CITATION
Kalpraj Dharamshi v. Kotak Investment Advisors Ltd. (2021) SCC OnLine SC 204
FACTS OF THE CASE
This case arose from the Insolvency and Bankruptcy Code, 2016 (IBC) proceedings, specifically focusing on the resolution process of Ricoh India Ltd., a company facing insolvency under the IBC. Ricoh India Ltd. was admitted for corporate insolvency resolution process (CIRP) on 14 May 2018. The CIRP was initiated by a financial creditor, HSBC, after Ricoh India Ltd. failed to meet its debt obligations.
During the CIRP, the resolution professional invited expressions of interest (EoIs) from prospective resolution applicants to submit resolution plans. Two prospective bidders emerged:
1.Kalpraj Dharamshi and Rekha Dharamshi (Appellants)**: A consortium consisting of the Dharamshi family.
2.Kotak Investment Advisors Ltd. (Respondents)**: Kotak Mahindra Group’s asset management arm.
The Committee of Creditors (CoC) evaluated the resolution plans submitted by both parties. Initially, Kotak’s plan was favoured, but at a later stage, Kalpraj Dharamshi’s resolution plan was approved by a majority of the CoC. Kotak challenged the approval, arguing that the plan submitted by Kalpraj Dharamshi was filed beyond the prescribed deadline and should not have been considered. Kotak approached the National Company Law Tribunal (NCLT), and later the National Company Law Appellate Tribunal (NCLAT), to contest the CoC’s decision.
ISSUES
1. Whether the resolution plan submitted by Kalpraj Dharamshi was valid despite being submitted after the deadline prescribed under the IBC framework.
2. Whether the approval of Kalpraj Dharamshi’s resolution plan by the CoC violated the principles of fairness and transparency under the IBC.
3. Whether the NCLAT was correct in setting aside the NCLT’s decision, which had favored the CoC’s approval of Kalpraj Dharamshi’s resolution plan.
4. What is the extent of judicial intervention permissible in the commercial wisdom of the Committee of Creditors under the IBC?
CONTENTIONS OF THE PETITIONER
The petitioners argued that the IBC, in its core principles, does not prescribe rigid deadlines that prohibit consideration of a resolution plan if it is submitted slightly late. The objective of the IBC is to maximize the value of assets and ensure the most viable plan for reviving the corporate debtor, which should take precedence over procedural technicalities.
The petitioners emphasized that the approval of their resolution plan was based on the CoC’s commercial wisdom. The CoC, being a body of experts, is entrusted with the authority to evaluate and decide which plan best suits the revival of the corporate debtor. It was argued that the CoC has the discretion to assess resolution plans even if they are received after the prescribed deadline, provided it is in the best interest of all stakeholders.
Kalpraj Dharamshi argued that judicial authorities, such as the NCLT and NCLAT, have limited scope to interfere with the commercial decisions taken by the CoC. Once a decision has been taken by the CoC in favor of one resolution plan, courts should not interfere unless there are serious allegations of fraud, material irregularity, or violation of legal principles.
The petitioners contended that their resolution plan offered a better financial package for creditors, maximizing the value of Ricoh India’s assets. This was a key factor in the CoC’s decision to approve their plan over Kotak’s.
CONTENTIONS OF THE RESPONDENT
Kotak argued that the CIRP is governed by strict timelines, which are crucial for ensuring transparency, fairness, and predictability in the resolution process. They argued that allowing the submission of a resolution plan beyond the deadline violated the principles of fair play and compromised the integrity of the process. Kotak asserted that once the deadline had passed, Kalpraj Dharamshi’s plan should not have been considered, and the plan already submitted by Kotak should have been approved.
Kotak alleged that the CoC acted in an arbitrary and non-transparent manner by considering Kalpraj Dharamshi’s plan at a late stage. They argued that the CoC’s decision was influenced by extraneous considerations and not based solely on merit.
While the IBC grants the CoC wide discretion to approve or reject resolution plans, Kotak argued that judicial bodies have the power to examine whether the CoC’s decision was taken in a fair and transparent manner. In this case, Kotak contended that the CoC’s decision to approve Kalpraj Dharamshi’s plan violated procedural rules and principles of natural justice, which warranted judicial intervention.
Kotak argued that their resolution plan was initially favored by the CoC and was the only viable option until Kalpraj Dharamshi’s plan was submitted belatedly. They contended that the CoC unfairly sidelined their plan after initially indicating a preference for it, creating an atmosphere of unpredictability in the resolution process.
JUDGEMENT
The Supreme Court of India, in its judgement delivered by a bench consisting of Justices D.Y. Chandrachud, M.R. Shah, and Sanjiv Khanna, ruled in Favor of Kalpraj Dharamshi, upholding the approval of their resolution plan by the CoC.
The Court held that while timelines under the IBC should be adhered to, there is no absolute prohibition on the CoC considering a resolution plan submitted after the deadline, especially when the delay is marginal, and the plan offers a better value to creditors.
The Court emphasized that the CoC’s commercial wisdom, exercised after due deliberation, should not be interfered with unless there is evidence of arbitrariness, illegality, or procedural unfairness. The IBC accords primacy to the CoC in deciding which resolution plan is the most suitable for reviving a distressed company. Courts should not substitute their own assessment of the merits of a plan over the CoC’s decision, except in cases where fraud or malfeasance is alleged.
The Court noted that Kalpraj Dharamshi’s resolution plan offered a better deal for creditors, thereby fulfilling the objective of value maximization under the IBC. The decision of the CoC to approve this plan was based on careful consideration of all the facts and circumstances, and there was no evidence of procedural irregularity or unfairness.
The Court found no merit in Kotak’s argument that the CoC acted arbitrarily or was influenced by extraneous factors. The CoC followed due process and took an informed decision in favor of the Dharamshi plan. Therefore, the CoC’s approval of the Dharamshi plan was upheld as being within its commercial discretion.
The Court set aside the NCLAT’s order, which had overturned the NCLT’s decision, and restored the NCLT’s original ruling that had approved Kalpraj Dharamshi’s resolution plan. The NCLAT was found to have overstepped its jurisdiction by substituting its own assessment of the resolution plan in place of the CoC’s decision.
DEFECTS OF LAW
The case draws attention to possible inconsistencies in the IBC concerning the adaptability of procedural schedules during the CIRP. Value maximisation is the first priority, but if there are unclear rules about accepting late contributions, there may be disagreements about fairness and transparency. To reconcile procedural rigour with the ultimate objective of asset value maximization, this emphasizes the necessity for more precise laws or regulatory guidelines.
INFERENCE
This judgement reinforces the sanctity of the CoC’s commercial wisdom in insolvency resolution processes under the IBC. The Supreme Court reiterated that judicial authorities should not intervene in the CoC’s decisions unless there is clear evidence of illegality or procedural irregularity. The case underscores the importance of ensuring a balance between procedural fairness and the objective of value maximization. The Court’s ruling emphasizes that while the IBC provides for timelines, these should not be interpreted rigidly, especially when the overall objective of reviving the corporate debtor is better served by accepting a belated plan. The judgement also highlights that the CoC’s decision-making process should be respected, provided it is conducted transparently and in accordance with the principles of natural justice.
This case sets a precedent for the limited scope of judicial intervention in CoC decisions, which are fundamentally commercial in nature. It also affirms the IBC’s primary goal of ensuring resolution over liquidation, with the CoC playing a central role in achieving this aim. By ruling in favour of the Dharamshi consortium, the Court recognized the importance of maximizing asset value for creditors and prioritizing substantive outcomes over procedural formalities.
Submitted By – Isha Banchhor
College Name – Ajeenkya D Y Patil University, Pune.