Role of Adjudicating Authority in Rejecting or Approving Resolution Plan under IBC

This Blog is written by Ms. Nandini Tripathy, Student of Symbiosis Law School,  Hyderabad.

Under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code) the Committee of Creditors (hereinafter known as CoC), including financial creditors of the company debtor, are constituted. CoC underneath the Code takes selections concerning the various responsibilities concerned in the Corporate Insolvency Resolution Process (CIRP) which incorporates approval or rejection of the proposed resolution plan. When CoC, by using now not much less than 66% of the vote, approves the resolution plan proposed via a Resolution Applicant, they send it to Adjudicating Authority (NCLT) which both approves it or rejects it. When the decision plan authorized via the CoC meets the requirement of Section 30(2), then the Adjudicating Authority shall approve it, and if it does now not then reject it. 

According to the provisions of the Code, the Adjudicating Authority, on receiving the decision plan permitted by the CoC, have to enquire whether or not the decision plan has garnered the guide of not much less than 66% of members of the Committee of Creditors and met the requirements beneath Section 30(2) viz. 1) It ought to provide for a charge of insolvency resolution manner, 2) It needs to provide for the charge of money owed of operational creditors, 3) It has to provide for the control of the affairs of the Corporate debtor after approval of a resolution plan, four) Implementation and supervision of the resolution plan, five) It should now not contravene every other provision of any regulation, and six) It must conform to such other requirements as may be particular by means of Insolvency and Bankruptcy Board of India. However, no provision of the Code empowers the Adjudicating Authority to modify the accepted plan with or without the consent of CoC. Thus, the Adjudicating Authority can either be given or reject the accredited plan but now not more than that. Reference may be made to the report of the Bankruptcy Law Reforms Committee of November 2015 to intensify the legislative purpose at the back of the Code. 

The Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. V. Union of India has recognized the reality that the Appellate Authority (NCLAT) modifies the decision plan to safeguarding the rights of operational lenders. The hobby of the operational creditor is what needs to be considered by using the Appellate Authority under section 30(2)(b) whilst approving or rejecting the approved decision plan. But the Court did not talk questions such as can amendment be accomplished in other popular cases on the grounds not noted below Section 30(2), or without the approval of CoC. However, in K. Sashidhar v. Indian Overseas Bank, at the same time as managing the scope of judicial evaluation by way of the adjudicatory authority in relation to the opinion expressed via a committee of creditors at the notion for approval of the resolution plan has discovered that legislature consciously has no longer furnished any grounds to task the “business understanding” of the person monetary creditor or their collective selection as they may be assumed to be fully privy to the viability and feasibility of proposed resolution plan and their movement is based totally at the meticulous exam and evaluation made by using their team of specialists of the proposed resolution plan. 

Following muddles may additionally prevent the Adjudicating Authority to alter the permitted decision plan without the consent of CoC: No provisions of Insolvency and Bankruptcy Code empowers the Adjudicating Authority to alter plans authorized via the committee of creditors. Even the Apex Court is of the view that such powers are not to be exercised with the aid of the Adjudicating Authority. Thus, modification of approved resolution plan without the approval of CoC is out of doors the scope of jurisdiction of Adjudicating Authority and the Appellate Authority (NCLAT). Modification of an approved resolution plan would mean wondering the economic know-how of the money lenders and their team of experts. If the Adjudicating Authority keeps on enhancing the decision plan consistent with their thoughts, then there might now not left any cause for the charter and lifestyles of CoC. Financial Creditors (participants of CoC) are the individual that goes to go through the loss and therefore has a giant hobby in any resolution plan. This is also one of the reasons why CoC is constituted. Therefore, they are the satisfactory person to determine the plan which could affect them subject to thinking about the interest of operational creditors. Approval of the resolution plan would mean approval from a huge range of folks who are experts in the matter. Therefore, the overall expertise approving the resolution plan may be said to outweigh the overall knowledge of contributors of the Adjudicating Authority and Appellate Authority, as the case may be. Insolvency and Bankruptcy Code, 2016 changed into enacted with the objective of maximization of the price of assets, to promote entrepreneurship, availability of credit, and stability of hobbies of all stakeholders. Resolution Plan, as described underneath Section 5(26) of the Insolvency and the Bankruptcy Code, 2016 "approach a plan proposed by means of resolution applicant for insolvency decision of the company debtor as a going difficulty in accordance with Part II. In simple words, it is a plan proposed to solve the incapacity of a Corporate Debtor to repay its money owed as a going situation. 

The resolution plan after being authorized through the Committee of Creditors by means of now not less than 66% of the votes, is then submitted to the Adjudicating Authority ("AAA") below Section 31 of the Code. The Adjudicating Authority after being "happy" that the plan meets the necessities below Section 30 of the code as enumerated above and has the necessary provisions for its implementation approves the decision plan which then will become binding at the corporate debtor and its personnel, individuals, lenders, guarantors and different stakeholders worried about the resolution plan. However, if the Adjudicating Authority is not as happy as above, it may reject the plan. One a critical query that has cropped up since the enactment of the Code and which has been addressed in various judgments is, "Whether, the Adjudicating Authority has the authority to go into the merits of the resolution plan." The Code provides for AA's satisfaction with the resolution plan; however, the code is silent as to the quantity to which the AA needs to look at the resolution plan. During the time, the judicial government has come to lay down the jurisdiction that resides with the AA with respect to the merits of the decision plan. 

Section 33 of the Code offers authority to this Adjudicating Authority to bear in mind a Resolution Plan this is given before it before the expiry of the Insolvency Resolution Process period or the maximum period permitted for a final touch of the Corporate Insolvency Resolution Process underneath Section 12. In case if no Resolution Plan is positioned before this Adjudicating Authority before the expiry of the Insolvency Resolution Process duration or the prolonged length, then this Adjudicating Authority has no other option to move except to reserve for liquidation. Section 33(1)(b) gives authority to this Adjudicating Authority to order liquidation in case it rejects the Resolution Plan beneath Section 31(2) for non-compliance with the necessities satisfied therein. Therefore, even on the level of ordering liquidation, this Adjudicating Authority has no authority to bear in mind a Resolution Plan that was rejected by means of the COC." Ld, NCLT, Ahmedabad also referred the Hon'ble Supreme Court's judgment inside the case of Innoventive Industries Limited v. ICICI Bank and Anr, wherein the apex court had stated the report of Bankruptcy Law reforms Committee 2015 with the intention to advantage a perception into why the Code turned into enacted and cause for which it becomes enacted. 

In the case of K. Shashidhar v. Indian Overseas Bank & Ors, the Hon'ble Supreme Court in its judgment dated 5th February 2019 said, "As aforesaid, upon receipt of a "rejected plan" the adjudicating authority (NCLT) isn't always expected to do something more but is obligated to initiate liquidation manner under Section 33(1) of the I&B Code. The legislature has no longer endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyze or examine the industrial choice of the COC tons less to enquire into the justness of the rejection of the resolution plan with the aid of the dissenting financial creditors." The Hon'ble Supreme Court, in addition, held that "the legislature, consciously, has not provided any floor to task the "commercial awareness" of the individual monetary creditors or their collective decision before the adjudicating authority".

In the most recent judgment dated fifteenth November 2019 of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors added via the Hon'ble Supreme Court, it was strongly opined through the Hon'ble Apex Court that the AA can exercise most effective a restrained judicial assessment in respect of any COC choice. NCLT/NCLAT does now not have jurisdiction beneath the provisions of the Code to intervene in the deserves of an enterprise selection taken by means of the general public of COC. The Hon'ble Supreme Court held that the last discretion of what to pay and how much to pay every elegance or subclass of creditors are with the CoC and that the CoC is the very last authority in this regard. The Hon'ble Supreme Court confined the function of NCLT to handiest adjudicate whether the CoC has complied with the gadgets of the Code i.e. The company debtor needs to keep going as a going difficulty at some stage in CIRP, it needs to maximize the cost of the property of the company debtor, and pursuits of all stakeholders need to be sorted.