1. Summary Box

• Case Title: Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v/s Satish Kumar Gupta and others
• Case Number: Civil Appeal No. 8766-67 of 2019
• Decision Date: November 15, 2019
• Court: Supreme Court of India
• Bench: 3 Judge Bench
• Final Verdict: Supreme Court upheld the commercial wisdom of the Committee of Creditors (CoC), clarified the scope of judicial review by national company law tribunal (NCLT) or national company law appellate tribunal (NCLAT) under the Indian Bankruptcy Code, 2016 (IBC), and upheld the constitutional validity of sections 4 and 6 of the Amending Act, 2019 of the IBC, with limited reading down. The corporate insolvency resolution process (CIRP) was directed to proceed as per ArcelorMittal’s resolution plan as approved by the CoC.
• Key Principle: Judicial bodies under IBC cannot override the commercial wisdom of the CoC unless the plan violated section 30(2) of the IBC. NCLAT and NCLAT have a limited role in plan approval. CIRP timelines can be extended in justified cases despite the 330- day limit.

2. Background & Facts

• 02.08.2017- Company petition filed by Standard Chartered Bank (SCB) along with State Bank of India (SBI) under section 7 of the IBC before NCLT, Ahmedabad.
• Satish Kumar Gupta appointed as interim resolution professional (IRP); late confirmed as resolution professional (RP).
• 06.10.2017- RP invited expressions of interest from prospective resolution applicants for corporate debtor (CD)- Essar Steel India Limited.
• 12.02.2018- Two initial resolution plans submitted by ArcelorMittal Private Limited and Numetal Limited respectively- both declared ineligible under section 29A IBC.
• 02.04.2018- Revised plans submitted by ArcelorMittal Private Limited, Numetal Limited and Vedanta.
• 19.04.2018- NCLT directed CoC to assess eligibility of resolution applicants.
• 10.09.2018- SCB classified as a secured financial creditor by the RP
• 04.10.2018- Supreme Court declared both applicant ineligible under section 29A IBC but allowed a final opportunity to clear NPA’s of their related CD’s.
• 18.10.2018- ArcelorMittal Private Limited cleared its NPA’s of its related CD; Numetal Limited failed.
• ArcelorMittal Private Limited resubmitted its plan; same was evaluated by the CoC and accordingly it was declared as the highest evaluated resolution applicant.
• 25.10.2018- CoC approved final negotiated plan by 92.24% majority.
• 08.03.2019- NCLT approved the final negotiated plan.
• 20.03.2019- NCLAT directed the CoC to re-examine treatment of certain creditors.
• 27.03.2019- CoC decided to challenge NCLAT’s order however approved ex-gratia amount of INR 1000 crore to operational creditors with claims of more than INR 1 crore.
• 12.04.2019- Supreme Court directed status quo and expeditious disposal of appeal.
• 04.07.2019- NCLAT passed judgment altering distribution terms and reopening certain claims. (Impugned Judgment)
• Impugned judgment challenged- Final outcome- Supreme Court allowed appeals, upheld CoC approved plan dated 23.10.2018 and set aside impugned judgment.
• Amended/ Final Resolution Plan Details- INR 42,000 crore upfront payment (against INR 49,213 crore admitted debt), INR 17.4 crore towards unsecured financial creditor with claim amount of more than INR 10 lakhs, INR 30.55 lakhs towards payment of unsecured financial creditor with claim amount of less than INR 10 lakhs, INR 8000 crore for capital infusion (capex and working capital), INR 196 core for operational creditors (primarily trade and government creditors), small trade creditors with claims less than INR 1 crore to be paid in full, INR 18 crore towards dues of workmen and employees, later INR 1000 crore extra to operational creditors was also approved by majority, CoC empowered by acceptance of resolution applicant to determine distribution of amounts among financial creditors.

3. Legal Issues

• What is the scope of judicial review of a resolution plan approved by the CoC under IBC?
• Whether sections 4 and 6 of the Amending Act, 2019 of IBC are constitutionally valid, particularly the mandatory 330-days deadline for CIRP?
• Whether SCB’s re-classification as a secured financial creditor was valid, and how its claim ought to be treated under the approved plan?
• To what extent can NCLT or NCLAT intervene in the commercial decision making of CoC regarding distribution of amounts under a resolution plan?
• Whether the fresh slate principle under section 31 IBC bars any additional claims post-plan approval?

4. Findings & Reasoning

• Limited Judicial Review by NCLT or NCLAT:
  Courts/ Tribunals cannot interfere with CoC’s commercial wisdom unless the plan contravenes provisions of section 30(2) of the IBC. The CoC’s distribution of funds is binding if it reflects a fair evaluation of the interest of all stakeholders (K. Sashidhar v/s Indian Overseas Bank and others, civil appeal number 10673 of 2018). Furthermore, the Court clarified that section 60(5)(c) IBC is in the nature of a residuary jurisdiction vested in the NCLT to decide all questions of law or fact arising out of insolvency or liquidation under the Code. However, this provision does not override or expand the jurisdiction circumscribed by section 30(2) IBC when it comes to confirming a resolution plan.
• Commercial Wisdom Prevails:
  Distribution based on security value is permissible. The Supreme Court upheld that the CoC was within its rights to allocate amounts to secured creditors bases on security interest. The basis of forming such opinion was based on the principle that the decision of the requisite majority  of the CoC must prevail on the facts of any given case (State Bank of India v/s Orissa Manganese and Minerals Limited, CA(IB) No. 391/KB/2018).
  The Court also emphasised that the terms of the Request for Proposal (RFP) issued during CIRP are binding and must be adhered to. If the RFP explicitly states that profits earned by the corporate debtor during the CIRP shall not be used to pay off its debts, such a condition must be respected. The appellate authority cannot issue directions contrary to the terms of the RFP, as doing so would violate the sanctity of the resolution process and undermine commercial certainty.
• Equitable Treatment not equal to Equal Payment:
  Equitable treatment is only of similarly situated creditors. The amended Regulation 38 does not mandate equal percentage-wise payment across creditor classes. Equitable treatment requires recognition of differences among secured/ unsecured and financial/ operational creditors.
• Fresh Slate Principle Reinforced:
  A resolution plan, once approved, extinguishes all past claims not incorporated into it. The impugned judgment held that claims may exist apart from those decided on merits by the resolution professional or NCLT or NCLAT and that the same can be decided by an appropriate forum in terms of section 60(6) IBC. This finding was held to be contrary to the rationale of section 31 IBC.
• Constitutionality of Sections 4 and 6 of the Amending Act, 2019:
  While both sections were upheld, the term “mandatory” in context of the three hundred thirty day CIRP deadline was struck down. NCLT and NCLAT have discretion to extend CIRP timelines in bonafide cases where litigants can show that a short period is left for the completion of the CIRP and that it would be in the interest of all stakeholders that the CD be put back on its feet and that the delay is largely due to tedious court processes and not due to the litigants own fault.

5. Implications

• Strengthening Commercial Autonomy under IBC:
  The judgment reiterates that CoC decisions- particularly regarding distribution of proceeds- are commercial in nature and beyond judicial scrutiny unless they violate express statutory provisions.
• Clarification on Role of Tribunals:
  NCLT and NCLAT have limited jurisdiction to assess resolution plans. They must confine themselves to checklist under section 30(2) IBC and cannot substitute their opinion for that of the CoC.
• Validation of CIRP Timeline (with Flexibility):
  Though the three hundred thirty day cap remains, courts now have discretion to extend in rare circumstances- mitigating concerns over automatic liquidation due to procedural delays.
• Confirmation of Creditor Classification:
  The CoC can classify creditors based on objective commercial parameters, including their security interest. Courts will not interfere in intra-class distribution unless the classification itself is discriminatory or mala fide.
• Reinforcement of Finality via Fresh Slate:
  The principle that no claims survive outside the approved resolution plan ensures finality, stability, and investor confidence- essential for IBC’s success.

6. Comments

• This decision is a significant reaffirmation of the foundational principles of the IBC. By clearly delineating the boundary between judicial oversight and commercial autonomy, the Supreme Court has strengthened the institutional framework of insolvency law.
• The judgment balances creditors rights with the need for finality and efficiency in resolution, reinforcing India’s commitment to a robust insolvency regime. It also discourages judicial second- guessing of economic decisions made by financial experts in the CoC.
• However, the reaffirmation of the “fresh slate” principle, while investor-friendly, may raise concerns among operational creditors and minority financial creditors. Yet, this seems to be a necessary trade-off to ensure swift, effective resolutions while maintaining investor confidence.