SUPREME COURT OF INDIA- Commercial Wisdom Of CoC Over Judicial Intervention With Regards To Section 12A, IBC

Posted On - 27 July, 2022 • By - Harikadutta

The primary aim with which the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) was incorporated was to maintain an amicable relationship between the creditors and debtors by reducing the judicial intervention and resolving insolvency-related processes promptly with decreased fallacy. The Hon’ble Apex Court in its recent judgment has made heads turn by giving importance to the commercial wisdom of the CoC over judicial intervention. Since the time of its inception of the Code, there have been an array of applications filed before the NCLT/NCLATS under the provisions provided under Sections 7, 9, and 10 of the Code in case there is a default on part of the Corporate Debtor. However, the most unusual circumstance in this regard is the withdrawal of the application that has been admitted and CIRP has commenced. The first of this kind of situation was witnessed in the case of Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP [1] wherein the Apex Court allowed for an amicable settlement between the Corporate Debtor and the Creditors. It was after this very case that a significant amendment was brought about in the Code i.e., through the incorporation of Section 12A.

 As per Section 12A of the Code, when there is an application before the adjudicating authority to allow the withdrawal of CIRP that has been admitted under Section 7 or 9 or 10 of the Code and has been approved by 90% of the CoC then in such situation the adjudicating authority should allow the withdrawal request put forward before it. However, recently the provision for withdrawal provided under Section 12A of the Code was taken up before the Apex Court in the case of Vallal Rck v. M/S Siva Industries and Holdings Limited and Ors.[2]to examine the validity of the said section.

The Apex Court, in one of its landmark judgments on Swiss Ribbons Private Limited and Anr v. Union of India and Ors.[3] with regards to Section 12A of the Code not only upheld its validity but also provided more clarity concerning the very objectives that the Code aims to achieve. In Vallal Rck v. M/S Siva Industries and Holdings Limited and Ors.[4], the Hon’ble Apex Court upheld that when there is a withdrawal application of CIRP having the approval of 90% of creditors in such a situation the adjudicating authority or the appellate authority cannot sit in appeal over the commercial wisdom of the CoC. The Hon’ble Apex Court noted that the interference is only necessary when the adjudicating authority or the appellate authority finds the decision of CoC to be capricious, thereby minimizing the judicial intervention in such cases.

[1] (2018) 15 SCC 589

[2] 2022 SCC OnLine SC 756

[3] (2019) 4 SSC 17,

[4] Id. At 2.