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2025 (6) TMI 268
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....red to as "Corporate Debtor")under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('Code'), challenging the Impugned Order dated 18.12.2023 passed by the National Company Law Tribunal, Kolkata Bench ("Adjudicating Authority") in IV N.P (IBC) No. 37 /KB/2023 and IV N.P (IBC) No. 34/KB/2023 IN C.P. (IB) No. 204/KB/2021 ("said Application") in C.P. (IB) No. 204/ KB/ 2021. 2. Ravi Sethia, who is Resolution Professional of Suasth Healthcare Foundation, is the Respondent No.1 herein. J.C. Flowers Asset Reconstruction Private Limited, who is a member of the Committee of Creditors ('CoC') of Suasth Health Care Foundation, is the Respondent No.2 herein. Axis Bank Limited, who is also another member of the CoC of Suasth Health Care Foundation, is the Respondent No.3 herein. Consortium of Nishkala Healthcare Private Limited & Ujin Pharma Chem, who is the Successful Resolution Applicant is the Respondent No.4 herein. 3. The Appellant submitted that the Corporate Insolvency Resolution Process ("CIRP") was initiated on 31.08.2021 against the Corporate Debtor, pursuant to an application filed by the Corporate Debtor himself under Section 10 of the Code. The Appellant submitted that h....
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....ging the validity of the plan and seeking appropriate reliefs and the Adjudicating Authority allowed the Application filed by the Appellant, being IA (IB) No. 1563/KB/2022, by its judgment dated 28.08.2023 holding that the Respondent No. 1 had admittedly treated the Appellant as an Unsecured Financial Creditor, and in accordance with the distribution mechanism under Section 53 of the Code, the financial debt owed to unsecured creditors ranks at the fourth position in the order of priority. While recognizing that the commercial wisdom of the Committee of Creditors is paramount, the Adjudicating Authority observed in paragraph 33 of its judgment that a balance must be struck among all stakeholders. Consequently, the Adjudicating Authority directed that the Resolution Plan be remitted back to the CoC for reconsideration of the distribution, specifically to ensure that the interests of all stakeholders are balanced as mandated under Section 30(2) - Explanation I, and to explore provision for payment to the Appellant from the available proceeds. 8. The Appellant submitted that, in light of the order dated 28.08.2023, the Resolution Plan previously approved by the CoC was remanded to th....
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....ution plans. The Appellant further submits that the Resolution Professional appears to be unduly favoring the successful Resolution Applicant, indicating a fraudulent nexus between them. 11. The Appellant submitted that, as held by the Hon'ble Supreme Court in Rajagopalan Vs. Dr. Periasamy Palani Gounder & Anr. [Civil Appeal Nos. 1682-1683 of 2022], the purported exercise of commercial wisdom by the CoC cannot override or violate the applicable law. 12. The Appellant submitted that, during the course of the hearing, it was revealed that the liquidation amount is insufficient to provide any payment to the Appellant, leading to the 'NIL' allocation in the Resolution Plan. However, the Appellant contends that the actions of Respondent No. 4 in making payments to the operational creditors, while denying any payment to the Appellant as an unsecured financial creditor, is a clear violation of the provisions of the Code, as it unlawfully prioritizes operational creditors over unsecured financial creditors. 13. The Appellant submitted that the Adjudicating Authority, by its order dated 18.12.2023, approved the Resolution Plan submitted by Respondent No. 4, subject to the dis....
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.... 19. The Respondent No. 1 submitted that, pursuant to the approval of the Resolution Plan by the CoC, the Resolution Professional filed an IA No. 1381 of 2022, under Section 30(6) r/w Section 31 of the Code, ("Approval Application"), which the Adjudicating Authority, vide its order dated 28.08.2023, remitted back to the CoC for review of the distribution mechanism to ensure a balanced consideration of all stakeholders' interests as mandated by the Code, while granting liberty to the CoC to evaluate any additional proposals and directing that the Approval Application be resubmitted for consideration alongside any revised distribution, if applicable. 20. The Respondent No. 1 submitted that, in compliance with the directions of the Adjudicating Authority vide its order dated 28.08.2023, the Resolution Professional convened the 18th CoC meeting on 07.09.2023, during which the CoC, after thorough discussions and careful consideration of relevant legal precedents and applicable statutory provisions, exercised its commercial wisdom to determine that no amendments, revisions, or modifications were necessary to the distribution mechanism of the Resolution Plan as previously approved, and ....
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....ibution methodology are fully compliant with applicable legal provisions, the Appellant's challenge is wholly without merit and warrants dismissal. 24. The Respondent No. 1 submitted that, as held by the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. [CA No. 8766-67 of 2019] that the CoC possesses full discretion to classify creditors into distinct sub-categories, such as financial or operational, secured or unsecured, and to allocate payments to secured creditors based on the value of their security, as affirmed in the judgment which grants the CoC complete freedom in such classifications without impeding the CIRP. The Respondent No. 1 emphatically pleaded that, in compliance with this legal framework, the Respondent no. 4 (SRA) has lawfully categorized financial creditors into three sub-classes: secured financial creditors with a first-ranking pari passu charge, secured financial creditors with a residual charge, and unsecured financial creditors. 25. The Respondent No. 1 submitted that the contention raised by the Appellant regarding the minimum amounts payable to the Appellant under Section 30(2) of the Code, is misco....
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.... a resolution plan complies with the provisions of the Code, and the CIRP Regulations, the proposition of differential payments to various classes of creditors, including related parties, falls squarely within the commercial wisdom of the CoC, and no infirmity can be attributed to the resolution plan solely for not making provisions for related parties, thereby rendering any challenge on such grounds untenable. 29. The Respondent No. 1 submitted that the Adjudicating Authority, vide its order dated 18.12.2023 ("Impugned Order"), approved the Resolution Plan submitted by the Respondent No. 4 while directing the CoC to adopt a pragmatic and holistic approach in exercising its commercial wisdom to allocate a reasonable amount to the Appellant, and further noted that, without prejudice to the rights of the parties to seek recourse before appropriate authorities, the CoC, in compliance with the directions of the Adjudicating Authority under the Approval Order, has agreed to allocate Rs. 10 Lakhs to the Appellant from the total proceeds disbursed by Respondent No. 4 under the Resolution Plan. 30. The Respondent No. 1 submitted that the Resolution Plan was duly approved by the CoC and t....
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....t to the Appellant does not contravene the Code, as there is no provision prohibiting NIL payments to any creditor, including unsecured financial creditors, and further stated that the distribution of amounts under the Resolution Plan falls within the non-justiciable commercial wisdom of the CoC, rendering such allocations permissible provided the plan complies with the Code's provisions, as is the case here, thereby affirming the validity of the CoC's decision. 36. The CoC submitted that, with respect to an unsecured financial creditor like the Appellant, the sole protection under the Code, is provided by Section 30(2)(b), which mandates that a resolution plan must ensure payment to a dissenting financial creditor of an amount not less than what would be payable under Section 53 in a liquidation scenario, and further noted that, as a logical consequence, where the amount payable to such a creditor under Section 53 would be nil, as in the present case, the allocation of NIL payment to the Appellant in the Resolution Plan fully complies with Section 30(2)(b) and does not violate the Code. 37. The CoC submitted that a consistent line of judicial precedents, including the decision o....
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..... Amit Metaliks Ltd. [(2021) 19 SCC 672], while interpreting its earlier judgment in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [(2020) 8 SCC 531], unequivocally held that the determination of the quantum of payments to be allocated to different classes of creditors under a resolution plan falls exclusively within the commercial wisdom of the CoC, and such decisions are not subject to judicial interference, thereby reinforcing the CoC's authority in the present case. 42. The CoC submitted that the CoC fully complied with the Adjudicating Authority order dated 28.08.2023 by deliberating and deciding on the pay-out to the Appellant during the 18th CoC meeting held on 07.09.2023, and further pointed out that the Appellant's allegation that the CoC did not act over the said order is entirely baseless and unjustified, as the CoC's actions were in strict adherence to the Adjudicating Authority's directive. 43. The CoC submitted that the Appellant has persistently sought to impede the successful resolution of the Corporate Debtor by filing frivolous applications before the Adjudicating Authority and this Appellate Tribunal, as a deliberate tactic to delay the....
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....l wisdom in this regard. The Respondent No. 4 stated that the Adjudicating Authority has expressly recognized in the Impugned Order that the Adjudicating Authority lacks jurisdiction to decide the allocation of plan value among creditors, as such matters fall squarely within the domain of the CoC's commercial judgment. Accordingly, the distribution of plan value to different classes or sub-classes of creditors is to be determined by the CoC in accordance with the provisions of the Code, and not by the Adjudicating Authority. 49. The Respondent No.4 submitted that the issue of differential payments to various classes and sub-classes of creditors is no longer res integra. A consistent line of judicial precedents has affirmed that the CoC, exercising its commercial wisdom, has unfettered authority to determine the distribution of payments among different classes and sub-classes of creditors in accordance with the provisions of the Code. Neither the Adjudicating Authority nor the Appellate Tribunal possesses any residual equity jurisdiction to interfere with the merits of such business decisions taken by the requisite majority of the CoC. 50. The Respondent No. 4 submitted that t....
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....h ought to have been rejected since this is violation of Section 30(2) of the Code. The Appellant also alleged that NIL allocation to the Appellant in the Resolution Plan by the CoC is not the commercial wisdom and such non allocation can be looked into by the Adjudicating Authority on this Appellate Tribunal and judicial interference can be made. 54. Following issues are required to be determined in order to dispose these appeals:- (I) Whether, the related party can be differentiated in treatment vis-à-vis other Creditor in the approved Resolution Plan by the CoC. (II) Whether, NIL allocation to the Appellant by the CoC in the approved Resolution Plan, even though the appellant was initially considered as unsecured Financial Creditor, can be treated as a legal and in accordance with Code. (III) Whether, such non allocation of amount violates waterfall mechanism as stipulated under Section 53 of the Code. (IV) Whether, the Adjudicating Authority could have approved the Resolution Plan even though the Adjudicating Authority noted regarding violation of the Code evident in the Resolution Plan. 55. Since, all these issues are inter-dependent, inter-connected and inter....
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....e (P) Ltd. v. Educomp Solutions Ltd. (CoC), (2022) 2 SCC 401 : 2021 SCC OnLine SC 707 g. Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Limited, 2021 SCC OnLine SC 661 h. Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., (2021) 10 SCC 401 i. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209; 2021 SCC OnLine SC 194 j. Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531 k. Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, (2020) 11 SCC 467 l. Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475. 59. Above judgments leave no doubt about complete faith in commercial wisdom of CoC and little scope of any judicial intervention. From all these judgments, we note that the role of the Adjudicating Authority is to ensure that the Resolution Plan complies with the requirements of the Code especially under Section 30(2) of the Code. 60. We observe that the CoC is also required to act fairly and in the transparent manner and without any arbitrariness at any stage on their part. However, the CoC has no role in deciding the interse position of the creditors w.r.t. distribution out of the ....
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.... company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place." ( Emphasis Supplied ) 63. There is no scope for the Adjudicating Authority or this Appellate Authority to proceed on any equitable assumptions and presumptions to assess the resolution plan on the basis of quantitative analysis. Similarly, Code and Regulations do not visualise any other road map which is left to the collective commercial wisdom of the CoC. We understand that the power of judicial review in Section 31 of the Code is not akin to the power of a supervision jurisdiction to deal with the merits of the decision of any lower judicial authority. The jurisdiction to decide as to what ought to be the terms of the resolution plan is vested on the CoC alone, who has to take such a decision in its commercial wisdom, while keeping in view the....
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....ecured financial creditor would be NIL in such present scenario. Thus, we hold that the allocation of NIL payment to the Appellant under the Resolution Plan approved by the Adjudicating Authority in Impugned Order does not violate Section 53 of the Code. 70. We need to appreciate that the Resolution Plan does not discriminate against the Appellant due to its classification as a related party, but rather allocates treatment based on its status as an unsecured financial creditor, with such distribution being determined by the CoC in its commercial wisdom and in compliance with the Code. In this connection, it has been brought to our notice that all unsecured financial creditors have been given Nil allocation in the Resolution Plan, which have also noted from the table of allocation of funds in the approved Resolution Plan as quoted also in earlier discussion. Thus, the allegations of the Appellant are legally not tenable. We also observe that as affirmed by the Hon'ble Supreme Court in India in several cases including MK Rajagopal v. Dr. Periyasamy Palani Gounder & Anr. [(2024) 1 SCC 42], that the Code permits differential treatment between related and unrelated parties. Thus, again....