NCLT Mumbai-II (2024.07.10) in Sankalp Recreation Private Limited Vs Rohit Ramesh Mehra & Ors. [IA.No.1085 & 1466 of 2023, IA.No.1478 of 2021 In C.P. (IB) 1171/MB/2018] held that;
This is further evidenced by Section 61 of the Code which permits any person aggrieved by the order of the Tribunal to prefer an appeal to the NCLAT on the grounds, inter alia, that the approved resolution plan is in contravention of the provisions of any law for the time being in force; or there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period.
Further, Regulation 39 of CIRP Regulations specifies that the CoC shall not consider any resolution plan received from a person who does not appear in the final list of prospective resolution applicants or does not comply with the provisions of Section 30(2) of the Code.
Considering the intent, purpose and wording of Regulations 36A and 39, we are of the view that clauses of IEOI/RFRP can never go beyond the provisions of the Code/CIRP Regulations, nor CoC, in the exercise of its commercial wisdom can contravene any express provisions of CIRP Regulations.
The law remains trite that furnishing a copy of the resolution plan to the participants of the CoC including the erstwhile directors is not an empty formality for various reasons including for pointing out deficiencies in the resolution plan.
On the basis of the above, we hold that not furnishing a copy of the resolution plan before the meeting held on 24.02.2023 is also a material irregularity.
The Resolution Plan submitted for approval of this Tribunal does not meet all the parameters laid down in sub-section (2) of Section 30 of the Code read with Regulations 36A and 39 of the CIRP Regulations on account of its contravention of provisions of the law and non-conformity to the requirements specified by IBBI,
There has been material irregularity in non-furnishing the copy of the resolution plan to the erstwhile directors. Consequently, IA No. 1085/2023 seeking approval of the resolution plan is dismissed,
Excerpts of the Order;
1. By way of this common order, we propose to dispose of the following three Interim Applications as the issues raised and reliefs sought are intertwined:
(a) IA No.1085/2023 filed by Resolution Professional (‘RP’) of Rajesh Business and Leisure Hotels Private Limited (‘the Corporate Debtor’) under Section 30(6) and Section 31(1) of the Bankruptcy and Insolvency Code, 2016 (‘the Code’) read with Section 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) for approval of the Resolution Plan submitted by Rare Asset Reconstruction Limited in Consortium with Check-Inn Hotels Pvt. Ltd (‘the Successful Resolution Applicant’ / ‘SRA’);
(b) IA No.1466/2023 filed under Section 60(5) of the Code by Sankalp Recreation Private Limited (‘Sankalp’) an unsuccessful Resolution Applicant to oppose the approval of the Resolution Plan submitted by Successful Resolution Applicant on the grounds that there have been material irregularities in the conduct of Corporate Insolvency Resolution Process (CIRP); and
(c) IA No. 1478/2023 filed by Rajesh Patel and five others who are promoters and ex-directors of the Corporate Debtor under Section 30 and Section 60(5) of the Code read with Rule 11 of the National Company Law Tribunal Rules, 2016 inter alia, seeking directions from this Tribunal to declare that the Resolution Plan as well as process adopted for approval of plan is contrary to law.
2. Brief facts of the case
2.1 On a Company Petition filed under Section 7 of the Code by ICICI Bank Limited, the Financial Creditor, this Tribunal initiated Corporate Insolvency Resolution Process (‘CIRP’) against Rajesh Business and Leisure Hotels Private Limited (‘Corporate Debtor’) vide its order dated 20.04.2022 and Mr. Rohit Mehra was appointed as Interim Resolution Professional (‘IRP’)
2.2 Pursuant to the said order, a public announcement in Form-A was made by the IRP on 27.04.2022 which was published in the newspapers- Business Standard (English) and Navshakti (Marathi) in the location of the registered office of the Corporate Debtor. Claims were called from the creditors of the Corporate Debtor specifying 04.05.2022 as the last date for submission of the claims. Based on the claims received, the Committee of Creditors (‘CoC’) of the Corporate Debtor was constituted on 11.05.2022 comprising of three Financial Creditors (ICICI Bank, Union Bank of India, and Bank of Baroda). In the 1st meeting of the CoC held on 20.05.2022, the CoC passed a resolution to confirm IRP as the Resolution Professional (‘RP’).
2.3 The RP published an Invitation for Expression of Interest (IEOI) (Form-G) on 29.06.2022 in newspapers- Business Standard (English) and Navshakti (Marathi). In terms of Form-G, the last date for submission of an Expression of Interest (EOI) was 19.07.2022 and the last date for the submission of Resolution Plan was 02.09.2022. At the request of some of the potential investors, a revised Form-G was published on 22.07.2022 under which the last date for submission of EOI was 02.08.2022 and the last date for submission of Resolution Plan was 16.09.2022.
2.4 In response to IEOI, 28 EOIs were received out of which all Prospective Resolution Applicants (PRAs) except one were found to be prima facie eligible. Accordingly, the final list of PRAs of 26 applicants was published by the RP on 27.08.2022.
2.5 While the last date stipulated for submission of the Resolution Plan as per Form-G was 16.09.2022, on the request of the PRAs and upon approval by the CoC, the last date for submission of the Resolution Plan was extended from time to time till 15.01.2023. The RP had received 6 Resolution Plans and the Resolution Applicants (‘RAs”) were allowed to give a brief presentation on their financial proposals and answer the queries from the members of the CoC. At the 12th meeting of the CoC held on 12.01.2023, the CoC approved the issuance of the challenge process document, and in the 13th meeting of the CoC held on 09.02.2023, the RP invited the RAs for the challenge process. The challenge process commenced and continued for 13 rounds, under which, the RP announced the end of the challenge process as only one RA was remaining in the process.
2.6 The CoC deliberated on the feasibility and viability reports in respect of Resolution Plans submitted by 3 RAs- (i) Rare Asset Reconstruction Limited in consortium with Check-Inn Hotels Private Limited, (ii) Consortium of Sankalp Recreation Private Limited and Globe Ecologistics Private Limited, and (iii) Shri Ram Multicom Private Limited. After detailed deliberations, the said three Resolution Plans were decided to be put to vote at the meeting held on 24.02.2023 (voting commenced on 01.03.2023 and ended on 10.03.2023). Pursuant to the same, the Resolution Plan submitted by Rare Asset Reconstruction Limited (‘Rare ARC’) in consortium with Check-Inn Hotels Private Limited (‘Check-Inn’) was approved by the CoC with 100% votes. (‘Successful Resolution Applicant’ or ‘SRA). The RP issued a letter of intent to the SRA on 10.03.2023 which was duly accepted on 11.03.2023 and SRA furnished a performance security of Rs. 30 Crore by way of performance bank guarantee on 11.03.2023.
2.7 Against the above backdrop, the following Interim Applications were filed before this Tribunal.
(i) IA.No.1085/2023 filed by RP seeking approval of the Resolution Plan submitted by Rare Asset Reconstruction Ltd in consortium with Check-Inn Hotel Private Limited, who was declared as the Successful Resolution Applicant.
(ii) IA.No.1466/2023 filed by Sankalp Recreation Private Limited (unsuccessful Resolution Applicant) seeking the following reliefs:
a) This Tribunal may be pleased to hold and declare that there has been a material irregularity in the exercise of the powers by the resolution professional during the corporate insolvency resolution period.
b) This Tribunal may be pleased to hold and declare that the Rare ARC- Naman Developers Consortium is ineligible for the purpose of submitting resolution plan of Rajesh Business and
Leisure Hotels Private Limited.
c) This Tribunal may be pleased to dismiss I.A. No. 1085 of 2023 filed by the Resolution Professional seeking approval of the Resolution Plan submitted by Rare ARC- Naman Developers Consortium for Rajesh Business and Leisure Hotels Private Limited.
d) This Tribunal may be pleased to direct the Resolution Professional to again conduct the process of invitation, scrutiny and voting for Resolution Plans strictly in accordance with law.
e) In the event prayer (b) mentioned hereinabove is allowed, this Tribunal may be pleased to direct the Resolution Professional to declare the Applicant as the Successful Bidder;
f) Pending the hearing and final disposal of the present Application, this Tribunal may be pleased to stay the hearing of I.A. No. 1085 of 2023 for the approval of the Resolution Plan submitted by Rare ARC- Naman Developers Consortium for Rajesh Business and Leisure Hotels Private Limited.
g) Pending the hearing and final disposal of the present Application, this Tribunal may be pleased to direct the Resolution Professional to supply a copy of I.A. No. 1085 of 2023 and minutes of CoC Meeting to the Applicant herein.
(iii) IA.No.1478/2023 filed by Rajesh Patel and five others (Promoters, Shareholders, and Erstwhile Directors) seeking:
a) That this Tribunal be pleased to quash and set aside the CIRP process to the extent of approval of Resolution Plan and declare that the plan as well as process adopted for approval of plan is contrary to law;
b) That this Tribunal be pleased to direct the CoC to conduct the process afresh after replacing the Resolution Professional;
c) That this Hon'ble Tribunal be pleased to hold that Respondent No.2, should not be permitted to participate in future process till requisite approval in this regard is obtained by Respondent No.2 from the Reserve Bank of India;
d) That this Tribunal be pleased to restrain the CoC from including any person as prospective resolution applicant who is not part of the list of prospective resolution applicants;
e) That this Tribunal be pleased to declare that the fees fixed for Resolution Professional are illegal and contrary to law;
f) That this Tribunal be pleased to order fresh valuation of the assets of the Corporate Debtor:
g) That this Tribunal be pleased to direct the Resolution Professional, so appointed to conduct the process after keeping the Applicants herein informed and associated as per the provisions of the Code and Regulations;
h) Pending the hearing and final disposal of this Application, this Tribunal be pleased to direct the Resolution Professional to file affidavit disclosing the fact that they were aware of Respondent no.2’s Net Owned Fund being less than Rs. 1000 Crore.
i) That any other order as it may deem fit to this Hon’ble Tribunal be passed;
15. Maintainability of the IAs
15.1 It is contended that an unsuccessful resolution applicant, whose resolution plan was rejected, does not have the locus to challenge the resolution plan approved by CoC and that such applicant is neither a stakeholder nor a creditor of the Corporate Debtor. Further, the unsuccessful resolution applicant, on one hand, requested the return of the bid bond deposit and received the bid bond deposit and at the same time is now challenging the resolution plan on ulterior grounds. In support of the above contention, the RP referred to the decision of the Hon’ble Supreme Court in Arcelormittal India Private Limited v. Satishkumar Gupta and Ors (2019) 2 SCC 1 wherein it was held that a resolution applicant has no vested right that the resolution can be considered, no challenge can be preferred to the Adjudicating Authority at this stage. The RP has also referred to the following decisions of the Hon’ble NCLAT:
(a) M.K Rajagopalan Balaji Villa vs. S. Rajendran, RP Vasanealthcare Pvt. Ltd and Ors (Company Appeal (AT) (CH) (INS) No. 58 of 2023)
“ 31. Petitioner/Appellant, being an ‘Unsuccessful Resolution Applicant has no ‘Locus’, to ‘assail’ a ‘Resolution Plan’ or it’s ‘implementation’, coupled with a candid fact that he is not a ‘Stakeholder’, as per Section 31(1) of the I & B Code, 2016, in relation to the ‘Corporate Debtor’, this ‘Tribunal’ without any ‘haziness’, holds that the ‘Petitioner/Appellant’, is not an ‘Aggrieved Person’ coming within the ambit of Section 61(1) of the I & B Code, 2016, especially when he is not a ‘Privy’ to the ‘Resolution Plan’.
(b) IMR Metallurgical Resources AG Versus Ferro Alloys Corporation Ltd and Others (Company Appeal (AT) (Insolvency) No.271 of2020
“5. It is essential to mention that the Resolution Applicant has no vested right that his Resolution Plan must be considered. It is settled position of law as laid down by Hon’ble Supreme Court in MANU/SC/1123/2018: (2019) 2 SCC 1 in case of Arcelor Mittal India Pvt ltd vs. Satish Gupta held that the resolution applicant does not have any vested right that his Resolution Plan must be considered.
6. The commercial wisdom of the CoC is paramount, and it has the absolute prerogative to decide the viability and feasibility of the Resolution Plans presented before them and the same is not to be interfered even by the Adjudicating Authority.
15.2 It is further contended that the ex-promoters/shareholders have no locus to challenge the resolution plan and relied on the decision in the matter of Mr. Ramesh Kesavan vs. CA Justin Jose & Another (Company Appeal (AT) (CH) (INS) No.422 of 2023) where the Hon’ble NCLAT observed that the shareholders have no locus to challenge a resolution plan.
15.3 However, it is to be noticed that in the matter of Arcelormittal (Supra), the Hon’ble Supreme Court was considering whether any challenge can be made at various stages of the corporate insolvency resolution process and held that given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage. The facts of the present case are different for the reason that CIRP has come to the final stage of seeking approval of NCLT and the unsuccessful resolution applicant is alleging gross contravention of CIRP Regulations. Therefore, the decisions of Hon’ble NCLAT referred to by the RP are distinguishable. Furthermore, the same contentions have also been raised by the Ex promoters/directors of the Corporate Debtor, and in the case of Vijay Kumar Jain (supra), the interests of Promotes/guarantors to challenge the plan were recognized. Further, as per section 61 of the Code, contravention of the provisions of any law or material irregularity in exercise of the powers of the resolution professional are recognized grounds which can be raised by any person aggrieved, for challenging a resolution plan. In view of the above, the IAs are held to be maintainable.
16. Findings:
16.1 As a corollary to the above discussion, we hold that it is a trite position of law that the commercial wisdom of the CoC is beyond the pale of challenge before the Tribunal and with respect to the application for approval of the resolution plan, the jurisdiction of this Tribunal is
limited to determine whether or not the resolution plan, as approved by requisite majority of CoC, complies with the requirements specified under Section 30(2) of the Code. This includes, inter alia, examining whether the resolution plan contravenes any of the provisions of the law for the time being in force and conforms to such other requirements as may be specified by IBBI. This is further evidenced by Section 61 of the Code which permits any person aggrieved by the order of the Tribunal to prefer an appeal to the NCLAT on the grounds, inter alia, that the approved resolution plan is in contravention of the provisions of any law for the time being in force; or there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period.
16.2 We have discussed in detail in para.10 hereinabove, the legality of Check-Inn joining as a resolution applicant when its name did not appear in the final list of Prospective Resolution Applicants. It is further reiterated that Regulation 36A prescribes each step in the process to be taken by the Resolution Professional to ensure adherence to timelines, provide an opportunity to all resolution applicants who submitted the expression of interest to raise objection to the inclusion or exclusion of a provisional resolution applicant in the provisional list, etc. The Resolution Professional is also required to conduct due diligence of prospective resolution applicants based on the material made available to satisfy that the prospective resolution applicant complies with the applicable provisions of Section 29A and other requirements specified in EOI. The final list of prospective resolution applicants is to be prepared after following all the above processes. Further, Regulation 39 of CIRP Regulations specifies that the CoC shall not consider any resolution plan received from a person who does not appear in the final list of prospective resolution applicants or does not comply with the provisions of Section 30(2) of the Code. Thus, in CIRP Regulations there are certain boundaries prescribed both for RP and CoC which need to be strictly adhered to. In the present case, it is observed that the name of Check-Inn appeared for the first time in the revised resolution plan dated 17.02.2023 and due diligence on Check- Inn was conducted after the submission of the resolution plan just before putting the resolution plan for voting. Considering the intent, purpose and wording of Regulations 36A and 39, we are of the view that clauses of IEOI/RFRP can never go beyond the provisions of the Code/CIRP Regulations, nor CoC, in the exercise of its commercial wisdom can contravene any express provisions of CIRP Regulations.
16.3 It is also an admitted fact that a copy of the resolution plan which was discussed in the CoC meeting held on 24.02.2023 and thereafter put to vote without another meeting was furnished to erstwhile Directors only on 27.02.2023. The law remains trite that furnishing a copy of the resolution plan to the participants of the CoC including the erstwhile directors is not an empty formality for various reasons including for pointing out deficiencies in the resolution plan. A combined reading of the Code as well as the CIRP Regulations, as held in the decision of Vijay Kumar (supra), leads to the conclusion that members of the rstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the Committee of Creditors must be given a copy of such plans as part of the ‘documents’ that have to be furnished along with the notice of such meetings. On the basis of the above, we hold that not furnishing a copy of the resolution plan before the meeting held on 24.02.2023 is also a material irregularity.
16.4 Based on the above discussions, we conclude that
(a) the Resolution Plan submitted for approval of this Tribunal does not meet all the parameters laid down in sub-section (2) of Section 30 of the Code read with Regulations 36A and 39 of the CIRP Regulations on account of its contravention of provisions of the law and non-conformity to the requirements specified by IBBI, and
(b) there has been material irregularity in non-furnishing the copy of the resolution plan to the erstwhile directors. Consequently, IA No. 1085/2023 seeking approval of the resolution plan is dismissed, while I.A. No. 1466/2023 and I.A No.1478/2023 objecting to the approval of the resolution plan are partly allowed to the extent indicated in the foregoing discussion. Liberty is granted to RP/CoC to re-run the process strictly in accordance with the Code and CIRP Regulations and in that event, an extension of the CIRP period of 4 months shall be deemed to have been hereby granted for the purpose. The CoC, however, shall be at liberty to take a contrary call if it so desires in its wisdom.
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