Vallal Rck v. M/S Siva Industries and Holdings Limited And Others
Name of the Case: Vallal Rck v. M/S Siva Industries and Holdings Limited And Others
Case Number: Civil Appeal Nos. 18111812 OF 2022
Judges Name: Hon’ble Judges B.R. Gavai, Hima Kohli JJ.
Order dated: 03.06.2022
Facts of the Case:
- An application was filed by IDBI Bank Limited against Siva Industries (Corporate Debtor) under Section 7 of the Insolvency and Bankruptcy Code. The application was admitted by the National Company Law Tribunal (the “NCLT”), and the CIRP was initiated against the Corporate Debtor. The Resolution Professional presented a Resolution plan on behalf of M/s Royal Partners Investment Fund Limited during the Resolution Process. However, the resolution pan could not be approved since the CoC lacked the necessary number of votes.
- The Resolution Professional then invoked section 33(1)(a) of the Code to file for liquidation before the Hon’ble NCLT. During this period, the Vallal Rck (the “Promoter”) of Siva Industries submitted an application for the creation of a one-time settlement plan (the “OTS”) under section 60(5) of the Code. Following several meetings and deliberations, an overwhelming 94.23 percent of the CoC voted to accept the promoter’s OTS offer. As a result, when the OTS agreement was approved, the resolution professional submitted a request to the NCLT under Section 12A of the Code for the withdrawal of CIRP. The OTS contract was, however, rejected by NCLT on the grounds that it resembled a business restructuring plan more than a settlement.
- The promoter appealed the NCLT’s ruling to the National Company Appellate Tribunal (or “NCLAT”). The Hon’ble NCLAT, dismissed the appeal. The promoter filed an appeal before the Supreme Court of India after being aggrieved by NCLAT’s ruling.
Hon’ble Supreme Court observed/held as follows:
- The Hon’ble Supreme court cited Section 12A of the Code, which permits the withdrawal of an insolvency application made as per Sections 7, 9, and 10, provided that 90 percent of the CoC members voting agree to do so. The process for submitting a withdrawal application under section 12A of the Code is also briefly described in Regulation 30A of the Code. Therefore, Section 12A should always be read in conjunction with Regulation 30A in order to fully understand it.
- In addition, the Hon’ble Court cited paragraph 29 of the Insolvency Committee Report (March 2018), which made it obvious that nothing in the Code permits withdrawing an insolvency application after admission. The BLRC’s objective of the Code, which specifies that all stakeholders must participate and evaluate the viability of the proposed plan in order to withdraw the insolvency application, is referenced in the report. The stakeholders’ active willingness to restructure their liabilities must also be confirmed.
- In support of section 12A of the Code’s validity, the Hon’ble court cited Swiss Ribbon Private Ltd v. Union of India.
- Based on the above-mentioned discussion, the Hon’ble Court concluded that the Adjudicating Authority or the Appellate Authority cannot sit in an appeal over the commercial wisdom of CoC if 90% of the CoC members, after due consideration, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP.
Therefore, the Hon’ble Supreme Court of India allowed the appeal and the impugned judgment of NCLAT was quashed.