Introduction

The case of Kalinga Allied Industries India Pvt. Ltd. v. Hindustan Coils Ltd. and Others, adjudicated by the National Company Law Appellate Tribunal (NCLAT) on January 11, 2021, serves as a pivotal reference in understanding the boundaries of the Adjudicating Authority's (AA) powers under the Insolvency & Bankruptcy Code (I&B Code), 2016. This case revolved around the contention whether an entity not partaking in the Corporate Insolvency Resolution Process (CIRP) can have its Resolution Plan considered by the Committee of Creditors (CoC) upon direction from the AA.

Summary of the Judgment

The appellant, Kalinga Allied Industries India Pvt. Ltd., challenged the AA's order dated February 27, 2020, which permitted Hindustan Coils Ltd. (Respondent No.1) to have its Resolution Plan considered by the CoC. The AA's decision was based on Respondent No.1 offering a Resolution Plan that was 12% higher than the appellant's offer, aligning with the I&B Code's objective of maximizing asset value.

Upon appellate review, the NCLAT held that the AA had overstepped its jurisdiction by allowing a party not involved in the CIRP to submit a Resolution Plan for CoC consideration. The tribunal emphasized that only those entities participating in the CIRP following the due process, including submission within the prescribed timelines, are entitled to have their plans considered. Consequently, the AA's order was set aside, reinstating the appellant's Resolution Plan for further proceedings.

Analysis

Precedents Cited

The judgment referenced several key precedents that shaped the tribunal's decision:

• Chhattisgarh Distilleries Ltd. vs. Dushyant Dave & Ors. C.A. (AT) (Ins) No. 461 of 2019: Highlighted that the AA does not possess the authority to direct the CoC to consider Resolution Plans from applicants not part of the CIRP.
• Kotak Investment Advisors Ltd. vs. Mr. Krishna Dharamshi & Ors. C.A. (AT) (Ins) No. 344-345 of 2020: Reinforced that once the CIRP commences and Resolution Plans are filed, no new bids outside the established process should be entertained.
• Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors. C.A. No. 4242 of 2019: Clarified the limited role of the AA under Section 31 of the I&B Code, emphasizing that the AA's function is not to override the commercial decisions of the CoC.
• Committee of Creditors Essar Steel India Ltd. Vs. Satish Gupta & Ors. 2019 SCC Online SC1478: Asserted that decisions of the CoC are commercial and not subject to AA's judicial scrutiny.

Legal Reasoning

The NCLAT meticulously dissected the AA's authority under Section 31 of the I&B Code, which delineates the AA's role in supervising the CIRP. The tribunal concluded that the AA's discretion is limited to ensuring compliance with statutory requirements of the Resolution Plans submitted by bona fide applicants within the CIRP framework.

Key points in legal reasoning include:

• Jurisdictional Boundaries: The AA cannot entertain Resolution Plans from entities that have not participated in the CIRP as per the established procedures, including timely submission and adherence to the expression of interest.
• Finality of CoC Decisions: Once the CoC approves a Resolution Plan, its commercial decisions are to be respected, and the AA's role is confined to statutory compliance checks, not commercial evaluations.
• Prevention of Process Frustration: Allowing non-CIRP participants to submit Resolution Plans disrupts the integrity and efficiency of the CIRP, leading to potential delays and uncertainties in the resolution process.

Impact

This judgment reinforces the sanctity of the CIRP framework established by the I&B Code, ensuring that only duly participating entities within the CIRP can have their Resolution Plans considered. It curtails the AA's ability to override CoC's decisions based on quantitative superiority of offers, thereby preserving the CoC's autonomy in making commercially sound decisions.

Future implications include:

• Enhanced Process Integrity: Strengthens procedural adherence, discouraging non-participants from disrupting the CIRP.
• Clarity in AA’s Role: Clearly demarcates the AA's functions, preventing overreach and ensuring focused judicial scrutiny limited to statutory compliances.
• Precedential Value: Serves as a reference for similar disputes, guiding tribunals to uphold procedural propriety and CoC's commercial discretion.

Complex Concepts Simplified

Corporate Insolvency Resolution Process (CIRP)

CIRP is a structured process under the I&B Code aimed at resolving insolvency by enabling the financial restructuring of a distressed company. It involves multiple stakeholders, primarily the creditors, who collectively decide on the viability of proposed Resolution Plans.

Committee of Creditors (CoC)

The CoC comprises financial creditors of the corporate debtor and holds significant power in approving or rejecting Resolution Plans. Their decisions are pivotal in determining the future of the insolvent entity.

Resolution Plan

A Resolution Plan outlines how the debtor’s obligations will be restructured and proposes how to resolve its insolvency. It must be submitted by eligible and bona fide applicants participating within the CIRP framework.

Section 31 of the I&B Code

This section delineates the powers of the Adjudicating Authority, primarily focusing on its supervisory and oversight roles in ensuring that CIRP adheres to the statutory provisions without delving into the commercial judgments of the CoC.

Expression of Interest (EOI)

EOI is a call issued by the Resolution Professional (RP) inviting stakeholders to submit their Resolution Plans. Timely and compliant submission of EOI is crucial for participation in the CIRP.

Conclusion

The NCLAT's decision in Kalinga Allied Industries India Pvt. Ltd. v. Hindustan Coils Ltd. and Others underscores the importance of adhering to the procedural sanctity of CIRP as mandated by the I&B Code. By limiting the AA's jurisdiction to statutory compliance and safeguarding the CoC's commercial discretion, the tribunal ensures that insolvency resolution remains efficient, transparent, and aligned with the Code’s objectives of asset maximization and fair treatment of stakeholders.

This judgment serves as a cornerstone for future CIRP-related adjudications, reinforcing that procedural rigor must be maintained without allowing peripheral interference that could undermine the resolution process.