LI Network
Published on: November 30, 2023 at 13:25 IST
The Supreme Court has declared that the National Company Law Tribunal (NCLT), when exercising its authority under Section 31(2) of the Insolvency and Bankruptcy Code, 2016, to withhold approval of a resolution plan, must provide a reasoned order.
The court emphasized that Courts and Tribunals are duty-bound to record cogent reasons when passing such orders.
In a notable ruling, the Supreme Court overturned an NCLT order that suspended the approval of a resolution plan and directed the Official Liquidator to revalue the assets of the Corporate Debtor.
Additionally, the corresponding order from the National Company Law Appellate Tribunal (NCLAT) affirming the NCLT’s decision has also been set aside.
The bench, consisting of Justice Vikram Nath and Justice Ahsanuddin Amanullah, cautioned that while the NCLT may direct revaluation of Corporate Debtor assets when necessary, it must strictly adhere to the provisions outlined in the Insolvency and Bankruptcy Code (IBC).
The court’s ruling emphasized, “It is worthwhile to note that the Adjudicating Authority has jurisdiction only under Section 31(2) of the Code, which gives power not to approve only when the Resolution Plan does not meet the requirement laid down under Section 31(1) of the Code, for which a reasoned order is required to be passed. We may state that the NCLT’s jurisdiction and powers as the Adjudicating Authority under the Code, flow only from the Code and the Regulations thereunder.”
Background Facts
The Corporate Debtor, ACIL, underwent the Corporate Insolvency Resolution Process (CIRP) under the IBC, and the Committee of Creditors (CoC) approved a resolution plan submitted by Ramkrishna Forgings Limited (Successful Resolution Applicant/SRA).
Subsequently, the Resolution Professional sought NCLT’s approval of the resolution plan under Section 30(6) of IBC.
On September 1, 2021, the NCLT deferred approval of the SRA’s Resolution Plan and instructed the Official Liquidator to provide precise figures/values of assets. The SRA appealed this decision to the NCLAT, which, in a January 19, 2022 order, dismissed the appeal, citing the revelation of an avoidance transaction involving approximately Rs. 1000 Crores.
The SRA then appealed to the Supreme Court, arguing that the IBC already includes a mechanism for valuing Corporate Debtor assets through the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Therefore, appointing an Official Liquidator for valuation, a creation of the Companies Act, 2013, is unwarranted. The SRA also contended that the NCLT should not scrutinize the commercial decisions of the CoC.
Supreme Court Verdict
NCLT Can Reject a Resolution Plan Only Through a Reasoned Order
The Supreme Court stressed that the NCLT can reject a resolution plan solely through a reasoned order, as outlined in Section 31(2) of IBC. This power must be exercised within the framework of the IBC and its regulations.
The court emphasized the duty to record cogent reasons, stating, “Recording of reasons, and not just reasons but cogent reasons, for orders is a duty on Courts and Tribunals.”
While referring to previous judgments, the court highlighted that a Court or quasi-judicial authority is obligated to record reasons for its decisions. “Needless to add, ‘Reason is the heartbeat of every conclusion. Without the same, it becomes lifeless.'”
NCLT Can Direct Re-valuation of Assets Strictly Within the Domain Permitted by IBC
Responding to concerns raised during the proceedings, the bench clarified that the power to direct revaluation of assets should not be excluded from the NCLT’s jurisdiction. However, the court stated that such power must be exercised strictly within the confines permitted by the IBC.
“In this behalf, one may peruse the decisions in Embassy Property Developments Private Limited v State of Karnataka, (2020) 13 SCC 308 and Gujarat Urja Vikas Nigam Limited v Amit Gupta, (2021) 7 SCC 209.”
The Supreme Court set aside the NCLT and NCLAT orders dated 01.09.2021 and 19.01.2022, respectively, directing the NCLT to pass appropriate orders in the application for the approval of the resolution plan.
Case Title: Ramkrishna Forgings Limited v Ravindra Loonkar & Anr.