NCLAT (28.06.2021) in Dwarkadhish Sakhar Karkhana Ltd. Vs. Pankaj Joshi, RP of KGS Sugar & Infra Corporation Ltd.. [Company Appeal (AT)(Insolvency) No. 233 of 2021] held that;
# 20. . . Thus, before approval of the Resolution Plan the Adjudicating Authority can entertain or dispose of the question of priorities or any question of law or facts, arising out of or in relation to CIRP or Liquidation proceedings. . . .
# 26. DSKL has no vested right because, the right has already been extinguished when DSKL has failed to submit EOI till last date and subsequently, the request for submitting EOI after due date was also rejected by the CoC in view of Regulation 36-A of Regulations 2016. Therefore, DSKL has no right to contest the Application as in the Application the actions of RP & CoC are questioned. . . .
# 34. With the aforesaid discussion, we are of the considered view that, to allow DSKL after due date at the instance of Pankaj Joshi to file EOI is not a commercial decision.
# 43. . . . We also note that CoC in its 7th meeting rejected the EOI of DSKL but in 9th meeting approved with 100% vote share. The action of RP and the CoC is in violation of express provision of the Code and Regulations made thereunder. However, if the CoC wanted to extent the timeline, it should have done so within the procedure prescribed there for. By providing a special treatment, backdoor entry for accepting the resolution plan of the DSKL’s the RP and the CoC have deviated from the norms prescribed under the Code and Regulations framed thereunder, which vitiates the Corporate Insolvency Resolution Process and cause prejudice to the other PRAs.
Facts of the case;
1. RP (Mr. Shetty) published the invitation of expression (EOI) on 18.01.2020, wherein the last date for submission of EOI was 10.02.2020.
2. Pursuant to the invitation, RP received EOI’s from 14 Prospective Resolution Applicants, out of which only four including GIACL met the eligibility criteria.
3. By email dated 12.03.2020, DSKL submitted EOI. On the same day, RP informed DSKL that EOI was received after the last date of submissions, therefore, it cannot be considered.
4. On 23.03.2020, DSKL sent an email to the CoC Members to allow them to submit EOI.
5. On 27.05.2020, AA on the recommendation of the CoC, replaced RP Mr. B S Shetty with Mr. Pankaj Joshi (RP) and Pankaj Joshi took charge on the same day.
6. After deliberation, the CoC permitted DSKL to submit EOI.
7. GIACL who was in the list of Prospective Resolution Applicants, aggrieved with the decision of the CoC, to include DSKL as PRA, filed Application (I.A No. 1029 of 2020) against the RP before the AA.
8. Ld. AA, vide impugned order dated 01.03.2021;
Allowed the Application and resultantly the CoC decision in accepting the EOI of DSKL after due date and including it in the list of Prospective Resolution Applicants was set aside
The list of Prospective Resolution Applicants prepared by RP on 06.03.2020 is held to be valid.
Deprecated the conduct of Resolution Professional (RP) Pankaj Joshi..
Excerpts of the order;
# 1. The Adjudicating Authority (National Company Law Tribunal, Special Bench, Mumbai) by the impugned order dated 01.03.2021 allowed the Application of Gangamai Industries and Constructions Ltd. (GIACL) I.A. No. 1029 of 2020 in CP (IB) 2056/MB/2019,whereby the decision of CoC accepting the Expression of Interest (EOI) of Dwarkadhish Sakhar Karkhana Ltd. (DSKL) after due date, was set aside and deprecated the conduct of Resolution Professional (RP) Pankaj Joshi. Therefore, they have filed these Appeals assailing the order. Both the Appeals are disposed of by this common Judgment.
# 17. Having heard Ld. Counsels for the parties, we have gone through the record.
# 18. Following issues arose in these Appeals.
(i) Whether the Adjudicating Authority does not invest with the Jurisdiction to interfere before the quasi-judicial determination is made, under S. 31 of IBC?
(ii) Whether GIACL did not have locus standi to challenge the inclusion of DSKL in the CIRP?
(iii) Whether ‘DSKL’ was a necessary party to the Application I.A. No. 1029 of 2020?
(iv) Whether to allow DSKL after due date to file EOI is a commercial decision?
(v) Whether the adverse remarks in Para 54 of the impugned order are baseless and uncalled for?
Issue No. (i) Whether the Adjudicating Authority does not invest with the Jurisdiction to interfere before the quasi-judicial determination is made, under S. 31 of IBC?
# 19. Ld. Counsel for Appellant Pankaj Joshi raised a preliminary objection that before the quasi-judicial determination is made, under Section 31 of the IBC, the Adjudicating Authority has no jurisdiction to entertain and decide the Application of GIACL. For this purpose, he cited Para 84 of the Judgment of Hon’ble Supreme Court in the case of Arecellor Mittal India Pvt. Ltd. (supra), . . .
# 20. In the aforesaid Para, Hon’ble Supreme Court clarified the scope and purpose of Section 60(5)of the IBC and held that the NCLT alone has jurisdiction to entertain or dispose of the Applications and proceedings by or against a Corporate Debtor covered by the IBC. In the present case, Adjudicating Authority, while deciding the Application I.A No. 1029 of 2020, has exercised the jurisdiction under Section 60 (5) (c), which empowers to decide “any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor or Corporate Person under this Code”. Thus, before approval of the Resolution Plan the Adjudicating Authority can entertain or dispose of the question of priorities or any question of law or facts, arising out of or in relation to CIRP or Liquidation proceedings. Therefore, we are unable to agree with the argument of Ld. Counsel for Pankaj Joshi that the Adjudicating Authority has no jurisdiction to entertain and decide the Application I.A. No. 1029 of 2020.
Issue No. (ii) Whether GIACL did not have locus standi to challenge the inclusion of DSKL in the CIRP?
# 21. Admittedly, DSKL requested to submit EOI after one month of due date and the same was rejected in the 7thCoC meeting held on 03.04.2020 and the decision was communicated to the DSKL on 09.04.2020. After lapse of two months DSKL again made attempt to become a part of CIRP before that four eligible Applicants including GIACL were short listed as Prospective Resolution Applicants. Therefore, there was a competition between these four Prospective Resolution Applicants but the RP has tried to induct DSKL in the CIRP in violation of the provisions of Regulation 36-A (6) of the Regulations 2016. Regulation 36-A of Regulations 2016 provides the procedure how to deal with EOI, . . . .
# 23. We are unable to convince with the Ld. Counsel for DSKL and Pankaj Joshi that GIACL did not have the locus standi to challenge the inclusion of DSKL in the CIRP. Ld. Adjudicating Authority has rightly entertained the Application I.A No. 1029 of 2020 and decided the same.
Issue No. (iii) Whether ‘DSKL’ was a necessary party to the Application I.A. No. 1029 of 2020?
# 24. Ld. Adjudicating Authority in the impugned order held that as no relief has been sought against DSKL and actions of RP and CoC are allegedly in violation of the Code and Regulations, therefore, the Application can be decided in the absence of DSKL.
# 25. It is admitted fact that, DSKL has submitted EOI on 12.03.2020 whereas due date was 10.02.2020 and after due deliberation in the 7thCoC Meeting held on 03.04.2020, the request of DSKL for submitting EOI after due date was rejected and the decision was communicated to DSKL on 09.04.2020.
# 26. DSKL has no vested right because, the right has already been extinguished when DSKL has failed to submit EOI till last date and subsequently, the request for submitting EOI after due date was also rejected by the CoC in view of Regulation 36-A of Regulations 2016. Therefore, DSKL has no right to contest the Application as in the Application the actions of RP & CoC are questioned. In such a situation, we are in agreement with the Ld. Adjudicating Authority that DSKL was not a necessary party to the Application I.A. No. 1029 of 2020.The question for the consideration before Adjudicating Authority was that, whether the actions of RP and CoC are justifiable in the present facts of this case.
# 27. Therefore, we are not convinced with the argument of Ld. Counsel for DSKL that the Ld. Adjudicating Authority has not given reasonable opportunity of hearing and thereby violated the principle of natural justice.
Issue No. (iv) Whether to allow DSKL after due date to file EOI is a commercial decision?
# 28. As per sub-section 30 of the IBC, when the CoC approved a Resolution Plan by a vote of not less than 66 % of voting share of the Financial Creditors after considering its feasibility and viability, such decision of CoC is a commercial decision. Thus, the decision taken by the CoC in the 09th CoC meeting to allow DSKL after due date to file EOI is not a commercial decision.
# 29. Now we have considered whether the CoC can review its own decision at any point of time in contravention of Regulation 36-A (6) of the Regulations 2016.
# 30. Ld. Sr. Counsel for DSKL submitted that Regulation 36-A cannot override the mandate of Code i.e. maximization of value and commercial wisdom of CoC and for this contention, cited the Judgment of Hon’ble Supreme Court in the Case of Brilliant Alloys Vs. S. Rajagopal 2018 SCC Online SC 3154 in which Hon’ble Supreme Court while dealing with Regulation 30-A has explicitly held that seemingly mandatory language of Regulation has to be read along with provision of the Code. Thus, Hon’ble Supreme Court held that Regulation 30A would be directory. Additionally, Regulation 36 is not mandatory in nature. The word “shall” has to be read as “may” since no consequence of non-compliance are provided.
# 31. We have considered the argument in the case of Brilliant Alloys, Corporate Debtor as well as Financial Creditor and Operational Creditor were agreed to withdrawal of the Application. However, in view of Regulation 30A, withdrawal was not permitted. In that context, Hon’ble Supreme Court held that this Regulation has to be read along with the main provision of Section 12A which contains no such stipulation. Therefore, it held that this stipulation can only be construed as directory depending on the facts of each case. It is not ruled, that Regulation 36–A is not in consonance with any of the provision of the IBC or Regulation 36-A is not mandatory in nature. Thus, this Judgment also does not support the case of DSKL. The second limb of argument, that the word “shall” has to be read as “may” since no consequence of noncompliance are provided, is not acceptable as Regulation 36-A (6) itself provides that EOI received after the time specified shall be rejected.
# 34. With the aforesaid discussion, we are of the considered view that, to allow DSKL after due date at the instance of Pankaj Joshi to file EOI is not a commercial decision.
# 35. The CoC, while reviewing its earlier decision, has not assigned any good reason for revisiting their earlier decision. It seems that the CoC have taken the decision in the influence and misguidance of Pankaj Joshi.
# 41. With the above discussion, we are of the view that the decision taken in 09th Meeting of the CoC was not transparent, fair and was under the influence of Pankaj Joshi.
Issue No. (v) Whether the adverse remarks in Para 54 of the impugned order are baseless and uncalled for?
# 42. Ld. Counsel appearing for Mr. Pankaj Joshi submitted that the adverse remarks in Para 54 of the impugned order are baseless, uncalled for and are factually incorrect.
# 43. Para 54 of the Impugned order is as under: -
“we failed to understand as to why the current RP Mr. Pankaj Joshi had deviated from the earlier procedure of notice for the invitation of the EOI with the approval of the CoC. Per contra, the RP has accepted the resolution plan of DSKL after the expiry of the deadline for submission of Resolution plan without following the due process. The Act of RP to accept the resolution plan after opening the other bids, which were all submitted within the deadline cannot justified by any means and is a blatant misuse, misconduct on the part of RP. We also note that CoC in its 7th meeting rejected the EOI of DSKL but in 9th meeting approved with 100% vote share. The action of RP and the CoC is in violation of express provision of the Code and Regulations made thereunder. However, if the CoC wanted to extent the timeline, it should have done so within the procedure prescribed there for. By providing a special treatment, backdoor entry for accepting the resolution plan of the DSKL’s the RP and the CoC have deviated from the norms prescribed under the Code and Regulations framed thereunder, which vitiates the Corporate Insolvency Resolution Process and cause prejudice to the other PRAs. Such a practice has been strongly deprecated by the Hon’ble NCLAT cited above.”
# 44. We are in agreement with the Learned Counsel for Mr. Pankaj Joshi that in the aforesaid Para, Learned Adjudicating Authority has incorrectly mentioned “Per contra …………………on the part of RP”. This fact is factually incorrect that RP Mr.Pankaj Joshi has accepted the plan after the expiry of the deadline for submission of Resolution Plan. Actually Mr. Pankaj Joshi has overturned the decision of 7th CoC meeting and permitted DSKL to submit EOI and DSKL submitted EOI on 09.06.2020 (last date for submission EOI was 10.02.2020). It seems that inadvertently incorrect facts have been mentioned by the Adjudicating Authority in aforesaid Para 54. However, it does not absolve Mr. Pankaj Joshi from the malafide actions during CIRP which we will be discussing in subsequent paras.
# 47. In the light of the aforesaid facts and circumstances, we are of the considered view that Mr. Pankaj Joshi has failed to explain that his actions are bonafide. It is expected from a Resolution Professional that he must act in a fair and balanced manner without getting influenced by the conflicting interest of the parties. In the present case, Mr. Pankaj Joshi suppressed material facts and misguided the members of CoC to achieve the desired decision in favour of DSKL. Therefore, we are of the considered view that the adverse remarks and observations made in the Para 54 of the impugned order are not baseless and uncalled for and on the other hand, for appreciating the materials on record and to decide the matter, such observations are necessary.
# 48. With the aforesaid discussion, we are of the view that there is no merit in these appeals and, therefore, the appeals are dismissed, however, no order as to Costs.
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