By Fiona Mehta
In the matter of Vallal RCK Vs. M/s Siva Industries and Holdings Limited and Ors. [Civil Appeal Nos. 1811-1812 of 2022] under the Supreme Court of India on 3th June 2022, it was held that when 90% or more of the creditors decide that allowing the promoter of the Corporate Debtor to file a Settlement Plan and withdrawing the Corporate Insolvency Resolution Process as per Section 12A of the Insolvency and Bankruptcy Code, 2016, will be in the best interests of all stakeholders, the adjudicating authority (NCLT) or the appellate authority (NCLAT) cannot sit in appeal over such commercial wisdom of the Committee of Creditors.
This Judgement will now change legality of Section 12 of the Insolvency ad Bankruptcy Code, 2016.
IDBI Bank Limited had filed an application under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Siva Industries and Holdings Limited (Corporate Debtor). The NCLT accepted the application on July 4, 2019, and the CIRP process began. The Resolution Professional (RP) presented a resolution plan to the COC, but it was not adopted since it did not earn the required 66 percent of votes. The RP applied to start the liquidation process. Mr. Vallal Rck, the Corporate Debtor’s promoter, then submitted a settlement application under Section 60(5) of the IBC, proposing a one-time settlement plan.
The learned NCLT, in an order dated August 12, 2021, dismissed the application for withdrawal of CIRP and adoption of the Settlement Plan, stating that the said Settlement Plan was not a settlement simpliciter under Section 12A of the IBC but a “Business Restructuring Plan.” The learned NCLT began the liquidation process of the Corporate Debtor in IA/837/IB/2020 as well, pursuant to another ruling of even date. As a result of this, the appellant filed two appeals with the learned NCLAT.
Supreme Court Judgement:
The Court noted that Section 12A, which deals with withdrawal of petitions admitted under Sections 7, 9, or 10, was included by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, following significant consideration by the Insolvency Law Committee. The Committee had suggested that a departure be permitted if the COC supports it with a 90% vote share.
The Court noted that the Committee issued the proposal because the IBC’s aim, according to the Committee, is to prevent individual enforcement and settlement actions. In light of this, it was suggested that a settlement may be negotiated between all creditors and the debtor in order for a withdrawal to be approved. Regulation 30A was added to the Regulations, 2016 as a result of the addition of Section 12A to the IBC, which lays out the detailed procedure for withdrawing an application.
The legality of Section 12A was also confirmed in Swiss Ribbons Private Limited and Anr. v. Union of India and Ors. Furthermore, a slew of Apex Court decisions have already concluded that NCLT and NCLAT have no authority to intervene with COC’s business judgement.
The Code 2016’s major goal is to resolve corporate debtor issues through a reorganization and resolution procedure while keeping the corporate debtor as a going business. Liquidation of a corporate debtor is the last resort when all other options have failed and there is no other option than liquidation. When a better plan for the Corporate Debtor’s business exists and has been accepted by a majority of the Committee of Creditors, it is the duty of the Adjudicating Authority or the Appellate Authority not to interfere with the COC’s decision.