Supreme Court approves loan settlement offer by Siva Industries Promoters

The Supreme Court on Friday approved a loan settlement offer given by Siva Industries promoters, while quashing a liquidation order passed by the National Company Law Tribunal (NCLT) and upheld by the appellate authority.

Siva group founder C Sivasankaran’s father, RCK Vallal, offered the settlement under Section 12A of the Insolvency and Bankruptcy Code, which enables lenders to seek NCLT approval to withdraw their petition for corporate insolvency resolution process (CIRP) provided 90% of them agree to the proposal.

Although 94% of creditors by value accepted Vallal’s settlement offer, both NCLT and National Company Law Appellate Tribunal (NCLAT) rejected it and ordered liquidation.

The Siva Group is best known for investments in coffee chain Barista and Aircel, a telecom operator that went bankrupt.

A Supreme Court bench of Justices BR Gavai and Hima Kohli said neither the NCLT nor the NCLAT was “justified in not giving due weightage to the commercial wisdom of the committee of creditors (CoC)".

The court observed that the CoC made the decision after due deliberation, considering the pros and cons of the settlement plan and after exercising their commercial wisdom.

A settlement of Rs 333.21 crore from the promoters of Siva Industries equated to a haircut of 93.5% for the lenders.

"When 90% and more of the creditors, in their wisdom after due deliberations find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of the CoC," the court observed in its ruling.

"The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and dehors the provisions of the statute or the rules," it added.

Abhijit Guhathakurta, the resolution professional for the company, backed by Deloitte, has admitted Rs 4,863 crore in financial creditors' claims. The promoters have offered to pay Rs 5 crore upfront and the balance within 180 days after the approval from the adjudicating authority.

The Supreme Court also observed: "The court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan."