Another Spoke In The Wheel - CIRP Of SKS Power Generation (Chhattisgarh)

In an interesting development, a bench comprising of Justice (Retd). Ashok Bhushan, Chairperson and Arun Baroka, Member (Technical) of the National Company Law Appellate Tribunal, New Delhi (NCLAT) has directed the plan approval application for the resolution plan of Sarda Energy & Minerals Limited (SEML) before the National Company Law Tribunal, Mumbai for fresh consideration. The matter relates to the corporate insolvency resolution process (“CIRP”) for SKS Power Generation (Chhattisgarh) Ltd. (“Corporate Debtor”) wherein a negotiation/ bidding process was conducted by the Resolution Professional to ascertain the highest bidder/commercial bid, whereby the Resolution Plan of SEML was approved by CoC. The NCLT had, vide Order dated 06.10.2023, taken note of the numerous procedural errors in conducting this negotiation/ bidding process and held that there is perversity in the process, because incorrect data/ numbers were placed before the Committee of Creditors.

Accordingly, it had remanded back the resolution plan of SEML to CoC alongwith with other plan for re-consideration, basis an Application filed by Torrent Power Limited, being another Resolution Applicant. The matter was strongly contested before the NCLAT in a batch of appeals wherein submissions were preferred over several days by several legal stalwarts appearing for various the parties, i.e. SEML, the Committee of Creditors, the Resolution Professional as well as the other resolution applicants, i.e., Torrent Power Limited, Vantage Point Asset Management Pte. Ltd. (“Vantage Point”) and Jindal Power Limited. The question of law that was raised by Torrent Power Limited and other resolution applicants was that the interference by the NCLT was not qua the commercial wisdom of the Committee of Creditors but was expressly limited to the stage prior to decision qua the commercial wisdom of the Committee of Creditors and hence, the decision-making process followed by Committee of Creditors was perverse.

SEML, the Committee of Creditors and the Resolution Professional, on the other hand, sought to assail the order of the NCLT by firstly arguing that the findings qua perversity and that incomplete financial data was placed before the Committee of Creditors was arrived at sans issuance of notice to the contesting parties and secondly that the NCLT’s jurisdiction is circumscribed and narrowed down solely on the factors enumerated in Section 30(2) and 31 of the Insolvency and Bankruptcy Code, 2016 (“Code”).

The NCLAT has proceeded to set aside the Order of the NCLT solely on the ground of violation of principles of natural justice. However, importantly, it has recognised the validity of the submissions on behalf of Torrent Power Limited that that perversity in the process is also one of the grounds on which the NCLTs can interfere.

After referring to a decision of the Supreme Court, the NCLAT further held that “…commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its Members.” Further it held that “…a fault can be found in the decision only when there is serious error in the decision-making process and by which error, the CoC is unable to take its commercial decision.”

These findings rendered by the NCLAT find immense significance to the jurisprudential landscape of the Code as well as its practical application as a stronger onus has been placed on the Resolution Professionals/ its advisors to ensure that the entire process and data, like Ceasar’s wife, is beyond suspicion.

Kapil Sibal, Senior Advocate, Ramji Srinivasan, Senior Advocate along with the legal team from Karanjawala & Co. comprising of Ruby Singh Ahuja, Senior Partner, Hancy Maini, Varun Khanna, Principal Associates and Devang Kumar, Senior Associate appeared on behalf of Torrent Power Limited.