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Pratap Technocrats (P) Ltd. & Ors. v. Monitoring Committee of Reliance Infratel Limited & Anr.

Civil Appeal · 2021 INSC 395Decided 10 Aug 2021
Civil Appeal No. 676 of 2021
Dr. Justice D.Y. Chandrachud · Justice M.R. Shah

Background

Reliance Infratel Limited went through a corporate insolvency resolution process, and its Committee of Creditors unanimously approved a resolution plan put forward by a Reliance group entity, which was then approved by the NCLT and upheld by the NCLAT. A group of operational creditors (telecom infrastructure service providers owed roughly Rs. 190 crore) challenged the plan in the Supreme Court, arguing they were kept in the dark during the process, received only about 10% of their dues while facing a 90% write-down, and that Rs. 800 crore worth of preference shares had been wrongly kept out of the pool of assets available for distribution.

Decision Breakdown

The Supreme Court held that the value of the preference shares had, in fact, been included in calculating the company's liquidation value, based on sworn clarification and valuation reports placed on record, so that specific factual objection failed. More fundamentally, the Court held that neither the NCLT nor the NCLAT has any free-standing power to second-guess the "commercial wisdom" of the Committee of Creditors in approving a resolution plan; their role is strictly limited to checking that the statutory requirements of Section 30(2) of the IBC were met, not to redesign the deal for fairness in the abstract. Since operational creditors here actually received a higher recovery percentage (19.62%) than financial creditors (10.32%), and "fair and equitable" treatment under the law only means equal treatment within the same class of creditors (not between operational and financial creditors), the plan satisfied the law. The Court therefore dismissed the appeal and upheld the approved resolution plan.

Lesson Learnt

In company insolvency proceedings, creditors' committees have wide "commercial wisdom" to decide how to split recovery between different classes of creditors, and courts will not step in to re-balance that decision for being merely unequal: they will only check that the minimum legal protections (such as operational creditors getting at least their liquidation-value entitlement) were actually met.

Official source (sci.gov.in)View Judgment (PDF)

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