VALLAL RCK VS. SIVA INDUSTRIES AND HOLDINGS LIMITED AND ORS.

FACTS OF THE CASE

The case arose out of a petition filed by Vallal RCK, the promoter of Siva Industries and Holdings Limited (Corporate Debtor), seeking approval for a settlement plan under Section 12A of the IBC. The Corporate Debtor had been admitted into the Corporate Insolvency Resolution Process (CIRP) on the application of IDBI Bank Limited (Lead Bank).

The Resolution Professional (RP) had submitted a report to the Committee of Creditors (CoC) recommending approval of the settlement plan. The CoC, comprising 96% of the creditors, had approved the settlement plan. However, the dissenting creditors challenged the approval of the settlement plan before the National Company Law Tribunal (NCLT).

The NCLT rejected the application of the dissenting creditors and upheld the approval of the settlement plan by the CoC. The dissenting creditors then challenged the order of the NCLT before the National Company Law Appellate Tribunal (NCLAT). The NCLAT also dismissed the appeal of the dissenting creditors.

The dissenting creditors then filed a petition before the Supreme Court challenging the order of the NCLAT. The Supreme Court, in its judgment dated June 3, 2022, upheld the order of the NCLAT and dismissed the petition of the dissenting creditors.

ISSUES

• Whether the decision of the CoC to approve the settlement plan is a commercial decision and should not be interfered with by the courts unless it is found to be arbitrary, capricious, or irrational.
• Whether the settlement plan must be fair and equitable to all stakeholders, including the dissenting creditors.
• Whether the requirement of a 90% majority for approval of the settlement plan under Section 12A of the IBC is arbitrary.

ARGUMENTS 

Appellant argued

• That the settlement plan was unfair because it did not provide for full payment of the dues of the creditors. The plan proposed to pay the creditors only 25% of their dues. Vallal RCK argued that this was unfair, especially to the small creditors who would not be able to recover their full dues even after the settlement.

• That the settlement plan was not in the best interests of the corporate debtor. The plan proposed to sell off the assets of the corporate debtor at a very low price. Vallal RCK argued that this would further damage the value of the corporate debtor and make it difficult for it to recover from its financial difficulties.

• That the NCLAT had erred in upholding the order of the NCLT allowing SIIHL to withdraw its CIRP. Vallal RCK argued that the NCLAT should have considered the interests of all the stakeholders, including the dissenting creditors, before allowing SIIHL to withdraw its CIRP.

Respondents argued –

• That the settlement plan was fair and equitable to all the stakeholders because it had been approved by 90% of the creditors. The plan proposed to pay the creditors 25% of their dues, which was more than what they would have received if the corporate debtor had been liquidated. SIIHL also argued that the plan would allow the corporate debtor to continue operating and generate revenue, which would benefit all the stakeholders in the long run.
• That the fact that the settlement plan had been approved by 90% of the creditors was a strong indication that it was fair and equitable. The Court noted that the creditors are the ones who are most affected by the insolvency process, and they are therefore in the best position to decide whether a settlement plan is fair and equitable.
• That the settlement plan was in the best interests of the corporate debtor because it would allow the company to continue operating and generate revenue. The company would then be able to repay its creditors in full over time. SIIHL also argued that the settlement plan would allow the company to avoid the stigma of liquidation, which would make it easier for the company to attract new investors and lenders in the future.
• That the NCLAT had rightly upheld the order of the NCLT allowing the company to withdraw its CIRP. The Court noted that the NCLAT is the appellate authority in insolvency matters, and it has the power to review the orders of the NCLT. The Court also noted that the NCLAT had carefully considered the arguments of all the parties before upholding the order of the NCLT.

RATIO DECIDENDI

The adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of the CoC.

JUDGEMENT

The Supreme Court upheld the settlement plan and dismissed the petition filed by Vallal RCK. The Court held that the settlement plan was fair and equitable to all the stakeholders and that it was in the best interests of the corporate debtor. The Court also held that the NCLAT had not erred in upholding the order of the NCLT allowing SIIHL to withdraw its CIRP.

The Supreme Court gave the following reasoning for upholding the settlement plan and dismissing the petition filed by Vallal RCK:

• The decision of the creditors to approve a settlement plan is binding on all the stakeholders, including the dissenting creditors. This is because the creditors are the ones who are most affected by the insolvency process, and they are therefore in the best position to decide whether a settlement plan is fair and equitable.
• The NCLT and NCLAT cannot interfere with the commercial wisdom of the creditors unless the decision is found to be wholly capricious, arbitrary, irrational, and de hors the provisions of the IBC. This is because the creditors are the experts in their field, and they are therefore in the best position to decide what is in their best interests.
• The settlement plan must be fair and equitable to all the stakeholders. This means that the plan must not unfairly favor one group of stakeholders over another.
• The settlement plan must be in the best interests of the corporate debtor. This means that the plan must be likely to help the company to recover from its financial difficulties and become a viable going concern.

The Supreme Court also noted that the settlement plan in this case had been approved by 90% of the creditors, which was a strong indication that it was fair and equitable. The Court also noted that the plan was in the best interests of the corporate debtor, as it would allow the company to continue operating and generate revenue.

REFERENCE

https://www.manupatrafast.com

This Article is written by Bejita Banerjee of Birla Global University, Bhubaneswar, an Intern at Legal Vidhiya.

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