Rai Bahadur Shreeram & Company Pvt Ltd. & ... vs Feero Alloys Corporation Ltd & Ors

[Arising out of Orders dated 30th January, 2020 passed by the National Company Law Tribunal, Cuttack Bench in I. A. No. 157/CTB/2019 and I.A. No. 175/CTB/2019 connected with TP No. 42/CTB/2019 arising out of CP(IB) No. 251/KB/2017]

IN THE MATTER OF:

1. Rai Bahadur Shree Ram and Company Pvt. Ltd., Shreeram Bhawan, Tumsar, Dist. Bhandara Maharashtra - 441912. Through: Mr. Madhav Saraf, Authorised Representative.

2. Ram Kishan Saraf, 191-A, Ekta Marg, Western Avenue, Sainik Farms, New Delhi - 110 062.

...Appellants Vs

1. Mr. Bhuvan Madan, Resolution Professional of Ferro Alloys Corporation Ltd. Price Waterhouse Coopers Professional Services LLP, Building No. 10, 17th Floor, Tower - C, DLF Cyber City, Gurugram - 122 002.

Also at: A-103, Ashok Vihar - Phase 3 (Behind Laxmi Bai College) Delhi - 110 052.

2. Committee of Creditors of Ferro Alloys Corporation Ltd. Through REC Ltd., Having its registered office at: Core 4, Scope Complex, 7 Lodi Road, New Delhi - 110 003. -2-

3. REC Ltd. Having its registered office at: Core 4, Scope Complex, 7 Lodi Road, New Delhi - 110 003.

4. Sterlite Power Transmission Ltd. Having its registered office at: 4th Floor, Godrej Millennium 9 Koregaon Road, Pune, Maharashtra - 411 001.

5. Ferro Alloys Corporation Ltd. Having its registered office at: DP Nagar, Randia, Bhadrak, Odisha - 756135. Through - Resolution Professional.

....Respondents Present:

For Appellants: Mr. Rajeev Ranjan, Senior Advocate with Mr. S. C. Das, Mr. Saurav, Mr. N. S. Ahluwalia and Mr. Deepak Chawla, Mr. Adhish Sharma, Mr. Neeraj and Ms. Aliya Durafshan, Advocates.

For Respondents: Mr. Krishnan Venugopal, Senior Advocate with Mr. Saurav Pander and Ms. Charu Bansal, Advocates for Resolution Professional.

Mr. Ramji Srinivasan, Senior Advocate with Mr. Karan Kanwal, Mr. Kunal Godhwani and Mr. Rishab Kapoor, Advocates for Respondent No. 3.

Mr. Amit S. Chaddha and Ms. Pratiksha Mishra, Advocates for Successful Resolution Application.

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -3-

BANSI LAL BHAT, J.

Resolution Plan submitted by Respondent No. 4 'Sterlite Power

Transmission Ltd.' (SPTL) was approved by 95.15% of voting share of the

Committee of Creditors and same was further approved by the Adjudicating

Authority (National Company Law Tribunal), Cuttack Bench, Cuttack by

deciding in terms of order dated 30th January, 2020 passed in I.A. No.

157/CTB/2019 arising out of CP (IB) No. 251/KB/2017. Appellant's

application being I.A. No. 175/CTB/2019 arising out of CP (IB) No.

251/KB/2017 to direct the Committee of Creditors to consider the

settlement proposal came to be rejected by virtue of another order passed on

same date viz. 30th January, 2020, regard being had to approval of

Resolution Plan of SPTL coupled with the fact that the settlement proposal

emanating from the Appellants has been rejected by the Committee of

Creditors with requisite majority leaving no scope for the Adjudicating

Authority to direct reconsideration of settlement proposal. Being aggrieved

of both orders passed by the Adjudicating Authority on 30th January, 2020,

the Appellants have filed the instant appeal.

2. It is contended before us that the Adjudicating Authority while passing

the impugned orders, failed to consider whether the approved Resolution

Plan conformed with Section 30 of Insolvency and Bankruptcy Code, 2016

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -4-

(for short 'I&B Code') and its objective i.e. maximization of value of assets of

the Corporate Debtor. The impugned orders have also been assailed on the

ground of being non-speaking cryptic orders without application of mind.

3. Having heard learned counsel for the parties, we are of the considered

opinion that the Committee of Creditors, Acting on the basis of evaluation of

Proposed Resolution Plan and assessment made by their team of experts,

expressed their opinion after due deliberations in CoC Meetings through

voting as per voting share which is a collective business decision. The

commercial wisdom of the Financial Creditors individually or their collective

decision is beyond the pale of challenge before the Adjudicating Authority

and the same has been made non-justiciable. This is the dictum of Hon'ble

Apex Court in 'K. Sashidhar vs. Indian Overseas Bank', (2019) 12 SCC

150: (2019) 4 SCC (Civ) 222: 2019 SCC OnLine SC 257. Dealing with the

scope of an appeal under Section 61(1) of the I&B Code, the Hon'ble Apex

Court noticed that apart from other grounds the appeal could be instituted

against an order approving a Resolution Plan limited to six grounds noticed

therein including that the approved Resolution Plan is in the contravention

in the provisions of any law for the time being in force or that there has been

any material irregularity in exercise of powers by the Resolution Professional

during the Corporate Insolvency Resolution Process. Thus, it is clear that

the jurisdiction bestowed upon this Appellate Tribunal too is expressly

circumscribed. The examination in challenge to the approved Resolution

Plan by this Tribunal is limited to matters other than enquiry into the

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -5-

business decision based on commercial wisdom of the Committee of

Creditors. The limited judicial review in appeal does not extend to oversee

and question the business decision of the majority of Committee of Creditors

and the Committee of Creditors cannot be directed to reverse its business

decision or reconsider a settlement proposal that has been rejected with

requisite majority.

4. In 'Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh

& Others', Civil Appeal No.4242 of 2019 vide judgment dated 22nd

January 2020, the Hon'ble Apex Court held that the Appellate Tribunal

ought to cede ground to the commercial wisdom of the Creditors rather than

assess the Resolution Plan on the basis of quantitative analysis.

5. The dictum of law laid down in 'K. Sashidhar vs. Indian Overseas

Bank' (Supra) stands reiterated in 'Committee of Creditors of Essar Steel

India Limited Vs. Satish Kumar Gupta and Others', (2019) SCC OnLine

SC 1478 wherein the Hon'ble Apex Court observed as under:-

"48. Thus, it is clear that the limited judicial review

available, which can in no circumstance trespass upon a

business decision of the majority of the Committee of

Creditors, has to be within the four corners of Section 30(2)

of the Code, insofar as the Adjudicating Authority is

concerned, and Section 32 read with Section 61(3) of the

Code, insofar as the Appellate Tribunal is concerned, the

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -6-

parameters of such review having been clearly laid down

in K. Sashidhar (supra).

49. The argument, though attractive at the first blush, but

if accepted, would require us to re-write the provisions of

the I&B Code. It would also result in doing violence to the

legislative intent of having consciously not stipulated that

as a ground - to challenge the commercial wisdom of the

minority (dissenting) financial creditors. Concededly, the

process of resolution plan is necessitated in respect of

corporate debtors in whom their financial creditors have

lost hope of recovery and who have turned into non-

performer or a chronic defaulter. The fact that the

concerned corporate debtor was still able to carry on its

business activities does not obligate the financial creditors

to postpone the recovery of the debt due or to prolong their

losses indefinitely. Be that as it may, the scope of enquiry

and the grounds on which the decision of "approval" of the

resolution plan by the CoC can be interfered with by the

adjudicating authority (NCLT), has been set out in Section

31(1) read with Section 30(2) and by the appellate tribunal

(NCLAT) under Section 32 read with Section 61(3) of the

I&B Code. No corresponding provision has been envisaged

by the legislature to empower the resolution professional,

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -7-

the adjudicating authority (NCLT) or for that matter the

appellate authority (NCLAT), to reverse the "commercial

decision" of the CoC much less of the dissenting financial

creditors for not supporting the proposed resolution plan.

Whereas, from the legislative history, there is

contraindication that the commercial or business decisions

of the financial creditors are not open to any judicial

review by the adjudicating authority or the appellate

authority.

51. Suffice it to observe that in the I&B Code and the

regulations framed thereunder as applicable in October

2017, there was no need for the dissenting financial

creditors to record reasons for disapproving or rejecting a

resolution plan. Further, as aforementioned, there is no

provision in the I&B Code which empowers the

adjudicating authority (NCLT) to oversee the justness of the

approach of the dissenting financial creditors in rejecting

the proposed resolution plan or to engage in judicial review

thereof. Concededly, the inquiry by the resolution

professional precedes the consideration of the resolution

plan by the CoC. The resolution professional is not

required to express his opinion on matters within the

domain of the financial creditor(s), to approve or reject the

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -8-

resolution plan, under Section 30(4) of the I&B Code. At

best, the Adjudicating Authority (NCLT) may cause an

enquiry into the "approved" resolution plan on limited

grounds referred to in Section 30(2) read with Section 31(1)

of the I&B Code. It cannot make any other inquiry nor is

competent to issue any direction in relation to the exercise

of commercial wisdom of the financial creditors - be it for

approving, rejecting or abstaining, as the case may be.

Even the inquiry before the Appellate Authority (NCLAT) is

limited to the grounds under Section 61(3) of the I&B Code.

It does not postulate jurisdiction to undertake scrutiny of

the justness of the opinion expressed by financial creditors

at the time of voting. To take any other view would enable

even the minority dissenting financial creditors to question

the logic or justness of the commercial opinion expressed

by the majority of the financial creditors albeit by requisite

percent of voting share to approve the resolution plan; and

in the process authorize the adjudicating authority to reject

the approved resolution plan upon accepting such a

challenge. That is not the scope of jurisdiction vested in the

adjudicating authority under Section 31 of the I&B Code

dealing with approval of the resolution plan."

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -9-

6. Thus, it is the settled proposition of law that the commercial wisdom of

the Committee of Creditors in approving or rejecting a resolution plan is

essentially based on a business decision, which involves evaluation of the

Resolution Plan based on its feasibility besides the Committee of Creditors

being fully informed about the viability of the Corporate Debtor. Such

commercial wisdom of the Committee of Creditors with requisite voting

majority is non-justiciable and the discretion on Adjudicating Authority is

circumscribed to scrutiny of Resolution Plan as approved by the requisite

majority voting share of the Financial Creditors. The enquiry postulated

under Section 31 of the I&B Code is limited to matters covered under Section

30(2) of the I&B Code when the Resolution Plan does not confirm the stated

conditions. Therefore, the Appellants cannot question the commercial

wisdom of the Committee of Creditors in rejecting the settlement proposal

emanating from the Appellants, with the requisite majority and in approving

the Resolution Plan of SPTL. No material irregularity in Corporate

Insolvency Resolution Process before the Resolution Professional has been

demonstrated. Merely because the Adjudicating Authority has declined to

direct reconsideration of the already rejected settlement proposal of

Appellants does not impinge upon the legality and conformity of the

approved Resolution Plan with the conditions stated in Section 32 of the I&B

Code.

7. Viewed thus, we find that the impugned orders have been passed on

proper application of mind and conform to the proposition of law as

Company Appeal (AT) (Insolvency) No. 207-208 of 2020 -10-

propounded by their lordships of the Hon'ble Apex Court in 'K. Sashidhar

vs. Indian Overseas Bank' (Supra) and 'Committee of Creditors of Essar

Steel India Limited Vs. Satish Kumar Gupta and Others' (Supra). We

find no merit in these appeals and same are dismissed. However, there shall

be no orders as to costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 12th March, 2020

AM

Company Appeal (AT) (Insolvency) No. 207-208 of 2020