K.Sashidhar v. Overseas Indian Bank & Ors. (Civil Appeal No. 10673 of 2018) - Synopsis
Team SoOLEGAL 4 Nov 2020

In the case of K.Sashidhar v. Overseas Indian Bank & Ors. (Civil Appeal No. 10673 of 2018), the Supreme Court of India passed its order on February 5, 2019, under which the SC has ruled, that there is no power and competence of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) to examine or review the commercial decisions made by the Committee of Creditors. This case emerged as a result of an appeal against the NCLAT order, documenting the rejection of Innoventive Industries Limited (IIL) and Kamineni Steel & Power Private Limited (KSPIPL) resolution proposals and guiding the commencement of the liquidation process under the Insolvency and Bankruptcy Code, 2016 (IBC) against the two firms.
One of the claims before the Supreme Court was that, regardless of the use of the term “may”, the stipulation in section 30(4) of the IBC is just a directory and not necessary. The SC noted that the term “may” may be applied to the CoC 's discretion to accept or deny the resolution proposal. The SC observed that, for the approval of the resolution proposal, the stipulation in section 30(4) is necessary. It also noted that the resolution proposal has to be approved by a majority of no less than 75% of the financial creditors' voting share.
The SC acknowledged that the legislation did not grant the NCLT power or authority to analyse or assess the commercial decisions of the Company of Creditors, far less to examine the validity of the opposing financial creditors' rejection of the resolution proposal. Moreover, on account of section 32, read in section 61(3) of the IBC, the authority of the NCLAT in this respect will also be circumscribed. Accordingly, the provisions of the investment jurisdiction and authority of the IBC in the NCLAT or the NCLT did not excuse the commercial actions of the CoC, such as the acceptance or denial of the resolution proposal. As defined in the IBC, the NCLT and the NCLAT are vested with restricted authority and are unable to serve as courts of equity or exercise plenary powers. Section 31(1) read with section 30(2) of the IBC and section 32 of the NCLAT read with section 61(3) of the IBC set out the nature of the enquiry and the reasons why the CoC's decision to accept the resolution plan could conflict with the NCLT. Furthermore, the SC observed that the NCLT is not supposed to do anything else upon receipt of a rejected resolution scheme, but is allowed to begin liquidation proceedings against the corporate debtor under section 33(1) of the IBC.
The Supreme Court observed that there was no provision, as applicable in October 2017, under the IBC and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Procedure for Corporate Persons) Rules, 2016 (CIRP Regulations), for dissenting financial creditors to report the reasons for disapproving or refusing the resolution proposal. Furthermore, there is no clause of the IBC that empowers the NCLT to oversee the validity of the approach taken by minority financial creditors to refuse or participate in the judicial review of the proposed settlement scheme. In July 2018, the SC then took notice of the changes to the CIRP Rules, which provide, inter alia, for the CoC to document the reasons for the resolution plan's acceptance or rejection. It noticed that the above amendment to the CIRP Regulations may not have a retrospective effect on the CoC's decisions made previous to the amendment. Furthermore, even assuming that the amendment to the CIRP Regulations was relevant in the present situation, the inability of the financial creditor to document the reasons for the adoption or disapproval of the resolution proposal during the vote at the CoC meeting does not, per se, make the final joint CoC decision invalid. Furthermore, because the economic or commercial actions of the CoC are not justifiable, it would be of no avail for the CoC not to record any justification for taking such a commercial decision.


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