The Supreme Court’s Decision on Bankruptcy Law
In a recent decision, the Indian Supreme Court has held that a panel of creditors or committee of creditors (CoC) cannot override the commercial wisdom of a resolution applicant approved by the National Company Law Tribunal (NCLT). This decision has come as a significant relief to several companies that are going through the insolvency resolution process.
Background of the Case
The case relates to the insolvency resolution process of a company called Jaypee Infratech Ltd (JIL), where the resolution plan approved by the CoC was challenged by a dissenting group of creditors. They were arguing that their rights were being prejudiced and that the approved plan was not equitable for all parties involved. The matter went all the way up to the Supreme Court of India.
Supreme Court’s Observations
The Supreme Court observed that the CoC represents the collective interests of all creditors and has the power to maximize the value of the assets of a company under insolvency. However, this does not mean that the CoC can overlook commercial wisdom and the viability of a resolution plan approved by the NCLT.
The court emphasized that the NCLT is tasked with evaluating various resolution plans submitted by applicants and picking the one that is commercially viable for the company and its stakeholders. The resolution applicant submits a plan with a view to reviving the company, and the NCLT is expected to assess its feasibility and approve it if it meets the legal requirements. Once the NCLT approves a plan, it becomes binding on all stakeholders and cannot be reopened or challenged lightly.
The court further held that while the CoC can evaluate various plans to choose the best one, it cannot completely substitute its commercial wisdom with the approved plan. The court stated that “the exercise of such substitution by CoC would amount to judicial review of the commercial decision arrived at by the NCLT, which is beyond the jurisdiction of this Court.”
Implications of the Decision
This decision has several implications for the insolvency resolution process in India. Firstly, it upholds the sanctity of the NCLT’s decision-making process and the importance of commercial wisdom in resolution plans. This will boost the confidence of resolution applicants in the process and encourage more participation.
Secondly, it will help prevent the CoC from being overly demanding and negotiating for higher recoveries at the expense of a viable resolution plan. This will also reduce the chances of endless litigation and appeals, which can delay the resolution process and further erode the value of the assets.
Thirdly, the decision highlights the need for transparency, accountability, and fairness in the resolution process. It puts the onus on the resolution applicants, the CoC, and the NCLT to ensure that the process is conducted in a manner that protects the interests of all stakeholders and does not discriminate against any party.
The Supreme Court’s decision in the Jaypee Infratech case is a significant step towards strengthening the insolvency resolution process in India. It has clarified the role of the CoC in evaluating resolution plans and reaffirmed the NCLT’s authority in approving plans that are commercially viable, transparent, and equitable for all stakeholders involved. This decision will encourage more companies to participate in the resolution process and ensure that their interests are adequately protected.
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