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IBCInsolvency & Bankruptcy CodeScope Of Judicial Review By The Adjudicating Authority Over Commercial Matters Under Insolvency And Bankruptcy Code, 2016

February 10, 2019by GLC & Partners


The Insolvency and Bankruptcy Code, 2016 (“IBC”) gives power to the Adjudicating Authority (“AA”) under Section 30 of the IBC to accept or reject the approved Resolution Plan (“RP”) on few grounds. In the case of K. Sashidhar vs Indian Overseas Bank & Ors (Civil Appeal No.10673 OF 2018), the Hon’ble Supreme Court passed a common judgement for two same appeals (Kamineni Steel and & Power Ltd. AND Innoventive Industries Ltd.) defining the scope of such power granted to the AA over commercial matters.

In the case of Kamineni, majority votes were counted without considering votes of those creditors who are not participating in the voting but are a part of the CoC and such majority was considered valid by the NCLT, Hyderabad.

In the case of Innoventive, NCLT passed an order to initiate liquidation proceedings as majority of 75% was not met.

When the matters went to the NCLAT, it held that in both the cases 75% majority was not met therefore, liquidation proceedings must be initiated.

The Hon’ble Supreme Court held that the jurisdiction bestowed on the AA is circumscribed. It cannot examine the justness of a rejected RP or evaluate the commercial decision of CoC regarding such rejection. The legislature while framing the IBC has consciously not provided any ground to challenge the commercial wisdom of any decision made by the CoC before the AA as courts shall control process of resolution and not take burden of business decision. The Insolvency and Bankruptcy Board of India while performing its function cannot regulate the manner in which Financial Creditors ought to vote or ought not to vote in during the voting for an RP Since, appropriate arrangement of a defaulting company is a business decision therefore, only creditors should make it. The AA can exercise its power of enquiring into matters related to approved RO on the grounds mentioned under Section 31 and Section 61 of the IBC.

The judgement passed by the Hon’ble Supreme Court will lead to swift movement of Resolution process and minimize the time utilized by the Courts to scrutinize the RP. It has given utmost importance to the commercial wisdom by excluding any kind of judicial intervention and putting a bracket on the powers of the AA.