Analysis on Supreme Court Judgement of K. Sashidhar vs. Indian Overseas Bank & Ors.

Legislature has consciously not provided for a ground to the Adjudicating Authority or Appellate Adjudicating Authority to challenge the justness of the “commercial decision” expressed by the financial creditors – be it to approve or reject the Resolution Plan.

The Apex Court observed that once the resolution plan approved by the Committee of Creditors, the resolution plan is to be submitted to the Adjudicating Authority under Section 31 of the Code. It is at this stage that a judicial mind is applied by the Adjudicating Authority to the resolution plan so submitted, who then, after being satisfied that the plan meets (or does not meet) the requirements mentioned in Section 30, may either approve or reject such plan. An appeal from an order approving such plan is only on the limited grounds laid down in Section 61(3). However, an appeal from an order rejecting a resolution plan would also lie under Section 61.

In terms of Section 31 of the I&B Code, the Adjudicating Authority is expected to deal with two situations. The first is when it does not receive a resolution plan under sub-section (6) of Section 30 or when the resolution plan has been rejected by the resolution professional for noncompliance of Section 30(2) of the I&B Code or also when the resolution plan fails to garner approval of not less than seventy five percent of voting share of the financial creditors, as the case may be; and there is no alternate plan mooted before the expiry of the statutory period. The second is when a resolution plan duly approved by the CoC by not less than 75% of voting share of the financial creditors is submitted before it by the resolution professional under Section 30(6) of the Code, for its approval.

In the present case, we are concerned with a situation where in both the resolution processes under consideration, the resolution plan failed to garner support of not less than 75% of voting share of the financial creditors. That is the first category referred to above. In such a situation, the adjudicating authority can have no other option but to initiate liquidation process in terms of Section 33 (1) of the I&B Code.

Upon receipt of a “rejected” resolution plan the Adjudicating Authority is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the Adjudicating Authority with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC muchless to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable.

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