In its ruling in Kalpraj Dharamshi and Others v. Kotak Investment Advisors Limited and Others, REED 2021 SC 03545, a Full Bench of the Hon. Supreme Court made up of Justices A.M. Khanwilkar, B.R. Gavai, and Krishna Murari reaffirmed that the commercial judgement of the Committee of Creditors (CoC) is not to be interfered with, with the exception of the limited scope as provided under sections 30 and 31 of the In (IBC).
The Corporate Debtor submitted an application to the National Company Tribunal (NCLT) under section 10 of the IBC for the start of its Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP) requested that applicants for resolution submit their Resolution Plans by January 8, 2019, at the latest. The Resolution Plan was submitted by the following applicants in accordance with that: I Kotak Investment Advisors Limited (KIAL), Respondent No. 1; and (ii) Karvy Data Management System Ltd. on January 8, 2019, and January 27, respectively. On January 29, 2019, KIAL raised concerns with the RP over Kalpraj's submission of the Resolution Plan after the allotted time had passed. The Resolution Plan of Kalpraj was presented to CoC at its meeting on January 30, 2019, and CoC instructed the applicants to submit updated plans. In response, KIAL and Kalpraj submitted the updated plan, and during the meeting of the CoC, the majority of members supported Kalpraj's plan, which was then submitted by RP to the NCLT for approval.
KIAL, incensed, filed an application objecting to Kalpraj's plan on the grounds that RP was not justified in allowing Kalpraj to submit a plan after the deadline and that CoC's decision to approve Kalpraj's plan was not in compliance with the IBC. Despite the fact that NCLT rejected this application submitted by KIAL on November 28, 2019, in an appeal against the order, the National Company Law Appellate Tribunal (NCLAT) granted the appeal submitted by KIAL in a decision dated August 5, 2020. The Kalpraj claim that the appeals were filed after the IBC-mandated limitation period was likewise rejected by NCLAT. Four appeals were brought before the Supreme Court by parties who felt wronged by the aforementioned NCLAT ruling.
In the instant case titled Kalpraj Dharamshi & Anr vs. Kotak Investment Advisors Ltd & Anr. The issues raised for clarification before the Supreme Court were:
Whether the appeals KIAL filed to NCLAT are time-barred?
Was there a waiver and/or consent on the side of KIAL to prevent it from contesting Kalpraj's participation?
Does it matter legally whether NCLAT interfered with CoC's decision to approve Kalpraj's resolution plan?
With regard to the first issue, in this case, the certified copy of the NCLT ruling was made available on December 18; hence, pursuant to Section 61(2) of the IBC, the NCLAT appeal had to be submitted within 45 days, or by February 2, 2020. However, the same was made on February 18, 2020, and KIAL claimed that the delay occurred because it genuinely intended to file a writ petition against the NCLT verdict with the Bombay High Court. This writ petition was, however, denied in a lengthy judgement. KIAL argued that the provisions of Section 14 or at least the principles therein would be available to it and as a result, the appeals, as filed, will have to be held to be within limitation. Section 14 of the Limitations Act, 1963 can be invoked in an appropriate case for exclusion of the time, during which the aggrieved person may have pursued a remedy with due diligence before a wrong forum. The Supreme Court noted that although strictly speaking, the provisions of Section 14 of the Limitations Act would not be applicable to the proceedings before a quasi-judicial tribunal, the underlying principle would be applicable, i.e. the proper approach will have to be of advancing the cause of justice, rather than aborting the proceeding, in M.P Steel Corporation v. Commissioner of Central Excise, (2015) 7 SCC 58. Since KIAL swiftly petitioned the High Court in the current case on the grounds that natural justice principles had been violated, the Supreme Court came to the conclusion that KIAL had petitioned the High Court with good faith and diligence. Therefore, KIAL was qualified for a term extension under Section 14 of the Limitation Act.
With regard to the second issue, the Supreme Court stated that it cannot be held that KIAL is prevented from challenging the process on the grounds of acquiescence and waiver because it participated by submitting the revised plans on January 29, 2019, and KIAL objected to the participation of any other applicant by submitting a resolution plan after the deadline and reiterated its objection later. It cannot be proven that KIAL had waived or abandoned its rights to pursue legal remedies because it was forced to submit its updated plan in order to remain in the settlement application process. Due to this, the Supreme Court came to the conclusion that KIAL had not waived its right to contest the RP or CoC's decision.
With regard to the third issue, according to a string of decisions, including Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REED 2019 SC 11505 and Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Others, REED 2020 SC 01501, the legislature purposefully did not grant NCLT or NCLAT any jurisdiction or authority to review the commercial decision made by CoC to approve or reject the resolution plan. The only appropriate forum for assessing these options and reaching a resolution in the bankruptcy process is a CoC, where each financial creditor is given a certain number of votes based on the amount of debt they hold. Furthermore, Section 31 limits NCLT's discretion to examining the resolution plan "as approved '' by the required percentage of financial creditors with voting rights. When the resolution plan does not meet the conditions outlined in Section 30(2), NCLT may reject the resolution plan on those reasons even after that investigation. According to Section 30(2), it must be determined whether the Resolution Plan, among other things, provides for the payment of insolvency resolution process costs to be made in a specific manner prior to the repayment of the corporate debtor's other debts and the repayment of operational creditors' debts in a prescribed manner. The business judgement of CoC is not to be interfered with, with the exception of the restricted scope as specified by Sections 30 and 31 of the IBC, according to the Supreme Court's ruling.
The Court categorically stated that,
"NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of the mining lease. Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of 36 2019 SCC Online 1542 Karnataka was justified in entertaining the writ petition, on the basis that NCLT was Coram non-judice.” We, therefore, have no hesitation to hold that KIAL was entitled to an extension of the period during which it was bona fide prosecuting a remedy before the High Court with due diligence.”
In the context of the current case, the Supreme Court noted that RP and CoC have consistently maintained that all of RP's actions, including accepting Kalpraj's resolution plans after the deadline but before the IBC's deadline for process completion, have been consciously approved by CoC with an overwhelming majority of 84.3 per cent. Therefore, NCLAT erred in law when it interfered with the business choice made by CoC because of the paramount priority given to the decision of CoC, which is to be adopted on the basis of "commercial wisdom." As a result, the Supreme Court accepted the current appeal that Kalpraj had submitted.