Introduction

The case of Vishal Vijay Kalantri v. Shailen Shah (Resolution Professional of Dighi Port Ltd.) & Ors. adjudicated by the National Company Law Appellate Tribunal (NCLAT) on July 24, 2020, centers on the approval of a resolution plan for Dighi Port Limited. Mr. Vishal Vijay Kalantri, a former director and shareholder of Dighi Port Limited, challenged the approval of the resolution plan submitted by Adani Ports Special Economic Zone Limited (APSEZ). The core issues pertain to the consideration of objections raised against the resolution plan and the procedural adherence during its approval.

This commentary delves into the background, key legal arguments, court's reasoning, and the implications of this judgment on future insolvency proceedings.

Summary of the Judgment

In this appeal, the appellant contested the NCLT's decision to approve APSEZ's resolution plan for Dighi Port Limited. The appellant argued that the adjudicating authority overlooked critical objections related to both APSEZ’s plan and the promoters' settlement proposal submitted by Balaji Infra Projects Limited (BIPL). The NCLAT, after a detailed review, upheld the NCLT's decision, dismissing the appellant's claims of procedural lapses and non-compliance with the Insolvency and Bankruptcy Code, 2016 (IBC).

Key points of the judgment include:

• The Committee of Creditors (CoC) overwhelmingly approved APSEZ's resolution plan with 99.68% votes.
• The appellant's settlement proposal was rejected due to non-compliance, specifically the failure to deposit the Earnest Money Deposit (EMD).
• The court affirmed that the commercial decisions of the CoC, when within the framework of the IBC, are not subject to judicial review.
• Objections regarding the necessity of prior approval from the Competition Commission of India (CCI) were dismissed as the requirement was deemed directory, not mandatory.

Analysis

Precedents Cited

The judgment prominently referenced the landmark case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2019) SCC OnLine SC 1478. In Essar Steel, the Supreme Court held that while the Committee of Creditors' (CoC) commercial decisions are generally insulated from judicial scrutiny, limited judicial review is permissible to ensure compliance with key statutory mandates under the IBC. Specifically, the court emphasized that the CoC must consider:

• Maximization of the corporate debtor's asset value.
• Maintenance of the corporate debtor as a going concern.
• Equitable treatment of all stakeholders, including operational creditors.

This precedent was pivotal in guiding the NCLAT's approach to evaluating the CoC's decision in the present case.

Legal Reasoning

The NCLAT's reasoning hinged on several legal tenets:

• Commercial Decision Autonomy: The CoC possesses the authority to make business decisions based on their commercial judgment regarding the viability and feasibility of resolution plans. Such decisions are insulated from judicial interference provided they comply with the IBC's statutory framework.
• Procedural Compliance: The appellant failed to substantiate claims of procedural irregularities, such as the non-consideration of the settlement proposal, which was primarily due to the promoters' non-compliance with EMD requirements.
• Judicial Review Scope: The court reiterated that judicial review is limited to assessing whether the resolution plan complies with legal provisions, not evaluating the commercial wisdom of the CoC's decisions.
• Competition Commission of India (CCI) Approval: The appellant's contention regarding CCI's prior approval was dismissed as the requirement under Section 31(4) of the IBC was interpreted as directory, not mandatory, based on the tribunal's previous ruling in Arcelormittal India Pvt. Ltd. v. Abhijit Guhathakurta.

The court underscored that unless a resolution plan violates explicit legal mandates, the CoC's decision stands authoritative.

Impact

This judgment reinforces the autonomy of the Committee of Creditors in insolvency resolution proceedings, emphasizing that their commercial judgments are typically beyond the purview of judicial review. Key implications include:

• Enhanced Creditor Confidence: Creditors can confidently make binding decisions without fear of protracted litigation challenging their commercial choices.
• Swift Resolution Processes: Limiting judicial interference ensures that insolvency proceedings are not unduly delayed, aligning with the IBC's objective of time-bound resolutions.
• Clarification on Legal Requirements: The interpretation of certain provisions, such as the CCI's approval being directory, provides clearer guidelines for future resolution plans involving mergers or acquisitions.

However, this autonomy also underscores the necessity for CoCs to exercise diligent and informed judgment, as their decisions hold substantial weight without extensive judicial oversight.

Complex Concepts Simplified

Resolution Plan

A resolution plan is a comprehensive proposal submitted by potential investors or promoters to take over and revive a financially distressed company. It outlines how the company will be restructured, how creditors will be paid, and the future operational strategy.

Committee of Creditors (CoC)

The CoC is a group comprising all financial creditors of the corporate debtor. They possess the authority to make pivotal decisions regarding the company's insolvency resolution, including the approval or rejection of resolution plans.

Earnest Money Deposit (EMD)

EMD is a refundable deposit submitted by bidders during the resolution process to demonstrate their seriousness and commitment to adhere to the terms of their resolution plan.

Judicial Review

Judicial review refers to the oversight by courts to ensure that decisions made by administrative bodies or tribunals adhere to the law. However, it does not extend to evaluating the commercial wisdom behind those decisions unless there is a clear legal violation.

Conclusion

The NCLAT's decision in Vishal Vijay Kalantri v. Shailen Shah underscores the judiciary's stance on respecting the commercial judgments of the Committee of Creditors within the framework of the Insolvency and Bankruptcy Code, 2016. By dismissing challenges to the approval of APSEZ's resolution plan, the tribunal reinforced the principle that while legal compliance is paramount, the substantive commercial decisions made by creditors are largely insulated from judicial interference.

This judgment serves as a critical reference for future insolvency cases, highlighting the balance between legal adherence and commercial discretion. It emphasizes the judiciary's role in ensuring procedural and legal compliance while respecting the autonomy of creditors in driving the resolution process towards revitalizing distressed entities.