Supreme Court (10.03.2021) in Kalpraj Dharamshi & Anr Vs. Kotak Investment Advisors Ltd. & Anr. [Civil Appeal Nos. 2943-2944 of 2020] held that;
Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power.
It has been held, that the legislature has consciously not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC’s `commercial wisdom’ is made non-justiciable.
It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code.
Excerpts of the Order;
# 1. Leave to file Civil Appeal in Diary No. 24125 of 2020 is granted.
# 2. All these appeals, assail the judgment and order of the National Company Law Appellate Tribunal, New Delhi (hereinafter referred to as “NCLAT”) dated 5.8.2020, passed in Company Appeal (AT) (Insolvency) Nos. 344-345 of 2020.
# 3. By the said judgment and order dated 5.8.2020, NCLAT has allowed the appeals filed by Kotak Investment Advisors Limited (hereinafter referred to as “KIAL”), respondent No.1 herein, aggrieved by two separate orders dated 28.11.2019 passed by National Company Law Tribunal, Mumbai Bench (hereinafter referred to as “NCLT” or “Adjudicating Authority”) in M.A. No.1039 of 2019 and M.A. No. 691 of 2019. NCLAT has set aside the said orders passed in the said M.As. M.A. No.1039 of 2019 was filed by KIAL objecting to grant of approval to the resolution plan submitted by Kalpraj Dharamshi and Rekha Jhunjhunwala, a consortium, (hereinafter referred to as “Kalpraj”), which is appellant in Civil Appeal Nos. 2943-2944 of 2020. NCLT has rejected the said M.A. Whereas, M.A. No. 691 of 2019 was filed by the Resolution Professional of Ricoh India Limited (hereinafter referred to as “the Corporate Debtor”) for grant of approval to the Resolution Plan submitted by Kalpraj. NCLT has allowed the said M.A. and approved the resolution plan submitted by Kalpraj.
# 4. . . . . . . .KIAL thereafter filed appeals before NCLAT on 18.2.2020. The appeals were opposed by Kalpraj and also by RP on the ground, that the appeals were filed beyond the limitation period prescribed under the I&B Code and as such, ought not to be entertained. However, vide order dated 5.8.2020, NCLAT did not find favour with the objections raised by the respondents before it, with regard to limitation and further found, that the procedure adopted by RP and CoC was in breach of the provisions of the I&B Code and therefore, allowed the appeals filed by KIAL.
Vide the said order, NCLAT, while setting aside both the orders dated 28.11.2019, passed by NCLT, also directed CoC to take a decision afresh, in the light of the directions issued in its order, regarding consideration of the Resolution Plans, which were submitted prior to the prescribed date as per last Form `G’. This was directed to be done in a period of ten days from the date of the said order. NCLAT further directed, that if no decision was communicated to the Adjudicating Authority i.e. NCLT and since the timeline for completion of CIRP had already expired, the Adjudicating Authority was to pass an order for liquidation of the corporate debtor.
# 35. In view of the rival submissions, following questions arise for our consideration.
(i) Whether the appeals filed by KIAL before NCLAT were within limitation?
(ii) Whether there was waiver and acquiescence by KIAL, so as to estop it from challenging the participation of Kalpraj?
(iii) Whether NCLAT was right in law in interfering with the decision of CoC of accepting the resolution plan of Kalpraj?
(i) WHETHER THE APPEALS FILED BY KIAL BEFORE NCLAT WERE WITHIN LIMITATION?
# 36. For appreciating the rival contentions in this regard, it would be appropriate to refer to Section 29(2) of the Limitation Act, so also the provisions of Section 61 and Section 238A of the I&B Code.
Section 29(2) of the Limitation Act.
“29. Savings.—(1)
(2) Where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period prescribed by the Schedule, the provisions of Section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in Sections 4 to 24 (inclusive) shall apply only insofar as, and to the extent to which, they are not expressly excluded by such special or local law.”
Section 61 and 238A of the I&B Code
“61. Appeals and Appellate Authority.—(1) Notwithstanding anything to the contrary contained under the Companies Act, 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.
(2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal:
Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days.
(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.
(4) An appeal against a liquidation order passed under Section 33 may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.”
“238-A. Limitation.—The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.”
# 37. Perusal of the aforesaid would reveal, that though the provisions of the Limitation Act, as far as may be, would apply to the proceedings or appeals before the Adjudicating Authority, NCLAT, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, where a period of limitation for initiation of proceedings is provided under any special or local law, different from the period prescribed by the Schedule, the provisions of Section 3 shall apply, as if such period were the period prescribed by the Schedule. It would further reveal, that for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in sections 4 to 24 (inclusive), shall apply only in so far, and to the extent to which, they are not expressly excluded by such special or local law.
# 38. An appeal is provided before NCLAT under sub- section (1) of Section 61 of the I&B Code to any person, who is aggrieved by the order of the Adjudicating Authority. Sub-section (2) of Section 61 of the I&B Code provides, that every appeal under sub-section (1) shall be filed within thirty days before NCLAT. The proviso thereto further provides, that NCLAT may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied, that there was sufficient cause for not filing the appeal. However, such period shall not exceed fifteen days.
# 39. Since there is a period different from the one which is prescribed by the Schedule to the Limitation Act, the limitation for an appeal would be governed by Section 61 of the I&B Code, which is a special statute. As such, an appeal will have to be preferred within a period of thirty days from the date on which the order was passed by NCLT. However, if NCLAT is satisfied, that there was sufficient cause for not filing the appeal within a period of thirty days, it may allow an appeal to be filed within a further period of fifteen days. As such, the normal period of limitation prescribed under the I&B Code is thirty days, with a provision for allowing the filing of an appeal within a further period of fifteen days, if NCLAT is satisfied, that there was a sufficient cause for not filing the appeal within thirty days.
# 83. In the present case, the facts are totally contrary. KIAL had approached the High Court of Bombay making a specific grievance, that NCLT had adopted a procedure which was in breach of the principles of natural justice. It is specifically mentioned in the writ petition, that though an alternate remedy was available to it, it was approaching the High Court since the issue with regard to functioning of NCLT also fell for consideration. The proceedings before the High Court were hotly contested and by an elaborate judgment, the High Court dismissed the writ petition relegating the petitioner therein i.e. KIAL to an alternate remedy available in law. It is thus apparently clear, that KIAL was bona fide prosecuting a remedy before the High Court in good faith and with due diligence. In a given case, the High Court could have exercised jurisdiction under Article 226 of the Constitution inasmuch as, the grievance was regarding procedure followed by NCLT to be in breach of principles of natural justice. That would come within the limited area earmarked by this Court for exercise of extraordinary jurisdiction under Article 226 despite availability of an alternate remedy.
# 84. This Court recently in the judgment of Embassy Property Developments Pvt. Ltd. State of Karnataka and Others36 had an occasion to consider a similar issue. We find it apposite to refer to the question framed by this Court, which reads thus:
“i) Whether the High Court ought to interfere, under Article 226/227 of the Constitution, with an order passed by the National Company Law Tribunal in a proceeding under the Insolvency and Bankruptcy Code, 2016, ignoring the availability of a statutory remedy of appeal to the National Company Law Appellate Tribunal and if so, under what circumstances.”
# 85. It will also be apposite to reproduce the answer given by this Court.
“47. Therefore, in fine, our answer to the first question would be that NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of the mining lease. Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of Karnataka was justified in entertaining the writ petition, on the basis that NCLT was coram non judice.”
We therefore have no hesitation to hold, that KIAL was entitled to extension of the period during which it was bona fide prosecuting a remedy before the High Court with due diligence.
(ii) WHETHER THERE WAS WAIVER AND ACQUIESCENCE BY KIAL SO AS TO ESTOP IT FROM CHALLENGING THE PARTICIPATION OF KALPRAJ?
# 90. We may refer to clause 10.4 of the Process Memorandum and paragraph 5(b) of the covering letter for submission of resolution plan by KIAL, which read thus:
Clause 10.4 of the Process Memorandum
“if any Resolution Plan is received by the Resolution professional from any eligible Applicant(s) at any stage of the Resolution Plan Process, the Resolution professional shall be free to examine such Resolution Plan with the approval of the Committee of Creditors and the Applicant(s) will not have any right to object to submission or consideration of such plan.”
Paragraph 5(b) of the covering letter for submission of resolution plan by KIAL.
“5. We further represent and confirm as follows:
(a) ………..
(b) Acceptance
We hereby unconditionally and irrevocably agree and accept the terms of the Process Memorandum and that the decision made by the CoC, Resolution professional and/or the Adjudicating Authority in respect of any matter with respect to, or arising out of, the Process Memorandum and the Resolution Plan Process shall be binding on us. We hereby expressly waive any and all claims in respect of the Resolution Plan Process.”
# 91. On the basis of clause 10.4, it is sought to be urged, that even if the Resolution Plan is received by RP from any eligible applicant(s) at any stage of the Resolution Plan Process, RP was free to examine such Resolution Plan with the approval of CoC and the applicant(s) will not have any right to object to submission or consideration of such plan.
# 92. On the basis of paragraph 5(b) of the covering letter for submission of resolution plan by KIAL, it is sought to be urged, that KIAL had unconditionally and irrevocably agreed and accepted the terms of the Process Memorandum and the decision made by CoC, RP and/or the Adjudicating Authority in respect of any matter with respect to, or arising out of, the Process Memorandum and the Resolution Plan Process. It is further sought to be urged, that KIAL had agreed to surrender all and any of its claim in respect of the Resolution Plan Process. It is sought to be urged, that this stipulation amounts to a concluded contract between the parties and having waived its all claims, KIAL is not permitted in law to challenge the participation of Kalpraj in respect of Resolution Plan Process.
# 93. In this respect, it will be relevant to refer to paragraphs 89 and 90 of the judgment of this Court in the case of Central Inland Water Transport Corporation Limited and another vs. Brojo Nath Ganguly and another37.
“89. Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of 19th century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample underfoot the rights of the weak? We have a Constitution for our country. Our judges are bound by their oath to “uphold the Constitution and the laws”. The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today’s complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances.” [emphasis supplied]
# 94. This Court has held, that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It has been held, that this principle will apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be.
# 98. It may be argued, that the judgment in the case of Central Inland Water Transport Corporation Limited (supra) arose from a case involving a statutory corporation, which was an instrumentality of State within the meaning of Article 12 of the Constitution. However, recently, this Court in the case of Pioneer Urban Land and Infrastructure Limited vs. Govindan Raghavan39 while construing the term of contract between a builder and a flat purchaser observed thus:
“6.8. A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder. The contractual terms of the agreement dated 8-5-2012 are ex facie one-sided, unfair and unreasonable. The incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2(1)(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the builder.”
# 99. We see no reason, as to why the said principle should not be applicable when RP and CoC are acting under the statutory provisions under the Code.
# 100. We are therefore of the view, in light of the law laid down in Central Inland Water Transport Corporation Limited (supra), KIAL cannot be held to be bound by such unconscionable clause in the letter, which is in a prescribed format.
# 132. Taking into consideration the fact, that KIAL had objected to participation of any other applicant submitting plan after the due date as per the last Form `G’ and also reiterated its objection, we are of the considered view, that it cannot be held, that having participated by submitting the revised plans, KIAL is estopped from challenging the process on the ground of acquiescence and waiver. Merely because, the revised plans are not submitted with the words “without prejudice”, in our view, would not make any difference. As already discussed hereinabove, KIAL had no other option than to submit its revised plans in view of clause 11.2 of the Process Memorandum. Inasmuch as, had it not responded, it had to run the risk of being out of fray. As already discussed hereinabove, the conduct of the party is relevant for considering, whether it can be held, that a case is made out of waiver or acquiescence.
# 133. None of the appellants have been in a position to establish, that KIAL had given up/surrendered its rights to take recourse to the legal remedies. In any case, the appellants had also not been in a position to establish, that on account of any such waiver or acquiescence any of the appellants had altered their position to their detriment.
# 134. As such, it cannot be held, that KIAL had waived or acquiesced its rights to challenge the decision of RP or CoC.
(iii) WHETHER NCLAT WAS RIGHT IN LAW IN INTERFERING WITH THE DECISION OF COC OF ACCEPTING THE RESOLUTION PLAN OF KALPRAJ?
# 136. The aforesaid provisions have been recently considered in three judgments of this Court. The first one, being in the case of K. Sashidhar (supra), to which one of us (A.M. Khanwilkar, J.) was a party, and two other judgments, delivered by three Judges Bench of this Court, in the cases of Committee of Creditors of Essar Steel India Limited through Authorised Signatory (supra) and Maharashtra Seamless Limited vs. Padmanabhan Venkatesh and others.
# 140. This Court in the case of K. Sashidhar (supra) observed thus:
“32. Having heard the learned counsel for the parties, the moot question is about the sequel of the approval of the resolution plan by CoC of the respective corporate debtor, namely, KS&PIPL and IIL, by a vote of less than seventy-five per cent of voting share of the financial creditors; and about the correctness of the view taken by NcLAT that the percentage of voting share of the financial creditors specified in Section 30(4) of the I&B Code is mandatory. Further, is it open to the adjudicating authority/appellate authority to reckon any other factor other than specified in Sections 30(2) or 61(3) of the I&B Code as the case may be which, according to the resolution applicant and the stakeholders supporting the resolution plan, may be relevant?”
# 142. This Court has held, that it is not open to the Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Sections 30(2) or 61(3) of the I&B Code. It has further been held, that the commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. This Court thus, in unequivocal terms, held, that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. It has been held, that the opinion expressed by CoC after due deliberations in the meetings through voting, as per voting shares, is a collective business decision. It has been held, that the legislature has consciously not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC’s `commercial wisdom’ is made non-justiciable.
# 155. It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code.
# 156. No doubt, it is sought to be urged, that since there has been a material irregularity in exercise of the powers by RP, NCLAT was justified in view of the provisions of clause (ii) of sub-section (3) of Section 61 of the I&B Code to interfere with the exercise of power by RP. However, it could be seen, that all actions of RP have the seal of approval of CoC. No doubt, it was possible for RP to have issued another Form `G’, in the event he found, that the proposals received by it prior to the date specified in last Form `G’ could not be accepted. However, it has been the consistent stand of RP as well as CoC, that all actions of RP, including acceptance of resolution plans of Kalpraj after the due date, albeit before the expiry of timeline specified by the I&B Code for completion of the process, have been consciously approved by CoC. It is to be noted, that the decision of CoC is taken by a thumping majority of 84.36%. The only creditor voted in favour of KIAL is Kotak Bank, which is a holding company of KIAL, having voting rights of 0.97%. We are of the considered view, that in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of `commercial wisdom’, NCLAT was not correct in law in interfering with the commercial decision taken by CoC by a thumping majority of 84.36%.
# 158. It is also pointed out, that in pursuance of the order dated 5.8.2020 passed by NCLAT, CoC has approved the resolution plan of KIAL on 13.8.2020. However, since we have already held, that the decision of NCLAT dated 5.8.2020 does not stand the scrutiny of law, it must follow, that the subsequent approval of the resolution plan of KIAL by CoC becomes non-est in law. For, it was only to abide by the directions of NCLAT. We are of the view that nothing would turn on it. The decision of CoC dated 13/14.2.2019 is a decision, which has been taken in exercise of its `commercial wisdom’. As such, we hold, that the decision taken by CoC dated 13/14.2.2019, which is taken in accordance with its `commercial wisdom’ and which is duly approved by NCLT, will prevail. Further, NCLAT was not justified in interfering with the stated decision taken by CoC.
# 159. In that view of the matter, we find, that Civil Appeal Nos. 2943-2944 of 2020 filed by Kalpraj; Civil Appeal Nos. 2949-2950 of 2020 filed by RP and Civil Appeal Nos. 3138-3139 of 2020 filed by Deutsche Bank deserve to be allowed. It is ordered accordingly. The order passed by NCLAT dated 5.8.2020 is quashed and set aside and the orders passed by NCLT dated 28.11.2019 are restored and maintained.
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