Supreme Court (SC) adopted principle of ‘lower risk of injustice’ in reverse CIRP of Supertech matter
The Hon’ble Supreme Court, vide its order dated 11th May, 2023 has declined to grant any interim relief in respect of order dated 10th June, 2022 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi (“NCLAT”), in Company Appeal (AT) (Ins.) No. 406 of 2022, directing ‘project wise insolvency resolution process’ of Supertech Ltd.’s Eco Village-II project. The Hon’ble Supreme Court accepted the Resolution Plan that was submitted by Supertech Limited to the NCLAT and has refused to interfere with the NCLAT’s order from 10th June 2022.
The Hon’ble NCLAT, while dealing with an appeal against the order dated 25.03.2022 passed by the National Company Law Tribunal, New Delhi – Court VI, in admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 20163, has issued a slew of directions which practically have the effect of converting the corporate insolvency resolution process in question into a “project-wise insolvency resolution process” inasmuch as the constitution of committee of creditors has been restricted only to one project named “Eco Village-II” of the Corporate Debtor, who is dealing in real estate and has several ongoing projects.
The Hon’ble NCLAT vide its order dated 10.06.2022, had issued interim directions, including constitution of CoC for Eco Village Project-II only; the said project to be completed with assistance of ex-management whereas other projects, apart from Eco Village-II, were ordered to be continued as ongoing projects.
The Hon’ble Supreme Court gave such order on the two appeals (Civil Appeal Nos. 5941 of 2022 and 1925 of2023) filed by the Union Bank of India and India bulls Asset Reconstruction Company Limited respectively, being the financial creditors of the corporate debtor – Supertech Ltd., are directed against the order dated 10.06.2022 passed by the NCLAT. Dissatisfied with the interim directions so issued by NCLAT vide its order dated 10.06.2022, the said two financial creditors of corporate debtor, have filed aforesaid appeals before the Hon’ble Supreme Court, essentially challenging the adoption of reverse CIRP by the Hon’ble NCLAT and limiting the CIRP and constitution of CoC to only one project of corporate debtor, i.e., Eco Village-II.
The Hon’ble Supreme Court noticed that interim order dated 10.06.2023 issued by Hon’ble NCLAT, prima facie, gives rise to several questions worth consideration, including the fundamental one as to the tenability of the proposition of “project-wise resolution” as adopted by the Hon’ble NCLAT.
However, the Hon’ble Supreme Court recognized that the question, at present, is as to what should be the interim relief/interim arrangement until disposal of these appeals. In regard to this question, the Hon’ble Supreme Court took note of the relevant principles in relation to the matter concerning grant of interim relief which have been re-emphasized by Apex Court in the case of Union of India and Ors. v. M/s Raj Grow Impex LLP and Ors.: 2021 SCC On Line SC 429 as follows:-
“194. In addition to the general principles for exercise of discretion, as discussed hereinbefore, a few features specific to the matters of interim relief need special mention. It is rather elementary that in the matters of grant of interim relief, satisfaction of the Court only about existence of prima facie case in favour of the suitor is not enough. The other elements i.e., balance of convenience and likelihood of irreparable injury, are not of empty formality and carry their own relevance; and while exercising its discretion in the matter of interim relief and adopting a particular course, the Court needs to weigh the risk of injustice, if ultimately the decision of main matter runs counter to the course being adopted at the time of granting or refusing the interim relief. We may usefully refer to the relevant principle stated in the decision of Chancery Division in Films Rover International Ltd. v. Cannon Film Sales Ltd. : (1986) 3 All ER 772 as under:—
“….The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the “wrong” decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong” in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.”
(emphasis in bold supplied)
195. While referring to various expositions in the said decision, this Court, in the case of Dorab Cawasji Warden v. Coomi Sorab Warden : (1990) 2 SCC 117 observed as under:—
“16. The relief of interlocutory mandatory injunctions are thus granted generally to preserve or restore the status quo of the last non-contested status which preceded the pending controversy until the final hearing when full relief may be granted or to compel the undoing of those acts that have been illegally done or the restoration of that which was wrongfully taken from the party complaining. But since the granting of such an injunction to a party who fails or would fail to establish his right at the trial may cause great injustice or irreparable harm to the party against whom it was granted or alternatively not granting of it to a party who succeeds or would succeed may equally cause great injustice or irreparable harm, courts have evolved certain guidelines. Generally stated these guidelines are:
(1) The plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima facie case that is normally required for a prohibitory injunction.
(2) It is necessary to prevent irreparable or serious injury which normally cannot be compensated in terms of money.
(3) The balance of convenience is in favour of the one seeking such relief.
17. Being essentially an equitable relief the grant or refusal of an interlocutory mandatory injunction shall ultimately rest in the sound judicial discretion of the court to be exercised in the light of the facts and circumstances in each case. Though the above guidelines are neither exhaustive nor complete or absolute rules, and there may be exceptional circumstances needing action, applying them as prerequisite for the grant or refusal of such injunctions would be a sound exercise of a judicial discretion.”
(emphasis in bold supplied)
195. In keeping with the principles aforesaid, one of the simple questions to be adverted to at the threshold stage in the present cases was, as to whether the importers (writ petitioners) were likely to suffer irreparable injury in case the interim relief was denied and they were to ultimately succeed in the writ petitions. A direct answer to this question would have made it clear that their injury, if at all, would have been of some amount of loss of profit, which could always be measured in monetary terms and, usually, cannot be regarded as an irreparable one. Another simple but pertinent question would have been concerning the element of balance of convenience; and a simple answer to the same would have further shown that the inconvenience which the importers were going to suffer because of the notifications in question was far lesser than the inconvenience which the appellants were going to suffer (with ultimate impact on national interest) in case operation of the notifications was stayed and thereby, the markets of India were allowed to be flooded with excessive quantity of the said imported peas/pulses.”
In the light of the aforesaid principles, the Hon’ble Supreme Court, in the present Supertech Ltd matter, adopted lower risk of injustice even if ultimately in the aforesaid appeals, the Hon’ble Supreme Court may find otherwise or choose any other course.
The Hon’ble NCLAT has adopted a particular course (which it had adopted in another matter too) while observing that the project-wise resolution may be started as a test to find out the success of such resolution. The Hon’ble Supreme Court directed that Hon’ble NCLAT order dated 10.06.2022 is allowed to operate subject to the final orders to be passed in these appeals and subject, of course, to the modification in respect of Eco Village-II project that the process beyond voting on resolution plan shall await further orders of this Court.
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