Resolution plan approval upheld despite no Swiss Challenge Mechanism as creditors' commercial wisdom prevails over procedural challenges

The NCLAT dismissed an appeal challenging approval of a resolution plan without conducting Swiss Challenge Mechanism. The appellant argued that the RFRP required holding a challenge mechanism to maximize corporate debtor value. The tribunal held that after all resolution applicants submitted revised plans by the deadline, no further enhancement of financial offers could be permitted. The Committee of Creditors approved the selected plan with over 98% vote share after proper deliberation and comparison. The tribunal emphasized that commercial wisdom of CoC enjoys paramount status with minimal scope for judicial interference, unless the resolution plan violates Section 30(2) requirements. Regulation 39(1A) merely enables but does not mandate plan modifications.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

(i) Whether the Committee of Creditors (CoC) was obligated to conduct a Swiss Challenge Mechanism to maximize the value of the Corporate Debtor (CD) as per the Request for Resolution Plan (RFRP).

(ii) Whether the CoC's decision to approve the Resolution Plan of Orissa Metaliks over that of the Appellant was justified and compliant with the Insolvency and Bankruptcy Code (IBC).

(iii) Whether the Resolution Professional (RP) erred by not allowing the Appellant to modify its financial proposal after the submission of the revised Resolution Plan.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Obligation to Conduct Swiss Challenge Mechanism

- Relevant Legal Framework and Precedents: The RFRP allows the CoC, at its discretion, to adopt a Swiss Challenge Mechanism or any other challenge mechanism for ascertaining the Successful Resolution Applicant. Clause 16.8 of the RFRP provides the CoC with the discretion to decide on the method of negotiations with Resolution Applicants.

- Court's Interpretation and Reasoning: The Tribunal noted that the RFRP clause explicitly states that the CoC "may" adopt a Swiss Challenge Mechanism, indicating discretion rather than obligation. The Tribunal found no procedural breach by the CoC in choosing not to adopt this mechanism.

- Application of Law to Facts: The Tribunal concluded that the CoC exercised its discretion appropriately by evaluating the Resolution Plans without a Swiss Challenge Mechanism.

- Conclusions: The CoC was not obligated to conduct a Swiss Challenge Mechanism, and its decision not to do so did not breach the RFRP or the IBC.

Issue (ii): Approval of Resolution Plan of Orissa Metaliks

- Relevant Legal Framework and Precedents: Section 30(4) of the IBC allows the CoC to approve a Resolution Plan by a vote of not less than 66% of the voting share. The commercial wisdom of the CoC is paramount and generally not subject to judicial review.

- Court's Interpretation and Reasoning: The Tribunal emphasized the CoC's commercial wisdom, stating that the Resolution Plan of Orissa Metaliks was approved by 98.95% of the CoC's voting share, indicating overwhelming support.

- Key Evidence and Findings: The Tribunal noted that the CoC had deliberated on the Resolution Plans in its 35th meeting and decided to vote on the Plans of the Appellant and Orissa Metaliks, ultimately approving the latter.

- Application of Law to Facts: The Tribunal found no error in the CoC's decision-making process or the Adjudicating Authority's approval of the Resolution Plan.

- Conclusions: The Tribunal upheld the CoC's decision, affirming that the approval of Orissa Metaliks' Resolution Plan was compliant with the IBC and based on sound commercial judgment.

Issue (iii): Modification of Financial Proposal

- Relevant Legal Framework and Precedents: Regulation 39(1A) of the CIRP Regulations allows, but does not mandate, the RP to permit modification of a Resolution Plan, not more than once, if envisaged in the RFRP.

- Court's Interpretation and Reasoning: The Tribunal noted that the RP had communicated to the Appellant that no changes to the financial proposal were permitted after the submission of the revised Resolution Plan on 24.06.2024.

- Application of Law to Facts: The Tribunal found that the RP acted within the scope of its authority by not allowing further modifications, as the CoC had not instructed any such modifications.

- Conclusions: The Tribunal concluded that the RP did not err in its decision, and the Appellant's request for modification was not supported by the applicable regulations or instructions from the CoC.

3. SIGNIFICANT HOLDINGS

- The Tribunal emphasized the discretion of the CoC in deciding whether to adopt a Swiss Challenge Mechanism, stating: "The expression used in the above Clause is 'The CoC, in its discretion, may decide to adopt Swiss Challenge Mechanism...' The above Clause thus vests discretion on the CoC."

- The Tribunal reaffirmed the paramountcy of the CoC's commercial wisdom, quoting the Supreme Court's decision in K. Sashidhar vs. Indian Overseas Bank: "The commercial wisdom of CoC has been given paramount status without any judicial intervention."

- The Tribunal upheld the CoC's decision to approve Orissa Metaliks' Resolution Plan, finding it compliant with Section 30(2) of the IBC and supported by the CoC's commercial judgment.

- The Tribunal dismissed the appeal, concluding that there were no grounds to interfere with the Adjudicating Authority's order approving the Resolution Plan.

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