The enactment of Insolvency and Bankruptcy Code, 2016 (IBC) has seen a positive shift in the Indian Insolvency framework. We start giving importance to revival of an entity over liquidation of an entity to safeguarding the interest of all stakeholders involved in an insolvency process and not just the secured creditor class, IBC assures that there is minimal dissatisfaction of the interests of the investors and creditors a like and a robust insolvency framework is put in place. The jump in India’s rank in the World Bank’s ease of doing business list from 130th in the year 2016 to 63rd in the year 2019 is also reflective of the same.
It is pertinent to note that there are two tribunals who play an important role in IBC i.e. National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). In this blog we will analyze the extent of powers of the tribunal in the approval of the Resolution Plan, especially after the Supreme Court judgment in the Committee of Creditors, Essar Steel Vs Satish Kumar Gupta.
Essence of Essar Steel case
In November, 2019 in Essar Steel case, the Hon’ble Apex court while upholding the primacy of the commercial wisdom of the committee of creditors (COC), struck down the judgment of the NCLAT and held that the power of the tribunals are just limited to examining the resolution plan within the contours of section 30(2) of the IBC and does not extend to rewriting the resolution plan, once it has been approved by the majority of creditors on the COC i.e. 66% of the majority if approves. The NCLAT had unreasonably interpreted the principle of equitable treatment, which signifies equal treatment for similarly situated creditors or creditors within the same class, to mean identical treatment for the different classes of creditor’s i.e. operational creditors and financial creditors. Further, the Supreme Court had clarified that it is alright for a resolution applicant to propose the resolution amount with a designated amount payable for debts of different classified creditors, and does not necessarily need to provide an intricate breakdown of the resolution amount for all the creditors within the different classes, which should thereby be left to the commercial wisdom of the CoC.
It’s worthwhile to mention then that it was only because of the intervention of NCLT that an freshex-gratia quantum of ₹ crore was granted in favour of the functional creditors with claims of above 1 crore, which else didn’t find place in the preliminarily approved resolution plan. Further, too important restriction of intervention powers of the Bars would affect in the fiscal creditors turning the emphasis of the resolution plan towards the full satisfaction of their claims and not functional creditors, in the garb of maximization of the means of the commercial debtor, which will surely shift the bankruptcy frame in the pre-IBC period and baffle the substance of transubstantiation the Indian bankruptcy frame.
Hereafter, it’s significant to take note as to how the Bars, post the Essar Steel case, have interpreted and executed their authority in the blessing of the resolution plan.
Situation Post Essar Steel Case
Since November 2019, right when the Apex Court delivered its judgment in the Essar Steel Case, there have been certain material cases where the Bars and/ or the courts actually interposed in the process leading up to the blessing of the resolution plan. In the case of Edelweiss Asset Reconstruction Company Limited. V. Sai Regency Power CorporationPvt.Ltd. andOrs.The NCLAT had an occasion to dissect as to whether donation for interim finance, necessary for the subsistence of the commercial debtor during the resolution process under IBC, can be taken only from secured fiscal creditors or indeed relaxed fiscal creditors are liable to contribute. The NCLAT, while maintaining the saintship of the process under IBC, held that there’s nothing in the vittles of Section 30 (4) of IBC, which indicate that only secured fiscal creditors are liable to contribute towards the interim finance and hence, both secured and relaxed fiscal creditors are liable to contribute. The NCLAT further noted that, indeed though the marketable wisdom of a differing fiscal creditor can not be questioned before the Tribunal, the same differing opinion can not be allowed to scuttle the process under IBC and the collaborative marketable wisdom of the CoC ( maturity of 66) will still be supposed to be enforceable. Then, the NCLAT, while upholding the marketable wisdom but also the saintship of the process under IBC, rigorously confined itself to examining the situation under the vittles of law, and not else, which properly justifies the intent of the Essar Steel case.
The Essar sword case will remain a significant juncture in the Indian bankruptcy and ruin frame for times to come. The judgment has not only illustrated the position that the indifferent treatment of creditors can not be taken to mean identical treatment for the different classes of creditors, but has also terminated and outlined the part of Bars in the blessing of the resolution plan. It would not be unsafe to conclude, hence, that indeed though the futurity of the power pertaining to the resolution plan still stays with the Bars in the process under IBC, it’s veritably pivotal that they easily understand their part in the process and chorus from overpassing the disciplines of their authority.