Apex court de­clines to use pow­ers to re­verse liq­ui­da­tion or­ders

Rules that NCLT can­not eval­u­ate CoC’s de­ci­sion

The Hindu Business Line - - NEWS - SURESH P IYENGAR

The Supreme Court has de­clined to use its pow­ers rel­e­gated un­der Ar­ti­cle 142 to re­voke the liq­ui­da­tion or­der pro­nounced by Na­tional Com­pany Law Ap­pel­late Tri­bunal (NCLAT) in Kami­neni Steel & Power In­dia and In­noven­tive In­dus­tries say­ing it will set a trend in the in­sol­vency pro­ceed­ings un­der IBC.

Ar­ti­cle 142 of the Con­sti­tu­tion al­lows the Supreme Court to pass any or­ders it thinks nec­es­sary to serve jus­tice.

While con­sid­er­ing a com­mon ap­peal filed by Hy­der­abad-based Kami­neni Steel & Power In­dia and Pune-based In­noven­tive In­dus­tries against NCLAT’s liq­ui­da­tion or­der, a bench led by Jus­tice AM Khan­wilkar said it is not pos­si­ble to ex­er­cise pow­ers un­der Ar­ti­cle 142 of the Con­sti­tu­tion as it will re­sult in is­su­ing di­rec­tions in the teeth of the pro­vi­sions as ap­pli­ca­ble to the cases on hand.

The court also ruled that NCLT has no author­ity to eval­u­ate the com­mer­cial de­ci­sion of the Com­mit­tee of Cred­i­tors (CoC) to ap­prove or re­ject a pro­posed Res­o­lu­tion Plan as they have com­plete au­ton­omy re­gard­ing the com­mer­cial de­ci­sion or wis­dom of the fi­nan­cial cred­i­tors.

Hy­der­abad-based Kami­neni Steel & Power In­dia’s res­o­lu­tion plan was re­jected by lenders de­spite re­ceiv­ing 66.67 per cent as­sent­ing vote. It re­ceived 26.97 per cent dis­sent­ing vote, while Bank of Ma­ha­rash­tra — one of the lenders with 6.36 per cent vote — ab­stained from vot­ing.

With­out tak­ing the ab­stained vote into ac­count, NCLT Hy­der­abad came to a con­clu­sion that the res­o­lu­tion plan had re­ceived 78.63 per cent vote and ap­proved the res­o­lu­tion plan. How­ever, the dis­sent­ing banks In­dian Over­seas Bank, Cen­tral Bank of In­dia and Bank of Ma­ha­rash­tra moved NCLAT ques­tion­ing the author­ity of The court was con­sid­er­ing a com­mon ap­peal filed by Kami­neni Steel & Power In­dia and In­noven­tive In­dus­tries

NCLT to ap­prove the res­o­lu­tion plan with­out 75 per cent (sub­se­quently re­duced to 66 per cent) of vot­ing share of fi­nan­cial cred­i­tors. NCLAT re­jected NCLT’s judge­ment and or­dered liq­ui­da­tion.

In the case of In­noven­tive In­dus­tries, NCLAT had af­firmed the or­der passed by the NCLT, Mum­bai Bench, for liq­ui­da­tion of the com­pany as the res­o­lu­tion plan did not re­ceive 75 per cent of fi­nan­cial cred­i­tors’ ap­proval, a pre-req­ui­site ac­cord­ing to the IBCto get the plan en­dorsed by the court. The

coun­sel ap­pear­ing for the res­o­lu­tion ap­pli­cant pleaded the apex court to ex­er­cise pow­ers un­der Ar­ti­cle 142 to rel­e­gate the case be­fore the NCLT as the thresh­old of vot­ing share of fi­nan­cial cred­i­tors has been re­duced to 66 per cent.

How­ever, the Supreme Court re­jected the plea and or­dered liq­ui­da­tion of both the com­pa­nies. Upon re­ceipt of a re­jected res­o­lu­tion plan, the NCLT is ob­li­gated to ini­ti­ate liq­ui­da­tion process un­der Sec­tion 33(1) of the Code, it said.

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