The National Company Law Appellate Tribunal affirmed the National Company Law Tribunal’s order directing liquidation of M/S Micro Turner, holding that the Committee of Creditors’ commercial wisdom in rejecting a resolution plan is non-justiciable and that statutory claim adjustments do not compel a plan’s alteration.
Background & Facts
The Initiation of CIRP and Appointment of Resolution Professional
- 18.07.2018: Corporate insolvency resolution process (CIRP) commenced for Laxmi Precision Screws Limited; Mr. Deepak Thakur was appointed as Interim Resolution Professional (later confirmed by the Committee of Creditors - CoC).
The Resolution Plan and Early Approvals
- 10.04.2019: CoC approved the resolution plan submitted by the appellant.
- 12.04.2019: The appellant filed the plan before the adjudicating authority (CA No.274/2019) for approval.
- The plan offered workers only 54.42% of their statutory dues.
Strikes and Workmen Challenges
- 20.07.2019: Workmen at Units I and II went on strike, halting operations.
- IA Nos. 45/2020 and 46/2020 were filed by workmen alleging non-compliance with Section 53 of the IBC.
Directions to Address Statutory Dues
- 08.09.2022: Adjudicating Authority directed the appellant to file an affidavit on Provident Fund (PF) and gratuity liabilities.
- 21.10.2022: Affidavit filed, stating PF liability of Rs. 14.20 crores, gratuity liability of Rs. 22.28 crores, total statutory dues of Rs. 36.48 crores.
- 01.12.2022: Authority referred the plan back to CoC, directing consideration of additional statutory claims within 30 days.
CoC Meetings and Rejection of the Plan
- 15.12.2022: 33rd CoC meeting noted the 01.12.2022 order.
- 20.12.2022: 34th CoC meeting urged the appellant to revise the plan; appellant declined, suggesting liquidation instead.
- 28.12.2022: 35th CoC meeting formally rejected the resolution plan for failure to increase its value.
Applications for Extension and Set-aside
- 09.01.2023: CoC filed IA No.140/2023 seeking enlargement of the CIRP period beyond 270 days.
- 01.02.2023: Appellant filed IA No.280/2023 to set aside CoC’s rejection of the plan.
Impugned Order
- 13.05.2024: Adjudicating Authority dismissed IA Nos. 140/2023 and 280/2023 and directed liquidation of the corporate debtor.
Subsequent Developments
- The appellant did not challenge the orders dated 08.09.2022 and 01.12.2022, which have attained finality.
Relief Sought
- The appellant sought setting aside the impugned order of 13.05.2024, restoration of the approved resolution plan, and direction to continue the CIRP.
The Legal Issue
What is the extent of judicial review over the Committee of Creditors’ commercial decision to reject an already approved resolution plan and to opt for liquidation, and can statutory claim adjustments under the IBC compel the CoC to modify its decision?
Arguments Presented
For the Appellant
- The appellant contended that once the CoC approved the plan on 10.04.2019, the commercial bargain became binding and could not be reopened merely because of later statutory claim considerations.
- Relied on Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. and Express Resorts and Hotels Ltd. v. Amit Jain to argue that the CoC’s decision, once approved, is sacrosanct.
- Asserted that the total consideration of Rs. 170 crores was a full and final settlement for all creditors, including statutory dues.
For the Respondent
- The respondent argued that the CoC’s power to take a “business decision” includes the authority to reject a plan and order liquidation when the plan is non-compliant with Section 53 IBC or when statutory dues are not fully met.
- Cited Sanjay Dave v. Andhra Bank Ltd. and Devi Trading & Holding Pvt. Ltd. v. Ravi Shankar Devarakonda to emphasize that the CoC’s commercial wisdom is non-justiciable and that the adjudicating authority may direct reconsideration of statutory claims without overturning the CoC’s commercial decision.
- Highlighted that the appellant itself sought a revision of the plan, thereby waiving any claim of irrevocability.
The Court's Analysis
The Tribunal examined the scope of the CoC’s commercial discretion under the Insolvency and Bankruptcy Code (IBC). It reiterated that the CoC is a pivotal decision-making body vested with the power to evaluate the feasibility, viability and financial aspects of a resolution plan. As noted in Sanjay Dave v. Andhra Bank Ltd., the CoC “can always change its mind and pass a resolution liquidating the Corporate Debtor as long as the resolution plan is not approved by the Adjudicating Authority.”
"that after approval of the resolution plan by the CoC, the CoC can always change its mind and pass a resolution liquidating the Corporate Debtor as long as the resolution plan is not approved by the Adjudicating Authority."
The Tribunal held that this commercial wisdom is non-justiciable, meaning that courts may not substitute their own assessment for that of the CoC. The Tribunal distinguished the appellant’s reliance on Ebix Singapore by observing that the cited cases dealt with unilateral withdrawal upon receipt of a better proposal, whereas here the CoC rejected the plan on statutory non-compliance and commercial viability grounds.
Further, the Tribunal emphasized that the orders dated 08.09.2022 and 01.12.2022 were never challenged; consequently, they had attained finality and could not be reopened. The statutory claims under the Employees’ Provident Fund and Gratuity Acts, while required to be considered, do not override the CoC’s discretion to reject a plan that does not meet the 100 % statutory dues threshold mandated by later Supreme Court judgments (e.g., Jet Aircraft Maintenance Engineers Welfare Association).
The Tribunal also referred to Devi Trading to underline that the CoC’s “business decision” encompasses not only acceptance of a proposal but also the power to deem a plan unviable and order liquidation. The CoC’s refusal to increase the plan value, despite the appellant’s suggestion of liquidation, was deemed a legitimate exercise of its statutory authority under Section 33(2) of the IBC, as amended in 2019.
Finally, the Tribunal concluded that the appellant’s IA seeking enlargement of the CIRP period and set-aside of the CoC’s decision was untenable, given the lack of any procedural infirmity in the NCLT’s earlier orders and the clear legislative intent to afford the CoC wide latitude in commercial judgments.
The Verdict
The appeal is dismissed. The order dated 13.05.2024 passed by the National Company Law Tribunal, which dismissed IA Nos. 140/2023 and 280/2023 and directed liquidation of the corporate debtor, is upheld. No costs are awarded. All pending interim applications, if any, are disposed of.
What This Means For Similar Cases
CoC’s Commercial Wisdom Is Non-Justiciable
- Courts will not intervene in the CoC’s assessment of a plan’s commercial viability.
- Parties cannot claim that a CoC-approved plan becomes immutable; the CoC may still order liquidation before adjudicating-authority approval.
Statutory Claims Do Not Override CoC Decisions
- Obligations under PF, gratuity and other statutory statutes must be considered, but failure to meet them does not compel the CoC to modify a rejected plan.
- Unchallenged directions of the adjudicating authority acquire finality and cannot be revisited.
Earlier NCLT Directions Must Be Respected
- Parties must challenge any adverse direction of the NCLT at the earliest; failure to do so results in those orders attaining finality.
- Applications for extension of the CIRP period cannot be used to overturn a CoC’s commercial decision.
Practical Takeaways
- When drafting a resolution plan, ensure full compliance with statutory dues to avoid CoC rejection.
- Raise any objections to NCLT orders promptly; delayed challenges are unlikely to succeed.
- Counsel should advise clients that the CoC retains the power to shift from resolution to liquidation even after plan approval, provided the adjudicating authority has not yet confirmed the plan.
