NCLAT (18.04.2022) in Synergy Technologies & Ors. Vs. Shri Parthiv Parikh Ors., [Company Appeal (AT)(Insolvency) No. 352 & 424 of 2021 ] held that;
There is no concept of virtual extension of CIRP period. Section 12 is explicitly clear on the subject.
Hon’ble Supreme Court held that the Adjudicating Authority has been endowed with limited jurisdiction as specified in the IB Code and cannot act as a Court of Equity.
“The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyses or evaluate the commercial decision of CoC…
“The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable.”
This Court observed that the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis…
It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The Commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I & B Code.
Further, it is a settled principle that even if an improved offer is received subsequently in a bidding process, no consideration ought to be given to such proposals.
The purpose of CIRP is to provide life to organization and not to provide death knell. Death Knell/liquidation should be the last resort.
Excerpts of the order;
# 2. Company Appeal(AT)(Insolvency) No. 352 of 2021
A) The Appellants originally filed the claim before the Operational Creditor much prior to the approval of the Resolution Plan i.e., 23.01.2000 and Interim Resolution Professional (in short IRP) Mr. Chandra Prakash Jain informed the Appellants vide his order dated 28.02.2020 appearing at page -86 of the Appeal Paper Book (Annexure- A7) as follows:….
“With reference to the above subject matter we would like to inform you that we have verified the documents and the claim submitted by with the books of M/s Sanghvi Forging & Engineering Limited. On verification it has been found that the Form B submitted by you is incorrect form, as you are not an Operational Creditor of the Corporate Debtor as you have given Unsecured loan. Please submit the Form C duly notarized and stamped with supporting invoices and ledgers of revised amount of Claim, if any as on 30.08.2019 i.e. date of CIRP at the office of Interim Resolution Professional i.e. D-501, Ganesh Meridian Opp. High Court, S.G. Road, Ahmedabad- 380 060. (Copy of Form C attached for your reference).
….
B) Based on the directions of IRP on the same day i.e., 28.02.2020, the Appellants filed their claims in form –C as ‘Unsecured Financial Creditor’ as advised by IRP. The Appellants have not received any communication from the IRP since 28.02.200 with regard to the admission/rejection of the claim and the Resolution Plan was approved without their participation as Financial Creditor in Committee of Creditors (in short ‘CoC’).
Company Appeal(Insolvency) No. 424 of 2021
F) The learned Counsel for the Appellant in Appeal No. 352 of 2021 has raised issue that the Adjudicating Authority has approved the Resolution Plan of the Resolution Applicant, vide order dated 26.04.2021 when the objections of the Appellant (in Appeal No. 352/2021) were pending before the Adjudicating Authority as on the date of the Impugned Order. They have also alleged that the Resolution Professional and others have committed perjury by submitting that all the claims received from each class of Creditors, have been collated and covered in the Resolution Plan i.e. placed for approval appearing at paragraph- 11 of the Impugned order. The Appellants in Appeal 352/2021 has already submitted the claim as Financial Creditor as suggested by the Resolution Professional and still the Resolution Professional has failed to include it in the claim under Financial Creditor. As a result of non-consideration of the claim of the Financial Creditor by the Resolution Professional, leading to non-conformity of requirement of Section 30 of the Code in terms of explanation -1 of Section 30(2)(b)(ii) has happened and the Adjudicating Authority at least not even heard them before approving the Resolution Plan. The approval of the Resolution Plan has violated the mandatory provision of Sections 30(2) and 31(1) of the Code and related regulations.
G) In the case of Appeal No. 424 of 2021, learned Senior Counsel for the Appellant raised multiple issues as depicted below: a. CIRP period expired on 01.02.2021 including extension/exclusion period and there was no extension of the period as sought in IA No. 71/2021 and the Adjudicating Authority has passed the following order on 03.02.2021:
“The instant application is filed by the RP with a prayer to extend the 30 days’ time as to total 270 days of the CIRP period has expired on 01.02.2021 which also includes lockdown period. Since the resolution so passed by the CoC, wherein, they have decided to get extension of another 30 days as the CoC received Resolution Plan on 15.12. 2020, due to late filing of the addendum, hence the CoC has taken the decision for extension of time. It is further submitted that there is every likelihood that the resolution plan may be approved by the CoC and thereby the Company can be saved from liquidation. Looking to the facts and circumstances of the case. The Applicant is directed to file the resolution plan after making all deliberation on or before 22.02.2021, and at that point of time, this application will be considered. List the matter on 22.02.2021.”
b. Since CIRP expired on 01.02.2021, the Resolution Professional and CoC became functus officio and they cannot use their powers in terms of the provision of Section 12 of the Code and only option available was Section 33 of the Code. CoC could not have convened 13th CoC meeting on 02.02.2021 when its CIRP expired on 01.02.2021 and the resolutions passed therein are non-est and void. It is unfortunate to point out that the CoC has voted during given window of 3.12.2021 – 12.02.2021 as per the Written Submission of the Appellant in this Appeal appearing at pages 144 & 147 of the Reply of Respondent No. 1 and Respondent No. 2. Resolution Professional has committed professional error by filing I.A. No. 143 of 2021 around Mid. February, 2021 when the CIRP process already stood expired on 01.02.2021.
c. Learned Senior Counsel went on to say that the total CIRP period taken was more than 500 days while the code prescribes maximum period of 330 days. Learned Senior Counsel stress that it is a material irregularity under Section 61(3)(ii) of the Code. Learned Senior Counsel have expeditiously made it clear that the Resolution Professional has committed a material irregularity by acting beyond the period of approved CIRP period and also by not including the claim of the Financial Creditor. There is not equity based jurisdiction that the Adjudicating Authority or this Tribunal, under the provision of this Code which is well settled. Even on the ground of Principle of Natural Justice, Appellants are sufferer and no opportunity was given to them to plead his Application – I.A. No. 130/2021. He has also pleaded that the OTS proposal given by the Appellant for Rs. 75 Crores was duly sanctioned by the bank and an amount of Rs. 3.75 Crores was also deposited in August, 2019 and further an amount of Rs. 7.5 Crores was also deposited. Even the Resolution Plan so approved by the Bank, lack feasible and viable as opposed to the OTS proposal which offered almost double amount of the Resolution Plan and the Appellant (MSME Member) is ready to pay Rs. 83 Crores to the Financial Creditor.
ANALYSIS AND OBSERVATIONS:
# 7. We have carefully gone through the submissions made by Appellant/ Respondent/Resolution Professional/Successful Resolution Applicant and the input available on record and have following observations:
a. It is unfortunate to record that IRP has responded to the Appellants vide IRP’s letter dated 28th February, 2020 (in Appeal No. 352/2021) that the claim of the Appellants is to be made as Financial Creditor as they have given Unsecured Loan and not as Operational Creditor after verifying records by him and hence the Appellants’ claim as Operational Creditor was not accepted and he was asked to fill up Form C on 28.02.2020 and he filed the same on the same day. In spite of that the Resolution Professional (Respondent No. 1) has not considered their claim as Financial Creditor. As far as the issue of Appellants percentage of claim with respect to the total Financial Creditor claim is concerned, it is minuscule as submitted by Resolution Professional Shri Parthiv Parikh, who was appointed on the recommendation of CoC and thereafter approved by Adjudicating Authority on 26.05.2020. The total amount of debt of these banks is Rs. 177,98,19,021/- while the Appellant’s claim is Rs. 2,25,17,330/- is a very low figure and even had they been included as Financial Creditor, it would have no impact on the decision of the CoC as still it is approved by more than 98% of the value of the Creditors. This submission is also not acceptable. If this practices be allowed, then small and marginal Financial Creditors will get ruined and the same may not be a healthy trend and also not supported by any provisions of the Code and related Regulations. This matter needs to be referred to IBBI to take an appropriate view and issue appropriate clarification/direction to the Resolution Professionals.
b. There is no concept of virtual extension of CIRP period. Section 12 is explicitly clear on the subject and the same is reproduced for brevity and clarity. Section 12: Time-limit for completion of insolvency resolution process.
*12. (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.
(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of 1[sixty-six] per cent. Of the voting shares.
(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.
Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor:
Provided also that where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.]
However, the Adjudicating Authority provided a leeway that the Resolution Plan is to be submitted within a specified date and at that time he will appropriately consider the extension application. This is a grey area.
c. It is amply made clear that under the Code that there is no equity jurisdiction under the Code which has been made clear in the Hon’ble Apex Code in various judgments as held and given below:
i) Pratap Technocrats Private Limited & Ors. Vs. Monitoring of Reliance Infratel Limited & Anr. (Civil Appeal No. 676/2021)
ii) Gujrat Urja Vikas Nigam Limted Vrs. Mr. Amit Gupta & Ors. [Civil Appeal No. 9241 of 2019] and
iii) E S Krishnamurthy & Ors. Vrs. M/s Bharath Hi Tech Builders Pvt. Ltd. (Civil Appeal No. 3325 of 2020)
In K. Sashidhar v. Indian Overseas Bank & Ors. (2019) 12 SCC 150 the Hon’ble Supreme Court held that the Adjudicating Authority has been endowed with limited jurisdiction as specified in the IB Code and cannot act as a Court of Equity.
d. This is a case where the Financial Creditors are reputed Banks and they have large stake involved. Hence considering this aspect, they have deliberated the matter and expedited it and finally within a specified date of adjudication, as permitted by Adjudicating Authority, they have submitted duly approved Resolution Plan for its approval. It is also well settled that the wisdom of the CoC is unjustifiable as has been held in the Hon’ble Apex Court Judgment as mentioned below:
i. The Courts of India have time and again held that the commercial wisdom of the CoC is paramount, and that the CoC in its commercial wisdom is empowered to take decision which is non-justiciable. In K. Sashidhar v. India Overseas Bank, (2019) 12 SCC 150 (Paras 33 & 37), the Hon’ble Supreme Court held that “The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyses or evaluate the commercial decision of CoC… and “The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable.” The commercial wisdom of the CoC is of paramount importance as has been noted by the Hon’ble Supreme Court in subsequent judgments including Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Others [Civil Appeal No. 4242 of 2019 (Para 28)].
ii. Further, the Hon’ble Supreme Court made similar observations in Jaypee Kensington Boulevard vs. NBCC (India) Ltd & Ors., [Civil Appeal No. 3395 of 2020]. Recently, the Hon’ble Supreme Court in Kalpraj Dharamshi v. Kotak Investment Advisories Ltd. , [Civil Appeal Nos. 2943-2944 of 2021 (paras 149 & 154-155] noted the following in respect of commercial wisdom of the CoC:
- 154. This Court observed that the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis…
- 155. It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The Commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I & B Code.
iii. In fact, reference may also be made to this Tribunal’s recent decision in the matter of Union Bank of India on behalf of the Committee of Creditors of Dewan Housing Finance Corporation Ltd. vs. Kapil Wadhwan & Ors., Company appeal (AT)(Ins) No. 370 of 2021 (Para 13), wherein the Tribunal while upholding the wisdom of the Committee of Creditors in approving a resolution plan, stayed the NCLT’s order directing consideration of the promoter’s settlement proposal, observing that ‘there would be no end if such reversals are Allowed.”
iv. Further, it is a settled principle that even if an improved offer is received subsequently in a bidding process, no consideration ought to be given to such proposals- Navalkha and Sons v. Sri Ramanya Das and Ors. [AIR 1970 SC 2037 (Para-6); Vedica Procon Pvt. Ltd vs. Balleshwar Greens Private Ltd. [(2015) 10 SCC 94 (Para 53)].
v. M/s Innoventive Industries Ltd. v. ICICI Bank and Anr. (2018) 1 SCC 407 (Paras 12,16 & 31).
vi. Ebix Singapore Private Limited V. Committee of Creditors of Educomp Solutions Limited & Anr., Civil Appeal No. 3324 of 2020
e. It is also now well settled in law as held by Hon’ble Supreme Court in Para 68 of Jaypee Kensington Boulevard vs. NBCC(India) Ltd. & Ors. [Civil Appeal No. 3395 of 2020 has noted that whether a resolution plan and its propositions are leading to maximization of value of assets or not, would be matter of enquiry and assessment of the Committee of Creditors alone.
# 8. The purpose of the Code apart from others includes following: ..
The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.
…
# 9. All these reflect that the Adjudicating Authority or the Appellate Authority should interfere only on the limited issue of procedure and legal compliance i.e., enumeration in Section 30(2) read with Section 31 and Section 61(3) of the Code. For issue of convenience, the said provisions are enumerated hereunder: . . . . . .
# 10. Consolidated reading of all these provisions and objects of the Code apart from analysis/observations stated supra, it reveals that the purpose of CIRP is to provide life to organization and not to provide death knell. Death Knell/liquidation should be the last resort. Hence no need to touch the Resolution Plan so implemented by Successful Resolution Applicant (viz. M/s Bharat Forge Limited).
# 11. Prima facie, there is apparent mistake by the Resolution Professional for not considering the claim of the Appellant Financial Creditor in Company Appeal(AT)(Insolvency) No. 352 of 2021 being Unsecured Loan Holder as per the written statement of his predecessor IRP is not in good taste and accordingly, Financial Creditors, who have received the major chunk from the Resolution Applicant should appropriately refund the original claim, minus any amount received, made by the Financial Creditor as Operational Creditor (as per letter of Interim Resolution Professional dated February 28, 2020 as stated supra) in the same percentage as these Financial Creditors have received from Resolution Applicant i.e., M/s Bharat Forge Ltd. . With these observations, we are partially allowing the Appeals. No Order as to cost. Pending Interlocutory Application, if any, stands disposed of with this order.
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