Commercial Wisdom of CoC Non-Justiciable, Promoter’s Higher Settlement Offer Cannot Stall CIRP Without 90% Approval: Supreme Court [Read Judgement]
The Supreme Court held that the CoC’s commercial wisdom cannot be questioned and a promoter’s higher settlement offer cannot stop CIRP without 90% approval under Section 12A of the IBC.
The Supreme Court held that the commercial wisdom of the Committee of Creditors (CoC) is not justiciable, and even if a promoter gives a higher settlement offer, CIRP cannot be stalled unless the settlement gets 90% approval under Section 12A of the Insolvency and Bankruptcy Code.
The case came from the CIRP of Hiranmaye Energy Ltd., which was admitted by the NCLT on 2 January 2024 and upheld by the NCLAT on 25 January 2024. During the Supreme Court proceedings, Power Trust, the promoter, repeatedly placed settlement proposals before the CoC after getting liberty from the Court.
Power Trust submitted three settlement proposals of Rs. 1,101.56 crore, Rs. 1,450 crore, and Rs. 1,601.29 crore. All were rejected by the CoC by overwhelming majority. The CoC said the corporate debtor had earlier failed to implement restructuring plans and also raised doubts about the promoter’s ability to pay, especially after a letter from SREI Equipment Finance Ltd. alleging dues of Rs. 633 crore payable by the promoter.
On 29 October 2024, while rejecting the promoter’s third settlement proposal, the CoC approved the resolution plan submitted by Damodar Valley Corporation (DVC) by 99.92% voting. After this, the promoter submitted a fourth and fifth settlement proposal of Rs. 1,606.86 crore and Rs. 1,671.86 crore, but both were also rejected.
Before the Supreme Court, the promoter’s counsel argued that its settlement offer was more viable and higher than the successful resolution plan, so CIRP should be kept in abeyance and CoC should be directed to consider the settlement.
Justice Joymalya Bagchi, speaking for the Bench comprising CJI Surya Kant and Justice Vipul M. Pancholi, observed that the IBC now has a clear statutory scheme for post-admission settlement through Section 12A, which requires 90% CoC voting. The court explained that courts cannot use inherent powers or Article 142 in a routine manner to withdraw CIRP once the statutory framework exists.
The court observed that the CoC had already rejected multiple settlement offers and had approved DVC’s resolution plan. The court explained that it is settled law that the commercial wisdom of the CoC in choosing one plan over another cannot be second-guessed by courts.
The court also observed that keeping CIRP stalled further at the promoter’s request would harm the objective of timely resolution and would prejudice the successful resolution applicant. On this reasoning, the Supreme Court dismissed the appeal and vacated the stay on CIRP.
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