The National Company Law Appellate Tribunal, in a series of orders during April 2023, reaffirmed that the commercial wisdom exercised by the Committee of Creditors in approving resolution plans under the Insolvency and Bankruptcy Code, 2016 is non-justiciable, except on limited statutory grounds. The NCLAT dismissed appeals challenging CoC-approved resolution plans, holding that neither the NCLT nor the NCLAT can substitute their judgment for the commercial assessment of the CoC in matters relating to the viability and feasibility of resolution plans.
Background
The orders addressed multiple appeals filed by operational creditors, dissenting financial creditors, and unsuccessful resolution applicants challenging resolution plans approved by the Committee of Creditors and sanctioned by various NCLT benches. The common thread in these appeals was the contention that the CoC had approved inadequate or unreasonable resolution plans that did not protect the interests of all stakeholders.
Under Section 30(2) of the IBC, the Committee of Creditors evaluates resolution plans based on the feasibility and viability of the plan, the manner and adequacy of distribution proposed, and whether the plan complies with the provisions of the Code and applicable regulations. The resolution plan approved by the CoC with at least 66 per cent voting share is then submitted to the NCLT for approval under Section 31.
Key Holdings
The NCLAT laid down the following principles across its April 2023 orders:
Non-justiciability of commercial wisdom: The commercial wisdom of the CoC, exercised in accordance with the provisions of the IBC and the CIRP Regulations, is not open to judicial review on merits. Courts may not examine whether the CoC made the best possible commercial decision, only whether it complied with statutory requirements.
Limited grounds for interference: NCLT and NCLAT may interfere with a CoC-approved resolution plan only on the grounds specified in Section 30(2) and Section 61(3) of the IBC — namely, non-compliance with the provisions of the Code, non-payment of insolvency resolution process costs and workmen's dues, and non-compliance with applicable laws.
Operational creditor claims: A resolution plan cannot be challenged solely on the ground that it does not provide for full payment of operational creditor dues, including government dues such as outstanding electricity charges. The IBC provides for distribution in accordance with the waterfall mechanism, and the CoC's assessment of the appropriate allocation is within its commercial domain.
Confidentiality of resolution plans: Resolution plans remain confidential documents until approved by the NCLT. The Resolution Professional cannot be directed to share the complete resolution plan with operational creditors prior to NCLT approval, though a summary of treatment of various classes of creditors must be disclosed.
Implications for Practitioners
Insolvency practitioners representing operational creditors or dissenting financial creditors must recognise that appellate challenges to CoC-approved resolution plans face an extremely high threshold. Successful challenges must be grounded in specific statutory non-compliance rather than commercial disagreement with the plan's terms.
For resolution applicants, these orders provide comfort that once a resolution plan secures CoC approval and NCLT sanction, it is unlikely to be overturned on appeal merely because a dissenting creditor considers the terms inadequate.
Practitioners advising CoC members should ensure that deliberations and voting are thoroughly documented, as procedural compliance with CIRP Regulations is the primary ground on which the commercial wisdom of the CoC can be challenged.