Devi Trading & Holding Private Limited vs Mr. Ravi Shankar Devarakonda & ors
COMPANY APPEAL (AT) (CH) (INS.) NO. 308/2023 (IA Nos. 945 & 946/2023)
Facts:
1.Appeal is filed against the approval of Resolution Plan as approved by the AA (“CoC”) of M/s. Meenakshi Energy Ltd. / the Corporate Debtor, vide order dated 10.08.2023.
Issue: Whether the order passed is correct in law ?
Arguments:
Appellant:
1.Counsel for appellant submitted that A perusal of the Resolution Plan submitted by M/s. Vedanta Limited says that Clause 3.5.5 did not propose any distribution mechanism for consideration of the CoC and has delegated the task of proposing the manner of distribution of funds to the CoC and the CoC has acted beyond its jurisdiction by determining the mechanism to be utilised for distribution of funds among the various Stakeholders.
2.Counsel submitted that AA erroneously observed that the CoC in its commercial wisdom has decided to distribute the amounts received under the Vedanta Resolution Plan as per Section 53 of the Code and this is a prerogative of the CoC, hence, the CoC has neither acted with any mala fide intent nor violated the provisions of the Code. The distribution mechanism adopted by the CoC is entirely within its domain as per Section 30 (4) of the Code and the CoC, therefore opted to distribute the proceeds as per the waterfall mechanism provided under Section 53 of the Code.
3.Counsel argued that a plain reading of Section 30 (4) of the Code clearly states that the ambit of the CoC is only to ‘consider’ a Resolution Plan as submitted by the Resolution Applicant and therefore have approved or disapproved the Plan. The words ‘the manner of distribution proposed’ used in Section 30 (4) of the Code indicate that the manner of distribution is required to be proposed by the Applicant which shall be ‘considered’ by the CoC.
Respondent:
1.Counsel submitted that the CoC exercising its commercial wisdom had approved Vedanta’s Resolution Plan with a majority of 94.96 % and the Appellant with a voting share of 4.22 %, being the dissenting Financial Creditor, has rejected the Vedanta’s Resolution Plan. The Appellant had not objected to the distribution mechanism and methodology which was discussed and deliberated upon by the CoC during the 41st CoC Meeting held on 22nd November 2022, where the CoC had decided to vote on the distribution mechanism.
2.Counsel submitted that the CoC has approved the payments and distribution mechanism under the Resolution Plan in its commercial wisdom and that such a decision is non-justiciable. It was further submitted that the distribution mechanism under Resolution Plan can be decided by the CoC in its commercial wisdom and allocation of a meagre amount cannot be a ground to question the Resolution Plan.
Decision: NCLAT dismissed the appeal.
Rationale:
1.NCLAT noted that the Resolution Plan of Vedanta was approved by the CoC by a majority of 94.96 %. The Hon’ble Supreme Court in a catena of Judgments has held that the ‘Adjudicating Authority’ and the ‘Appellate Tribunal’ cannot enter into the merits of a ‘Business Decision’ of the requisite majority of the CoC, unless it is violative of the provisions of Section 30 (2) of the Code.
2.It held that distribution/amount to be paid to different classes or sub-classes of Creditors in accordance with the provisions of the Code essentially lies within the domain of the commercial wisdom of the CoC. Therefore, the question as to whether the proposed Resolution Applicant has suggested the distribution Plan or whether the CoC has proposed and decided the distribution pattern, is of no relevance as far as it is within the four corners of Section 30 (2) of the Code and is supported by the commercial wisdom of the CoC.
3.It held that A deliberated ‘Business Decision’ of the CoC includes deliberations on the feasibility and viability, the financial and operational aspects of the Corporate Debtor, and therefore, the question of only ‘considering’ the proposal put forth by the Resolution Applicant cannot be viewed in a ‘rigid manner’. The CoC is a pivotal decision-making body which decides all critical decision-making functions regarding Resolution Plans, Liquidation, Management etc., essential to the success of the CIRP.
Order Copy:
