.2019, which was dismissed on 28.1.2020, and then filed the appeal before NCLAT on 18.2.2020. The court held that the period during which KIAL was bona fide prosecuting the writ petition before the High Court should be excluded when computing the limitation period, applying the principles underlying Section 14 of the Limitation Act. This made the appeal filed by KIAL within the limitation period.2. Waiver and Acquiescence by KIAL:The court examined whether KIAL had waived its right to challenge the acceptance of Kalpraj's resolution plan by submitting revised plans after Kalpraj was allowed to participate. The court noted that KIAL had objected to the acceptance of Kalpraj's plan immediately upon learning of it and reiterated its objections subsequently. The court found that KIAL had no meaningful choice but to submit its revised plans due to clause 11.2 of the Process Memorandum, which required submission of additional information if requested by RP or CoC. The court concluded that KIAL's actions did not amount to waiver or acquiescence, as it consistently objected to Kalpraj's participation and submitted revised plans under compulsion.3. Interference by NCLAT with CoC's Decision on the Resolution Plan:The court emphasized the paramount status given to the commercial wisdom of the Committee of Creditors (CoC) under the I&B Code, which is not subject to judicial intervention except on limited grounds specified in Sections 30(2) and 61(3) of the I&B Code. The court held that NCLAT exceeded its jurisdiction by interfering with the CoC's decision, which was taken by a thumping majority of 84.36%. The court reiterated that the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) are not endowed with the jurisdiction to reverse the commercial decisions of CoC. The court restored the NCLT's order approving Kalpraj's resolution plan and quashed NCLAT's order directing CoC to reconsider the resolution plans.Conclusion:The Supreme Court allowed the appeals filed by Kalpraj, RP, and Deutsche Bank, setting aside NCLAT's order and restoring NCLT's order approving Kalpraj's resolution plan. The court held that KIAL's appeals before NCLAT were within the limitation period, KIAL had not waived its rights, and NCLAT erred in interfering with the CoC's commercial decision. The court directed NCLAT to decide the appeal of Fourth Dimension Solutions Limited expeditiously.