Business Laws

Commercial wisdom of C-o-C paramount

| Updated on: Jan 09, 2022
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Courts cannot interfere with the ‘commercial wisdom’ of a Committee of Creditors in an insolvency case, except in cases of material irregularity in the conduct of proceedings, the Supreme Court of India has ruled, in Ngaitlang Dhar Vs Panna Pragati Infrastructure – an episode in which Dhar, a member of the Meghalaya Legislative Assembly, of the National People’s Party, bagged a construction company called Meghalaya Infratech, for about ₹65 crore.

Panna Pragati Infrastructure, which lost in the bidding for Meghalaya Infrastructure at the National Company Law Tribunal, took the issue to the NCLAT, on the grounds that it had not been given time to revise its bid. It won.

Dhar, represented by Mukul Rohatgi, went to the Supreme Court, pleading that the NCLAT should not have interfered with the commercial wisdom of the Committee of Creditors. Two banks, Allahabad Bank (now Indian Bank) and Corporation Bank (now Union Bank of India) were the lenders, holding voting rights of 68.34 per cent and 31.66 per cent, respectively.

The Supreme Court agreed with the appellant and overruled NCLAT’s order. Judges L Nageswara Rao and B R Gavai found no material irregularity in the acceptance of Dhar’s bid for Meghalaya Infratech. On the plea that Panna Pragati had not been given the time it requested for, the Supreme Court looked into the minutes of the meeting and found out that the bidders had been previously forewarned that no further time would be given and any absentee at the bidding would be excluded—because the process was nearing the 180-day deadline. As such, there was no irregularity.

“It is trite law that 'commercial wisdom' of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the processes within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or the Appellate Authority (the NCLAT) to take into consideration any other factor other than the one specified in Section 30(2) or Section 61(3) of the IBC,” the judgment said.

Published on January 09, 2022

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