Revamping commercial wisdom: Can be an ace for financial creditors? - The Daily Guardian
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Revamping commercial wisdom: Can be an ace for financial creditors?

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The Preamble of Insolvency and Bankruptcy Code 2016 (Code) contemplates to consolidate and govern insolvency laws in a time-bound manner with a view to maximise the value of assets and balance the interest of all stakeholders. Section 30(4) of the Code empowers the Committee of Creditors (CoC) consisting of financial creditors, may approve a resolution plan by a vote of not less than 66% voting share as per their “commercial wisdom”. Further, the Supreme Court in the case of India Resurgence Arc Pvt. Ltd. v. Amit Metaliks Limited & Anr., has observed that the commercial wisdom of CoC cannot be judicially interfered by the Adjudicating Authority or the Appellate Authority as it remains within the four corners of Section 30(2) of the Code. Once it is established that all of the required standards have been met, the judicial review procedure cannot be extended to include quantitative analysis of a specific creditor or stakeholder who may have his own complaint. Pertinently, by virtue of this, the power to approve or reject the resolution plan falls entirely in the scope of commercial wisdom of the CoC. 

Recently, the Chennai Bench of National Company Law Tribunal (NCLT) in the matter of State Bank of India v. Subrata M. Maity, was posed with a peculiar question of whether any member of CoC can withdraw his consent after approving the resolution plan but before it is approved by the Adjudicating Authority. The authors in this article aim to analyse the pandora’s box underlying the above-mentioned ruling and further layout suggestions to rectify the same.

FACTUAL MATRIX OF THE CASE

The State Bank of India (SBI), a member of the CoC, filed an application with the Adjudicating Authority, demanding that the concluded vote on the resolution plan be nullified. It claimed that the Resolution Professional had made severe procedural errors while conducting CoC sessions, and had violated Regulations 39(2), 39(3), and 39B to 39D of the Code. SBI alleged that they have voted in favour of the plan “under protest” and the final plan was never laid before the CoC for discussion, thereby, the collective wisdom of the CoC could not be reached.   

In response, the Respondent by refuting the arguments of SBI stated that there was no procedural abnormality in accommodation of the resolution plan to the CoC. The updated plan on numerous occasions was submitted to the CoC where they verified and approved the same. Notably, the Respondent further stated that the resolution plan was passed with a 100% majority and the share of the SBI in voting was 32%. Thus, if the SBI had not voted in favour of the resolution plan, then also the resolution plan would have passed with a majority of 68% i.e., above the required approval.  

ANALYSIS OF THE JUDGEMENT

The NCLT noted that there is no provision in the Code concerning voting under protest. The only option available to the members of the CoC is to vote for or against the resolution plan. If by any chance the SBI had doubts about the viability of the plan, it had voted against the plan. The NCLT held that “if the Applicant is unable to arrive at a conclusion regarding the resolution plan, it appears that there is a lack of clarity in the commercial wisdom of the Applicant. The CoC members who have acted in favour of the resolution plan, cannot subsequently come up with another new commercial wisdom regarding the viability of the plan. It will only lead to absolute chaos and if such applications are entertained, then no resolution plan can be completed on time.” 

The said judgment has created a horrible conundrum in the field of insolvency. The NCLT Chennai has affirmed that no member of CoC can withdraw his consent once a resolution plan was passed and its approval is pending before the Adjudicating Authority. However, NCLT has not identified the grey area where the approval of resolution plan by the CoC was on the basis of concealment of any material fact by the successful Resolution Applicant regarding the plan which, if not concealed, will make the resolution plan unviable.

At that time, if any member of CoC found such concealment after approving the resolution plan and further wanted to withdraw his consent from the said approval, then denying the same will consequently transgress the fundamental purpose of the Code, i.e., restoring and keeping the corporate debtor as a going concern. In such cases, the approval of plan is on the basis of exercising erroneous commercial wisdom by CoC due to concealment of material facts pertaining to the plan and after knowing about such concealment, they should be allowed to rectify their commercial wisdom by withdrawing their consent from the approval before the NCLT approves the plan. Even, Section 31 of the Code states that once the NCLT has approved the plan, then it will be binding on every creditor. But, if the approval of NCLT is pending, it doesn’t create a binding nature of the plan on any financial creditor.

The Apex Court interpreted the Preamble of the Code in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., and observed that the Code was enacted with the essential goal of restoring and keeping the corporate debtor as a going concern by reorganizing insolvency resolution of corporate debtors in a time-bound manner. Further, time and again, in a catena of judgements, various courts and tribunals have interpreted and emphasised the essentiality of commercial wisdom of the CoC. The Supreme Court in the landmark judgement of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., elucidated that when the financial creditors exercise their commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account the key features of the Code before it arrives at a commercial opinion to pay off the dues of financial and operational creditors.

Further, in Kundan Care Products Limited v. Amit Gupta, the National Company Law Appellate Tribunal (NCLAT) has strongly held that a plea for withdrawal of a resolution plan will be accepted, if the plan is found to be unviable, unfit for implementation or is based on incorrect assumptions.

Furthermore, the Supreme Court in the case of K. Sashidhar v. Indian Overseas Bank & Ors., held that “the legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the Adjudicating Authority. That is made non-justiciable.” Moreover, in the judgement of Maharashtra Seamless Limited v. Padmanabhan Venkatesh, the Apex Court has reaffirmed that the commercial wisdom of CoC cannot be judicially interfered with by NCLT/NCLAT and the same rationale is implemented in Kalpraj Dharamshi & Anr. v. Kotak Investment Advisors Limited & Anr.

In the same vein, in the matter of Karad Urban Cooperative Bank Limited v. Swwapnil Bhingardevay & Ors., the Supreme Court held that if all of the factors that should be considered in determining whether or not the corporate debtor can continue to function as going entity have been presented to the CoC, and the CoC has made a conscious effort to accept the resolution plan, the adjudicating authority will have to go into hands-off mode.

CONCLUSION

After analysing the aforementioned pronouncements and provisions, the authors are of the opinion that the Apex Court must clear the mist and should allow any financial creditor to withdraw his consent from the approval of the resolution plan if the plan is not approved by the NCLT and it is found to be unviable, unfit for implementation or is based on incorrect assumptions that consequently hinder the cardinal objectives of the Code. Appositely, rejecting the plan and withdrawing consent from the approval of the resolution plan should also be considered as a part of the new commercial wisdom of the financial creditor. It is much better than fallacious commercial wisdom that is based on any concealment of material facts due to which the primary goal of the Code has injured.

Pertinently, as noted the commercial wisdom of CoC cannot be interfered with, aside from the restricted ambit of judicial review as provided under Sections 30 and 31 of the Code. Moreover, the issue concerning the independence of the CoC vis-à-vis the jurisdiction of the NCLT/NCLAT has been reliably dealt by the courts and the commercial wisdom of the CoC has been given foremost importance for ensuring timely completion of the insolvency process.

There is no room for doubt that the feasibility and viability of the resolution plan can be best determined by the CoC as the members of CoC is the expert body to determine whether the plan is fit for implementation. Accordingly, the duty that has been planted upon the CoC is one that cannot be avoided and cannot be questioned, besides on restricted grounds. 

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AN ASSOCIATION OF CORPORATE BODIES CAN ESTABLISH A CAPTIVE POWER PLANT PRIMARILY FOR THEIR OWN USE UNDER THE ELECTRICITY ACT: SUPREME COURT

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The Supreme Court in the case Chhattisgarh State Power Distribution Company Ltd. vs Chhattisgarh State Electricity Regulatory Commission observed that a captive power plant primarily for their own use can be established by an association of corporate bodies.

The requirement would be that the consumption of SBIPL and SBMPL together should not be less than 51% of the power generated. Admittedly, the joint consumption by SBIPL and SBMPL is more than 51% and under the provisions of the said Act, the use of electricity by it would be for captive use only even an association of corporate bodies can establish a power plant. Since SBMPL holds 27.6% of the ownership, the requirement of not less than 26% of shares is fulfilled by SBMPL as SBMPL holds 27.6% equity shares in SBPIL.

The fourth proviso to sub­section (2) of Section 42 of the said Act would also reveal that surcharge would not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use and under Section 9 of the said Act, could be an individual or a body corporate or association or body of individuals, whether incorporated or not, it is clear that the person will get benefit even an association of corporate bodies can establish a captive power plant it has been seen. The definition of “person” is wide enough to include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person it should be primarily for the use of the members of such co­operative society or association is the requirement, the Bench observed while referring to the provisions of the Electricity Act.

The BPIL, the respondent contended and supported the impugned judgment that no permission is required from the Commission for supply of electricity for its own use. Thereafter the appellant Company contended that unless SBPIL consumes 51% of the aggregate electricity generated by it, it will not be entitled to get the benefit under Section 9 of the said Act, in an appeal filled before the Apex Court.

An appeal was dismissed by the Appellate Tribunal for Electricity filed by the Company further The Commission held that SBPIL was entitled to supply electricity to its sister concern SBMPL and the same would qualify to be treating as own consumption and within the ambit of Section 9 read with Section 2(8) of the Electricity Act, 2003 and Rule 3 of the Electricity Rules, 2005 SBPIL submitted a petition for providing open access and wheeling of power through the transmission system of the Chhattisgarh State Power Distribution Company Ltd (Company) for captive use by SBMPL to the Chhattisgarh State Electricity Regulatory Commission, the commission. A Captive Generation Plant is established by SBPIL, and is a sister concern of SBPIL Shri Bajrang Power and I spat Ltd and Shri Bajrang Metallics and Power Ltd, SBMPL.

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Where the crime was committed the remission or premature release policy of the state has to be considered: Supreme Court

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The Supreme Court in the case Radheshyam Bhagwandas Shah, Lala Vakil vs State of Gujarat observed that where the crime was committed has to be considered in the remission or pre­mature release in terms of the policy which is applicable in the State.

While allowing the writ petition the court observed and contended that Once the crime was committed in the State of Gujarat, after the trial been concluded and judgment of conviction came to be passed, all further proceedings have to be 6 considered including remission or pre­mature release in terms of the policy which is applicable in the State of Gujarat where the crime was committed and not the State where the trial stands transferred and concluded for exceptional reasons under the orders of this Court, as the case may be. The court further stated that under Section 432(7) CrPC the appropriate Government can be either the Central or the State Government but there cannot be a concurrent jurisdiction of two State Governments.

the appropriate Government in the ordinary course would be the State of Gujarat. But the case was transferred in exceptional circumstances by this Court for limited purpose for trial and disposal to the neighboring State i.e., the State of Maharashtra by an order dated 06.08.2004. ordinarily, the trial was to be concluded in the same State and in terms of Section 432(7) CrPC as the crime in the instant case was admittedly committed in the State of Gujarat, observed by the Apex Court.

he application for pre­mature release has to be filed in the State of Maharashtra and not in the State of Gujarat, as prayed by the petitioner by judgment impugned dated 17.07.2009 As His petition filed in the High Court of Gujarat was dismissed taking note of Section 432(7) CrPC on the premise that since the trial has been concluded in the State of Maharashtra. Thereafter He had filed his petition for pre­mature release under Sections 433 and 433A of the Code of Criminal Procedure, 1973 stating that he had undergone more than 15 years 4 months of custody.

The bench comprising of Justice Ajay Rastogi and the justice Vikram Nath observed and noted that under Section 432(7) CrPC can be either the Central or the State Government but there cannot be a concurrent jurisdiction of two State Governments of the appropriate Government.

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Adopt roster based reservation for preferential candidates as followed by JIPMER: Supreme Court directs all AIIMS institutes

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The Supreme Court in the case Students Association AIIMS Bhopal And Or’s. v. AllMS and Or’s observed and directed all AIIMS Institutes to adopt roster-based reservation followed by Jawaharlal Institute of Postgraduate Medical Education and Research, Pondicherry (JIPMER) as a plea was filled in the Court seeking direction to AIIMS to have a defined criteria for arriving at seat matrix for institutional preference candidates in INI-CET examination.

the order of the Apex Court in the case AIIMS Students’ Union v. AIIMS And Or’s, would not be applicable if It emphasized that if the roster-based system is implemented the actual roster points for AIIMS would be different from JIPMER as the same would depend on the percentage of seats decided to be allocated to the preferential candidates but It stated that the reservation would be similar to the one adopted by JIPMER AIIMS New Delhi was willing to provide a roster-point based reservation for its institutional preference candidates, by way of an affidavit 20th January 2022 the Bench was apprised that pursuant to a meeting held on 28th June 2020 as prescribed the relevancy:

It shall not be too wide with the one for the general category candidate, that the margin of difference between the qualifying marks for the Institute’s candidate.

The one who has secured marks at the common entrance PG test less than the one secured by any other candidate belonging to reserved category enjoying constitutional protection such as SC, ST etc. cannot be the AIMS graduate the last student to qualify for admission.

appearing on behalf of AIIMS, Advocate, Mr. Dushyant Parashar, New Delhi was asked to get instructions from AIIMS, Bhubaneswar and Jodhpur so that the Court can pass appropriate orders on the next date of hearing. As that apart from AIIMS, Bhubaneswar and AIIMS, Jodhpur, all other AIIMS before the Apex Court has agreed to implement the roster-based reservation system followed by JIPMER Puducherry for their institutional preference candidates, the Court was informed at the last date of hearing.

the petition had been filed seeking direction to AIIMS to disclose how the seats for institutional preference candidates are to be allotted in the view of the same the petitioners claim that in the INI-CET examination conducted in July, 2021, only 4 seats (1.87%) in AIIMS, New Delhi were allotted to institutional preference candidates. Rivetingly, the petitioners note that no seats were allocated to any other AIIMS for admission of institutional preference candidates.

the Bench comprising of Justice L. Nageswara Rao and the justice A.S. Bopanna observed and noted that to record in the order that the roaster system would be applicable from this year. Mr. Parashar informed it that since new software is to be put in place for counselling, it might cause some delay. The bench further stated that the court will order it to apply this year but in case of delay AIMS can come later.

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‘The crime committed has to be considered in the remission or premature policy of the state’

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The Supreme Court in the case Radheshyam Bhagwandas Shah, Lala Vakil vs State of Gujarat observed that where the crime was committed has to be considered in the remission which is applicable in the State and the pre­mature release in terms of the policy

The Court noted while hearing the writ petition that in terms of the policy which is applicable in the State of Gujarat where the crime was committed and not the State where the trial stands transferred and concluded for exceptional reasons under the orders of this Court once the crime was committed in the State of Gujarat, after the trial been concluded and judgment of conviction came to be passed, all further proceedings have to be 6 considered including remission or pre­mature release, as the case may be, in the instance case. under Section 432(7) CrPC, there cannot be a concurrent jurisdiction of two State Governments, can be either the Central or the State Government of the appropriate government.

in terms of Section 432(7) CrPC, the trial was to be concluded in the same State and ordinarily in the State of Gujrat the crime in the instant case was admittedly committed. by an order 06.08.2004., the case was transferred in exceptional circumstances by this Court for limited purpose for trial and disposal to the neighbouring State i.e., the State of Maharashtra, observed by the bench of Apex Court.

As mentioned by the petitioner in the plea that by judgment impugned dated 17.07.2019., the application for pre­mature release has to be filed in the State of Maharashtra and not in the State of Gujarat and His petition filed in the High Court of Gujarat was dismissed taking note of Section 432(7) CrPC on the premise that since the trial has been concluded in the State of Maharashtra. under Sections 433 and 433A of the Code of Criminal Procedure, 1973, the petition was filled by the petitioner for premature release further the petitioner stated that that he had undergone under the custody of more than 15 years 4 months.

Section 302, 376(2) (e) (g) and reading it with Section 149 IPC, Shah was found guilty for the offence, the offence committed by him in the State of Gujrat.

The bench comprising of Justice Ajay Rastogi and the justice Vikram Nath observed that under Section 432(7) CrPC can be either the Central or the State Government but there cannot be a concurrent jurisdiction of two State Governments of that appropriate government.

The bench comprising of Justice Ajay Rastogi and the justice Vikram Nath observed that under Section 432(7) CrPC can be either the Central or the State Government but there cannot be a concurrent jurisdiction of two State Governments of that appropriate government.

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Seeking reduction of qualifying the percentile for admission in ayurveda course: A plea in Supreme Court

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The Supreme Court in the Case Amit Kumar v UOI & Or’s observed in Ayurveda course in view of large number of vacancies and for seeking reduction of qualifying percentile for admission, an ayurveda aspirant who appeared in NEET 2021 has approached the Court.

the court had observed that lowering the minimum marks and reducing the percentile for admission to first year BDS Course would not amount to lowing the standards of Education and further the Court directed to lower the percentile mark by 10 percentiles for admission in first year of BDS Course for academic year 2020-2021, with regards to substantive the contentions made by the petitioner by referring the judgement passed in the case in Harshit Agarwal & Or’s v Union of India.

the percentile may also be reduced for Ayurveda programme enabling the Petitioner to take admissions then If percentile is being reduced/considered for reduction for BDS course was further stated by the petitioner in the plea, while referring to an order dated 04.29.2022. Thereafter the top Court had asked Centre to consider lowering the percentile for BDS Courses.

Seeking the Centre’s response in a plea by filing a counter affidavit, noted by the Top Court specifying the above-mentioned information:

after deducting the admission granted for MBBS Courses (BDS Courses), the total number of Candidates.

in All India Quota and State Quota, the totals number of vacant seats.

in government colleges on one hand & private/deemed colleges on the other hand, the number of seats which are remaining.

the petition was filed through AOR Neeraj Shekhar and for the petitioner Advocate Shivam Singh appeared.

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Bank case rejected by Supreme Court against farmer

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The Supreme Court in the case Bank of Maharashtra & Or’s v Mohanlal Patidar observed an order given by the High Courts of directing the bank the OTS proposal given by a farmer who had availed a loan from the bank, the court further pulled up the Bank of Maharashtra for challenging the order.

The Bank shall complete remaining formalities and provide all consequential benefits flowing therefrom to the petitioners, the court further stated that it is needless to emphasize The OTS proposal given by the petitioners in both the cases shall be accepted by the Bank and ‘sanction letters’ be issued forthwith, the court allowed the petitioner plea.

The petitioner not only promptly challenged the said order, it is noteworthy that petitioner never acceded to the unilateral decision dated 25th August 2021 and even otherwise the letter dated 25th August 2021 is held to be illegal by us, clause-7 of policy cannot take away the fruits of OTS benefits, within two months from the date of issuance of order dated 22th September 2021, the petitioner filled the instant petition and further the court directed we are unable to give stamp of approval to the impugned orders and action of the Bank, observed by the bench comprising of Justice Sujoy Paul and the justice Dwarka Dhish Bansal while setting aside the impugned orders of the bank.

In an order dated 03.09.2021 it was stated and it showed that the petitioner was required to pay minimum 10% of the OTS amount within stipulated time and that he had deposited Rs.35,00,000/- out of Rs.36,50,000/- within the stipulated time, it was argued before the court by the counsel.

As full and final settlement of the dues, he will be required to deposit Rs.50.50 lakhs as he was informed by the Asset Recovery Branch of the Bank.

Whole law comes into place when a matter of farmers come as the down payment were also accepted and it was further stated by the bench in an oral remark You don’t file cases against the ones who loot 1000s of crores.

The respondent had obtained a loan and intended to pay it in terms of a One Time Settlement which was quantified as Rs 3650000/-. in furtherance thereof the respondent had deposited Rs 35,00,000 with the bank, in the above-mentioned matter.

The bank had miserably failed to accept the same and on the contrary, decided to enhance the compromise amount to Rs.50.50 lakhs unilaterally which was contrary to the OTS scheme, contended by the counsel further the counsel stated that the bank had miserably failed to accept the same and on the contrary, decided to enhance the compromise amount to Rs.50.50 lakhs unilaterally which was contrary to the OTS scheme.

The bench comprising of Justice DY Chandrachud and the justice Surya Kant observed and remarked while dismissing the plea assailing Madhya Pradesh High Court’s order dated 02.21.2022 Such a litigation in Supreme Court will spoil the families of farmers financially, Go after bigger fish.

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