NCLAT Upholds Commercial Wisdom of COC Over NCLT Order

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Justice Venugopal M. and Justice V.P Singh check whether there can be any kind of interference made by the Adjudicated Authority with the commercial wisdom of COC in the order dated 24th February 2021.

Facts 

The appeal was raised by the Appellant against an order made by the National Company Law Appellate Tribunal, Hyderabad bench, Hyderabad on 24th February 2021. The order made on 24th February 2021 (CP No. 153/7/HBD/2019) was filed by the Appellant/Resolution Professional under Section 36 of the Insolvency and Bankruptcy Code 2016.

In the order made by the Tribunal on 24th February 2021, it was stated that both M/s KALS Group and Mr Chava Suresh Babu had very similar resolution plans. The Tribunal stated that the Corporate Debtor might be able to fetch better value than what was offered by the Resolution Applicants. The Tribunal further added that although the COC had approved the resolution plan of M/s KALS Group with a 100% voting in favour of it, there is very little difference between both the resolution plans due to which there should be some improvement in the resolution fees payable by the Resolution Applicants.

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This appeal was one that challenged the legality and validity of the order made on 24th February 2021.

Arguments Advanced

The Appellant side stated that the Adjudicating Authority made a mistake in considering the fact that the Resolution plan didn’t meet the 66 % criteria of the COC and was also denied the right to second vote by an order dated 17th February 2020.

The Appellant side stated that the “Sanctioned plan” was compliant with all the rules and regulation of the Insolvency and Bankruptcy Code 2016. The Appellant also stated that the Adjudicating Authority does not have the right to interfere with the “Commercial wisdom” of the COC. The Appellant further added that the Adjudicating Authority had restricted power under Section 30 (2) of the Insolvency and Bankruptcy Code 2016.

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The Appellant side referred to the order made on 17th February 2020 (CP (IB) 153/7/HDB/2019) which was filed by the Appellant under Section 60 (5) of the Insolvency and Bankruptcy Code 2016. In this order, it was stated that there could be no interference with the decision of the COC.

The Respondent side stated that the Adjudicating Authority had contradicted its previous orders. The Respondent side further added that in the order made on 24th February 2020, Chava Babu had secured only 55.8% of the voter’s share whereas the Appellant had secured 100%.

Court’s Observations

The Tribunal used the Supreme Court case Kalpraj Dharamshi & Anr. V. Kotak Investment Advisors Ltd. & Anr. to understand that there must be no interference with the commercial wisdom of the COC except the limited scope provided by Section 30 and 31 of the Insolvency and Bankruptcy Code 2016.

Decision

The order on February 24th 2021 was unsustainable. The Tribunal interfered with the impugned order. Hence the appeal won and the Adjudicating Authority approved the Resolution Plan of M/s KALS Group approved by the COC with 100% voting favour.

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Click here to read the judgement.


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