March 06, 2019

NCLT has no jurisdiction to enquire into justness of rejection of resolution plan under IBC Code

Supreme Court Of India

The National Company Law Tribunal has no jurisdiction and authority to analyse or evaluate the Committee of Creditors’ (CoC’) commercial decision to enquire into the justness of rejection of the resolution plan by dissenting financial creditors, the Supreme Court has ruled.

Upon receipt of a “rejected” resolution plan, the adjudicating authority (NCLT) is obligated to initiate liquidation process under Section 33(1) of the Insolvency and Bankruptcy Code, observed a bench of Justice AM Khanwilkar and Justice Ajay Rastogi.

Appeals (K. Sasidhar versus Indian Overseas Bank) against a NCLAT ruling which held that the requirement of approval of a resolution plan by a vote of not less than 75 per cent of the voting share of financial creditors was mandatory were being considered by the bench.

The bench rejected the appeal filed by the resolution applicants and said that the action of liquidation process was avoidable, only if approval of the resolution plan was by a vote of not less than 75% (as in October, 2017) of voting share of the financial creditors.

"Neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority percent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of the financial creditors,” the bench said.

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