ACRE – 81 Trust and Ors. Vs. Pawan Kumar Goyal IRP and Ors.- CoC has the power to liquidate the CD before confirmation of the resolution plan. The said decision in the case of Sunil S. Kakkad (Supra) has further been affirmed by the Hon’ble Supreme Court when the appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021.

 NCLAT (2024.01.17) in ACRE – 81 Trust and Ors. Vs. Pawan Kumar Goyal IRP and Ors. [(2024) ibclaw.in 40 NCLAT, Comp. App. (AT) (Ins) No. 447 of 2023 & I.A. No. 1475, 1476 of 2023] held that;

• There is an error in the approach of the Adjudicating Authority that for the purpose of taking a decision regarding the liquidation of the CD, the CoC has to complete all the steps regarding resolution of the CD because it would be against the spirit of Section 33(2) and explanation appended to it wherein the legislature has used the word any time twice i.e., firstly, in Section 33(2) and secondly, in the explanation of Section 33(2) of the Code that the CoC has the jurisdiction to pass the order of liquidation of the CD,

• CoC has the power to liquidate the CD before confirmation of the resolution plan. The said decision in the case of Sunil S. Kakkad (Supra) has further been affirmed by the Hon’ble Supreme Court when the appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021.

• Finally the provision of Section 65 has no application because it would apply if the application is filed for the purpose other than liquidation.

Excerpts of the order;

This appeal has been filed by ACRE-81 Trust (Appellant No. 1), India Real Estate 2021 Trust (Appellant No. 2), ACRE -100 Trust (Appellant No. 3) and Catalyst Trusteeship Limited (Appellant No. 4), all assenting members of the Committee of Creditors (in short ‘CoC’) of SARE Realty Projects Pvt. Ltd. (Corporate Debtor) having voted to liquidate the Corporate Debtor, against the order dated 16.03.2023 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court II) in I.A. No. 3818/ND/2021 in CP (IB) No. 684/ND/2020, by which show cause notice has been issued seeking an explanation of the Appellants as to why the penalty stipulated under Section 65 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) be not imposed upon them.

# 2. In brief, one Dharam Vir Gupta, filed an application under Section 9 of the Code, as an operational creditor before the Adjudicating Authority bearing C.P. (IB) No. 684 of 2020 against the Corporate Debtor. The Corporate Debtor did not file any reply nor appeared during the proceedings and was proceeded against ex-parte on 01.03.2021. The Adjudicating Authority admitted the application filed under Section 9 of the Code, vide its order dated 05.03.2021 and appointed the IRP besides imposing the moratorium. The IRP made a public announcement on 09.03.2021 to invite claims from the creditors of the Corporate Debtor. The IRP conducted first meeting of the CoC on 06.04.2021 and informed the members of the CoC that the office of the Corporate Debtor was closed for more than one year, all the directors of the Corporate Debtor had resigned before the commencement of the CIRP, last audited financial statements of the Corporate Debtor filed with the ROC were for the year ending March 31, 2017 and the secured financial creditors of the Corporate Debtor had initiated enforcement action under SARFAESI Act, 2002 and taken over possession of the project assets. One of the authorized representatives of CoC members, India Real Estate 2021 Trust and ACRE-81 Trust, proposed the liquidation of the Corporate Debtor.

# 3. Second meeting of the CoC was held on 27.05.2021 in which liquidation of the Corporate Debtor was proposed and publication of Form G was deferred till the CoC take the decision on the issue of early liquidation. The 3rd meeting of the CoC held on 23.06.2021 in which the members of the CoC again discussed the early liquidation of the Corporate Debtor. The IRP also highlighted the high cost involved in the continuation of CIRP. The 4th CoC meeting was held on 27.07.2021 in which members of the CoC proposed to take the issue of liquidation of the CD before other agenda items. The CoC had a detailed deliberation on the issue of liquidation including powers of the CoC to recommend liquidation at any time before the approval of the resolution plan and the members of the CoC decided to liquidate the CD in terms of Section 33 of the Code but at the request of the majority members of the CoC, e-voting on the said agenda was deferred. The IRP sent a notice for conducting the 5th CoC meeting to be held on 13.08.2021. On 12.08.2021, the representative of India Real Estate Trust 2021 and ACRE -81 Trust sent an email to IRP and other members of the CoC proposing early liquidation of the CD. In the 5th meeting of the CoC was held on 13.08.2021 in which the CoC continued their deliberations on the issue of liquidation of the CD which was not voted upon in the 4th CoC meeting. E-voting on the said issue was conducted during the period from 16.08.2021 till 18.08.2021 in which 88.48% of the CoC members including the financial creditors in class, i.e. allottees/homebuyers voted in favour of the liquidation of CD. The IRP filed an application for liquidation of the Corporate Debtor bearing I.A. No. 3818 of 2021 with the following prayers:-

“a. allow the present application.

b. Pass an order for liquidation of the CD under Section 33(2) r/w Explanation and in terms of sub-clauses (i), (ii) and (iii) of clause (b) of sub-clause (1) of Section 33 of the Code.

c. Pass an order to appoint the Interim Resolution Professional Pawan Kumar Goyal, IBBI Registration No. IBBI/IPA-001/IP-P00875/2017-18/11473 as Liquidator of the Corporate Debtor.

d. Pass any other or further order(s) as this Hon’ble Tribunal deem fit and proper in the facts and circumstances of the matter”

# 4. In the impugned order, the Adjudicating Authority has observed that until EOI in From G is published, there is no mechanism under the regime of IBC to discover prospective resolution applicants for a corporate debtor and without publishing Form-G, CoC could not have been in a position to formulate an opinion that there were no prospective buyers available for the CD. It further observed that the scheme of IBC gives every Corporate Debtor a fair chance to stand on their own feet and to come out of financial distress and that is why every Corporate Debtor must go through the IBC mandated CIR process before facing the liquidation proceedings. It was concluded that without taking any steps for seeking resolution of the Corporate Debtor, the CoC has acted contrary to the scheme of IBC. With these observations, the Adjudicating Authority has further observed that it was prima facie of the opinion that the application for liquidation of CD has been filed with malicious intent and therefore, it was found as a fit case for issuance of show cause notice to the assenting CoC members jointly who voted in favour of the liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor. The Appellants herein have thus been asked to show as to why penalty stipulated under Section 65 of the Code should not be imposed on them.

# 5. Although, the Adjudicating Authority has asked the present Appellants to file a joint reply to the show cause notice and had also observed that it has not finally adjudicated upon the liquidation application, the fate of which would depend upon the outcome of Section 65 proceedings initiated against the assenting CoC members but aggrieved against the aforesaid impugned order dated 16.03.2023, the present appeal has been filed in which on the date of preliminary hearing held on 13.04.2023, this Court passed the order of stay ‘in the meantime, issuance of notice under Section 65 in the impugned order shall remain stayed’. Thus as a matter of fact, no notice was there before the Appellants for the purpose of giving reply to the same.

# 6. Counsel for the Appellant has vehemently argued that not only the Adjudicating Authority has committed an error in invoking Section 65 of the Code for the purpose of issuance of show cause notice but also it misread the provisions of Section 33(2) of the Code and the explanation of the Code. It is submitted that as per Section 33(2), the Resolution Professional, at any time during the CIRP but before confirmation of resolution plan, intimate the Adjudicating Authority of the decision of the CoC (approved by not less than sixty six per cent. of the voting share) to liquidate the CD. It is further submitted that explanation to Section 33(2) further provides that the CoC may take the decision to liquidate the CD any time after its constitution and before the confirmation of the resolution plan including at any time before the preparation of the information memorandum. In support of his submissions, he has relied upon a decision of this Appellate Tribunal rendered in the case of Sunil S. Kakkad Vs. Atrium Infocom Pvt. Ltd. & Ors., 2020 SCC Online NCLAT 1160 in which the question involved was as to whether the Resolution Professional with the approval of CoC with 66 per cent vote share can directly proceed for the liquidation of CD without taking any steps for resolution of the CD? He has submitted that in the said case only three meetings of CoC took place and without making any endeavour for inviting EOI, the CoC unanimously resolved to liquidate the CD. He has further referred to Para 19, 20 and 21 of the said decision in which the power of the CoC has been discussed in respect of Section 33(2) of the Code as per which it can order for liquidation at any stage but before confirmation of resolution plan. It is further submitted that the decision in the case of Sunil S. Kakkad (Supra) has further been upheld by the Hon’ble Supreme Court reported as 2021 SCC Online SC 723. It is further submitted that in the present case the decision has been taken by the CoC in its fifth meeting for the liquidation of the CD by 88.48% voting share. It is also submitted that the decision relied upon by the Adjudicating Authority in the case of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. is not applicable because it is prior in time to the amended Section 33(2) of the Code which clearly empowers the CoC to liquidate the CD at any time after the constitution of the CoC and prior to the approval of the resolution plan.

# 7. As regards the issuance of show cause notice under Section 65 of the Code is concerned, it is argued that the said provision has been invoked without application of mind because it provides that it can be invoked if the proceedings have been initiated with malicious intent for any purpose other than for the liquidation. Whereas in the present case, the proceedings have been initiated for the liquidation, therefore, the said provision would not apply and has been wrongly invoked for the purpose of issuance of show cause notice and in this regard, reliance has been placed upon the orders passed in Unigreen Global Pvt. Ltd. Vs. Punjab National Bank CA (AT) (Ins) No. 81 of 2017 in which it has been held that no such penalty under sub-Section (1) or (2) of Section 65 can be imposed by the Adjudicating Authority without recording opinion for coming to the conclusion that a prima facie case is made out to suggest that the person fraudulently or with malicious intent for the purpose other than the resolution of the insolvency or liquidation or with the intent to defraud any person has filed the application. It is submitted that the Adjudicating Authority has though observed that it has found prima facie that a case has been made out against the Appellant but the reason to frame the opinion much less prima facie is conspicuous by its absence in the impugned order.

# 8. Counsel on behalf of the RP has also appeared in this case.

# 9. We have heard Counsel for the parties and perused the record with their able assistance.

# 10. There is no dispute that the CoC took a decision for liquidation of the CD after holding five meetings and by voting share of 88.48 per cent which meets the criteria laid down in Section 33(2) of the Code. There is an error in the approach of the Adjudicating Authority that for the purpose of taking a decision regarding the liquidation of the CD, the CoC has to complete all the steps regarding resolution of the CD because it would be against the spirit of Section 33(2) and explanation appended to it wherein the legislature has used the word any time twice i.e., firstly, in Section 33(2) and secondly, in the explanation of Section 33(2) of the Code that the CoC has the jurisdiction to pass the order of liquidation of the CD, approving it by not less than sixty six per cent of the voting share, but it should be before the confirmation of the resolution plan. In the case of Sunil S. Kakkad (Supra), this Court has categorically framed a question as to whether the RP, with the approval of the CoC with sixty six per cent vote share, directly proceed for the liquidation of CD without taking any steps for resolution of the CD. In the said case, there were three meetings of CoC in which without making endeavour for inviting EOI, the CoC unanimously resolved to liquidate the CD and that issue came for adjudication before this Court in which while referring to Section 33(2) and the explanation appended thereto it has been ordered that the CoC has the power to liquidate the CD before confirmation of the resolution plan. The said decision in the case of Sunil S. Kakkad (Supra) has further been affirmed by the Hon’ble Supreme Court when the appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021 and in so far as the issuance of notice under Section 65 is concerned, firstly, the issuance of notice was stayed by this Court vide its order dated 13.04.2023 and secondly, the Adjudicating Authority has not given any reason for forming an opinion much less prima facie that it was a case of malicious intent on the part of the Applicant/RP with the connivance of assenting members of CoC to whom the show cause notice was given and finally the provision of Section 65 has no application because it would apply if the application is filed for the purpose other than liquidation.

# 11. Thus, from the aforesaid discussion and looking from any angle, the impugned order does not deserve to survive and hence, the present appeal is allowed and the impugned order is set aside though without any order as to costs.

----------------------------------------------

Vallal Rck v. M/s. Siva Industries And Holdings Limited And Ors - When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC.

Supreme Court (03.06.2022) in Vallal Rck v. M/s. Siva Industries And Holdings Limited And Ors [Civil Appeal Nos. 1811-1812 of 2022] held that;

• When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. 

• The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.

• It could thus be seen that this Court has found that if the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the learned NCLT and thereafter the learned NCLAT can always set aside such decision under the provisions of the IBC.

Excerpts of the order;  

# 1. These appeals challenge the common judgment dated 28th January 2022 passed by the learned National Company Law Appellate Tribunal, Chennai Bench, Chennai (hereinafter referred to as the “NCLAT”) in Company Appeal (AT)(CH)(Insolvency) Nos. 211 and 212 of 2021, thereby dismissing the appeals filed by the present appellant, which were in turn filed, challenging the two orders dated 12th August 2021 passed by the learned National Company Law Tribunal, Division Bench-II, Chennai (hereinafter referred to as the “NCLT”), thereby rejecting the application filed by the Resolution Professional (“RP” for short) under Section 12A of the Insolvency and Bankruptcy Code, 2016 (“IBC” for short) read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the“2016 Regulations”), for withdrawal of the application filed under Section 7 of the IBC in view of the Settlement Plan submitted by the appellant. The appellant has also challenged the order passed by the learned NCLAT of the even date vide which the appeal filed by the present appellant against the order passed by the learned NCLT directing initiation of liquidation proceedings in respect of M/s Siva Industries and Holdings Limitedrespondent No.1 herein (hereinafter referred to as the “Corporate Debtor”), was dismissed.

 

# 2. A short question that falls for consideration in the present appeal is as to whether the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (hereinafter referred to as the “CoC”) or not.

 

# 3. The facts in brief giving rise to the present appeals are as under:

IDBI Bank Limited had filed an application under Section 7 of the IBC for initiation of Corporate Insolvency Resolution Process (hereinafter referred to as the “CIRP”) in respect of the Corporate Debtor. The learned NCLT, vide its order dated 4th July 2019, admitted the said application. As a result of which, CIRP in respect of the Corporate Debtor was initiated. The RP had presented a Resolution Plan before the CoC, submitted by one M/s Royal Partners Investment Fund Limited. However, since the said Plan received only 60.90% votes of the CoC and could not meet the requirement of receiving 66% votes, the said Plan could not be approved.

 

# 4. The RP, on 8th May 2020, filed an application being IA/837/IB/2020 under Section 33(1)(a) of the IBC seeking initiation of liquidation process of the Corporate Debtor. The appellant, who is the promoter of the Corporate Debtor, filed  a settlement application being IA/647/IB/2020 before the NCLT under Section 60(5) of the IBC, showing his willingness to offer one time settlement plan. The appellant sought necessary directions to the CoC to consider the terms of Settlement Plan as proposed by him. From the month of October to December 2020, the 13th, 14th and 15th meetings of the CoC were held to consider the Settlement Plan as submitted by the appellant. Deliberations took place in the said meetings with regard to the said Settlement Plan and the final settlement proposal which was submitted by the appellant came to be considered by the CoC in its 16th meeting held on 18th January 2021. Initially, the said Settlement Plan received only 70.63% votes. However subsequently, one of the Financial Creditors viz. International Assets Reconstruction Co. Ltd. (hereinafter referred to as “IARCL”) having voting share of 23.60%, decided to approve the said Settlement Plan and intimated the RP about the same. 

 

# 5. Since the said Settlement Plan stood approved by more than 90% voting share, the RP filed an application before the learned NCLT seeking necessary directions based on the request of IARCL. Vide its order dated 29th March 2021, the learned NCLT ordered the RP to reconvene a meeting of CoC and place the email of IARCL before it. Accordingly, the 17th CoC meeting was convened on 1st April 2021, wherein the said Settlement Plan was approved with a voting majority of 94.23%. Accordingly, the RP filed an application being MA/43/CHE/2021 in IBA/453/2019 before the learned NCLT seeking withdrawal of CIRP initiated against the Corporate Debtor in view of the approval of the said Settlement Plan by CoC.

 

# 6. The learned NCLT, vide its order dated 12th August 2021, while holding that the said Settlement Plan was not a settlement simpliciter under Section 12A of the IBC but a “Business Restructuring Plan”, rejected the application for withdrawal of CIRP and approval of the Settlement Plan. Vide another order of even date, the learned NCLT initiated liquidation process of the Corporate Debtor in IA/837/IB/2020 as well. Being aggrieved thereby, the appellant preferred two appeals before the learned NCLAT. Vide the common impugned judgment dated 28th January 2022, the same came to be dismissed. Hence, the present appeals.

 

# 7. Notice was issued by this Court in the present appeals on 11th March 2022. While issuing notice, this Court also granted stay of the impugned judgment. Insofar as the respondent No.1 is concerned, no one appeared. Shri Abhishek Swaroop, learned counsel appearing on behalf of the respondent No.2 also does not wish to contest the matter. As such, we could have very well allowed the appeals as being uncontested. However, since an important question with regard to interpretation of Section 12A of the IBC arises, we are inclined to consider the matter for deciding the said issue.

 

# 8. We have heard Dr. Abhishek Manu Singhvi, learned Senior Counsel appearing on behalf of the appellant. 

 

# 9. Dr. Singhvi submits that it is more than well settled that the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC.  He submitted that the CoC, having accepted the Settlement Plan with the voting majority of 94.23%, the learned NCLT and the learned NCLAT have grossly erred in rejecting the Settlement Plan and withdrawal of CIRP.

 

# 10. Dr. Singhvi submitted that one of the main objects of the IBC is permitting the Corporate Debtor to continue as an ongoing concern and at the same time, paying the dues of the creditors to the maximum. He submits that the impugned judgment dated 28th January 2022 passed by the learned NCLAT and the orders dated 12th August 2021 passed by the learned NCLT are totally contrary to the spirit behind the IBC.

 

# 11. For considering these submissions, it will be apposite to refer to Section 12A of the IBC, which reads thus:

• “12A. Withdrawal of application admitted under Section 7, 9 or 10.—The Adjudicating Authority may allow the withdrawal of application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.”

 

# 12. It is relevant to note that Section 12A of the IBC was brought in the statute book vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act No. 26 of 2018). The Statement of Objects and Reasons (for short “SOR”) of the Act No. 26 of 2018 would reveal that after the IBC was enacted in 2016, it had emerged that further fine tuning of the IBC would be required. The Government therefore constituted an Insolvency Law Committee (hereinafter referred to as the “said Committee”) to review the functioning and implementation of the IBC. The SOR would further reveal that the recommendations of the said Committee were examined by the Government and it was accordingly decided to amend the IBC. One of the amendments proposed was for making a provision for withdrawal of application for initiation of CIRP admitted by Adjudicating Authority. It was recommended that such an exit should be allowed provided the CoC approves such action by 90% voting share.

 

# 13. It will be relevant to refer to Clause (vii) of the key recommendations in the Report of the said Committee dated 26th March 2018, which reads thus:

• “(vii) in order to cater to exceptional circumstances warranting withdrawal of an application for CIRP postadmission, it has been recommended to allow such exit provided the CoC approves such action by ninety per cent of voting share;”

 

# 14. It will also be relevant to refer to paragraph (29) of the Report of the said Committee, which reads thus:

• “29. WITHDRAWAL OF CIRP PROCEEDINGS PURSUANT TO SETTLEMENT

• 29.1 Under rule 8 of the CIRP Rules, the NCLT may permit withdrawal of the application on a request by the applicant before its admission. However, there is no provision in the Code or the CIRP Rules in relation to permissibility of withdrawal post admission of a CIRP application. It was observed by the Committee that there have been instances where on account of settlement between the applicant creditor and the corporate debtor, judicial permission for withdrawal of CIRP was granted. This practice was deliberated in light of the objective of the Code as encapsulated in the BLRC Report, that the design of the Code is based on ensuring that “all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution.” Thus, it was agreed that once the CIRP is initiated, it is no longer a proceeding only between the applicant creditor  the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. 

• 29.2 On a review of the multiple NCLT and NCLAT judgments in this regard, the consistent pattern that emerged was that a settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted, and not only the applicant creditor and the debtor. On this basis read with the intent of the Code, the Committee unanimously agreed that the relevant rules may be amended to provide for withdrawal post admission if the CoC approves of such action by a voting share of ninety per cent. It was specifically discussed that rule 11 of the National Company Law Tribunal Rules, 2016 may not be adopted for this aspect of CIRP at this stage (as observed by the Hon’ble Supreme Court in the case of Uttara Foods and Feeds Private Limited v. Mona Pharmacem) and even otherwise, as the issue can be specifically addressed by amending rule 8 of the CIRP Rules.”

 

# 15. It could thus be seen from the Report of the said Committee that, the said Committee had observed that there have been instances where on account of settlement between the applicant creditor and the corporate debtor, judicial permission for withdrawal of CIRP was granted. The Report would further reveal that it refers to Banking Law Reforms  Committee Report which emphasizes that the law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. It also emphasizes that the liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution. The said Committee states that once the CIRP is initiated, it is no longer a proceeding only between the applicant creditor and the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the IBC is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. The Report would further reveal that a settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted, and not only the applicant creditor and the debtor. The said Committee therefore recommended that the relevant rules may be amended to provide for withdrawal post admission if the CoC approves of such action by a voting share of ninety per cent.

 

# 16. It could thus be seen that Section 12A of the IBC was brought in the statute book on the basis of the said Committee’s Report. It could be noticed that though by the Amendment Act No. 26 of 2018, the voting share of 75% of CoC for approval of the Resolution Plan was brought down to 66%, Section 12A of the IBC which was brought in the statute book by the same amendment, requires the voting share of 90% of CoC for approval of withdrawal of CIRP. It could thus clearly be seen that a more stringent provision has been made insofar as withdrawal of CIRP is concerned. 

 

# 17. It is further to be noted that after Section 12A of the IBC was brought in the statute book, Regulation 30A of the 2016 Regulations came to be inserted vide notification dated 3rd July 2018. The same came to be substituted vide notification dated 25th July 2019. Regulation 30A of the 2016 Regulations reads thus:

• “30A. Withdrawal of application.—

• (1) An application for withdrawal under Section 12A may be made to the Adjudicating Authority—

• (a) before the constitution of the committee, by the applicant through the interim resolution professional;

• (b) after the constitution of the committee, by the applicant through the interim resolution professional or the resolution professional, as the case may be:

• Provided that where the application is made under clause (b) after the issue of invitation for expression of interest under Regulation 36A, the applicant shall state the reasons justifying withdrawal after issue of such invitation. 

• (2) The application under subregulation (1) shall be made in Form FA of the Schedule accompanied by a bank guarantee—

• (a) towards estimated expenses incurred on or by the interim resolution professional for purposes of Regulation 33, till the date of filing of the application under clause (a) of subregulation (1); or

• (b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of Regulation 31, till the date of filing of the application under clause (b) of subregulation (1).

• (3) Where an application for withdrawal is under clause (a) of subregulation (1), the interim resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt.

• (4) Where an application for withdrawal is under clause (b) of subregulation (1), the committee shall consider the application, within seven days of its receipt.

• (5) Where the application referred to in subregulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval.

• (6) The Adjudicating Authority may, by order, approve the application submitted under subregulation (3) or (5).

• (7) Where the application is approved under subregulation (6), the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of subregulation (2) till the date of approval by the Adjudicating Authority, as determined by the interim resolution professional or resolution professional, as the case may be, within three days of such approval, in the bank account of the corporate debtor, failing which the bank guarantee received under subregulation (2) shall be invoked, without prejudice to any other action permissible against the applicant under the Code.”

 

# 18. A perusal of the said Regulation would reveal that where an application for withdrawal under Section 12A of the IBC is made after the constitution of the Committee, the same has to be made through the interim resolution professional or the resolution professional, as the case may be. The application has to be made in FormFA. It further provides that when an application is made after the issue of invitation for expression of interest under Regulation 36A, the applicant is required to state the reasons justifying withdrawal of the same. The RP is required to place such an application for consideration before the Committee. Only after such an application is approved by the Committee with 90% voting share, the RP shall submit the same along with the approval of the Committee to the adjudicating authority. It could thus be seen that a detailed procedure is prescribed under Regulation 30A of the 2016 Regulations as well. 

 

# 19. In the case of Swiss Ribbons Privated Limited and Another v. Union of India and Others1, one of the challenges made was with regard to validity of Section 12A of the IBC. It was argued that the figure of 90% voting share was arbitrary. It was the contention that though the withdrawal was just and proper, the CoC could exercise the power arbitrarily to reject such a settlement. While rejecting the said contention, this Court observed thus:

• “83. The main thrust against the provision of Section 12A is the fact that ninety per cent of the Committee of Creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in the absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report (supra). Also, it is clear, that under Section 60 of the Code, the Committee of Creditors do not have the last word on the subject. If the Committee of Creditors arbitrarily rejects a just settlement and/or withdrawal claim, NCLT, and thereafter, NCLAT can always set aside such decision under Section 60 of the Code. For all these reasons, we are of the view that Section 12A also passes constitutional muster.”

 

# 20. It could thus be seen that this Court has found that if the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the learned NCLT and thereafter the learned NCLAT can always set aside such decision under the provisions of the IBC.

 

# 21. This Court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. A reference in this respect could be made to the judgments of this Court in the cases of 

• K. Sashidhar v. Indian Overseas Bank and Others 

• Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta and Others 

• Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Others

• Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another and 

• Jaypee Kensington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others.

 

# 22. No doubt that the aforesaid observations have been made by this Court while considering the powers of the CoC while granting its approval to the Resolution Plan. 

 

# 23. As already stated hereinabove, the provisions under Section 12A of the IBC have been made more stringent as compared to Section 30(4) of the IBC. Whereas under Section 30(4) of the IBC, the voting share of CoC for approving the Resolution Plan is 66%, the requirement under Section 12A of the IBC for withdrawal of CIRP is 90%.

 

# 24. When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.

 

# 25. In the present case, the proceedings of the 13th, 14th and 15th meetings of CoC would clearly show that there were wide deliberations amongst the members of the CoC while considering the Settlement Plan as submitted by the appellant. Not only that, the proceedings would also reveal that after suggestions were made by some of the members of the CoC, suitable amendments were carried out in the Settlement Plan by the appellant. One of the members of the CoC having voting share of 23.60%, though initially opposed the Settlement Plant, subsequently decided to support the same. Accordingly, the NCLT itself, vide order dated 29th March 2021, directed the RP to reconvene the CoC meeting. As per the directions of the NCLT, on 1st April 2021, the 17th meeting of the CoC was reconvened, wherein the Settlement Plan was approved by 94.23% votes.

 

# 26. It is thus clear that the decision of the CoC was taken after the members of the CoC, had due deliberation to consider the pros and cons of the Settlement Plan and took a decision exercising their commercial wisdom. We are therefore of the considered view that neither the learned NCLT nor the learned NCLAT were justified in not giving due weightage to the commercial wisdom of CoC.

 

# 27. This Court has, time and again, emphasized the need for minimal judicial interference by the NCLAT and NCLT in the framework of IBC. We may refer to the recent observation of this Court made in the case of Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another:

• “95. ….However, we do take this opportunity to offer a note of caution for NCLT and NCLAT, functioning as the adjudicatory authority and appellate authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, the IBC was introduced in order to overhaul the insolvency and bankruptcy regime in India. As such, it is a carefully considered and well thought out piece of legislation which sought to shed away the practices of the past. The legislature has also been working hard to ensure that the efficacy of this legislation remains robust by constantly amending it based on its experience. Consequently, the need for judicial intervention or innovation from NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC…..” 

 

 # 28. In the result, we pass the following order: 

(i) The appeals are allowed;

(ii) The impugned judgment dated 28th January 2022 delivered by the learned NCLAT in Company Appeal (AT)(CH)(Insolvency) Nos. 211 and 212 of 2021 and the orders dated 12th August 2021 passed by the learned NCLT in MA/43/CHE/2021 in IBA/453/2019 and in IA/837/IB/2020 in IBA/453/2019 are quashed and set aside; and (iii) The application bearing No. MA/43/CHE/2021 in IBA/453/2019 filed by the Resolution Professional before the learned NCLT for withdrawal of CIRP is allowed.

 

# 29. Pending application(s), if any, shall stand disposed of in the above terms. No order as to costs.

----------------------------------------------------