29th April, 2022

NCLT’S POWER TO ENTER INTO BUSINESS

DECISIONS OF COC-A CASE STUDY OF THE
PRATAP TECHNOCRATS CASE
Paramita Banerjee,
Associate, MCO Legals
B.A., LLB (Hons.), School of Law, Christ University, Bangalore
Expertise: Litigation and Arbitration

Amit Singhal
Research Partner
B.A., LLB (Hons), National Law Institute University

1. BACKGROUND by the RP, which the Resolution Applicant unconditionally

accepted.
1.1 On 10.08.2021, division bench of the Hon’ble Supreme
Court (for short “SC”) unanimously dismissed the appeal 2.8 This resolution plan was approved by NCLT.
filed under section 62 of the Insolvency and Bankruptcy
Code (for short “IBC”) against the judgment of the National 2.9 This decision of NCLT was challenged before the NCLAT on
Company Law Appellate Tribunal (for short “NCLAT”) the grounds, inter alia, that the appellants were not kept
[Pratap Technocrats (P) Ltd. and Others v. Monitoring informed about the CIRP and their claims did not receive
Committee of Reliance Infratel Limited and Another, 2021 the fair and equitable treatment.
SCC OnLine SC 569].
2.10 NCLAT dismissed the appeal finding no substance in the
1.2 This case primarily concerns the issue relating to the limits grounds for challenging the NCLT judgment.
of the jurisdiction of the National Company Law Tribunal
(for short “NCLT”) in approving a resolution plan. 3. ISSUE INVOLVED

2. FACTS 3.1 Whether an equity-based jurisdiction lies with NCLT under

IBC?
2.1 CIRP of Reliance Infratel Ltd. was initiated by a NCLT order.
3.2 Whether the treatment of operational creditors in CIRP is
2.2 During the course of CIRP, the Resolution Professional (for just and equitable?
short “RP”) invited ‘Expressions of Interest’ from
prospective resolution applicants. 3.3 How far an adjudicating authority (NCLT/NCLAT) under IBC
can interfere with the business decision of CoCs?
2.3 A request for resolution plan was then issued to the
prospective resolution applicants, together with an 4. ISSUE 1: JURISDICTION OF NCLT
information memorandum and evaluation matrix.
4.1 Section 30(1) envisages the submission of resolution plan
2.4 The Committee of Creditors (for short “CoC”) engaged with by a resolution applicant. On the submission of the
the prospective resolution applicants, in pursuance of resolution plan, the RP is required to examine it and to
which, revised resolution plans were submitted. confirm, in terms of Section 30(2), that the plan abides by
the statutory requirements spelt out in clauses (a) to (f).
2.5 The resolution plan submitted by Reliance Digital Platform
and Project Services Limited were taken forward as a 4.2 Thereafter, the RP has to present it to the CoC, for its
preferred resolution plan on the basis of its “feasibility, approval. The approval of the resolution plan is a statutory
viability and implementability”. function which is entrusted to the CoC, under Section 30(4).
The CoC may approve a resolution plan with a voting
2.6 The Resolution Applicant submitted a revised resolution percentage of not less 66 per cent of the voting shares of
plan later, and upon due verification of its eligibility under financial creditors after considering its feasibility and
Section 29A of the IBC, was declared a successful resolution viability; the manner of distribution proposed; and such
applicant by the CoC. other requirements as may be specified by the Insolvency
and Bankruptcy Board of India.
2.7 The resolution plan was approved with a 100 per cent
voting share of the CoC. A letter of intent was then issued 4.3 The jurisdiction which has been conferred upon NCLT in
regard to the approval of a resolution plan is statutorily

Ahmedabad | Bengaluru | Chandigarh | Chennai | Delhi | Hyderabad | Kolkata | Mumbai

Colombo | Kuala Lumpur | London | Singapore
© MCO Legals
PAGE 1
 structured by Section 31(1). The jurisdiction is limited to 6.4 The above principles have been re-emphasised and taken
determining whether the requirements which are specified further by a three-Judge Bench in Essar Steel India Limited
in Section 30(2) have been fulfilled. This is a jurisdiction v. Satish Kumar Gupta, (2020) 8 SCC 531.
which is statutorily-defined, recognised and conferred, and
hence cannot be equated with a jurisdiction in equity that 6.5 The precedents laid down by this Court are also in tandem
operates independently of the provisions of the statute. with recommendations made in the UNCITRAL's Legislative
Guide on Insolvency Law, which states that “it is desirable
4.4 The jurisdiction of NCLAT under Section 61(3), while that a court does not interfere with the commercial wisdom
considering an appeal against an order approving a of the decisions taken by the creditors”.
resolution plan under Section 31, is similarly structured and
on specified grounds. 7. COMPARATIVE LOOK

5. ISSUE 2: TREATMENT OF OPERATIONAL CREDITOR 7.1 The judgment also made observations on the issue from
other jurisdictions which allows resolution/reorganization
5.1 Insofar as the operational creditors are concerned, there plans to be challenged on grounds of fairness and equity.
are specific requirements which have been spelt out in Under the United Kingdom's Insolvency Act, 1986, one of
Section 30(2)(b). The amount which is payable to the the grounds under which a company’s voluntary
operational creditors towards their debts must at least be arrangement can be challenged is that it unfairly prejudices
either what is provided in sub-clause (i) or sub-clause (ii) of the interests of a creditor of the company whereas under
clause (b), whichever is higher. the United States' US Bankruptcy Code, if a restructuring
plan has to clamp down on a dissenting class of creditors,
5.2 These provisions indicate that the ambit of the one of the conditions that it should satisfy is that it does
Adjudicating Authority is to determine whether the not unfairly discriminate, and is fair and equitable.
amount that is payable to the operational creditors under
the resolution plan is consistent with the above norms 7.2 However, under the Indian insolvency regime, it appears
which have been stipulated in Section 30(2)(b). that a conscious choice has been made by the legislature to
not confer any independent equity based jurisdiction on
5.3 Significantly, Explanation-1 to clause (b), which is the Adjudicating Authority other than the statutory
clarificatory in nature, provides that a distribution which is requirements laid down under Section 30(2) of the IBC.
in accordance with the provisions of the clause “shall be
fair and equitable” to such creditors. Fair and equitable 8. CONCLUSION
treatment, in other words, is what is fair and equitable
between the operational creditors as a class, and not 8.1 SC dismissed the appeal by holding that the resolution plan
between different classes of creditors. The statute has has been duly approved by a requisite majority of the CoC
indicated that once the requirements of Section 30(2)(b) in conformity with Section 30(4).
are fulfilled, the distribution in accordance with its
provisions is to be treated as fair and equitable to the 8.2 Whether or not some of the financial creditors were
operational creditors. required to be excluded from the CoC is of no consequence,
once the plan is approved by a 100 per cent voting share of
6. ISSUE 3: EXTENT OF ADJUDICATING AUTHORITY’S the CoC.
JURISDICTION
8.3 The jurisdiction of the Adjudicating Authority was confined
6.1 The decision in K Sashidhar v. India Overseas Bank, (2019) by the provisions of Section 31(1) to determining whether
12 SCC 150, emphasizes that the Adjudicating Authority is the requirements of Section 30(2) have been fulfilled in the
circumscribed by Section 31 to scrutinizing the resolution plan as approved by the CoC.
plan “as approved” by the CoC under Section 30(4).
8.4 As such, once the requirements of the statute have been
6.2 Moreover, even within the scope of that enquiry, the duly fulfilled, the decisions of the Adjudicating Authority
grounds on which the Adjudicating Authority can reject the and the Appellate Authority are in conformity with law.
plan is with reference to the matters specified in Section
30(2). A copy of the judgment is annexed hereto at page 3 to 21.

6.3 Similarly, the Court noted that the jurisdiction of the

Appellate Authority to entertain an appeal against an
approved resolution plan is defined by Section 61(3). It is in
this context that the consistent principle of law has been
laid down that neither the Adjudicating Authority nor the
Appellate Authority can enter into the commercial wisdom
underlying the approval granted by the CoC to the
resolution plan. The commercial wisdom of the CoC in its
collegial capacity is, hence, not justiciable.

Ahmedabad | Bengaluru | Chandigarh | Chennai | Delhi | Hyderabad | Kolkata | Mumbai

Colombo | Kuala Lumpur | London | Singapore
© MCO Legals
PAGE 2
 SCC Online Web Edition, Copyright © 2021
Page 1 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-

2021 SCC OnLine SC 569

In the Supreme Court of India

(BEFORE D.Y. CHANDRACHUD AND M.R. SHAH, JJ.)

Pratap Technocrats (P) Ltd. and Others … Appellants;

Versus
Monitoring Committee of Reliance Infratel Limited and Another …
Respondents.
Civil Appeal No 676 of 2021
Decided on August 10, 2021
The Judgment of the Court was delivered by
D.Y. CHANDRACHUD, J.:—
Index
A The Appeal
B Corporate Resolution Insolvency Process
C Approval of Resolution Plan
D Challenge before Appellate Tribunal
E Submissions
F Analysis
F.1 Clearing the ground
F.2 Jurisdiction to approve a Resolution Plan
F.3 Exercise of jurisdiction
G Conclusion
A The Appeal
1. This appeal arises under Section 62 of the Insolvency and Bankruptcy Code1 ,
against a judgment the dated 4 January 2021 of the National Company Law Appellate
Tribunal2 . Reliance Infratel Limited3 is the corporate debtor. The appellants are
operational creditors. By its order dated 3 December 2020, the National Company Law
Tribunal, Mumbai4 , approved the resolution plan formulated in the course of the
insolvency resolution process5 of the Corporate Debtor. The NCLAT has upheld the
order.
B Corporate Resolution Insolvency Process
2. The CIRP of the Corporate Debtor was initiated by an order dated 15 May 2018 of
the NCLT. An interim resolution professional6 was appointed on 18 May 2018. The IRP
issued a public announcement on 21 May 2018 inviting claims from the creditors of
the Corporate Debtor. The order of the NCLT admitting the corporate debtor to the
CIRP was challenged in appeal, and the order of admission was stayed on 30 May
2018. On 30 April 2019, the NCLAT vacated the stay on the CIRP. The appeal was
withdrawn.
3. The CIRP resumed on 7 May 2019. A fresh public announcement was issued by
the IRP on 7 May 2019 for inviting claims from creditors. The Committee of Creditors7
was constituted on 24 May 2019. On 30 May 2019, the CoC replaced the IRP with Mr.
Anish Niranjan Nanavaty as the Resolution Professional8 . This appointment was
confirmed by the NCLT on 21 June 2019.
4. During the course of the process, the RP invited ‘Expressions of Interest’9 from
prospective resolution applicants on 15 July 2019. Fifteen EOIs were received, and a
provisional list was prepared and furnished to the CoC on 16 August 2019. A request

PAGE 3
 SCC Online Web Edition, Copyright © 2021
Page 2 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
for resolution plan10 was then issued to the prospective resolution applicants on 21
August 2019, together with an information memorandum and evaluation matrix. With
the consent of the CoC, the last date for submission of resolution plans was extended
till 25 November 2019. The RP received resolution plans from the four prospective
resolution applicants:
a) Bharti Airtel Ltd.;
b) Reliance Digital Platform & Project Services Limited, through its division
Infrastructure Projects;
c) VFSI Holdings Pte. Ltd.; and
d) UV Asset Construction Company Ltd.
5. The CoC engaged with the prospective resolution applicants between 2 January
2020 and 2 March 2020, in pursuance of which revised resolution plans were
submitted. At the 16th meeting of the CoC held on 9 January 2020 (reconvened on 13
January 2020), further discussions were held and the resolution plan submitted by
Reliance Digital Platform and Project Services Limited11 was taken forward as a
preferred resolution plan on the basis of its “feasibility, viability and implementability”.
The Resolution Applicant submitted a revised resolution plan on 13 January 2020, and
upon due verification of its eligibility under Section 29A of the IBC, was declared a
successful resolution applicant at the 19th meeting of the CoC held on 2 March 2020.
The resolution plan was approved with a 100 per cent voting share of the CoC. A letter
of intent (“LoI”) was then issued by the RP on 4 March 2020, which the Resolution
Applicant unconditionally accepted on 6 March 2020.
6. The NCLT has indicated the following extensions which were granted, consistent
with the provisions of the IBC, for completing the CIRP:
“5…
i The period of stay between 30.05.2018 and 30.04.2019 was excluded from the
calculation of the CIRP vide order dated 09.05.2019.
ii. Extension of 90 days was granted vide order dated 29.09.2019. The CIRP thus
stood extended from 12.10.2019 to 10.01.2020.
iii. Further exclusion of 24 days was granted from the CIRP period vide order
dated 07.01.2020, owing to time spent in litigation from the date of approval of the
Applicant as RP till the date of publication of order confirming the said appointment.
iv. It was clarified by order dated 24.01.2020 that the RP and the CoC were at
liberty to complete CIRP within 330 days, which was expiring on 10.03.2020.”
C Approval of Resolution Plan
7. An application was submitted under Section 30(6) of the IBC by the RP, seeking
the approval of the resolution plan by the NCLT. The NCLT discussed the salient
aspects of the resolution plan in the course of its order on the approval application.
The financial terms envisaged in the resolution plan have been tabulated thus:
NCLT, Mumbai Bench - I
IA No. 920 of 2020 in
C.P. (IB) No. 1385/NCLT/MB/2017
Particulars Amount Admitted Amount Proposed % of recovery
under the Plan under the Plan
CIRP Costs To be paid in 100%
priority in full.
[Refer Note 1]
Workmen/Employees 1,81,27,767/- 1,81,27,767/- 100%
Related 269,94,30,465/- NIL NIL
Parties/potential

PAGE 4
 SCC Online Web Edition, Copyright © 2021
Page 3 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
Related Parties
Statutory Creditors 31,32,81,573/- 404,45,218/- 12.91% [Refer
Note 2]
Operational Creditors 1,29,28,99,328/- 25,36,38,128/- 19.62% [Refer
(other than Related Note 2]
Parties, Statutory
Creditors)
Other Creditors 904,45,24,882/- 43,87,534/- 100% [Refer Note
3]
Financial Creditors 41055,38,58,711/- 4235,77,87,067/- -10.32% [Refer
[Refer Note 4] Note 4]
NCLT, Mumbai Bench - I
IA No. 920 of 2020 in
C.P. (IB) No. 1385/NCLT/MB/2017
Note 1 : CIRP Costs:
Payment of unpaid insolvency resolution process costs (CIRP Costs) in full and in
priority to all other stakeholders. In case the cash flows of the Corporate Debtor on
the Effective Date are not sufficient to meet the entire Unpaid CIRP Costs, then
such amount shall be deducted from the Infused Resolution Amount and paid in
priority of the other stake holders.
Note 2 : Operational Creditors (other than workmen and employees) - Payment
to them shall be as follows:
a. Operational Creditors with verified/admitted claims of up to INR 1 Crore: 50%
of the verified claims to all Operational Creditors (other than Workmen and
Employees) whose verified claims is up to INR 1 Crore;
b. Operational Creditors with verified/admitted claims of more than INR 1 Crore:
For claims of more than INR 1 Crore, the Resolution Applicant proposes to
pay:
i. 50% of amount of up to INR 1 Crore of the verified claims; and
ii. 10% of the amount over and above INR 1 Crore of the verified claims.
Note 3 : Payments to Other Creditors -
Out of the total verified other creditors debt, claim of INR 904,01,37,349/-
belongs to the Affiliates of the Resolution Applicant, i.e. RJIL and JDFPL. RJIL and
JDFPL have agreed to waive their rights towards any payments under this Plan
and accordingly, any payments due to RJIL and JDFPL shall stand expressly
extinguished on the Effective Date. Payment of 100% amount to the remaining
creditors in this category has been envisaged under the Plan.
Note 4 : Payments to Financial Creditors under the Plan -
Out of the Total Resolution Amount, the RA will make payment to the financial
creditors, as consideration for transfer, assignment, acquisition or novation of the
admitted financial creditor debt in favour of the RA or eniity specified by it, along
with the encumbrances and mortgages. Post the payment of Unpaid CIRP Costs,
Workmen & Employees and the Operational Creditors, the balance amount of the
Infused Resolution Plan of INR 3720 crorcs, would be distributed between and
amongst the Financial Creditors on pro-rata basis to their Debt.
8. The plan envisages the following payments for the insolvency resolution of the
Corporate Debtor as a going concern:
“G. Overall payment under the Plan:
Resolution Plan contemplates following payments for the insolvency resolution
of the Corporate Debtor as a going concern:

PAGE 5
 SCC Online Web Edition, Copyright © 2021
Page 4 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-

Sr No. Particulars Amount (INR)

1. Amount to be infused by 3720,00,00,000/-
Resolution Applicant
(Infused Resolution
Amount)
2. Fund infusion from Effective 450,00,00,000/-
Date to meet working
capital, capital expenditure
requirements and/or
funding other operational
improvements of the
Corporate Debtor
3. Upfront equity infusion 5,00,00,000/-
against allotment of equity
shares of Corporate Debtor
(Upfront Equity Infusion)
4. Payment to Financial 800,00,00,000/-
Creditors from the value
realised from the preference
shares in Reliance Realty
Limited (Refer Note I)
Total (Refer Note 2 & 3) 49,75,00,00,000/-
9. Note-I to the table is as follows:
“Note 1:
Reliance Bhutan Limited (RBL)(wholly owned subsidiary of the Corporate Debtor)
holds preference shares in one of the other group companies of Reliance
Communications Group, i.e. Reliance Realty Limited (RRL), which holds certain real
estate assets. RA provides that:
a. In the event RRL is able to sell its real estate assets for an amount of INR 800
Crore or more, the RA shall cause that amount of INR 800 Crore (less any
taxes and transaction costs) from the value realised from the preference
shares held by RBL in RRL to be distributed to the Approving Financial
Creditors on a pro rata basis to their Admitted Financial Debt within 30 days
of the completion of the sale and all related approvals.
b. In the event the amount expected to be realised from the sale of the real
estate assets of RRL is less than INR 800 Crore, the RA will purchase the real
estate assets of RRL for INR 800 Crore and said amount of INR 800 Crore (less
any taxes and transaction costs) shall be distributed to the Approving
Financial Creditors on a pro rata basis to their Admitted Financial Debt, as
would be mutually agreed between the RA, RRL and the Approving Financial
Creditors.”
10. In the course of deciding upon the approval plan, the NCLT noted that Doha
Bank, which was one of the financial creditors of the Corporate Debtor, had instituted
proceedings12 challenging the admission of the claims of a few other creditors and a
proceeding13 to impugn the decision of the RP to recognize the indirect lenders of the
Corporate Debtor as financial creditors. The NCLT noted that the applications were
pending, but it came to the view that the pendency of these and other applications
would not stand in the way of the approval of the resolution plan, particularly since it
had been unanimously approved by the CoC. However, it clarified that the distribution
of payments to creditors, financial or operational, shall be subject to the orders which
are passed in the interim applications, within the ambit of the IBC. In the above

PAGE 6
 SCC Online Web Edition, Copyright © 2021
Page 5 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
backdrop, the NCLT by its order dated 3 December 2020 approved the resolution plan
in terms of the following directions:
“14. In view of the discussions and the law thus settled, the instant Resolution
Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38,
38(1A) and 39(4) of the Regulations. The Resolution Plan is not in contravention of
any of the provisions of Section 29A of the Code and is in accordance with law. The
same needs to be approved.
15. Doha Bank one of the Financial Creditors has filed IA No. 1960 of2019 inter
alia, challenging the admission of claims of few other Creditors and IA No. 3055 of
2019 impugning the decision of the Resolution Professional recognising the Indirect
Lenders of the Corporate Debtor as Financial Creditors. The Applications are pending
consideration. We are of the considered opinion that pendency of these and other
Applications would not come in the way of approval or otherwise of the Resolution
Plan. More so, when the Resolution Plan has been unanimously approved by the
CoC. The distribution of the payments to the Creditors, Financial or Operational, as
the case may be, shall be subject to orders to be passed in the respective Interim
Applications within the ambit of the Code. We are thus inclined to dispose of this
Application in the following terms. Hence ordered.
ORDER
i. The Application be and the same is allowed. The Resolution Plan submitted by
Reliance Digital Platform & Project Services Limited through its division
Infrastructure Projects annexed to the Application is hereby approved. It shall
become effective from this date and shall form part of this order. It shall be
binding on the Corporate Debtor, its employees, members, creditors, including
the Central Government, any State Government or any local authority to
whom a debt in respect of the payment of dues arising under any law for the
time being in force is due, guarantors and other stakeholders involved in the
Resolution Plan.
ii. The distribution of the payments to the Financial Creditors shall abide by and
be subject to the orders passed in IA Nos. 1960 of 2019 and 3055 of 2019
pending consideration of this Bench. The amount sought to be infused by the
Resolution Applicant shall be kept in an interest bearing deposit in any
Nationalised Bank till disposal of the said Applications.
iii. The approval of the Resolution Plan shall not be construed as waiver of any
statutory obligations of the Corporate Debtor and shall be dealt by the
appropriate Authorities in accordance with law. Any waiver sought in the
Resolution Plan, shall be subject to approval by the Authorities concerned.
iv. The Memorandum of Association (MoA) and Articles of Association (AoA) shall
accordingly be amended and filed with the Registrar of Companies (RoC),
concerned for information and record. The Resolution Applicant, for effective
implementation of the Plan, shall obtain all necessary approvals, under any
law for the time being in force, within such period as may be prescribed.
v. Henceforth, no creditors of the erstwhile Corporate Debtor can claim anything
other than the liabilities referred to in Para 6 supra.
vi. The moratorium under Section 14 of the Code shall cease to have effect from
this date.
vii. The Applicant and the Monitoring Committee shall supervise the
implementation of the Resolution Plan and the Applicant shall file status of its
implementation before this Authority from time to time, preferably every
quarter.
viii. The Applicant shall forward all records relating to the conduct of the CIRP
and the Resolution Plan to the IBBI along with copy of this Order for

PAGE 7
 SCC Online Web Edition, Copyright © 2021
Page 6 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-

information….”
D Challenge before Appellate Tribunal
11. The appellants challenged the decision of the NCLT approving the resolution
plan in appeal before the NCLAT. The grounds of challenge of the appellants were:
(i) The appellants were kept unaware of the CIRP and no details were provided by
the RP as regards the disposal of the fund towards their claims;
(ii) The claims of the appellants had not received a fair and equitable treatment;
(iii) The fair market value and the liquidation value of the Corporate Debtor had not
been taken into account and an amount of Rs. 800 crores, being the value of
certain preference shares, did not form a part of the corpus of payments to the
operational creditors;
(iv) There were material irregularities in the accumulation and disbursal of funds
that constituted the corpus of the corporate debtor; and
(v) The appellants were made to suffer a reduction of 90 per cent of their total
claims, while substantial claims of nearly Rs. 120 crores have been rejected.
12. The NCLAT by its judgment dated 4 January 2021 rejected the appeal. The
NCLAT noted that there was no substance in the grievance that the operational
creditors had been unfairly or inequitably treated in regard to the distribution of funds.
As a matter of fact, operational creditors (other than related parties and statutory
creditors) were allocated 19.62 per cent of the up-front payment of Rs. 3720 crores,
while the financial creditors were paid only an amount of 10.32 per cent of the upfront
payment. The approved resolution plan, the NCLAT observed, ensures restructuring
and revival of the corporate debtor.
13. The appellants were not excluded from the CIRP as they had filed their claims,
which had been partly admitted. In dealing with the submission that there was an
absence of equitable treatment of the operational creditors, the NCLAT held that
equitable treatment can be claimed only by similarly situated creditors. Operational
creditors stand on a different footing as compared to financial creditors. They are
entitled to receive payment not less than liquidation value, which does not apply to
financial creditors. In this backdrop, the NCLAT relied upon the decisions of this Court
in Swiss Ribbons (P) Ltd. v. Union of India14 (“Swiss Ribbons”) and Committee of
Creditors of Essar Steel India Limited v. Satish Kumar Gupta15 (“Essar Steel India
Limited”). Finally, the NCLAT did not find substance in the grievance in regard to the
preferential shares. It held that the distribution mechanism conforms to the provisions
of Section 53 and was in accordance with the provisions of the IBC. The appeal was
accordingly dismissed.
E Submissions
14. When the present appeal came up on 10 March 2021, this Court noted the
submission of the learned Senior Counsel that as a consequence of the order of the
NCLT of 2 March 2021, certain entities which were recognized as financial creditors in
the resolution plan have been de-recognized as financial creditors. The issue, then,
was whether this decision would have any bearing on the requisite majority required
to pass a resolution plan. The Court noted the submission of Senior Counsel for the
Monitoring Committee, that the resolution plan has been approved by 100 per cent of
the voting shares and the exclusion of some financial creditors from the CoC would be
of no consequence. However, since the issue had been raised during the course of the
submission, by an order dated 10 March 2021, opportunities were granted to the
parties to file affidavits explaining the position. Affidavits have accordingly been
exchanged between the parties, to which a reference would be made. It is in this
backdrop that the appeal has been heard finally at this stage.
15. Mr. Dushyant Dave, learned Senior Counsel has appeared on behalf of the

PAGE 8
 SCC Online Web Edition, Copyright © 2021
Page 7 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
appellants. Mr. Neeraj Kishan Kaul, learned Senior Counsel addressed the submissions
on behalf of the Monitoring Committee.
16. Mr. Dushyant Dave, learned Senior Counsel, submitted on behalf of the
appellants that:
(i) The stated object and purpose of the IBC is to balance the interest of all
stakeholders and to maximize the value of assets. The long title to the IBC
elucidates that the legislation seeks to:
“… consolidate and amend the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms and individuals in
a time-bound manner for maximization of value of assets of such persons, to
promote entrepreneurship, availability of credit and balance the interests of all
the stakeholders including alteration in the order of priority of payment of
Government dues and to establish an Insolvency and Bankruptcy Board of
India.”
(ii) The CIRP must be just, fair and equitable to all stakeholders, and cannot place
the interest of the financial creditors at a higher pedestal at the cost of other
stakeholders. In the present case, the operational creditors are small and
medium scale companies who have supplied goods and services to the Corporate
Debtor and their interests have not been taken into consideration;
(iii) The CIRP has been conducted in a secretive manner, in violation of the
principles of natural justice and there has been an absence of information to the
operational creditors in regard to the contents of the resolution plan. As a result,
it was only after an order approving the resolution plan was passed by the
Adjudicating Authority, that the appellant became aware of the specifics of the
resolution plan;
(iv) The appellants are telecom service providers of the Corporate Debtor. The total
operational debt owed to them amounts to Rs. 190.40 crores (approx.),
constituting over 90 per cent of the total operational debts of the Corporate
Debtor. These operational creditors have provided core service in the nature of
operation and maintenance of telecom towers and the optical fiber network and
associated passive infrastructure equipment. The interest of the operational
creditors, who are small and medium size companies, have not been borne in
mind by the CoC by placing certain assets of the Corporate Debtor outside the
resolution amount. The assets of the Corporate Debtor, held directly or indirectly
through subsidiaries, should be available for distribution to all stakeholders;
(v) The resolution plan segregates and reserves a portion of the Corporate Debtor's
assets amounting to Rs. 800 crores for distribution to certain financial creditors
alone, despite there being no specific charge on such sums in their favor. This
vitiates the object of the IBC which is to maximize the value of the assets of the
Corporate Debtor and balance the interest of all stakeholders;
(vi) The resolution plan has reserved a sum of Rs. 800 crores exclusively for
distribution to the financial creditors, and the said amount does not form a part
of the total resolution amount of Rs. 3720 crores being paid by the resolution
applicant to acquire the Corporate Debtor. This sum of Rs. 800 crores is
realizable from the preference shares held by Reliance Bhutan Limited, a wholly
owned subsidiary of the Corporate Debtor in Reliance Reality Limited. On the
other hand, if Reliance Realty Limited is unable to sell such real estate assets for
Rs. 800 crores or more, the Resolution Applicant would itself buy such assets for
Rs. 800 crores and make such funds available for distribution to the specified
financial creditors. In apportionment, a sale of Rs. 800 crores exclusively for the
benefit of specified financial creditors is a violation of Section 30(2)(b) of the
IBC;

PAGE 9
 SCC Online Web Edition, Copyright © 2021
Page 8 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
(vii) The NCLT on an application filed by Doha Bank, a financial creditor of the
Corporate Debtor, by its order dated 2 March 2021, set aside the inclusion of
these banks (State Bank of India, Bank of India, UCO Bank, Syndicate Bank,
Oriental Bank of Commerce and Indian Overseas Bank) from the CoC. Similarly,
on the same analogy, various indirect creditors of the Corporate Debtor have also
been excluded. The basis of the inclusion of certain financial creditors (this being
challenged in the Doha Bank proceedings) was that the Corporate Debtor had
executed a deed of guarantee in favour of these banks for securing a rupee loan
facility availed by Reliance Communications Limited, the holding company of the
Corporate Debtor and Reliance Telecom Limited in violation of the facilities
agreement between the consortium of the corporate debtor. The NCLT excluded
these banks from the CoC, albeit prospectively, without implications on the
decisions which were taken until the date of the order;
(viii) It is the appellant's understanding that in the case of two other indirect
creditors as well, the Corporate Debtor had executed corporate guarantees to
secure fund based/non-fund based facilities. Since at the time of the application
preferred by Doha Bank, the indirect creditors were not members of the CoC, no
directions were issued in that regard. However, it is the understanding of the
appellants that the exclusion of the indirect creditors would have significant
implications on the distribution of funds under the resolution plan, if not on the
validity of the plan. The claims of the six banks which were excluded by the NCLT
were admitted by the RP on the basis of a legal opinion, which is also the basis of
admitting the claims of twenty-one similarly situated indirect creditors of the
Corporate Debtor;
(ix) The NCLT failed to properly appreciate and consider the implication of the
exclusion of certain creditors from the CoC, on the ground that the pendency of
the applications by Doha Bank would not come in the way of the approval of the
resolution plan. In the event that the twenty-one indirect creditors are excluded,
this would have implications on the constitution of the CoC as well as on the rate
of recovery for the financial creditors which may stand increased from 10.32 per
cent to 91.98 per cent. On the other hand, the operational creditors would have a
mere recovery of 19.62 per cent; and
(x) There has been an absence of transparency in the process leading up to the
approval of the resolution plan. The IBC mandates that the CoC consist only of
financial creditors, while the operational creditors are only allowed to attend the
meetings without voting rights in case the amount of their aggregate dues is not
less than 10 per cent of the total debt of the Corporate Debtor. As a result,
operational creditors are left unaware of the process and the entire decision
making is left to the CoC based on its commercial wisdom. One of the grounds of
appeal under Section 61(3)(ii) is a material irregularity in the exercise of powers
by the RP during the CIRP. The issues faced by operational creditors have also
been recognized in the report of the Insolvency Committee Report of February
2020.
17. Opposing the above submissions, Mr. Neeraj Kishan Kaul, learned Senior
Counsel submits that:
(i) In the provisions of the IBC, specific stipulations have been framed in respect of
the operational creditors, namely:
a. Under Section 30(2)(b), the payment of debts to the operational creditors in
the resolution plan shall not be less than the amount to be paid in the event
of a liquidation under Section 53;
b. Priority in terms of the water fall mechanism contained in Section 53 is
provided; and

PAGE 10
 SCC Online Web Edition, Copyright © 2021
Page 9 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
c. Representation of their views in the CoC is envisaged under Section 24(3)(c),
through the operational creditors themselves or the representatives if they
have aggregate dues which are not less than 10 per cent of the debt of the
Corporate Debtor;
(ii) If the proceedings were to take place strictly in accordance with the provisions
of the IBC, the liquidation value would be zero. However, despite this, the
resolution plan has provided for the operational creditors to receive 19.62 per
cent of their dues as against 10.32 per cent for the financial creditors;
(iii) The order of the NCLT by which six banks were excluded from the CoC has been
stayed in appeal by the NCLAT. However, this issue is a non sequitur since the
decision of the CoC to approve the resolution plan is with a voting share of 100
per cent. The exclusion of any financial creditors from the CoC has no
significance to the requisite majority required for passing a resolution plan;
(iv) The issue in regard to the exclusion of twenty-one indirect creditors is sought to
be raised for the first time in this Court in the additional affidavit. Even if, for the
sake of argument, it were to be conceded that twenty-one indirect creditors are
excluded and financial creditors will receive 90 per cent of their dues, there is a
fundamental difference under the IBC between the position of operational
creditors and financial creditors which is emphasised by the decision of this Court
in Essar Steel India Limited (supra);
(v) The principle of equitable treatment applies as between creditors belonging to
the same class, which is emphasised by Explanation 1 to Section 30(2)(b);
(vi) There is a fundamental error on the part of the appellants in overlooking that
the sum of Rs. 800 crores, which is the realisable value of the preference shares,
is a part of liquidation value. Thus, the value of these preference shares has been
duly taken into account; and
(vii) The CoC has approved the resolution plan based on its commercial wisdom.
The NCLT in declining to scrutinize the commercial wisdom of the CoC has acted
in accordance with the provisions of the IBC as well as the decisions of this
Court.
18. The rival submissions will now be analyzed.
F Analysis
F.1 Clearing the ground
19. Before we deal with the legal submissions which have been canvassed during
the course of the hearing, it is necessary to clear the ground on three factual aspects
bearing on the outcome of the appeal:
(i) Valuation of Preference Shares
20. The first aspect is in relation to the inclusion of the realisable value from the
sale of preference shares held by Reliance Bhutan Limited, in Reliance Realty Limited,
in determining the liquidation value of the Corporate Debtor. It has been clarified in
the affidavit filed by the insolvency professional, in pursuance of the order of this
Court dated 10 March 2021, that under the IBC and its regulations, the RP appointed
two registered valuers in accordance with Regulation 27 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 201616 to carry out the valuation of the Corporate Debtor and to
determine the liquidation value and fair value in accordance with Regulation 35(1).
These values were placed before the CoC, in accordance with Regulation 35(2) of the
CIRP Regulations, upon receipt of the resolution plans. The submission of the
appellants that the realisable value from these preference shares is excluded from the
liquidation value of the Corporate Debtor has been rebutted by a specific clarification
contained in the Monitoring Committee's affidavit, which was filed in these

PAGE 11
 SCC Online Web Edition, Copyright © 2021
Page 10 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
proceedings. As a matter of fact, the realisable value for the Corporate Debtor on
account of any proceeds realised from the preference shares held by its subsidiary
(Reliance Bhutan Limited), is included in the determination of the liquidation value of
the Corporate Debtor. This statement in the affidavit is duly supported by relevant
excerpts from the valuation reports dated 2 January 2020 and 6 December 2019,
issued by the appointed valuers. The relevant extract from the report by Mr. Rakesh
Narula on the fair value and liquidation value of the Corporate Debtor is set out below:
“Basis of valuation & assumptions:
Non-Current Assets:
1) Investment:
The balance of investment as per provisional financial statements was Rs. 5 lakhs
as on valuation date. It represents investment in equity shares of Reliance Bhutan
Limited.
The only asset in the audited financial statements of the subsidiary is investment
in preference shares of Reliance Realty Limited.
Based on our independent analysis of the value of real estate sitting on the
balance sheet of Reliance Realty, we are of the opinion that the investment in
Reliance Realty Limited is fully recoverable in the books of Reliance Bhutan Limited.
The book value of this investment is Rs. 200 crores at which Reliance Bhutan
Limited had purchased these shares from Reliance Infratel Limited. The original
issue price of the preference shares was Rs. 2,000 crores at which Reliance Realty
Limited had issued the shares to Reliance lnfratel Limited in the financial year 2016
- 17, these shares were subsequently in the year 2016 - 17 were sold to Reliance
Bhutan Limited for Rs. 200 Crores.
We have considered such shares to be redeemed at the original issue price of Rs.
2,000 crores. Out of this receipt of Rs. 2,000 crores, Reliance Bhutan Limited has
existing liability of Rs. 200 crores in the balance sheet which shall be paid first. The
remaining balance of Rs. 1,800 crores shall flow to the parent company, Reliance
lnfratel Limited, which is considered as the fair value of this investment
The liquidation value is determined by discounting the fair value by 30% as the
prevailing discount rate considering the current status of operations of the
company.
2) Financial Assets:
The carrying amount of the financial assets was Rs. 1 crore as per the provisional
financial statements as on the valuation date. It comprises of the following:
a) Other Financial Assets:
It comprises of Rs. 1 crores of deposits with bank having maturity of more than
12 months. We had requested for balance confirmation for these deposits. We were
not provided with either balance confirmations/bank statements.
Since the same balance was disclosed in audited financials for the period ended
31 st March 2018 and in the provisional financial statements as on the valuation
date, we……”
21. Therefore, the submission that the value of preference shares has not been
included in calculating the liquidation value of the Corporate Debtor is factually
incorrect.
(ii) Liquidation Value
22. The second aspect relates to the liquidation value. On this, it has been clarified
that the liquidation value due to the unsecured operational creditors would remain nil
in all scenarios, including if the corpus of Rs. 800 crores is separately considered. The
liquidation value of the Corporate Debtor is Rs. 4339.58 crores. The amount being
infused by the successful resolution applicant is Rs. 3720 crores. The amount of Rs.

PAGE 12
 SCC Online Web Edition, Copyright © 2021
Page 11 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
800 crores is a value ascribed under the approved resolution plan to be realised by the
Corporate Debtor, pursuant to the remittance of proceeds in respect of the preference
shares. Hence, cumulatively, the value being distributed under the approved valuation
plan is Rs. 4520 crores. It has been clarified that even if the liquidation value of the
realisable value of the preference shares were to be considered in isolation for
distribution amongst all the operational creditors, in terms of the priority contained in
Section 53(1) of the Code, the liquidation value due to the appellants would still
remain at nil.
(iii) The impact of exclusion
23. The third aspect relates to the order of the NCLT in Doha Bank proceedings. The
order of the NCLT in the application which was moved by Doha Bank for the removal of
certain financial creditors from the CoC, has no bearing on the status of the approval
of the resolution plan for the reason that it had received a unanimous approval with
the 100 per cent voting share in the CoC. The exclusion of certain financial debts and
hence, the exclusion of certain financial creditors from the CoC, pursuant to the order
of the NCLT in the Doha Bank proceedings, has no practical implication since the
resolution plan continues to be approved with a 100 per cent majority even after their
exclusion.
24. The order of the NCLT in the Doha Bank proceedings did not provide for the
inclusion of any new financial creditors. The consequence of the Doha Bank order
would be that the inter se distribution between the financial creditors would be
affected, which has no consequence for the operational creditors. In the affidavit which
has been filed by the Monitoring Committee in pursuance to the order of the 10 March
2021 of this Court, it has also been stated that:
“.. in terms of the Doha Bank Order, upon the exclusion of certain erstwhile
financial creditors from the COC of the Corporate Debtor (and correspondingly the
financial debt of such creditors), the revised financial debt in respect of the
Corporate Debtor shall be INR 3,11,84,51,89,041/- (Thirty one thousand one
hundred eighty four crores fifty one lakhs eighty nine thousand and forty one).
Being an amount which is more than 7 times the liquidation value of the Corporate
Debtor, such exclusion will have no implication in respect of the distribution to
operational creditors under the resolution plan.”
25. The above statement has not been controverted during the course of the
submissions.
F.2 Jurisdiction to approve a Resolution Plan
26. The resolution plan was approved by the CoC, in compliance with the provisions
of the IBC. The jurisdiction of the Adjudicating Authority under Section 31(1) is to
determine whether the resolution plan, as approved by the CoC, complies with the
requirements of Section 30(2). The NCLT is within its jurisdiction in approving a
resolution plan which accords with the IBC. There is no equity-based jurisdiction with
the NCLT, under the provisions of the IBC.
27. Now, it is in this backdrop that it becomes necessary for this Court to revisit
some of the provisions of the IBC and to take note of the interpretation which has
been placed upon them in successive decisions of this Court. Section 30(1) envisages
the submission of a resolution plan by a resolution applicant. On the submission of the
resolution plan, the RP is required to examine it and to confirm, in terms of sub-
Section (2) of Section 30, that the plan abides by the statutory requirements spelt out
in clauses (a) to (f)17 .
28. The RP has to present to the CoC, for its approval, such resolution plans which
conform to the conditions specified in sub-Section (2) of Section 30. The approval of
the resolution plan is a statutory function which is entrusted to the CoC, under sub-
Section (4) of Section 30. The CoC may approve a resolution plan with a voting

PAGE 13
 SCC Online Web Edition, Copyright © 2021
Page 12 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
percentage of not less 66 per cent of the voting shares of financial creditors after
considering : (i) its feasibility and viability; (ii) the manner of distribution proposed
having regard to the order of priority amongst creditors laid down in Section 53(1) of
the IBC, including priority and value of the security interest of the secured creditors;
and (iii) such other requirements as may be specified by the Insolvency and
Bankruptcy Board of India. In other words, the decision to approve a resolution plan is
entrusted to the CoC.
29. The function of the Adjudicating Authority under Section 31 is to determine
whether the resolution plan “as approved by the CoC” under Section 30(4) “meets
the requirements” under Section 30(2). If the Adjudicating Authority is satisfied that
the resolution plan, as approved, meets the requirements under sub-Section (2) of
Section 30, “it shall by order approve the resolution plan” which shall then be
binding on the Corporate Debtor and all stakeholders, including those specifically spelt
out:
“31.(1) If the Adjudicating Authority is satisfied that the resolution plan as
approved by the committee of creditors under sub-section (4) of section 30 meets
the requirements as referred to in sub-section (2) of section 30, it shall by order
approve the resolution plan which shall be binding on the corporate debtor and its
employees, members, creditors, including the Central Government, any State
Government or any local authority to whom a debt in respect of the payment of
dues arising under any law for the time being in force, such as authorities to whom
statutory dues are owed, guarantors and other stakeholders involved in the
resolution plan.”
30. The jurisdiction which has been conferred upon the Adjudicating Authority in
regard to the approval of a resolution plan is statutorily structured by sub-Section (1)
of Section 31. The jurisdiction is limited to determining whether the requirements
which are specified in sub-Section (2) of Section 30 have been fulfilled. This is a
jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot
be equated with a jurisdiction in equity, that operates independently of the provisions
of the statute. The Adjudicating Authority as a body owing its existence to the statute,
must abide by the nature and extent of its jurisdiction as defined in the statute itself.
31. The jurisdiction of the Appellate Authority under Section 61(3), while
considering an appeal against an order approving a resolution plan under Section 31,
is similarly structured on specified grounds. Section 61(3) provides:
“61…..(3) An appeal against an order approving a resolution plan under section
31 may be filed on the following grounds, namely:—
(i) the approved resolution plan is in contravention of the provisions of any law
for the time being in force;
(ii) there has been material irregularity in exercise of the powers by the
resolution professional during the corporate insolvency resolution period;
(iii) the debts owed to operational creditors of the corporate debtor have not
been provided for in the resolution plan in the manner specified by the Board;
(iv) the insolvency resolution process costs have not been provided for
repayment in priority to all other debts; or
(v) the resolution plan does not comply with any other criteria specified by the
Board.”
32. Section 5(7) defines the expression ‘financial creditors’ while Section 5(8)
defines the expression ‘financial debt’. The expression ‘operational creditor’ is defined
in Section 5(20), while the expression ‘operational debt’ is defined in Section 5(21).
Now, insofar as the operational creditors are concerned, there are specific
requirements which have been spelt out in sub-Section (2)(b) of Section 30. Section
30(2)(b) requires the RP to confirm upon examination that the resolution plan:

PAGE 14
 SCC Online Web Edition, Copyright © 2021
Page 13 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-

“30…(2)….(b) provides for the payment of debts of operational creditors in such

manner as may be specified by the Board which shall not be less than-
(i) the amount to be paid to such creditors in the event of a liquidation of the
corporate debtor under section 53; or
(ii) the amount that would have been paid to such creditors, if the amount to be
distributed under the resolution plan had been distributed in accordance with
the order of priority in sub-section (1) of section 53,
whichever is higher, and provides for the payment of debts of financial
creditors, who do not vote in favour of the resolution plan, in such manner as
may be specified by the Board, which shall not be less than the amount to be
paid to such creditors in accordance with sub-section (1) of section 53 in the
event of a liquidation of the corporate debtor.
Explanation 1. — For removal of doubts, it is hereby clarified that a distribution
in accordance with the provisions of this clause shall be fair and equitable to such
creditors….”
33. In other words, the amount which is payable to the operational creditors
towards their debts must at least be either what is provided in sub-clause (i) or sub-
clause (ii) of clause (b), whichever is higher. Sub clause (i) refers to the amount paid
to the operational creditors in the event of a liquidation under Section 53. Sub-clause
(ii) refers to the amount that would have been paid to the operational creditors, if the
amount to be distributed under the resolution plan was distributed in accordance with
the order of priority under Section 53(1)(b), which provides for a waterfall mechanism.
34. These provisions indicate that the ambit of the Adjudicating Authority is to
determine whether the amount that is payable to the operational creditors under the
resolution plan is consistent with the above norms which have been stipulated in
clause (b) of sub-clause (2) of Section 30. Significantly, Explanation-1 to clause (b),
which is clarificatory in nature, provides that a distribution which is in accordance with
the provisions of the clause “shall be fair and equitable” to such creditors. Fair and
equitable treatment, in other words, is what is fair and equitable between the
operational creditors as a class, and not between different classes of creditors. The
statute has indicated that once the requirements of Section 30(2)(b) are fulfilled, the
distribution in accordance with its provisions is to be treated as fair and equitable to
the operational creditors.
35. The appellants are challenging the treatment of operational creditors on the
ground that it has not been fair and equitable. The entitlement of the operational
creditors being defined by sub-clause (b) of sub-section (2) of Section 30, the
clarification contained in Explanation-1 must apply. As such, as long as the payment
under the resolution plan is fair and equitable amongst the operational creditors as a
class, it satisfies the requirements of Section 30(2)(b).
36. The nature of the jurisdiction which is exercised by the Adjudicating Authority,
while approving a resolution plan under Section 31, has been interpreted in the
judgment of a two-Judge Bench in K Sashidhar v. India Overseas Bank18 (“K
Sashidhar”). The decision emphasizes that the Adjudicating Authority is circumscribed
by Section 31 to scrutinizing the resolution plan “as approved” by the CoC under
Section 30(4). Moreover, even within the scope of that enquiry, the grounds on which
the Adjudicating Authority can reject the plan is with reference to the matters
specified in sub-Section (2) of Section 30. Similarly, the Court notes that the
jurisdiction of the Appellate Authority to entertain an appeal against an approved
resolution plan is defined by sub-Section (3) of Section 61. Now, it is in this context,
that the consistent principle of law which has been laid down is that neither the
Adjudicating Authority nor the Appellate Authority can enter into the commercial
wisdom underlying the approval granted by the CoC to the resolution plan. The

PAGE 15
 SCC Online Web Edition, Copyright © 2021
Page 14 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
commercial wisdom of the CoC in its collegial capacity is, hence, not justiciable.
37. In K Sashidhar (supra), Justice A M Khanwilkar, speaking for the two-Judge
Bench, held:
“57. On a bare reading of the provisions of the I&B Code, it would appear that
the remedy of appeal under Section 61(1) is against an “order passed by the
adjudicating authority (NCLT)”, which we will assume may also pertain to recording
of the fact that the proposed resolution plan has been rejected or not approved by a
vote of not less than 75% of voting share of the financial creditors. Indubitably, the
remedy of appeal including the width of jurisdiction of the appellate authority and
the grounds of appeal, is a creature of statute. The provisions investing jurisdiction
and authority in NCLT or NCLAT as noticed earlier, have not made the commercial
decision exercised by CoC of not approving the resolution plan or rejecting the
same, justiciable. This position is reinforced from the limited grounds specified for
instituting an appeal that too against an order “approving a resolution plan” under
Section 31. First, that the approved resolution plan is in contravention of the
provisions of any law for the time being in force. Second, there has been material
irregularity in exercise of powers “by the resolution professional” during the
corporate insolvency resolution period. Third, the debts owed to operational
creditors have not been provided for in the resolution plan in the prescribed
manner. Fourth, the insolvency resolution plan costs have not been provided for
repayment in priority to all other debts. Fifth, the resolution plan does not comply
with any other criteria specified by the Board. Significantly, the matters or
grounds—be it under Section 30(2) or under Section 61(3) of the I&B Code—are
regarding testing the validity of the “approved” resolution plan by CoC; and not for
approving the resolution plan which has been disapproved or deemed to have been
rejected by CoC in exercise of its business decision.
58. Indubitably, the inquiry in such an appeal would be limited to the power
exercisable by the resolution professional under Section 30(2) of the I&B Code or,
at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section
31(1) of the I&B Code. No other inquiry would be permissible. Further, the
jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly
circumscribed. It can examine the challenge only in relation to the grounds
specified in Section 61(3) of the I&B Code, which is limited to matters “other than”
enquiry into the autonomy or commercial wisdom of the dissenting financial
creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been
endowed with limited jurisdiction as specified in the I&B Code and not to
act as a court of equity or exercise plenary powers.
59. In our view, neither the adjudicating authority (NCLT) nor the appellate
authority (Nclat) has been endowed with the jurisdiction to reverse the commercial
wisdom of the dissenting financial creditors and that too on the specious ground
that it is only an opinion of the minority financial creditors……”
(emphasis supplied)
38. The Court, also held (in paragraph 62) that the legislative history of the IBC
indicated that “there is a contra indication that the commercial or business decisions
of financial creditors are not open to any judicial review by the adjudicating authority
or the appellate authority”.
39. The above principles have been re-emphasised and taken further by a three-
Judge Bench in Essar Steel India Limited (supra). The Court, speaking through Justice
R F Narminan, held:
“73. There is no doubt whatsoever that the ultimate discretion of what to pay
and how much to pay each class or sub-class of creditors is with the Committee of
Creditors, but, the decision of such Committee must reflect the fact that it has

PAGE 16
 SCC Online Web Edition, Copyright © 2021
Page 15 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
taken into account maximising the value of the assets of the corporate debtor and
the fact that it has adequately balanced the interests of all stakeholders including
operational creditors. This being the case, judicial review of the Adjudicating
Authority that the resolution plan as approved by the Committee of Creditors has
met the requirements referred to in Section 30(2) would include judicial review that
is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions
of law for the time being in force. Thus, while the Adjudicating Authority cannot
interfere on merits with the commercial decision taken by the Committee of
Creditors, the limited judicial review available is to see that the Committee of
Creditors has taken into account the fact that the corporate debtor needs to keep
going as a going concern during the insolvency resolution process; that it needs to
maximize the value of its assets; and that the interests of all stakeholders including
operational creditors has been taken care of. If the Adjudicating Authority finds, on
a given set of facts, that the aforesaid parameters have not been kept in view, it
may send a resolution plan back to the Committee of Creditors to re-submit such
plan after satisfying the aforesaid parameters. The reasons given by the Committee
of Creditors while approving a resolution plan may thus be looked at by the
Adjudicating Authority only from this point of view, and once it is satisfied that the
Committee of Creditors has paid attention to these key features, it must then pass
the resolution plan, other things being equal.”
40. The precedents laid down by this Court are in tandem with recommendations
made in the UNCITRAL's Legislative Guide on Insolvency Law, which states that it is
desirable that a court does not interfere with the commercial wisdom of the decisions
taken by the creditors. The relevant extract is reproduced below19 :
“63. The more complex the decisions the court is asked to make in terms of
approval or confirmation, the more relevant knowledge and expertise is required of
the judges and the greater the potential for judges to interfere in what are
essentially commercial decisions of creditors to approve or reject a plan. In
particular, it is highly desirable that the law not require or permit the court to
review the economic and commercial basis of the decision of creditors (including
issues of fairness that do not relate to the approval procedure, but rather to the
substance of what has been agreed) nor that it be asked to review particular
aspects of the plan in terms of their economic feasibility, unless the circumstances
in which this power can be exercised are narrowly defined or the court has the
competence and experience to exercise the necessary level of commercial and
economic judgment.”
F.3 Exercise of jurisdiction
41. Mr. Dushyant Dave, learned Senior Counsel, sought to place emphasis on the
abovementioned observations in paragraph 73 of the decision in Essar Steel India
Limited (supra) to submit that the decision of the CoC must reflect that it has taken
into account the need to:
(i) Maximize the value of assets of the CD; and
(ii) Adequately balance the interest of all stakeholders, including of operational
creditors.
42. The submission of learned Counsel is that in the present case, there was a
failure to maximise the value of the assets and to balance the interests of the
stakeholders.
43. The submission that there has been a failure to maximise the value of the
assets has not been substantiated by any concrete material before the Court, apart
from the reference to the preference shares which has already been clarified earlier in
this judgment. Whether the interest of all stakeholders, including the operational
creditors, has been adequately balanced has to be determined within the four corners

PAGE 17
 SCC Online Web Edition, Copyright © 2021
Page 16 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
of the statutory provisions of the IBC. It must be borne in mind that the jurisdiction of
the Adjudicating Authority is circumscribed by the terms of the provisions conferring
the jurisdiction. In the present case, the approved resolution plan has in fact provided
for the payments to operational creditors, the percentage of recovery being 19.62 per
cent. On the other hand, the payment to financial creditors is 10.32 per cent.
44. The observations in paragraph 73 of the decision in Essar Steel India Limited
(supra) clarify that once the Adjudicating Authority is satisfied that the CoC has
applied its mind to the statutory requirements spelt out in sub-Section (2) of Section
30, it must then pass the resolution plan. The decision also emphasises that equitable
treatment of creditors is “equitable treatment” only within the same class. In this
context, the judgment contains an elaborate foundation on the basis of which it has
held that financial creditors belong to a class distinct from operational creditors. This
distinction was emphasised in the earlier decision in Swiss Ribbons (supra), where a
two-Judge Bench of the Court, speaking through Justice R F Nariman, observed:
“51. Most importantly, financial creditors are, from the very beginning, involved
with assessing the viability of the corporate debtor. They can, and therefore do,
engage in restructuring of the loan as well as reorganisation of the corporate
debtor's business when there is financial stress, which are things operational
creditors do not and cannot do. Thus, preserving the corporate debtor as a going
concern, while ensuring maximum recovery for all creditors being the objective of
the Code, financial creditors are clearly different from operational creditors and
therefore, there is obviously an intelligible differentia between the two which has a
direct relation to the objects sought to be achieved by the Code.”
45. In Essar Steel India Limited (supra), this Court held that “the UNCITRAL
Legislative Guide…makes it clear beyond any doubt that equitable treatment is only of
similarly situated creditors”20 . The Court finally also observed that the ‘fair and
equitable’ norm does not mean that financial and operational creditors must be paid
the same amounts in any resolution plan before it can pass muster. On the contrary, it
noted:
“88…Fair and equitable dealing of operational creditors' rights under the said
regulation involves the resolution plan stating as to how it has dealt with the
interests of operational creditors, which is not the same thing as saying that they
must be paid the same amount of their debt proportionately. Also, the fact that the
operational creditors are given priority in payment over all financial creditors does
not lead to the conclusion that such payment must necessarily be the same
recovery percentage as financial creditors. So long as the provisions of the Code and
the Regulations have been met, it is the commercial wisdom of the requisite
majority of the Committee of Creditors which is to negotiate and accept a resolution
plan, which may involve differential payment to different classes of creditors,
together with negotiating with a prospective resolution applicant for better or
different terms which may also involve differences in distribution of amounts
between different classes of creditors.”
46. The Court also noted that:
“89…by vesting the Committee of Creditors with the discretion of accepting
resolution plans only with financial creditors, operational creditors having no vote,
the Code itself differentiates between the two types of creditors.”
47. These decisions have laid down that the jurisdiction of the Adjudicating
Authority and the Appellate Authority cannot extend into entering upon merits of a
business decision made by a requisite majority of the CoC in its commercial wisdom.
Nor is there a residual equity based jurisdiction in the Adjudicating Authority or the
Appellate Authority to interfere in this decision, so long as it is otherwise in conformity
with the provisions of the IBC and the Regulations under the enactment.

PAGE 18
 SCC Online Web Edition, Copyright © 2021
Page 17 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
48. Certain foreign jurisdictions allow resolution/reorganization plans to be
challenged on grounds of fairness and equity. One of the grounds under which a
company voluntary arrangement can be challenged under the United Kingdom's
Insolvency Act, 1986 is that it unfairly prejudices the interests of a creditor of the
company21 . The United States' US Bankruptcy Code provides that if a restructuring
plan has to clamp down on a dissenting class of creditors, one of the conditions that it
should satisfy is that it does not unfairly discriminate, and is fair and equitable22 .
However, under the Indian insolvency regime, it appears that a conscious choice has
been made by the legislature to not confer any independent equity based jurisdiction
on the Adjudicating Authority other than the statutory requirements laid down under
sub-Section (2) of Section 30 of the IBC.
49. An effort was made by Mr. Dushyant Dave, learned Senior Counsel, to persuade
this Court to read the guarantees of fair procedure and non-arbitrariness as emanating
from the decision of this Court in Maneka Gandhi v. Union of India23 into the provisions
of the IBC. The IBC, in our view, is a complete code in itself. It defines what is fair and
equitable treatment by constituting a comprehensive framework within which the
actors partake in the insolvency process. The process envisaged by the IBC is a direct
representation of certain economic goals of the Indian economy. It is enacted after
due deliberation in Parliament and accords rights and obligations that are strictly
regulated and coordinated by the statute and its regulations. To argue that a residuary
jurisdiction must be exercised to alter the delicate economic coordination that is
envisaged by the statute would do violence on its purpose and would be an
impermissible exercise of the Adjudicating Authority's power of judicial review. The
UNCITRAL, in its Legislative Guide on Insolvency Law, has succinctly prefaced its
recommendations in the following terms24 :
“C. 15. Since an insolvency regime cannot fully protect the interests of all
parties, some of the key policy choices to be made when designing an insolvency
law relate to defining the broad goals of the law (rescuing businesses in financial
difficulty, protecting employment, protecting the interests of creditors, encouraging
the development of an entrepreneurial class) and achieving the desired balance
between the specific objectives identified above. Insolvency laws achieve that
balance by reapportioning the risks of insolvency in a way that suits a State's
economic, social and political goals. As such, an insolvency law can have
widespread effects in the broader economy.”
50. Hence, once the requirements of the IBC have been fulfilled, the Adjudicating
Authority and the Appellate Authority are duty bound to abide by the discipline of the
statutory provisions. It needs no emphasis that neither the Adjudicating Authority nor
the Appellate Authority have an unchartered jurisdiction in equity. The jurisdiction
arises within and as a product of a statutory framework.
G Conclusion
51. In the present case, the resolution plan has been duly approved by a requisite
majority of the CoC in conformity with Section 30(4). Whether or not some of the
financial creditors were required to be excluded from the CoC is of no consequence,
once the plan is approved by a 100 per cent voting share of the CoC. The jurisdiction
of the Adjudicating Authority was confined by the provisions of Section 31(1) to
determining whether the requirements of Section 30(2) have been fulfilled in the plan
as approved by the CoC. As such, once the requirements of the statute have been duly
fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in
conformity with law.
52. For the above reasons, we find no merit in the appeal. The appeal shall
accordingly stand dismissed.
53. Pending application(s), if any, shall stand disposed of.

PAGE 19
 SCC Online Web Edition, Copyright © 2021
Page 18 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
———
1
IBC
2 NCLAT/Appellate Authority
3
RIL
4
NCLT/Adjudicating Authority
5
CIRP
6
IRP
7
CoC
8
RP
9
EOI
10
RFRP
11
the Resolution Applicant
12
IA 1960 of 2019
13
IA 3055 of 2019
14
(2019) 4 SCC 17
15
(2020) 8 SCC 531
16
CIRP Regulations
17
“(2) The resolution professional shall examine each resolution plan received by him to confirm that each
resolution plan—

(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority
to the payment of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board
which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section
53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution
plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53,

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of
the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to
be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the
corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the
provisions of this clause shall be fair and equitable to such creditors.

Explanation 2.—For the purposes of this clause, it is hereby declared that on and from the date of
commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause
shall also apply to the corporate insolvency resolution process of a corporate debtor—

(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;

(ii) where an appeal has been preferred under Section 61 or Section 62 or such an appeal is not time barred
under any provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in
respect of a resolution plan;

(c) provides for the management of the affairs of the corporate debtor after approval of the resolution plan;

PAGE 20
 SCC Online Web Edition, Copyright © 2021
Page 19 Wednesday, August 18, 2021
Printed For: Meharia & Co Pvt. Ltd.
SCC Online Web Edition: http://www.scconline.com

-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time being in force;

(f) conforms to such other requirements as may be specified by the Board.”

18
(2019) 12 SCC 150
19
Available at <https : //uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-
80722_ebook.pdf> accessed 6 August 2021, pg. 228-229
20
Available at <https : //uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-
80722_ebook.pdf> accessed 6 August 2021, pg. 218
21
“Section 6 - Challenge of Decisions

1) Subject to this section, an application to the court may be made, by any of the persons specified below, on
one or both of the following grounds, namely—

(a) that a voluntary arrangement which has effect under section 4A unfairly prejudices the interests of a
creditor, member or contributory of the company;

(b) that there has been some material irregularity at or in relation to the meeting of the company, or in relation
to the relevant qualifying decision procedure.”
22
“Section 1129 - Confirmation of a Plan

[…]

(b)(1) Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this
section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the
plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate
unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and
has not accepted, the plan.”
23
(1978) 1 SCC 248
24
Available at <https : //uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-
80722_ebook.pdf> accessed 6 August 2021, pg. 14-15

Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/
notification is being circulated on the condition and understanding that the publisher would not be liable in any manner by reason of any mistake
or omission or for any action taken or omitted to be taken or advice rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/
rule/ regulation/ circular/ notification. All disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The
authenticity of this text must be verified from the original source.

PAGE 21