Ramkrishna Forgings Limited vs Ravindra Loonkar, Resolution Professional of Acil Limited & Anr.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.1527 OF 2022

RAMKRISHNA FORGINGS LIMITED … APPELLANT

VERSUS

RAVINDRA LOONKAR, RESOLUTION PROFESSION OF ACIL LIMITED & ANR.1 … RESPONDENTS

R1 : Ravindra Loonkar, Resolution Profession(al) of ACIL Limited

R2 : Committee of Creditors of ACIL Ltd. Signature Not Verified

Digitally signed by GEETA AHUJA Date: 2023.11.21 17:17:20 IST Reason:

1 Cause-title should correctly include ‘Resolution Professional’ instead of 'Resolution Profession’. 2

J U D G M E N T

AHSANUDDIN AMANULLAH, J.

Heard learned counsel for the parties.

2. The present appeal under Section 622 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as the “Code”) is directed against

the Judgment dated 19.01.2022 (hereinafter

referred to as the “Impugned Judgment”) passed by

the National Company Law Appellate Tribunal

(hereinafter referred to as the “NCLAT”) in

Company Appeal (AT)(Ins) No.845 of 2021 which has

upheld the order passed by the Adjudicating

Authority (National Company Law Tribunal3)

[hereinafter referred to as the “Adjudicating 2 ‘62. Appeal to Supreme Court.—(1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.

(2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.’ 3 The National Company Law Tribunal is a creature of Section 408 of the Companies Act, 2013. Under Section 60 of the Code, it has been designated as the Adjudicating Authority for corporate persons. 3

Authority-NCLT” or “Adjudicating Authority” or

“NCLT”], Principal Bench dated 01.09.2021 by

which the application seeking approval of a

Resolution Plan for ACIL Limited (hereinafter

referred to as either “ACIL” or the “Corporate

Debtor”) being I.A. No.1636 of 2019 in CP(IB)

No.170(PB)/2018 (hereinafter referred to as the

“Approval Application”) was kept in abeyance

while directing the Official Liquidator

(hereinafter referred to as the “OL”) to carry

out a re-valuation of the assets of the Corporate

Debtor and to provide exact figures/value of the

assets and exact valuation details.

BRIEF FACTS:

3. ACIL is a manufacturer of precision

engineering and automobile components, namely

crankshafts for tractors, HCVs, LCVs as well as

two-wheelers, as also connecting rods, steering

knuckles and hubs. It was the subject-matter of a 4

Corporate Insolvency Resolution Process

(hereinafter referred to as “CIRP”) which was

initiated on an application filed by IDBI Bank

Ltd. Mr. Ravindra Loonkar was appointed as the

Interim Resolution Professional and subsequently

confirmed as the Resolution Professional

(hereinafter referred to as the “RP”) by the NCLT

under order dated 16.10.2018. Against the total

claim filed for about Rupees one thousand eight

hundred and thirty crores, the amount of admitted

claim in the CIRP was Rupees one thousand seven

hundred and eighty-two crores.

4. The RP published Expression of Interest on

15.10.2018 which was subsequently revised on

31.10.2018, 28.01.2019 and 13.02.2019. The

appellant-Resolution Applicant (hereinafter

referred to as the “appellant”) submitted its

first Resolution Plan on 11.04.2019 providing to

pay Rupees seventy-four crores to all the

stakeholders including Rupees sixty-three and a 5

half crores to Financial Creditors (hereinafter

referred to as the “FC(s)”). After a series of

negotiations, the appellant submitted an Addendum

to its Resolution Plan on 21.05.2019 by raising

the payment to FC(s) to Rupees seventy-three

crores and eighteen lacs. On and at the request

of the Committee of Creditors (hereinafter

referred to as the “CoC”), once again, the

appellant submitted a Revised Plan on 27.05.2019

wherein the total pay-out was Rupees eighty

crores and fifty-five lacs and the FC(s) were to

be paid Rupees seventy five crores and forty-two

lacs. The final Resolution Plan was submitted on

05.08.2019, in which the financial proposal/total

pay-out was increased to Rupees one hundred

twenty-nine and a half crores and FC(s) were to

get upfront payment of Rupees eighty crores and

forty-four lacs. This Resolution Plan further

provided that proceeds from the monetization of 6

the land situated at Manesar will go to the

FC(s).

5. This final Resolution Plan submitted by the

Appellant-Resolution Applicant on 05.08.2019 was

finally approved by the CoC on 14.08.2019 by a

majority of 88.56% votes. In terms of such

approval of the Resolution Plan by the CoC, the

RP moved Approval Application under Sections

30(6)4 and 315 of the Code seeking approval of the 4 ‘30. Submission of resolution plan.— xxx (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.’ 5 ‘31. Approval of resolution plan.—(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan:

Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation. (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),—

(a) the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.

(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) 7

Resolution plan before the Adjudicating

Authority-NCLT on 16.08.2019. In terms of the

Resolution Plan, for which approval was being

sought, ACIL would be allowed the benefit of

carrying forward its losses in terms of Section

796 of the Income Tax Act, 1961.

or within such period as provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.’ 6 ‘79. Carry forward and set off of losses in case of certain companies.—(1) Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place during the previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, unless on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent. of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent. of the voting power on the last day of the year or years in which the loss was incurred:

Provided that even if the said condition is not satisfied in case of an eligible start up as referred to in Section 80-IAC, the loss incurred in any year prior to the previous year shall be allowed to be carried forward and set off against the income of the previous year if all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year and such loss has been incurred during the period of ten years beginning from the year in which such company is incorporated. (2) Nothing contained in sub-section (1) shall apply,—

(a) to a case where a change in the said voting power and shareholding takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift;

(b) to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent. shareholders of amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company;

(c) to a company where a change in the shareholding takes place in a previous year pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 (31 of 2016), after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner;

8

6. This ultimately resulted in the order dated

01.09.2021, by which the approval of the

Resolution Plan was kept in abeyance and the OL

was directed to provide exact figures/value of

assets. The same was carried in appeal under

(d) to a company, and its subsidiary and the subsidiary of such subsidiary, where,—

(i) the Tribunal, on an application moved by the Central Government under Section 241 of the Companies Act, 2013 (18 of 2013), has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government, under Section 242 of the said Act; and

(ii) a change in shareholding of such company, and its subsidiary and the subsidiary of such subsidiary, has taken place in a previous year pursuant to a resolution plan approved by the Tribunal under Section 242 of the Companies Act, 2013 (18 of 2013) after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.

Explanation.—For the purposes of this section,—

(i) a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company; (i-a)“erstwhile public sector company” shall have the same meaning as assigned to it in clause

(ii) of the Explanation to clause (d) of sub-section (1) of Section 72-A; (i-b) “strategic disinvestment” shall have the same meaning as assigned to it in clause (iii) of the Explanation to clause (d) of sub-section (1) of Section 72-A;

(ii) “Tribunal” shall have the meaning assigned to it in clause (90) of Section 2 of the Companies Act, 2013 (18 of 2013).

(e) to a company to the extent that a change in the shareholding has taken place during the previous year on account of relocation referred to in the Explanation to clauses (vii-ac) and (vii-ad) of Section 47.

(f) to an erstwhile public sector company subject to the condition that the ultimate holding company of such company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least fifty-one per cent. of the voting power of such company in aggregate. (3) Notwithstanding anything contained in sub-section (2), if the condition specified in clause (f) of the said sub-section is not complied with in any previous year after the completion of strategic disinvestment, the provisions of sub-section (1) shall apply for such previous year and subsequent previous years.’ 9

Section 617 of the Code by the present appellant

before the NCLAT which passed the Impugned

Judgment on 19.01.2022, dismissing the appeal,

thereby upholding the order of the NCLT, which is

impugned herein.

SUBMISSIONS ON BEHALF OF THE APPELLANT:

7

‘61. Appeals and Appellate Authority.—(1) Notwithstanding anything to the contrary contained under the Companies Act, 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal:

Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days.

(3) An appeal against an order approving a resolution plan under Section 31 may be filed on the following grounds, namely—

(i) the approved resolution plan is in contravention of the provisions of any law for the time being in force;

(ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period;

(iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board;

(iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteria specified by the Board.

4) An appeal against a liquidation order passed under Section 33, or sub-section (4) of Section 54-L, or sub-section (4) of Section 54-N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.

(5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of Section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order.’ 10

7. Mr. Shyam Divan, learned senior counsel for

the appellant submitted that the Resolution Plan

initially submitted by the appellant was

negotiated further on various dates and,

ultimately the final outcome was the Resolution

Plan submitted on 05.08.2019. This was finally

approved by the CoC through a majority of 88.56%

votes on 14.08.2019, after extensive

consideration. It was submitted that there were

11 revisions in respect of the Resolution Plan

made by the appellant before the final version

was approved by the CoC. It was indicated that

the final Resolution Plan was approximately 48%

higher as compared to the pay-out under the

initial Resolution Plan submitted by the

appellant. At this juncture, it was also pointed

out that the RP had also got two reports prepared

by two approved/registered valuers: (a) BDO India

LLP’s Report dated 11.02.2019 with regard to

assets of ACIL which indicated fair market value 11

to be Rupees one hundred thirty-five crores and

ten lacs with liquidation value as Rupees one

hundred eight crores and fifty-seven lacs;

whereas the Report of (b) Adroit Technical

Services Limited dated 14.02.2019 indicated fair

market value of Rupees one hundred twenty-five

crores and eighty-five lacs and liquidation value

of Rupees ninety-four crores and eighty-seven

lacs. Thus, it was submitted that after taking

care of all the statutory procedural requirements

and on the basis of such reports and proper

examination of the materials on record and having

exercised its commercial wisdom, the CoC-approved

Resolution Plan was put up before the NCLT for

approval, but the NCLT, exceeding its

jurisdiction and without ascertaining any reason

for such course of action, passed the direction

for revaluation.

8. Learned senior counsel in this connection

submitted that there was no occasion for the NCLT 12

to embark upon a totally alien procedure of

getting the OL involved in such valuation, for

which a mechanism is already provided under the

Code and which, as per him, was strictly adhered

to in the present case. It was contended that the

NCLT had limited power of judicial review given

the supremacy of the CoC under the Code. At best,

learned senior counsel contended, that it could

have disapproved the Resolution Plan on cogent

ground(s) relevant for doing so after testing

whether it complies with the requirements of

Section 30(2) of the Code, but it could not have

acquired jurisdiction, where no such residuary or

equity based jurisdiction is available under the

Code by interfering with the CoC’s decision

without pointing out any non-conformity with the

provisions of the Code and the Regulations

thereunder. For such proposition, he relied upon

the decision of this Court in Pratap Technocrats

Private Limited v Monitoring Committee of 13

Reliance Infratel Limited, (2021) 10 SCC 623, the

relevant being at Paragraphs 25, 26 and 44, where

it has been held that the jurisdiction conferred

upon the Adjudicating Authority-NCLT in regard to

the approval of a Resolution Plan is statutorily

structured by Sub-Section 1(1) of Section 31 of

the Code and such jurisdiction is limited to

determine whether the requirements which are

specified in Sub-Section (2) of Section 30 of the

Code have been fulfilled. Further, it has been

explained that such jurisdiction which is

statutorily defined, recognised and conferred,

cannot be equated with the jurisdiction in equity

that operates independently of the provisions of

the statute for the reason that the Adjudicating

Authority-NCLT, which is a body owing its

existence to the Code, must abide by the nature

and extent of its jurisdiction as defined

therein. Regarding the appointment of the OL for

getting valuation of the assets, the stand of Mr. 14

Divan was that it was not in line with the Code

and the Regulations made thereunder.

9. It was further canvassed by learned senior

counsel that the Code provides for a mechanism

for carrying out valuation of the assets of a

Corporate Debtor in form of the Insolvency and

Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016

(hereinafter referred to as the “CIRP

Regulations”), particularly Regulations 278 and

8 ‘27. Appointment of Professionals.—(1) The resolution professional shall, within seven days of his appointment but not later than forty-seventh day from the insolvency commencement date, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 35.

(2) The interim resolution professional or the resolution professional, as the case may be, may appoint any professional, in addition to registered valuers under sub-regulation (1), to assist him in discharge of his duties in conduct of the corporate insolvency resolution process, if he is of the opinion that the services of such professional are required and such services are not available with the corporate debtor.

(3) The interim resolution professional or the resolution professional, as the case may be, shall appoint a professional under this regulation on an arm's length basis following an objective and transparent process: Provided that the following persons shall not be appointed, namely—

(a) a relative of the resolution professional;

(b) a related party of the corporate debtor;

(c) an auditor of the corporate debtor at any time during the period of five years preceding the insolvency commencement date;

(d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director.

(4) The invoice for fee and other expenses incurred by a professional appointed under this regulation shall be raised in the name of the professional and be paid directly into the bank account of such 15

359 thereof, inasmuch as Regulation 27 provides

that the RP shall appoint two registered valuers

to determine the fair value and liquidation value

of the Corporate Debtor whereas Regulation 35

provides that the two valuers shall submit the

fair value and liquidation value to the RP after

professional.’ 9 ‘35. Fair value and Liquidation value.—(1) Fair value and liquidation value shall be determined in the following manner—

(a) the two registered valuers appointed under Regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;

(b) if the two estimates of a value in an asset class are significantly different, or on receipt of a proposal to appoint a third registered valuer from the committee of creditors, the resolution professional may appoint a third registered valuer for an asset class for submitting an estimate of the value computed in the manner provided in clause (a). Explanation.—For the purpose of clause (b),

(i) “asset class” means the definition provided under the Companies (Registered Valuers and Valuation) Rules, 2017;

(ii) “significantly different” means a difference of twenty-five per cent in liquidation value under an asset class and the same shall be calculated as (L1-L2)/L1, where, L1= higher valuation of liquidation value L2= lower valuation of liquidation value.

(c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may be.

(2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Section 29. (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value.’ 16

physical verification of the inventory and fixed

assets of the Corporate Debtor and further

provides that if the estimates shown by the two

valuers are significantly different, or upon a

proposal from the CoC, the RP may appoint a third

registered valuer for valuation of the assets of

the Corporate Debtor.

10. Another aspect which learned senior counsel

drew the Court’s attention to was the fact that

the NCLT’s observations in its order dated

01.09.2021 observing that the amount offered by

the appellant was very close to the fair value of

the assets of the Corporate Debtor was a non-

issue and an uncalled for observation since such

fair value of the assets of the Corporate Debtor

was never available to the appellant at the time

of submitting its first Resolution Plan. Thus,

learned senior counsel submitted that the premise

of the appellant’s offered amount being in close

proximity to the fair value of the assets was 17

inherently erroneous and without basis and the

decision to refer it to the OL based on such sole

factor is obviously and equally without any basis

and fit to be set aside.

11. It was submitted that this Court has held,

in Maharashtra Seamless Limited v Padmanabhan

Venkatesh, (2020) 11 SCC 467, the relevant being

at Paragraphs 27 to 29, that aspects related to

the valuation of the Corporate Debtor are not

open to judicial scrutiny by the NCLT as the

object behind such valuation process is to assist

the CoC in taking a proper decision in respect of

a Resolution Plan and the valuation conducted in

respect of the assets of the Corporate Debtor and

it has further been indicated that the

Adjudicating Authority-NCLT can approve a

Resolution Plan even when it is below the

liquidation value and that there is no provision

under the Code which states that a resolution

applicant’s bid must match the liquidation value 18

as the liquidation value is determined merely to

assist the CoC in taking a decision on the

Resolution Plan.

12. On the same proposition, learned senior

counsel referred to M K Rajagopalan v Dr

Periasamy Palani Gounder, 2023 SCC OnLine SC 574,

the relevant being at Paragraphs 167, 168 and

169, holding that when the CoC was fully

satisfied with the valuation conducted in respect

of the Corporate Debtor and had endorsed the

same, then it was unnecessary and unjustifiable

on the part of the NCLAT to presume

irregularities in the Resolution Plan and

interfere therewith.

13. It was submitted that the RP in statutory

form had certified that the Resolution Plan

received from the appellant complied with all the

provisions of the Code and the Regulations and

did not contravene any provisions of law. 19

14. It was contended that the finding of the

NCLAT that an avoidance transaction of

approximately Rupees one thousand crores had come

to light and the present case justifies its

interference since figures of crores are

involved, could not have been an issue as it has

no bearing in the instant case and ought not to

have been considered by the NCLAT. It was

submitted that safeguard against avoidance

transaction and its impact upon a Corporate

Debtor’s CIRP has been provided in the Code and

the Regulations as also expounded in judicial

precedents. In this regard, attention was drawn

to Section 2610 of the Code which provides that

filing of avoidance application(s) by the RP

shall not affect the CIRP proceedings. It was

further stated that Regulation 38(2)(d)11, CIRP 10 ‘26. Application for avoidance of transactions not to affect proceedings.—The filing of an avoidance application under clause (j) of sub-section (2) of Section 25 by the resolution professional shall not affect the proceedings of the corporate insolvency resolution process.’ 11 ‘38. Mandatory contents of the resolution plan.— xxx (2) A resolution plan shall provide:

xxx 20

Regulations has been recently introduced through

the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate

Persons) (Second Amendment) Regulations, 2022

(hereinafter referred to as the “2022 Amendment”)

with effect from 14.06.2022 which requires, for

all Resolution Plans submitted to the

Adjudicating Authority on or after the 2022

Amendment to provide for treatment of avoidance

applications post-approval of a Resolution Plan,

along with the manner in which the proceeds from

such proceedings will be distributed. It was

contended that even though in the present case,

the approval application has been filed by the RP

prior to the 2022 Amendment, the Resolution Plan

provides for the treatment of proceeds generated

through avoidance applications and states that

(d) provides for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed:

Provided that this clause shall not apply to any resolution plan that has been submitted to the Adjudicating Authority under sub-section (6) of Section 30 on or before the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022.’ 21

all amounts received by ACIL pursuant to any

avoidance transaction shall be payable to the

FC(s) and no avoidance pay-out amounts shall be

payable by the Corporate Debtor, which in the

present case would mean that avoidance

transaction of approximately Rupees one thousand

crores will not affect the ongoing CIRP, in view

of the Resolution Plan providing a clear way for

its treatment. In this connection, learned senior

counsel referred to the decision by a Division

Bench of the High Court of Delhi in Tata Steel

BSL Limited v Venus Recruiter Pvt. Ltd., 2023 SCC

OnLine Del 155, Paragraph 91 whereof says that

when any kind of benefit is acquired from the

adjudication on avoidance application and the

Resolution Plan is silent on the treatment of

such applications, such benefit must be given to

the creditors of the Corporate Debtor.

15. Learned senior counsel submitted that the

commercial wisdom of the CoC has been held to be 22

supreme in K Sashidhar v Indian Overseas Bank,

(2019) 12 SCC 150, the relevant being at

Paragraphs 52, 59 & 64 and Committee of Creditors

of Essar Steel India Ltd. v Satish Kumar Gupta

(2020) 8 SCC 531. Further, reliance was placed on

the decision in Ebix Singapore (P) Ltd. v

Committee of Creditors of Educomp Solutions

Limited, 2021 SCC OnLine SC 707, holding that the

Adjudicating Authority under Section 31(2) of the

Code can only examine the validity of the

Resolution Plan on the anvil of the stipulation

in Section 30(2) of the Code and either approve

or reject the Resolution Plan but cannot compel

the CoC to negotiate further with a successful

Resolution Applicant and also that the

Adjudicating Authority is duty bound to ensure

the completion of CIRP within the prescribed

timeline of 330 days under the Code.

16. As far as the reference in the Impugned

Judgment by the NCLAT, that interference was 23

justified since “figures of crores” are involved,

learned senior counsel submitted that it has no

basis in the Code or law, as it does not provide

for differential treatment to a Resolution Plan,

based on the quantum of the figure involved in

the Corporate Debtor’s insolvency.

17. With regard to the OL being given the

chance of coming up with re-valuation, the stand

taken by learned senior counsel was that the OL

is created by the Companies Act, 2013 and is not

contemplated under the Code which provides a

specific mechanism for valuation to be conducted

in respect of the assets of a Corporate Debtor

under the CIRP Regulations, specifically

Regulations 27 and 35, as noted hereinabove.

18. Learned senior counsel submitted that even

if for the sake of argument, it may be accepted

that the NCLT can exercise discretion in rare

cases and order for re-valuation, in the present 24

case, the same cannot be justified as absolutely

no reason has even been indicated by the NCLT or

the NCLAT for undertaking such exercise in

respect of the assets of the Corporate Debtor,

which is arbitrary and unjustified.

19. It was submitted that there was no

objection from any quarter, much less any

stakeholder, with respect to the valuation of

the Corporate Debtor and also the appellant’s

Resolution Plan and most importantly, no

material was placed on record before the NCLT or

NCLAT to justify interference in the CoC’s

commercial wisdom.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS:

20. Learned counsel for the respondents

supported the contentions of the appellant,

advanced by Mr. Divan.

25

ASSISTANCE BY THE SOLICITOR GENERAL AND THE

ADDITIONAL SOLICITOR GENERAL FOR THE UNION OF

INDIA:

21. In the present case, although the RP and

CoC were arrayed as respondents but having

regard to the issues raised, this Court by order

dated 05.05.202212 had requested the learned

Solicitor General, Mr. Tushar Mehta to assist.

In terms thereof, he has filed written

submissions. Mr. Balbir Singh, learned

Additional Solicitor General has also assisted

this Court.

22. In sum, the written note deals with the

legal aspects and the final stand is that the

Adjudicating Authority-NCLT would have no

jurisdiction or power to sit in appeal over the

12 The Order is as below:

‘Having regard to the issues involved, we have requested Mr. Tushar Mehta, learned Solicitor General to assist the Court in this matter. The relevant papers may be supplied to the office of the learned Solicitor General within two days.

The matter may be listed on the next date while showing name of Mr. Arvind Kumar Sharma, learned counsel assisting the learned Solicitor General. List the matter on 18.05.2022.

Short notes on the submissions may be filed in advance.’ 26

commercial wisdom of the CoC and interference

would be warranted only when the NCLT or the

Appellate Authority (viz. NCLAT) finds the

decision of the CoC to be wholly capricious,

arbitrary, irrational and dehors the provisions

in the Code or the Regulations.

23. For such proposition, he relied upon the

decision in Vallal RCK v Siva Industries and

Holdings Limited, 2022 SCC OnLine SC 717, the

relevant being at Paragraph 24, with regard to

the binding and final nature of the Resolution

plan after due approval by the CoC.

24. Mr. Singh also referred to Arun Kumar

Jagatramka v Jindal Steel and Power Limited,

(2021) 7 SCC 474, the relevant being Paragraph

95, holding that the need for judicial

intervention or innovation from NCLT and NCLAT

should be kept at its bare minimum and should

not disturb the foundational principle of the

Code. He also referred to Committee of Creditors 27

of Essar Steel India Ltd. (supra), where at

Paragraph 69, it has been observed that a

harmonious reading of Sections 31(1) & 60(5) of

the Code would lead to the result that the

residual jurisdiction of the NCLT under Section

60(5)(c) of the Code cannot, in any manner,

whittle down Section 31(1) of the Code, by the

investment of some discretionary or equity

jurisdiction in the Adjudicating Authority-NCLT

outside Section 30(2) of the Code, when it comes

to a Resolution Plan pending adjudication.

25. However, it was also pointed out that in

cases which warrant interference, to contend

that the Adjudicating Authority-NCLT has no

jurisdiction to decide any dispute with respect

to valuation and take remedial steps to correct

an erroneous valuation exercise would not be the

correct proposition in view of the powers

conferred under Section 60(5) of the Code. 28

26. With regard to the impact of pendency of

avoidance applications on the approval of the

Resolution Plan, the stand was that it has no

bearing on the approval by the NCLT of the

Resolution Plan approved by the CoC as it has

been provided in the Resolution Plan that

proceeds of avoidance transactions, if any, will

go to the FC(s) and thus, on this score, the

Resolution Applicant (appellant) will not be

benefitted as it is the FC(s) who will get the

benefit of such realisation. As regards the

uncertainty of Plot/Site No.GH 38 (Land) in

Sector 1, IMT Manesar, Haryana, which was

allotted by the Haryana State Industrial and

Infrastructure Development Corporation to the

Corporate Debtor, it was submitted that the

Resolution Plan itself provisions that proceeds

from monetisation thereof will go to the FC(s). 29

ANALYSIS, REASONING AND CONCLUSION:

27. Having considered the matter in depth, the

Court is unable to uphold the decisions rendered

by the Adjudicating Authority-NCLT as also the

NCLAT. The moot question involved is the extent

of the jurisdiction and powers of the

Adjudicating Authority to go on the issue of

revaluation in the background of the admitted and

undisputed factual position that no objection was

raised by any quarter with regard to any

deficiency/irregularity, either by the RP or the

appellant or the CoC, in finally approving the

Resolution Plan which was sent to the

Adjudicating Authority-NCLT for approval.

Further, the statutory requirement of the RP

involving two approved valuers for giving reports

apropos fair market value and liquidation value

was duly complied with and the figures in both

reports were not at great variance.

Significantly, the same were then put up before 30

the CoC, which is the decision-maker and in the

driver’s seat, so to say, of the Corporate

Debtor. K Sashidhar (supra) and Committee of

Creditors of Essar Steel India Ltd. (supra) are

clear authorities that the CoC’s decision is not

to be subjected to unnecessary judicial scrutiny

and intervention. This came to be reiterated in

Maharashtra Seamless Limited (supra), which also

emphasised that the CoC’s commercial analysis

ought not to be qualitatively examined and the

direction therein of the NCLAT to direct the

successful Resolution Applicant to enhance its

fund flow was disapproved of by this Court. Thus,

if the CoC, including the FC(s) to whom money is

due from the Corporate Debtor, had undertaken

repeated negotiations with the appellant with

regard to the Resolution Plan and thereafter,

with a majority of 88.56% votes, approved the

final negotiated Resolution Plan of the

appellant, which the RP, in turn, presented to 31

the Adjudicating Authority-NCLT for approval,

unless the same was failing the tests of the

provisions of the Code, especially Sections 30 &

31, no interference was warranted. In Kalpraj

Dharamshi v Kotak Investment Advisors Limited,

(2021) 10 SCC 401, the Court concluded that ‘… in

view of the paramount importance given to the

decision of CoC, which is to be taken on the

basis of “commercial wisdom”, NCLAT was not

correct in law in interfering with the commercial

decision taken by CoC by a thumping majority of

84.36%.’

28. In Pratap Technocrats Private Limited

(supra), the Court, after considering the

relevant case-laws, pointed out that the Indian

Legislature had departed from foreign insolvency

regimes, as under:

‘44. These decisions have laid down that the jurisdiction of the adjudicating authority and the appellate authority cannot extend into entering upon merits of a business decision made 32

by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the adjudicating authority or the appellate authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of IBC and the Regulations under the enactment.

45. Certain foreign jurisdictions allow resolution/reorganisation plans to be challenged on grounds of fairness and equity. One of the grounds under which a company voluntary arrangement can be challenged under the United Kingdom's Insolvency Act, 1986 is that it unfairly prejudices the interests of a creditor of the company13. The United States' Bankruptcy Code provides that if a restructuring plan has to clamp down on a dissenting class of creditors, one of the conditions that it should satisfy is that it does not unfairly discriminate, and is fair and equitable14. However, under the Indian insolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the adjudicating authority other than the statutory requirements laid down under sub-section (2) of Section 30 IBC.

13 [“6. Challenge of decisions.—(1) Subject to this section, an application to the court may be made, by any of the persons specified below, on one or both of the following grounds, namely—(a) that a voluntary arrangement which has effect under Section 4-A unfairly prejudices the interests of a creditor, member or contributory of the company;(b) that there has been some material irregularity at or in relation to the meeting of the company, or in relation to the relevant qualifying decision procedure.”] 14 [“1129. Confirmation of a Plan***(b)(1) Notwithstanding Section 510(a) of this title, if all of the applicable requirements of sub-section (a) of this section other than para (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.”] 33

46. An effort was made by Mr Dushyant Dave, learned Senior Counsel, to persuade this Court to read the guarantees of fair procedure and non-

arbitrariness as emanating from the decision of this Court in Maneka Gandhi v. Union of India [Maneka Gandhi v.

Union of India, (1978) 1 SCC 248] into the provisions of IBC. IBC, in our view, is a complete code in itself. It defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by IBC is a direct representation of certain economic goals of the Indian economy. It is enacted after due deliberation in Parliament and accords rights and obligations that are strictly regulated and coordinated by the statute and its regulations. To argue that a residuary jurisdiction must be exercised to alter the delicate economic coordination that is envisaged by the statute would do violence on its purpose and would be an impermissible exercise of the adjudicating authority's power of judicial review.

The UNCITRAL, in its Legislative Guide on Insolvency Law, has succinctly prefaced its recommendations in the following terms [Available at <https://uncitral.un.org/sites/uncitral. un.org/files/media-documents/uncitral/ en/05-80722_ebook.pdf> last accessed 6- 8-2021, pp. 14-15.] :

“C. Balancing the goals and key objectives of an insolvency law 34

15. Since an insolvency regime cannot fully protect the interests of all parties, some of the key policy choices to be made when designing an insolvency law relate to defining the broad goals of the law (rescuing businesses in financial difficulty, protecting employment, protecting the interests of creditors, encouraging the development of an entrepreneurial class) and achieving the desired balance between the specific objectives identified above. Insolvency laws achieve that balance by reapportioning the risks of insolvency in a way that suits a State's economic, social and political goals. As such, an insolvency law can have widespread effects in the broader economy.”

47. Hence, once the requirements of IBC have been fulfilled, the adjudicating authority and the appellate authority are duty-bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the adjudicating authority nor the appellate authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework.’ (emphasis supplied)

29. In the case at hand, we find that there was

no occasion before the Adjudicating Authority-

NCLT to be swayed only on the per se ground that

the hair-cut would be about 94.25% and that it 35

was not convinced that the fair value of the

assets have been projected in proper manner as

the bid of the appellant was very close to the

fair value of the assets of ACIL. Ordering re-

valuation of the assets, by the OL, Ministry of

Corporate Affairs, Government of India, in-charge

of the particular area, cannot be justified. As

explained in Innoventive Industries Ltd. v ICICI

Bank, (2018) 1 SCC 407 and Swiss Ribbons Private

Limited v Union of India, (2019) 4 SCC 17, the

Code was specifically introduced by Parliament

for ensuring quick and time-bound resolution of

insolvency of corporate entities in financial

trouble, by first attempting to revive the

Corporate Debtor, failure whereof would entail

liquidation of the Corporate Debtor’s assets, and

no unnecessary impediment should be created to

delay or derail the CIRP. In the present case,

both the NCLT and NCLAT erred to fully recognise

that under the Resolution Plan, the Corporate 36

Debtor was set to be revived and not liquidated.

Thus, the minimum mandatory component in the

Resolution Plan was only a reflection of the

actual money, including upfront payment, which

would go towards the FC(s). As discussed

previously, the final Resolution Plan provided

for the monetization proceeds of the land as also

the avoidance amounts to go to the FC(s) of the

Corporate Debtor.

30. At this juncture, it also cannot be lost

sight of that it is for the FC(s) who constitute

the CoC to take a call, one way or the other.

Stricto sensu, it is now well-settled that it is

well within the CoC’s domain as to how to deal

with the entire debt of the Corporate Debtor. In

this background, if after repeated negotiations,

a Resolution Plan is submitted, as was done by

the appellant (Resolution Applicant), including

the financial component which includes the actual

and minimum upfront payments, and has been 37

approved by the CoC with a majority vote of

88.56%, such commercial wisdom was not required

to be called into question or casually interfered

with. Surprisingly, the discussion in both orders

is wanting, except for the difference in the

figure of the total outstanding dues and the

amount of money which the appellant was to put up

initially for taking over the Corporate Debtor,

for this Court to understand as to what other

reasons, grounded in the Code’s provisions,

compelled the Adjudicating Authority-NCLT to

embark upon the novel path of ordering

revaluation by the OL. At the cost of repetition,

nobody had moved before the NCLT or raised any

objection challenging the Resolution Plan pending

approval. Even the NCLAT has only indicated that

when “figures of crores” are emerging stage-wise,

“then there is no harm to look at the Expert

opinion”, which the Adjudicating Authority-NCLT

in this case has asked for.

38

31. It is worthwhile to note that the

Adjudicating Authority has jurisdiction only

under Section 31(2) of the Code, which gives

power not to approve only when the Resolution

Plan does not meet the requirement laid down

under Section 31(1) of the Code, for which a

reasoned order is required to be passed. We may

state that the NCLT’s jurisdiction and powers as

the Adjudicating Authority under the Code, flow

only from the Code and the Regulations

thereunder. It has been held in Jaypee Kensington

Boulevard Apartments Welfare Association v NBCC

(India) Limited, (2022) 1 SCC 401:

‘273.1. The adjudicating authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the Committee of Creditors. If, within its 39

limited jurisdiction, the adjudicating authority finds any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court.’ (emphasis supplied)

32. From the assistance rendered and the

judicial precedents brought to notice, it is

clear that the order dated 01.09.2021 by the

NCLT cannot withstand judicial scrutiny, either

on facts or in law. There may have been a

situation where due to glaring facts, an order

of the nature impugned herein could be left

untouched and this Court would have refrained

from interference, but only if detailed

reasoning, disclosing the facts for being

persuaded to embark on such path, were

discernible in the order dated 01.09.2021,

which unfortunately is cryptic and bereft of

detail. Recording of reasons, and not just 40

reasons but cogent reasons, for orders is a

duty on Courts and Tribunals. In the recent

past, from Kranti Associates Private Limited v

Masood Ahmed Khan, (2010) 9 SCC 496 to Manoj

Kumar Khokhar v State of Rajasthan, (2022) 3

SCC 501, the clear position in law is that a

Court or even a quasi-judicial authority has a

duty to record reasons for its decision.

Needless to add, ‘Reason is the heartbeat of

every conclusion. Without the same, it becomes

lifeless.’15 That apart, the order of the NCLT

dated 01.09.2021 suffers from a jurisdictional

error, as in the facts that prevailed, it was

not entitled to pass the direction that it did.

33. Under the circumstances, while this Court

could have adopted the course of remanding the

matter back to the NCLT for fresh/de novo

consideration, but being conscious of the fact

that such course would impede quick resolution

15 Raj Kishore Jha v State of Bihar, (2003) 11 SCC 519. 41

as the CIRP is in a stalemate right from

01.09.2021 and after having applied our minds

to the factual aspects also, we do not find

that remand for consideration afresh, now,

would serve the purpose of justice or aid the

objects of the Code.

34. Accordingly, and for all the reasons afore-

stated, this appeal stands allowed. The order

dated 01.09.2021 of the NCLT and the Impugned

Judgment dated 19.01.2022 of the NCLAT are set

aside. The NCLT will pass appropriate orders in

terms of this judgment, on the Approval

Application, being I.A. No.1636 of 2019 in

CP(IB) No.170(PB)/2018, within three weeks from

the date of production of a copy of this

judgment. Pending avoidance application(s) on

the file of the NCLT in connection herewith

shall proceed on their own merits, but with

expedition. No order as to costs.

42

35. Insofar as the pending Interlocutory

Applications herein are concerned, they are

dealt with below:

a. I.A. No.25463/2022: Does not survive in view

of the decision in the appeal; disposed of.

b. I.A. No.25464/2022: Does not survive in view

of the decision in the appeal; disposed of.

c. I.A. No.185233/2022: Wrongly shown as

pending in the ordersheet; already disposed of

vide order dated 17.04.2023.

36. Insofar as Mr. Singh’s submissions that

this Court may not exclude from the NCLT’s

ambit any power to direct re-valuation, we have

given our anxious thought to the same. Our view

is that while certainty in law and legal

principles is the obvious aim, the law is to be

applied in the context of the facts. If a

matter where the facts are stark comes to

light, the same would have to necessarily be

dealt with by the NCLT within the four corners 43

of the Code itself, having due regard to the

extant circumstances. It is for the NCLT to

exercise power strictly within the domain

permitted by the Code. In this behalf, one may

peruse the decisions in Embassy Property

Developments Private Limited v State of

Karnataka, (2020) 13 SCC 308 and Gujarat Urja

Vikas Nigam Limited v Amit Gupta, (2021) 7 SCC

209.

.........................J. [VIKRAM NATH]

........................J. [AHSANUDDIN AMANULLAH]

NEW DELHI NOVEMBER 21, 2023