‘Commercial wisdom of Committee of Creditors is not to be interfered with’; Supreme Court sheds light on the limited scope of interference by NLAT/NCLAT

Supreme Court: The 3-judge bench of AM Khanwilkar, BR Gavai and Krishna Murari has held that the commercial wisdom of Committee of Creditors (CoC) is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Taking note of various decision of the Supreme Court, the Court held that the legislative scheme is unambiguous. The legislature has consciously not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC’s ‘commercial wisdom’ is made non-justiciable.

“… the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same.”

deciding key economic question in the bankruptcy process, the only one correct forum for evaluating such possibilities, and making a decision was, a creditors committee, wherein all financial creditors have votes in proportion to the magnitude of debt that they hold.

It is not open to the Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Sections 30(2)or 61(3) of IBC.

The commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. The opinion expressed by CoC after due deliberations in the meetings through voting, as per voting shares, is a collective business decision.

“… the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis.”

In an enquiry under Section 31, the limited enquiry that the Adjudicating Authority is permitted is, as to whether the resolution plan provides:

(i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor,

(ii) the repayment of the debts of operational creditors in prescribed manner,

(iii) the management of the affairs of the corporate debtor,

(iv) the implementation and supervision of the resolution plan,

(v) the plan does not contravene any of the provisions of the law for the time being in force,

(vi) conforms to such other requirements as may be specified by the Board.

[Kalparaj Dharamshi v. Kotak Investment Advisors Ltd, 2021 SCC OnLine SC 204, decided on 10.03.2021]


*Judgment by: Justice BR Gavai

Appearances before the Court by:

For Kalparaj: Senior Advocates Mukul Rohatgi, Dr. Abhishek Manu Singhvi and Pinaki Mishra,

For Deutsche Bank and CoC: Senior Advocate K.V. Viswanathan

For Fourth Dimension Solutions Limited: Senior Advocates C.A. Sundaram, Gopal Sankar Narayanan and P.P. Chaudary,

For RP: Senior Advocates Shyam Divan

For KIAL: Senior Advocate: Senior Advocate Neeraj Kishan Kaul

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