Supreme Court on NCLT’s Need for Reasoned Orders under IBC

Introduction 

• Ramkrishna Forgings Limited v Ravindra Loonkar, Resolution Professional of ACIL Limited & Anr CIVIL APPEAL No.1527 OF 2022
• In this ruling, the Supreme Court emphasized the importance of the National Company Law Tribunal (NCLT) providing reasoned orders when exercising its authority under Section 31(2) of the Insolvency and Bankruptcy Code, 2016 (IBC), to disapprove a resolution plan. The Court asserted that the duty to record cogent reasons is inherent in the functions of both Courts and Tribunals.
• The case in question involved the setting aside of an NCLT order that had suspended the approval of a resolution plan. Instead, the NCLT directed the Official Liquidator to reevaluate the assets of the Corporate Debtor. The subsequent order of the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT's decision, was also annulled by the Supreme Court.
• The Bench, comprising Justice Vikram Nath and Justice Ahsanuddin Amanullah, cautioned the NCLT against directing the evaluation of a Corporate Debtor's assets except when deemed necessary and strictly within the confines defined by the IBC.
• It was held that “It is worthwhile to note that the Adjudicating Authority has jurisdiction only under Section 31(2) of the Code, which gives power not to approve only when the Resolution Plan does not meet the requirement laid down under Section 31(1) of the Code, for which a reasoned order is required to be passed. We may state that the NCLT’s jurisdiction and powers as the Adjudicating Authority under the Code flow only from the Code and the Regulations thereunder.”

Facts and Background

• The Corporate Debtor, ACIL, underwent the Corporate Insolvency Resolution Process (CIRP) under the IBC, leading to the approval of a resolution plan submitted by Ramkrishna Forgings Limited (SRA) by the Committee of Creditors (CoC).
• The NCLT, however, on September 1, 2021, deferred the approval of the SRA's Resolution Plan and instructed the Official Liquidator to furnish precise figures/values of the Corporate Debtor's assets. Subsequently, the SRA appealed this decision before the NCLAT, which, on January 19, 2022, dismissed the appeal, citing a substantial avoidance transaction and the complexity of the case.
• Dissatisfied with the NCLAT's order, the SRA approached the Supreme Court, contending that the IBC already incorporates a mechanism for asset valuation through the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The appointment of an Official Liquidator for valuation, an entity created under the Companies Act, 2013, was deemed unwarranted. Additionally, the SRA argued that the NCLT lacked the authority to second-guess the commercial decisions of the CoC.

Analysis and Judgement

• The Supreme Court underscored that the NCLT's power to reject a resolution plan is confined to Section 31(2) of the IBC. It emphasized that a reasoned order is mandatory when disapproving of a resolution plan, as stipulated in Section 31(1) of the IBC. The Court clarified that the jurisdiction and powers of the NCLT, acting as the Adjudicating Authority, derive solely from the IBC and its regulations.
• The Bench expressed its inclination not to interfere with the NCLT's order if it had been adequately reasoned. The Court reiterated the duty of Courts and Tribunals to provide detailed and cogent reasons for their decisions, referencing a line of judgments from Kranti Associates Private Limited v Masood Ahmed Khan to Manoj Kumar Khokhar v State of Rajasthan.
• Addressing concerns raised during the proceedings, the Bench clarified that the NCLT may exercise the power to direct the evaluation of a Corporate Debtor's assets when deemed necessary. However, it emphasized that such authority must be exercised strictly within the confines permitted by the IBC.
• The Court emphasized the importance of legal certainty while acknowledging that the law should be applied contextually, based on the specific facts of each case. It referred to specific decisions, including Embassy Property Developments Private Limited v State of Karnataka and Gujarat Urja Vikas Nigam Limited v Amit Gupta, to highlight the limitations of the NCLT's powers in this regard.
• In conclusion, the Supreme Court set aside the orders of both the NCLT and the NCLAT, directing the NCLT to issue appropriate orders regarding the approval of the resolution plan.

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