In a recent case, the Madras High Court held that though the Adjudicating Authority may not substitute the commercial wisdom of the Committee of Creditors ( CoC ), however, it must exercise jurisdiction akin to revisional jurisdiction to assess the correctness of the actions taken by the CoC.
National Sewing Thread Co. Ltd. (Petitioner), a public limited company registered under the MSME Act, 2006, was under the Corporate Insolvency Resolution Process under Section 7 of Insolvency and Bankruptcy Code, 2016 (‘IBC’) due to its failure to service the loan obtained from the Indian Overseas Bank.
From June 2019, the petitioner also failed to pay the electricity charges due to Tamil Nadu Generation and Distribution Corporation Limited (‘TANGEDCO’). TANGEDCO issued a Demand Notice claiming Rs. 32 Lakhs as unpaid electricity charges.
The petitioner contended that since the CoC under its commercial wisdom passed the Resolution Plan which also received the NCLT approval, all the outstanding claims or liabilities, not covered by the Plan are extinguished. The petitioner filed the writ of certiorari and mandamus to quash the Demand Notice issued by TANGEDCO and to further direct it to provide the electricity connection.
The court noted that the role of the Adjudicating Authority under IBC has been limited to ensuring that the Resolution Plan approved by the CoC has complied with Section 30(2) of IBC.
The Court found that when the information relied upon by the CoC is incomplete or shows a lack of due diligence by the Resolution Professional in gathering and verifying information, including instances where the suspended Board of the Corporate Debtor failed to fully disclose its affairs, which the Interim Resolution Professional or Resolution Professional could have discovered through due diligence.
It was observed that though the Adjudicating Authority shall not substitute the commercial wisdom of the CoC with its sense of fairness and equity, it can always refuse to approve the resolution plan if there is a breach of Explanation I to Section 30(2) of the IBC.
A single bench of Justice N. Seshasayee while dismissing the writ petition , held that “though the Adjudicating Authority may not substitute the commercial wisdom of the CoC, however, it must exercise jurisdiction akin to revisional jurisdiction to assess the correctness of the actions taken by the CoC.”
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