The Hon'ble Supreme Court vide its judgment dated November 15, 2019 has cleared the way for Arcelor Mittal's takeover of Essar Steel India Limited. Further, the Hon'ble Supreme Court also dealt with and provided clarity on certain important concepts of the IBC by the way of this judgment:

The Hon'ble Supreme Court laid down the following important observations with respect to provisions of IBC:

  1. The role of the resolution professional under the IBC is administrative and not adjudicatory.
  2. The decision taken by the majority of the committee of creditors would prevail in any case. NCLT or NCLAT cannot take away this power of the committee of creditors. The earlier decision of the NCLAT in this case which substituted its wisdom for the commercial wisdom of the committee of creditors and directed the admission of a number of claims which were made by the resolution applicant, was set aside by the Hon'ble Supreme Court.
  3. Limited judicial review is available to NCLT and NCLAT and they shall not trespass upon a business decision of the majority of the committee of creditors. They can look into whether the committee of creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the CIRP; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of, but it cannot adjudicate on merits. Further, the Hon'ble Supreme Court noted that NCLT and NCLAT can only review the fairness and equitability of a resolution plan.
  4. The Hon'ble Supreme Court clarified that the amended Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") does not put all the creditors at an equal footing. Fair and equitable treatment of operational creditors means that a resolution plan should protect their interests but it did not mean proportionate payment of debts. Treatment of unequals equally would violate the object and purpose of the IBC. Secured and unsecured financial creditors were differentiated in resolution plans and operational creditors are viewed separately.
  5. The committee of creditors has the power to approve a resolution plan under section 30(4) of the IBC and this power cannot be delegated to any other body by the committee of creditors. Sub-committees can be formed for administrative work but their acts need to be ratified by the committee of creditors.
  6. Section 31(1) of IBC laid down that once a resolution plan is approved by the Committee of Creditors, it shall be binding on all stakeholders, including guarantors.
  7. The Hon'ble Supreme Court also gave the legislature some freedom in the sphere of economic legislations. The rule of presumption of constitutionality was applied and it was laid down that the legislature had not directly set aside the judgment of the NCLAT by the Amendment Act and hence the Amendment Act could not be struck down.
  8. The constitutional validity of Section 30(2)(b) of IBC was upheld as the Hon'ble Supreme Court held that there was no residual equity jurisdiction in the NCLT or the NCLAT to interfere in the merits of a business decision taken by the majority of the committee of creditors, as long as it was otherwise in conformity with the provisions of the IBC and the CIRP Regulations.
  9. Distribution of profits made during the CIRP would not go towards payment of debts of any creditor.
  10. The Hon'ble Supreme Court struck down the word 'mandatorily ' from Section 12 of the IBC. Section 12 posed a requirement to finish a CIRP compulsorily in a certain number of days, which the court found to be violative of Articles 14 and 19 of the Constitution of India. The effect of this declaration was that ordinarily the time taken in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. However, if the delay is attributable to the NCLT and/or the NCLAT itself, the time could be extended beyond 330 days in exceptional cases.

* Civil Appeal No. 8766-67 of 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.