Commercial Wisdom of the Committee of Creditors•2 min read•(2019) 12 SCC 150

K. Sashidhar v. Indian Overseas Bank and Others

Bench: Division Bench (A.M. Khanwilkar & Ajay Rastogi, JJ.)
Appeals under Special Statutes (IBC, NGT, Telecom & Electricity)
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Core Legal Ratio Decidendi

"The commercial wisdom of financial creditors in approving or rejecting a resolution plan is non-justiciable; the NCLT and NCLAT may only examine whether an approved plan meets the statutory requirements, and a plan that fails to secure the required majority stands rejected."

I
Step 1

Issues Before the Court

  1. (i)

    Whether the 75% voting threshold then prescribed by Section 30(4) of the Insolvency and Bankruptcy Code, 2016 for approving a resolution plan was mandatory, and whether abstaining creditors could be left out in computing it?

  2. (ii)

    Whether the National Company Law Tribunal or the Appellate Tribunal can examine the commercial wisdom of financial creditors who vote against a resolution plan?

  3. (iii)

    Whether the 2018 amendment reducing the threshold to 66% applied to votes taken in October 2017?

R
Step 2

Law & Rules Applicable

  1. (i)

    Insolvency and Bankruptcy Code, 2016, Section 30(2) and (4) (requirements for, and approval of, a resolution plan by the committee of creditors), Section 31 (approval by the Adjudicating Authority), Section 33 (liquidation) and Section 61(3) (grounds of appeal against an order approving a plan).

A
Step 3

Application to Facts & Circumstances

In the insolvency resolution of Kamineni Steel & Power India Pvt. Ltd., the resolution plan received about 66.67% of the votes in the committee of creditors; in that of Innoventive Industries Ltd., about 66.57%. Both fell short of the 75% then required. The NCLT approved the first plan and rejected the second; the NCLAT held the threshold mandatory and ordered liquidation in both cases.

Writing for the Court, Khanwilkar J. held that the 75% requirement was mandatory and that the shares of abstaining creditors could not be excluded in computing it. The 2018 amendment reducing the threshold to 66% did not apply to votes already taken.

The commercial wisdom of financial creditors, individually or collectively, is non-justiciable; the Code consciously provides no ground to challenge it. The NCLT's jurisdiction under Section 31 is confined to whether a plan approved by the committee meets the requirements of Section 30(2), and the NCLAT's to the grounds in Section 61(3). Neither acts as a court of equity or may inquire into why creditors voted as they did, and at the time dissenting creditors were not required to record reasons.

A plan that fails to secure the required majority is deemed rejected, and liquidation under Section 33 follows.

C
Step 4

Conclusion & Ruling

  1. (i)

    The appeals were dismissed, and the orders directing liquidation were upheld.

  2. (ii)

    The commercial wisdom of the committee of creditors in approving or rejecting a resolution plan is non-justiciable; the tribunals' review is confined to the statutory grounds.

  3. (iii)

    The principle was reaffirmed in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta and remains central to judicial review of resolution plans.

Authorities Cited

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  1. Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531Case brief →Full text of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta on Indian Kanoon
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