2024 (3) TMI 79 - AT - Insolvency and Bankruptcy

Resolution plan approval upheld as commercial wisdom of creditors cannot be judicially challenged under Section 30(2)

Kanoria Energy & Infrastrcuture Limited (Erstwhile A Infrastructure Limited) Versus Mr. Avishek Gupta, Erstwhile Resolution Professional Sarga Hotel Private Limited, J.C. Flowers Asset Reconstruction Pvt. Ltd., Shriram Multicom Pvt. Ltd.

NCLAT dismissed appellant's challenge to resolution plan approval. The tribunal held that commercial wisdom of Committee of Creditors (CoC) in approving ... Approval of Resolution Plan - HELD THAT:- It is well settled that commercial wisdom of CoC in approving the resolution plan is not to be interfered by the Adjudicating Authority in its judicial review and limited ground for interference with the resolution plan is only when resolution plan violates or is in non-compliance of Section 30(2) of the Code. The Appellant has no such right that its resolution plan should be approved by the CoC which proposition has already been laid down by the Hon’ble Supreme Court in ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA & ORS. [2018 (10) TMI 312 - SUPREME COURT]. There are no ground in this Appeal warranting any interference with the order of the Adjudicating Authority dated 04th January, 2024 by which the Adjudicating Authority has approved the Resolution Plan. The CoC after considering the Resolution Plan of the Appellant and all other Resolution Applicants has approved the resolution plan of Respondent No. 3 with 100% vote share which resolution plan has ultimately been approved by the Adjudicating Authority on 04th January, 2024. There are no ground to interfere with the order dated 04th January, 2024. There is no merit in the Appeal, the Appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an unsuccessful resolution applicant has locus to challenge the Adjudicating Authority's approval of a resolution plan when its plan was considered by the Committee of Creditors (CoC) but not accepted. 2. Whether the Adjudicating Authority may interfere with the commercial wisdom of the CoC in approving a resolution plan absent non-compliance with Section 30(2) of the Code. 3. Whether a contestation of the constitution of the CoC (challenge to membership/ousting of a financial creditor) vitiates the approval of a resolution plan where the Adjudicating Authority has already adjudicated and upheld the contested RP action. 4. Whether a unilateral post-deadline revision of a commercial offer (via late email) by a resolution applicant obliged the RP/CoC to treat that revision as part of the submitted plan for voting. ISSUE-WISE DETAILED ANALYSIS Issue 1: Locus of an unsuccessful resolution applicant to challenge approval of a resolution plan Legal framework: The Code and established jurisprudence delimit the Adjudicating Authority's role to judicial review of CoC decisions approving resolution plans; standing to challenge depends on whether the challenger is aggrieved by non-compliance with statutory requirements. Precedent Treatment: The Court follows the settled principle that an unsuccessful resolution applicant cannot seek to supplant the commercial judgment of the CoC merely because its plan was not accepted; prior authoritative rulings (including Supreme Court precedent referenced in reasoning) restrain interference with CoC commercial wisdom. Interpretation and reasoning: The Court observed that the appellant's plan was considered by the CoC at the relevant meeting and rejected by vote; mere dissatisfaction with outcome does not make an unsuccessful applicant 'aggrieved' in the sense necessary to invalidate approval. The Court emphasized that the power of review is confined to statutory non-compliance, not reassessment of commercial bids. Ratio vs. Obiter: Ratio - An unsuccessful resolution applicant whose plan was considered and not approved by the CoC lacks a right to have its plan approved and therefore lacks standing to challenge the CoC's commercial decision approving another plan, absent statutory non-compliance. Conclusion: The Appeal by the unsuccessful applicant on the ground that its plan should have prevailed was not maintainable; no interference warranted on this basis. Issue 2: Scope of judicial interference with CoC's commercial wisdom; requirement of Section 30(2) non-compliance for interference Legal framework: The Adjudicating Authority's jurisdiction to interfere with an approved resolution plan is limited; interference is permitted only where the plan violates Section 30(2) or other statutory provisions under the Code. Precedent Treatment: The Court applied established doctrine that commercial choices of the CoC are sacrosanct except where a resolution plan conflicts with Section 30(2) or manifestly breaches statutory requirements; prior jurisprudence was followed. Interpretation and reasoning: The Court found no allegation or averment in the appeal that the approved plan violated Section 30(2) or any other provision of the Code. In the absence of pleaded statutory non-compliance, the Court declined to substitute its view for the CoC's unanimous commercial decision. Ratio vs. Obiter: Ratio - Judicial review of approval of a resolution plan is limited to assessing statutory compliance (including Section 30(2)); absent such violation, the Court will not re-examine the CoC's commercial judgment. Conclusion: No ground existed to set aside the Adjudicating Authority's approval based on alleged improper preference of commercial offers; appeal dismissed on this ground. Issue 3: Effect of challenge to CoC constitution on validity of resolution plan approval where Adjudicating Authority previously upheld RP's action Legal framework: Validity of CoC constitution is a threshold question that can affect the legitimacy of CoC decisions; however, where the Adjudicating Authority has already adjudicated and upheld contested membership/ousting actions, and such adjudication is not successfully impugned, the approved plan stands unless statutory infirmity is shown. Precedent Treatment: The Court followed the principle that once an issue concerning CoC constitution has been determined by the Adjudicating Authority and that order remains in force (subject to any pending but unaltered appellate relief), the subsequent approval by the Adjudicating Authority of a resolution plan need not be vitiated merely by collateral challenges to CoC composition. Interpretation and reasoning: The appellant relied on a pending challenge to the ouster of a financial creditor from the CoC. The Court noted that the Adjudicating Authority had already rejected the application challenging the RP's action; that order was the subject of a separate pending appeal, and the instant appeal did not disclose any successful reversal of that adjudication. Thus, there was no basis to hold the CoC improperly constituted for purposes of the approval under challenge. Ratio vs. Obiter: Ratio - A prior adjudication upholding RP action regarding CoC composition, if not set aside, negates a collateral attack on the CoC's validity as a ground for upsetting a subsequent approval of a resolution plan, absent clear statutory violation. Conclusion: The contention that the CoC was improperly constituted did not establish invalidity of the approval; no interference warranted. Issue 4: Treatment of a unilateral late revision of commercial offer communicated by email prior to voting Legal framework: Submission and acceptance of resolution plans are governed by timelines and procedures established by the RP/CoC; unilateral, belated changes to a submitted plan are subject to the RP/CoC's procedural rules and discretion. Precedent Treatment: The Court applied procedural norms recognizing the RP/CoC's authority to determine whether late communications form part of the record for evaluation and voting; the standard is whether the revised offer was validly placed before CoC in accordance with the stipulated timeline and procedures. Interpretation and reasoning: The appellant emailed a revised commercial offer late on the night before the scheduled CoC meeting. The RP and CoC considered the email but decided to treat the appellant's plan as submitted earlier (11th April) for voting, and proceeded to put all plans to e-voting. The Court found this within CoC discretion and consistent with RP directions concerning timelines; there was no demonstrated procedural or statutory irregularity in declining to treat the late revision as an operative amendment that would displace the record before voting. Ratio vs. Obiter: Ratio - A unilateral, late revision communicated outside stipulated timelines does not automatically become part of the plan for voting; the RP/CoC's decision whether to accept such revision is within their procedural discretion and will not be judicially interfered with absent statutory non-compliance. Conclusion: The CoC's decision to consider the earlier submitted plan and proceed to e-voting was lawful; the late email did not render the approval invalid. Final Disposition The Court concluded there was no ground to interfere with the Adjudicating Authority's approval of the resolution plan: the unsuccessful applicant lacked a proper basis to challenge the CoC's commercial decision; no violation of Section 30(2) or other statutory provision was shown; the CoC constitution challenge had been previously adjudicated and not successfully reversed; and the late revision via email did not compel different treatment. The appeal was dismissed. (Unanimous decision of the Court.)