Supreme Court approves developer’s settlement plan

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On Friday, a two-judge panel of the Supreme Court approved the settlement plan proposed by RCK Vallal, the sponsoring entity of Siva Industries and Holdings Ltd.

Founded by C Sivasankaran, Siva Industries was admitted to insolvency in July 2019, based on the request of IDBI Bank.

The sponsoring entity had offered Rs 328 crore as the settlement amount against the admitted claims of financial creditors of Rs 4,863 crore. The Insolvency Withdrawal Resolution was approved by the Creditors’ Committee with a 94.23% majority vote.

The Supreme Court said the NCLT and NCLAT failed to give due weight to the commercial wisdom of the creditors’ committee when they rejected the settlement plan.

In January this year, the National Company Law Appellate Tribunal rejected the proposed settlement saying it was not a resolution plan but a corporate restructuring proposal. The National Company Law Tribunal came to the same conclusion in August last year.

Both courts found that the terms of the settlement were ambiguous and inconsistent with the requirements of insolvency law.

The bench of Justices BR Garvai and Hima Kohli, however, disagreed with this view, saying the Supreme Court has always accorded primary status to the CoC’s business wisdom, so the IBC process is terminated without judicial intervention. And that there is an intrinsic assumption that financial creditors are fully informed of the viability of the debtor company and the feasibility of the proposed resolution plan.

The court said opting out of the Insolvency and Bankruptcy Code requires a higher approval threshold – 90% – than what is required for approval of resolution plans, which is 66%.

Interference would only be justified when the adjudicative authority or the appellate authority finds that the CoC’s decision is totally capricious, arbitrary, irrational and not in accordance with the provisions of the IPC.

In the case of Siva Industries, the CoC had duly deliberated on the proposed settlement, the court noted, while rejecting NCLAT’s winding-up order.

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