The Apex Court established that the NCLT or its appellate court cannot call into question the Committee of Creditors' (CoC) decision to discontinue CIRP proceedings in the precedent-setting case of Vallal RCK vs. M/s Siva Industries and Holdings Limited and Ors. The stakeholders' decisions are given the appropriate weight in this decision.
In the instant case titled Vallal RCK Vs. M/s Siva Industries and Holdings Limited and Ors., the issue raised for clarification before the Apex Court was:
When withdrawing CIRP proceedings, may an adjudicating authority or an appellate authority ignore the business sense of the creditors?
With regard to this issue, according to Section 12A of the IBC, which deals with the withdrawal of applications based on the recommendations of the Insolvency Law Committee, an exit is lawful if CoC authorises it by 90 percent of the voting share. In the case of Swiss Ribbons Private Limited and Anr. v. Union of India and Ors., where the Supreme Court established the requirement that the withdrawal of CIRP could not be contested if more than 90% of the creditors approve the settlement plan after due consideration. The sole grounds for interference may be that the CoC's decision was arbitrary, capricious, unreasonable and outside the bounds of the law.
The National Company Law Appellate Tribunal (NCLAT) and National Company Law Tribunal (NCLT) must only exercise limited judicial interference, the bench of Justices B.R. Gavai and Hima Kohli stated in their judgement dated June 3, 2022.
The Court categorically stated that,
"As such, it is a carefully considered and well thought out piece of legislation which sought to shed away the practices of the past. The legislature has also been working hard to ensure that the efficacy of this legislation remains robust by constantly amending it based on its experience. Consequently, the need for judicial intervention or innovation from NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC".