The Supreme Court has declined to use its powers relegated under Article 142 to revoke the liquidation order pronounced by National Company Law Appellate Tribunal (NCLAT) in Kamineni Steel & Power India and Innoventive Industries saying it will set a trend in the insolvency proceedings under IBC.
Article 142 of the Constitution allows the Supreme Court to pass any orders it thinks necessary to serve justice.
While considering a common appeal filed by Hyderabad-based Kamineni Steel & Power India and Pune-based Innoventive Industries against NCLAT’s liquidation order, a bench led by Justice AM Khanwilkar said it is not possible to exercise powers under Article 142 of the Constitution as it will result in issuing directions in the teeth of the provisions as applicable to the cases on hand.
The court also ruled that NCLT has no authority to evaluate the commercial decision of the Committee of Creditors (CoC) to approve or reject a proposed Resolution Plan as they have complete autonomy regarding the commercial decision or wisdom of the financial creditors.
Hyderabad-based Kamineni Steel & Power India’s resolution plan was rejected by lenders despite receiving 66.67 per cent assenting vote. It received 26.97 per cent dissenting vote, while Bank of Maharashtra — one of the lenders with 6.36 per cent vote — abstained from voting.
Without taking the abstained vote into account, NCLT Hyderabad came to a conclusion that the resolution plan had received 78.63 per cent vote and approved the resolution plan. However, the dissenting banks Indian Overseas Bank, Central Bank of India and Bank of Maharashtra moved NCLAT questioning the authority of NCLT to approve the resolution plan without 75 per cent (subsequently reduced to 66 per cent) of voting share of financial creditors. NCLAT rejected NCLT’s judgement and ordered liquidation.
In the case of Innoventive Industries, NCLAT had affirmed the order passed by the NCLT, Mumbai Bench, for liquidation of the company as the resolution plan did not receive 75 per cent of financial creditors’ approval, a pre-requisite according to the IBCto get the plan endorsed by the court. The counsel appearing for the resolution applicant pleaded the apex court to exercise powers under Article 142 to relegate the case before the NCLT as the threshold of voting share of financial creditors has been reduced to 66 per cent.
However, the Supreme Court rejected the plea and ordered liquidation of both the companies. Upon receipt of a rejected resolution plan, the NCLT is obligated to initiate liquidation process under Section 33(1) of the Code, it said.
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