2022 (6) TMI 173 - SC - IBC

NCLT and NCLAT cannot override Committee of Creditors' commercial wisdom on withdrawal under Section 12A

SC held that NCLT and NCLAT cannot override CoC's commercial wisdom regarding withdrawal of CIRP under Section 12A of IBC. The Court emphasized that ... Commercial wisdom of the Committee of Creditors - Withdrawal of application under Section 12A of the IBC - 90% voting threshold - Regulation 30A of the 2016 Regulations - Judicial interference in Committee of Creditors' decision - Standard for setting aside CoC decision: wholly capricious, arbitrary, irrational or de hors the statuteCommercial wisdom of the Committee of Creditors - Withdrawal of application under Section 12A of the IBC - 90% voting threshold - Regulation 30A of the 2016 Regulations - Standard for setting aside CoC decision: wholly capricious, arbitrary, irrational or de hors the statute - Whether the adjudicating authority or appellate authority can set aside a CoC decision approving withdrawal under Section 12A when the CoC has approved withdrawal with the requisite 90% voting share. - HELD THAT: - The Court held that where 90% or more of financial creditors approve withdrawal of a CIRP after due deliberation, the adjudicating authority (NCLT) and the appellate authority (NCLAT) may not sit in appeal over the commercial wisdom of the CoC. Section 12A was enacted following the Insolvency Law Committee's recommendations and Regulation 30A prescribes a structured procedure for post-constitution withdrawal, including CoC approval by 90% and submission by the RP to the adjudicating authority. Prior decisions, including Swiss Ribbons, recognise that the CoC's commercial determination is to be given paramount weight but leave room for judicial intervention where a CoC decision is wholly capricious, arbitrary, irrational or de hors the statute or rules. Applying these principles, the Court found that the CoC's approval in the present case (94.23%) followed extensive deliberations, amendments to the settlement proposal and reconvening of the meeting at the NCLT's direction; the decision thus reflected commercial wisdom and was not vitiated by arbitrariness. Consequently, the NCLT and NCLAT were unjustified in disregarding the CoC's decision and rejecting the application for withdrawal of CIRP. [Paras 24, 25, 26, 28]The appeals are allowed; the impugned NCLAT and NCLT orders are quashed and set aside and the application for withdrawal of the CIRP is allowed.Final Conclusion: Appeals allowed; orders of the NCLT and NCLAT setting aside the CoC-approved withdrawal are quashed and the RP's application for withdrawal of CIRP is permitted in view of CoC approval exceeding the statutory 90% threshold following due deliberation. Issues Involved:1. Whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC).2. The validity and application of Section 12A of the Insolvency and Bankruptcy Code (IBC) in the context of withdrawal of Corporate Insolvency Resolution Process (CIRP).Issue-Wise Detailed Analysis:1. Authority of NCLT/NCLAT Over CoC's Commercial Wisdom:The core issue in the appeal was whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (CoC). The judgment emphasized that the CoC's commercial decisions should not be interfered with by judicial bodies unless they are found to be 'wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.' The judgment cited various precedents where the Supreme Court had consistently held that the commercial wisdom of the CoC is paramount and should be given due weightage without judicial intervention. The court reiterated that the CoC, being fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan, acts on the basis of thorough examination and expert assessment.2. Validity and Application of Section 12A of the IBC:The judgment delved into the interpretation and application of Section 12A of the IBC, which allows for the withdrawal of a CIRP application with the approval of 90% voting share of the CoC. The court referred to the Insolvency Law Committee's recommendations and the legislative intent behind Section 12A, emphasizing that it was introduced to allow withdrawal of CIRP in exceptional circumstances where a settlement is reached among all creditors and the debtor. The court noted that Section 12A was brought into the statute book to ensure that the liabilities of all creditors are met in any negotiated solution, discouraging individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors.The court also highlighted that Regulation 30A of the 2016 Regulations provides a detailed procedure for withdrawal under Section 12A, including the requirement for the application to be approved by the CoC with a 90% voting share. The judgment referenced the case of *Swiss Ribbons Pvt. Ltd. v. Union of India*, where the Supreme Court upheld the validity of Section 12A, stating that the high threshold of 90% voting share was justified to ensure collective decision-making by all financial creditors.Conclusion:The Supreme Court allowed the appeals, quashing the impugned judgment of the NCLAT and the orders of the NCLT. The court concluded that the decision of the CoC, which had approved the settlement plan with a 94.23% voting majority, was taken after due deliberation and exercise of commercial wisdom. The NCLT and NCLAT were not justified in rejecting the settlement plan and the withdrawal of CIRP. The court emphasized the need for minimal judicial interference in the framework of the IBC, aligning with the legislative intent to ensure the efficacy of the insolvency and bankruptcy regime in India.