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Vallal RCK vs. M/s Siva Industries and Holdings Limited and Others

Civil Appeal · 2022 INSC 636Decided 3 Jun 2022
Civil Appeal Nos. 1811-1812 of 2022
B.R. Gavai · Hima Kohli

Background

After insolvency proceedings were initiated against Siva Industries and Holdings Limited (the "Corporate Debtor") on IDBI Bank's application, an initial resolution plan failed to get the required 66% approval from the Committee of Creditors (CoC). The appellant, the company's promoter, then proposed a one-time settlement plan; after several rounds of deliberation and one creditor changing its position, the CoC ultimately approved the settlement with 94.23% voting share, well above the 90% threshold required by Section 12A of the Insolvency and Bankruptcy Code, 2016. Despite this overwhelming approval, the National Company Law Tribunal (NCLT) rejected the withdrawal application (calling it a "business restructuring plan" rather than a simple settlement) and instead ordered liquidation, and the National Company Law Appellate Tribunal (NCLAT) upheld that rejection.

Decision Breakdown

The Supreme Court held that once 90% or more of the CoC, after due deliberation, decides in its commercial wisdom that a settlement and withdrawal of CIRP is in the interest of all stakeholders, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) can sit in appeal over that commercial decision: interference is warranted only if the CoC's decision is wholly capricious, arbitrary, irrational, or contrary to the statute. Reviewing the CoC's meeting records, the Court found genuine, extensive deliberation (including amendments made to the settlement plan in response to creditor feedback) rather than any arbitrariness, and noted that Section 12A's 90% threshold is intentionally stricter than the 66% needed to approve a resolution plan, precisely because it demands broad creditor consensus. It therefore quashed the NCLAT and NCLT orders, allowed the appeals, and directed that the resolution professional's application for withdrawal of the CIRP be allowed.

Lesson Learnt

When an overwhelming majority of creditors (90% or more) agree to settle and exit an insolvency process, tribunals cannot second-guess that commercial judgment: judicial interference in India's insolvency framework is meant to be minimal and reserved only for genuinely capricious or unlawful decisions.

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

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