The Supreme Court on June 03, 2022 in the matter of Vallal Rck v. M/s. Siva Industries And Holdings Limited And Ors. held that when 90% or more of the creditors decide that it will be in the interest of all the stake¬holders to permit Settlement Plan filed by promoter of the Corporate Debtor and withdraw Corporate Insolvency Resolution Process (“CIRP”) as per Section 12A of the Insolvency and Bankruptcy Code, 2016, (“IBC”) the adjudicating authority (“NCLT”) or the appellate authority (“NCLAT”) cannot sit in appeal over such commercial wisdom of Committee of Creditors (“CoC”).

In the instant matter, IDBI Bank Limited filed an application under Section 7 of the IBC seeking initiation of CIRP against M/s Siva Industries and Holdings Limited (“Corporate Debtor”). The application was admitted by the NCLT and CIRP was initiated. The Resolution Professional (“RP”) presented a resolution plan before the CoC which was not approved as it did not receive 66% votes, as per the requirement of the statue. The RP filed an application for initiating liquidation. Subsequently, Vallal Rck, the (“promoter of the Corporate Debtor”) filed a settlement application under Section 60(5) IBC to offer a one-time settlement plan. Thereafter, the CoC considered the Settlement plan in its meetings held between October and December, 2020. The final settlement proposal was submitted by the promoter and was considered by the CoC. Ultimately, the settlement plan was approved. Consequently, the RP filed an application seeking withdrawal of CIRP. However, the NCLT rejected the said application stating that the Settlement Plan was only a Business Restructuring Plan. Moreover, it initiated the liquidation process. The appeals filed before the NCLAT were dismissed.

The Supreme Court observed that the recommendation was made as the Committee reckoned that the intent of the IBC is to discourage individual actions for enforcement and settlement. In the light of the same, it had opined that the settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted. Pursuant to the insertion of Section 12A in the IBC, Regulation 30A was added to the Regulations, 2016 which lays down the detailed procedure for withdrawal of application. It was further noted that in Swiss Ribbons Private Limited And Anr. v. Union of India And Ors., validity of Section 12A was upheld. Moreover, considering that a catena of judgments of the Apex Court had already held that commercial wisdom of CoC is not to be interfered with by NCLT and NCLAT, the Court held that the interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.