The Supreme Court of India dismissed the appeal by the NOIDA Special Economic Zone Authority (NSEZ), confirming that commercial decisions made by a Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code (IBC) cannot be interfered with lightly, even when they impact statutory dues. The Court, in Civil Appeal Nos. 5918-5919 of 2022, upheld the National Company Law Appellate Tribunal’s (NCLAT) ruling that reduced NSEZ’s claim against Shree Bhoomika International Limited from ₹6.29 crore to ₹50 lakh, reinforcing the primacy of IBC’s framework in insolvency cases.
The ruling, delivered by a bench comprising Justice Abhay S. Oka and Justice Augustine George Masih, underscored that the IBC supersedes other laws when there is a conflict, in accordance with Section 238 of the Code. This judgment impacts various government authorities with statutory dues and confirms that CoC-approved resolution plans under the IBC are binding.
Background of the Case
The case centered on NSEZ’s claim as an operational creditor against Shree Bhoomika International Limited, a corporate debtor that had defaulted on lease payments for a plot in the NOIDA SEZ. The lease, initiated in 1995, was valid until 2010. However, Shree Bhoomika had ceased operations on the plot around 2003-2004, accumulating substantial dues. As the company’s financial situation deteriorated, NSEZ sought recourse under the IBC, initiating a Corporate Insolvency Resolution Process (CIRP) with the National Company Law Tribunal (NCLT).
Following the appointment of an Interim Resolution Professional (IRP), the Committee of Creditors (CoC), represented by the sole financial creditor, IDBI Bank’s Stressed Assets Stabilization Fund, approved a resolution plan that only allocated ₹50 lakh to NSEZ, a fraction of its admitted claim. Dissatisfied, NSEZ appealed to the NCLT and later the NCLAT, both of which upheld the CoC’s decision.
Key Legal Issues
1. Authority of CoC in Determining Claims in Resolution Plans: The Supreme Court examined whether the CoC’s decision to reduce NSEZ’s statutory dues was within its rights, and whether such a decision could be questioned.
2. IBC’s Supremacy Over Other Statutory Claims: The Court also looked into whether Section 238 of the IBC, which grants it an overriding effect, applies when statutory dues are part of the claim.
3. Limitations on Judicial Interference with CoC Decisions: The Court analyzed the extent to which judicial bodies can intervene in financial decisions made by the CoC, which is generally regarded as having the best perspective on the feasibility of a resolution plan.
Supreme Court’s Decision
Justice Augustine George Masih, delivering the judgment, affirmed that CoC decisions concerning operational and statutory dues are non-justiciable, provided they adhere to Section 30(2) of the IBC, which stipulates certain procedural and substantive requirements. The Court reiterated:
“The commercial wisdom of the Committee of Creditors, especially regarding the viability and feasibility of a resolution plan, prevails and shall not be subject to judicial review.”
The Court also emphasized the importance of Section 238 of the IBC, which ensures the Code’s provisions override conflicting statutory requirements. Justice Masih noted:
“Section 238 of the IBC explicitly provides an overriding effect to its provisions, thus ensuring that the IBC’s framework for resolution takes precedence, even over statutory dues, once a resolution plan is approved.”
Analysis of the Resolution Plan
The Court dismissed NSEZ’s argument regarding the “unjust enrichment” of the resolution applicant, Commodities Trading, due to the reduced claim, stating that such matters are squarely within the CoC’s discretion. NSEZ also raised concerns about the absence of physical valuation of the assets, a requirement under the Insolvency and Bankruptcy Board of India’s (IBBI) Regulations. However, the Court noted that an average of the two closest valuations had been calculated, with the CoC’s approval.
NSEZ further argued that the resolution plan’s provision allowing the transfer of leasehold rights without paying applicable fees to NSEZ violated the SEZ Act of 2005. However, the Court ruled that the IBC’s framework would override the SEZ Act in this context, stating:
“The provisions as contained in the SEZ Act must yield to the IBC when in conflict, due to the overriding effect of Section 238 of the IBC.”
