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The Karad Urban Cooperative Bank Ltd. v. Swwapnil Bhingardevay & Ors.

Civil Appeal · 2020 INSC 533Decided 4 Sept 2020
Civil Appeal No. 2955 of 2020
Chief Justice S.A. Bobde · Justice A.S. Bopanna · Justice V. Ramasubramanian

Background

A cooperative bank initiated insolvency proceedings against a sugar factory (the corporate debtor), and after a lengthy process, the Committee of Creditors approved a Resolution Plan submitted by a company called Sai Agro, which the National Company Law Tribunal (NCLT) also approved. The corporate debtor's own promoter/director challenged this approval before the National Company Law Appellate Tribunal (NCLAT), which set aside the approval and sent the plan back to the creditors' committee, prompting the financial creditor and the resolution professional to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court restored the NCLT's original approval of the Resolution Plan, holding that the NCLAT had wrongly second-guessed the "commercial wisdom" of the Committee of Creditors on questions of viability and feasibility, which the law places outside the scope of judicial review. It also rejected, one by one, the NCLAT's other grounds: an alleged leak of confidential valuation data (shown to be an innocent coincidence, given the typographical nature of the alleged evidence), a dispute over ownership of certain machinery (already known to and accounted for by all parties), and an allegedly defective public advertisement (based on a regulation that did not even apply at the relevant time). The Court was notably skeptical of the promoter's motives, remarking that his objections amounted to "the wolf shedding tears for the lamb."

Lesson Learnt

Courts give significant deference to the collective commercial decisions of a creditors' committee in insolvency cases and will not reopen a resolution plan's business viability merely because a company's own promoter, who stands to lose control of the company, raises technical objections after the fact.

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

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