Resolution Plan cannot be challenged before the NCLT on the ground of failure to meet the threshold requirement where the same is purely a business decision: SC [Read Judgment]

The Supreme Court in the case of K. Sashidhar v. Indian Overseas Bank & Ors. held that if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non justiciable, is not open to challenge before the NCLT or NCLAT.

KS&PIPL was incorporated as a private limited company on 20th October, 2008. Its steel division commenced operation in the year 2013 but could not continue beyond this period due to financial crisis and eventually filled a petition for Insolvency. The petition was admitted initiating the Corporate Insolvency Resolution Process wherein the resolution plan concerning both the corporate debtors, namely KS&PIPL and IIL was considered by the concerned CoC and was approved by less than 75% of voting share of the financial creditors.

Hence, failure to meet the requirement of 75% was to be treated as disapproved or deemed to be rejected by the dissenting financial creditors. The resolution plan was expressly rejected by 15.15% in the CoC meeting and later additionally by 11.82% by email. Thus, the resolution plan was expressly rejected by not less than 25% of voting share of the financial creditors. In the case of corporate debtor IIL, the resolution plan received approval of only 66.57% of voting share of the financial creditors and 33.43% voted against the resolution plan. NCLAT opined that the resolution plan was deemed to be rejected by the CoC and the concomitant is to initiate liquidation process concerning the two corporate debtors.

The issue before the Apex Court was whether the amendment reducing the threshold limit to 66% had a retrospective effect and is applicable in the present case.

It was analyzed by Hon’ble Justice A.M. Khanwilkar that when a resolution plan is rejected, the NCLT is not expected to do anything more but obliged to initiate liquidation process under Section 33(1) of the I&B Code. The I&B Code lists the grounds on which the resolution plan can be rejected. The NCLT as best has the powers to cause an enquiry into the “approved” resolution plan on limited grounds mentioned under the Act. Furthermore, none of authorities from resolution professional, NCLT or NCLAT have been empowered by the Code to reverse “commercial decision” of the CoC. For, the approval of the resolution plan by the CoC can be challenged on those grounds. However, if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non justiciable, is not open to challenge before the NCLT or NCLAT.

The Hon’ble Court hence held that the order of the Tribunal cannot be set aside under Article 142 of the Constitution on the ground that same is to be read in light of the amended provision of the I&B Code with a reduced threshold requirement of 66%. The Court hence upheld the decision of the NCLAT.