Swiss Challenge Method under IBC Regulation 39(1A) upheld as fair process respecting CoC commercial wisdom

NCLAT Principal Bench dismissed appeal challenging approval of resolution plan under IBC. Appellant contested Swiss Challenge Method adoption by CoC and alleged denial of effective participation in CoC meetings. NCLAT held Swiss Challenge Method under Regulation 39(1A) permits multiple challenge rounds for plan improvement and CoC's commercial wisdom in adopting this method was not arbitrary. Court found CoC process was fair and transparent with all resolution applicants given equal opportunity. NCLAT emphasized Supreme Court precedent that CoC's commercial wisdom is paramount and interference limited to grounds under Section 30(2) or 61(3) IBC. No sufficient grounds established to interfere with Adjudicating Authority's approval of successful resolution applicant's plan.

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Issues Involved:

1. Alleged irregularities in the conduct of the Corporate Insolvency Resolution Process (CIRP) by the Resolution Professional (RP).
2. Denial of effective participation to the Appellant in the Committee of Creditors (CoC) meetings.
3. Adoption of the Swiss Challenge Method by the CoC.
4. Approval of the resolution plan by the Adjudicating Authority.

Detailed Analysis:

1. Alleged Irregularities in the Conduct of CIRP by the RP:

The Appellant contended that the RP failed to conduct the CIRP proceedings with due diligence, citing irregularities and violations of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Appellant argued that the RP did not supply the final resolution plan to the CoC and the suspended management, which was a violation of established legal precedents. The RP allegedly presented an unsigned word document as the final financial proposal, which was only screen-shared, preventing meaningful discussion on its viability. The Appellant also claimed discrepancies in the liquidation value estimates, which were not adequately addressed by the RP.

Upon examination, the Tribunal found no substantial evidence of irregularity in the CIRP's conduct. It noted that the RP had conducted the process transparently, and the CoC had approved the resolution plan with a 100% vote. The Tribunal emphasized that the commercial wisdom of the CoC is paramount and non-justiciable unless there is a violation of Section 30(2) or Section 61(3) of the IBC.

2. Denial of Effective Participation to the Appellant in CoC Meetings:

The Appellant argued that as the suspended management, they were entitled to participate in CoC meetings and have access to the resolution plans. However, they were denied a copy of the resolution plan, which hindered their participation. The Tribunal found that the Appellant, being a competing Resolution Applicant, could not be provided with the resolution plan of other applicants due to potential conflicts of interest. The Tribunal highlighted that the Appellant's submission of a resolution plan was rejected due to non-compliance with procedural requirements, such as failing to submit an Expression of Interest and earnest money.

3. Adoption of the Swiss Challenge Method by the CoC:

The Appellant challenged the CoC's decision to adopt the Swiss Challenge Method, arguing it was wrongful. The Tribunal noted that the CoC's decision to adopt this method was within its commercial wisdom and aligned with the IBC's objective of value maximization. The Tribunal referenced Regulation 39(1A) of the CIRP Regulations, which permits the use of a challenge mechanism to improve resolution plans. The Tribunal concluded that the adoption of the Swiss Challenge Method was neither arbitrary nor in violation of statutory provisions.

4. Approval of the Resolution Plan by the Adjudicating Authority:

The Appellant contended that the Adjudicating Authority erred in approving the resolution plan without addressing their objections. The Tribunal found that the Adjudicating Authority had not erred, as the CoC had approved the plan with 100% voting, reflecting its commercial wisdom. The Tribunal reiterated that the CoC's decision is non-justiciable unless it violates specific provisions of the IBC. The Tribunal dismissed the appeal, finding no grounds to interfere with the Adjudicating Authority's decision.

In conclusion, the Tribunal upheld the Adjudicating Authority's approval of the resolution plan and dismissed the appeal, emphasizing the importance of the CoC's commercial wisdom and the lack of substantial evidence of irregularities in the CIRP process.

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