Reasoning at the heart of decision

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ACIL Limited Insolvency Case
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The Supreme Court recently held, in Ramkrishna Forgings Limited v Ravindra Loonkar, Resolution Professional of ACIL Limited and Anr, that when the National Company Law Tribunal (NCLT) invoked section 31(2) of the Insolvency and Bankruptcy Code, 2016 (IBC), not to approve a resolution plan, it could do so only through a reasoned order.

Courts and tribunals have a duty to record cogent reasons for a decision or order. In the substantive dispute, the court held that if after repeated negotiations a resolution plan was submitted and approved by the committee of creditors (CoC), even by a majority vote, such commercial wisdom was not to be called into question or interfered with.

ACIL, the corporate debtor, was admitted into the IBC corporate insolvency resolution process by the NCLT. The resolution plan submitted by the resolution applicant was approved by the CoC. The resolution professional applied to the NCLT to approve the resolution plan. The NCLT deferred its decision and directed the official liquidator to value the debtor’s assets.

The resolution applicant unsuccessfully appealed to the National Company Law Appellate Tribunal. A possible avoidance transaction had been identified and interference was justified. The applicant appealed further.

The Supreme Court held that the NCLT could exercise its powers only through a reasoned order. Section 31(2) of the IBC allowed the NCLT to withhold approval of a resolution plan not meeting the requirements of section 31(1). However, the tribunal had to make a reasoned order as its power was exercisable only as provided by the IBC.

The court relied on a line of judgments, from Kranti Associates Private Limited v Masood Ahmed Khan to Manoj Kumar Khokhar v State of Rajasthan, in holding that a court or quasi-judicial authority has a duty to record reasons for its decision.

The NCLT could direct a revaluation of assets but strictly within the provisions of the IBC. The resolution applicant’s commercial decision to submit a final resolution plan after many rounds of negotiations that the CoC approved by 88.56% of the vote could not casually be upset.

The Supreme Court held that the NCLT was not justified in interfering with the IBC corporate insolvency resolution process, and had exceeded its powers. It allowed the appeal and directed the NCLT to approve the resolution plan.


The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.

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