If there is one thing that IBC-watchers are never deprived of, it is courtroom action. There is an inherent tension in the act of plucking a company away from its erstwhile owners and offering it to a flock of bidders that lends itself to constant and tiresome litigation. If there is one thing we know about taking a dispute into litigation, it is that courts often make things worse, not better. A recent example should suffice.
In Maharashtra Seamless Ltd. v. Padmanabha Venkatesh, a three judge bench of the Supreme Court was faced with deciding on an issue that has been litigated and re-litigated, to the point that the law was amended to clarify it – can the Tribunals entrusted with adjudicating disputes under the Code direct amendments in a resolution plan in the interests of equity after the Committee of Creditors has already approved it?
Here is what happened. As per Regulation 35 of the IBBI (Insolvency Resolution Process Regulations), 2016, the NCLT appointed valuers to determine the liquidation value of the corporate debtor. When bids were called, the winning bidder, Maharashtra Seamless, had made a bid that contemplated an upfront payment that was less than this value. Nonetheless, the Committee of Creditors approved the bid. The NCLT gave its imprimatur to this decision. When the case reached the NCLAT, the NCLAT refused to approve the winning bid unless Maharashtra Seamless agreed to also pay the difference between its bid amount and the liquidation value to the operational creditors of the corporate debtor. No operational creditor had sought such a payment.
The scope of judicial review of the decision of the Committee of Creditors is contained in Sections 30 and 31 of the IBC. It does not leave any room for equitable considerations. It does not provide that a bidder is required to bid at least the liquidation value of the company. Regulation 35, which requires the liquidation value to be provided to the creditors, is clearly introduced to assist the Committee to take an informed view of the bids received by it. It does not handcuff them into approving only those bids that match or surpass the liquidation value. That the Supreme Court had to step in to clarify a point like this speaks volumes for the state of the Tribunals administering the Insolvency and Bankruptcy Code.
The Supreme Court, I must say, said all the right things:
- “The Appellate Authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom.”
- “…we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. ”
Sadly, all the delay and all the litigation led Maharashtra Seamless to want out. The Court records that it had applied for withdrawal of the resolution plan because of delay in its implementation. As they say in the ICU, operation successful, patient dead.
