Supreme Court Upholds Initiation of Insolvency Proceedings Against Hiranmaye Energy Ltd., Commercial Wisdom of Creditors Prevails as Court Rejects Promoter's Appeal Against CIRP Admission
In a significant ruling, the Supreme Court of India has dismissed an appeal by Power Trust, promoter of Hiranmaye Energy Ltd., challenging the initiation of the Corporate Insolvency Resolution Process (CIRP) against the company. The appeal contested the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), which had admitted an insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by REC Ltd., a financial creditor of the corporate debtor.
The Supreme Court, in its judgment delivered by Justice Joymalya Bagchi, clarified the limited role of the adjudicating authority under Section 7 of the IBC, emphasizing that its primary function is to ascertain the existence of a financial debt and default. The Court noted that the commercial viability of the corporate debtor is not a consideration at the admission stage of the insolvency process.
Power Trust had argued that the CIRP was barred by Section 10A of the IBC, which prohibits initiation of insolvency proceedings for defaults occurring between March 25, 2020, and March 24, 2021. However, the Court found this argument unpersuasive, noting that the date of default was March 31, 2018, as per the application, well before the Section 10A window.
Furthermore, the Supreme Court dismissed claims that restructuring agreements entered into in 2020 had novated the original loan agreement, as the restructuring conditions were not fulfilled by the corporate debtor. The Court also upheld the rejection of multiple settlement proposals submitted by Power Trust, emphasizing that the commercial wisdom of the Committee of Creditors (CoC) is non-justiciable.
The judgment underscores the Court's commitment to the principles of insolvency law, focusing on timely resolution to protect the interests of creditors and maintain economic stability.
Bottom Line:
Admission of Section 7 application for initiation of Corporate Insolvency Resolution Process (CIRP) - Adjudicating Authority's role is limited to verifying existence of default and financial debt - Commercial wisdom of Committee of Creditors (CoC) is non-justiciable and settlement proposals must meet statutory approval requirements.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 7, 10A, 12A
