Showing posts with label sharing-of-resolution-plan-with-bod. Show all posts
Showing posts with label sharing-of-resolution-plan-with-bod. Show all posts

Sunday, 29 December 2024

Yashdeep Sharma Vs. Tara Chand Meenia, Resolution Professional - In the present case, when it is an admitted fact that the Appellant was also a competing Resolution Applicant, no copy of the resolution plan of other PRAs could have been shared in advance with the Appellant as it would have triggered conflict of interest. Even though the resolution plan of the Appellant had been rejected, since the Appellant was admittedly in the fray until 22.05.2024, it cannot be ruled out that an element of bias would arise while considering the resolution plan of another competing Resolution Applicant.

 NCLAT (2024.12.11) in Yashdeep Sharma Vs. Tara Chand Meenia, Resolution Professional [Company Appeal (AT) (Insolvency) No. 1906 of 2024] held that;

  • Hon’ble Apex Court in Vijay Kumar Jain supra that the suspended management has a right to participate in the CoC  meetings and entitled to documents including resolution plan since Regulation 35 of CIRP Regulations recognises the vital interest of the suspended management in a resolution plan. This judgment of the Hon’ble Supreme Court which has been relied upon by the Appellant is however not applicable in the facts of the present case since here in light of the distinguishing fact that suspended management had also staked their claim as a Resolution Applicant.

  • In the present case, when it is an admitted fact that the Appellant was also a competing Resolution Applicant, no copy of the resolution plan of other PRAs could have been shared in advance with the Appellant as it would have triggered conflict of interest. Even though the resolution plan of the Appellant had been rejected, since the Appellant was admittedly in the fray until 22.05.2024, it cannot be ruled out that an element of bias would arise while considering the resolution plan of another competing Resolution Applicant.

  • This Tribunal in PNC Infratech Limited Vs Deepak Maini in CA(AT)(Ins)No. 143 of 2020 wherein it has been held that there is no such mechanism under the IBC that gives the right to the Unsuccessful Resolution Applicant to challenge the score granted as per the evaluation matrix prepared by the CoC and the RP.

  • The evaluation matrix and Process Document are documents which have been issued by the CoC and the CoC is the best judge to interpret its own documents and apply it for evaluation of the plan of the Resolution Applicants. Since the RFRP document has been approved by the CoC and the RFRP document provides for the evaluation matrix, the scoring done by the RP with the approval of the CoC cannot be questioned as arbitrary or unreasonable.

  • CoC is the best judge to decide on how the evaluation matrix contained in the RFRP can be applied. The Appellant therefore cannot go into the technical issues with regard to evaluation and score matrix which is in the exclusive domain of the CoC. This is clearly a business decision of the CoC and unless there is any clear violation of Section 30(2) of the IBC, this decision of the CoC cannot be lightly challenged.

  • It has been held that the opinion expressed by the CoC after due deliberations in the meetings through voting, as per voting shares, is the collective business decision and that the decision of the CoC's commercial wisdom is non-justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of IBC.

  • The Hon’ble Supreme Court has consistently held that it is not open to the Adjudicating Authority or the Appellate Authority under IBC to take into consideration any other factor other than the ones specified in Section 30(2) or Section 61(3) IBC in questioning the decision of the CoC.


Excerpts of the Order;

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 13.08.2024 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Jaipur Bench) in CP(IB) No.03/9/JPR/2018. By the impugned order, the Adjudicating Authority has approved the resolution plan of Trufalir Buildwell LLP-the Successful Resolution Applicant (“SRA” in short) as placed by the Resolution Professional (“RP” in short) in IA No. 06/JPR/2024 before it while rejecting the objections raised thereto by the Appellant vide IA No. 353 of 2024. Aggrieved by the impugned order, this appeal has been preferred by the Appellant-suspended management of the Corporate Debtor.


# 2. Making his submissions, Shri Suraj Prakash, the Ld. Counsel for the Appellant submitted that the RP had failed to conduct the CIRP proceedings of the Corporate Debtor with due diligence. To substantiate their contention, it was stated that resolution plans of the Corporate Debtor as submitted by the Prospective Resolution Applicants (“PRAs” in short) were considered by the Committee of Creditors (“CoC” in short) in a manner marred by irregularities. There were clear violations of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations” in short). Stressing on the serious discrepancies and non-transparency in the procedure adopted by the RP/CoC in the process of approving the resolution plan of the SRA, it was pointed out that the RP had failed to supply in advance a copy of final and revised resolution plan both to the CoC and the suspended management. None other than the RP had a copy of the final resolution plan. It was therefore contended that the CoC had approved the resolution plan without the resolution plan inits final form being available before it and hence impermissible as held by the Hon’ble Supreme Court in the M.K Rajagopalan Vs Dr. Perisamy PalaniGounder (2024) 1 SCC 42. It was further contended that the financial proposal in respect of the final revised resolution plan of the SRA was in the form of an unsigned word document which was therefore not a valid resolution plan submission. Moreover, since the financial proposal was only screenshared by the RP in the CoC meeting, no real and meaningful discussion could have been held on the viability and feasibility of the resolution plan. The suspended management had also not been supplied a copy of the resolution plan and valuation reports. This was clearly in contravention of the well settled law laid down by the Hon’ble Supreme Court in Vijay Kumar Jain Vs Standard Charted Bank and Ors. (2019) 20 SCC 455 that the suspended management is entitled to entitled to have a copy of the resolution plan of the PRAs to effectively participate in the CoC meetings.


# 3. Pointing out some of the other irregularities, it has also been submitted that the CoC had wrongfully adopted the Swiss Challenge Method. Moreover, the scoring of quantitative parameters as per the evaluation matrix was carried out by the RP and not by the CoC. Submission was pressed that that when the resolution plans received from PRAs were put up for voting in the 54th CoC meeting, RP had hastily conducted the voting on the resolution plan. It was also submitted that the liquidation value of the Corporate Debtor by the erstwhile RP was Rs 42 Cr. while the present RP showed the liquidation value as only Rs 4.8 Cr. Despite the significant difference between the estimates of the two valuers, the RP had failed to do so thereby jeopardising the mandatory process of valuation of the Corporate Debtor. Hence, CoC was compelled to accept a resolution plan for the Corporate Debtor entailing huge haircut suffered by the Secured Financial Creditor and nil payment for other creditors. It is also submitted that the resolution plan is conditional because prior consent of Rajasthan State Industrial Development and Investment Corporation Ltd. (“RIICO” in short) had not been taken for renewal of the lease in favour of the Corporate Debtor before the approval of the resolution plan. It was pointed out that the Hon’ble Supreme Court in the case of Greater Noida Industrial Development Authority Vs Prabhjit Singh Soni in Civil

Appeal No. 7590-7591 of 2023 held that though feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the CoC, but when a plan envisages use of land not owned by the Corporate Debtor but by a third party, there has to be a closer examination of the plan’s feasibility. It has also been added that the RP has failed to do due diligence in respect of the source of funds to be infused by the SRA. It is also contended that the CoC had rejected the settlement proposal of the promoters which settlement proposal aimed at maximizing the value of the Corporate Debtor and exceeded the plan value of the SRA. The failure of the CoC to consider the offer of settlement of the promoters is arbitrary. It was further added that though the Appellant had filed IA No. 353 of 2024 before the Adjudicating Authority raising objections to the approval of the resolution plan filed by the RP, the Adjudicating Authority did not give any findings on the grounds raised by the Appellant in their challenge to the approval of the resolution plan.


# 4. Refuting the contentions of the Appellant, Shri Krishnendu Datta, Ld. Sr. Counsel for the SRA-Respondent No.3 submitted that the Appellant is disgruntled and dissatisfied as its resolution plan failed to pass muster. The Appellant had submitted his resolution plan on 26.04.2024 which plan was under consideration of the CoC until 22.05.2024 when it was rejected. Having subjected themselves to the process of submission of resolution plans and having participated as a competing party with other PRAs, it does not behove of the Appellant to assail the resolution plan of other competing parties. It was asserted that the RP had been fair and transparent in the conduct of the CIRP and made complete disclosure of all relevant information to all the relevant stakeholders on the resolution plans of all PRAs for proper conduct of voting process. On the contrary, the Appellant had wilfully violated the CIRP Regulations while submitting their resolution plan by not depositing EMD and for not having filed any Expression of Interest which led to rejection of their resolution plan. Thus, they have no right to point fingers at the RP/CoC on the manner of conduct of CIRP. It was vehemently contended that the Appellant was only trying to derail and drag the CIRP process by raising technical pleas. The CIRP process for approval of resolution plan and the voting was run in a fair and transparent manner which had led to substantially revised offer from the anchor bidder. It was fervently contended that the Appellant being the suspended management, who had been competing with other PRAs by submitting their resolution plan, their approach and thinking in respect of CIRP of the Corporate Debtor was impacted by conflict of interest. Thus, raising questions on the bonafide of the Appellant, it was asserted that their objections to the resolution plan of the SRA was rightly overruled by the Adjudicating Authority as the suspended management could not be allowed to substitute the wisdom of the CoC in deciding on the merits of a resolution plan. It was also contended that the issue of valuation of the Corporate Debtor was not raised before the Adjudicating Authority and cannot therefore be agitated before the Appellate Tribunal. It was added that in any case this contention is misconceived as CIRP Regulation 35(1)(b) is applicable in case of variance in the estimates of registered valuers appointed by the same RP while in this case the valuation report was submitted during the tenure of the erstwhile RP. Further, on the contention of the Appellant that the resolution plan of the SRA was contingent upon resumption of lease by RICCO, it was pointed out that this issue has been looked into by the Adjudicating Authority at para 37 of the impugned order and found that the obligation under the resolution plan of the SRA is not contingent or conditional upon continuation of occupation of the said land or resumption of lease by the RICCO. On the issue of failure of the CoC to consider the offer of settlement of the promoters, it was contended that this matter not having been raised before the Adjudicating Authority cannot be therefore be raised at this appellate stage.


# 5. We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully.


# 6. The broad questions before us which require to be answered is whether there was any evidence of irregularity in the conduct of CIRP proceedings by the RP and whether the Appellant in their capacity as suspended management was prevented from effectively participating in the CoC deliberations and whether the Adjudicating Authority had erred in approving the resolution plan of the SRA. All the above issues are closely interlinked and will be dealt together.


# 7. It is the case of the Appellant that in their capacity as suspended management of the Corporate Debtor they had a right to participate in the CoC proceedings and were entitled to have a copy of the resolution plan of all the PRAs. However, their participation was stymied by the RP as they were denied access to a copy of the resolution plan of SRA. Buttressing their argument, the Appellant stated that they had sent an e-mail to the RP demanding the resolution plan of the SRA. However, the RP did not share the plan prior to the commencement of voting which displays a clear intention on their part to prevent the suspended management from effectively participating in the discussion on the resolution plan. The email containing the final revised resolution plan of SRA-Respondent No. 3 was received by RP on the evening of 22.05.2024 by e-mail in the form of a word document sent as an attachment. Clauses 11(i) and 11(ii) of the RFRP required the SRA to sign each page of the submitted resolution plan which has not been done. As this document was unsigned, it was not even a valid resolution plan submission. It was also mentioned that even the CoC was not supplied copy of the plan of the PRA and that it was merely screen-shared during the CoC meeting. Further, the manner in which the resolution plan was approved in the 54th CoC meeting casts a serious doubt on the bonafide of the RP in the conduct of the CIRP. Since, the financial proposal of the plan was screen shared by the RP at the time of CoC meeting, no real discussion could be held on the feasibility and viability of the resolution plan as no member of the CoC had a copy of the final revised resolution plan. It is pointed out that while the final revised resolution plan was received at around 5 pm, the 54th CoC meeting concluded by around 6 pm which shows that the resolution plan was hastily passed by the CoC. It is therefore contended that the CoC had approved the resolution plan without the resolution plan in its final form being available before it and hence impermissible as held by the Hon’ble Supreme Court in the M.K Rajagopalan Vs Dr. Perisamy Palani Gounder (2024) 1 SCC 42. Advancing their arguments further, it has been stated that since the word document of the resolution plan was opened in the CoC meeting, the necessary steps outlined under IBC like scrutiny of plan by RP under Section 30(2) of the IBC, evaluation of plan by RP and CoC as per evaluation matrix could not have been completed. It is also contended that the scoring on evaluation matrix which is the prerogative of the CoC was in fact done by the RP which is not in order.


# 8. To go to the root of the matter, we need to go into the record of deliberations of the CoC. From material placed on record, it is apparent that in the 52nd CoC meeting dated 09.05.2024, the CoC in exercise of its commercial wisdom decided to adopt the Swiss Challenge method for approval of the resolution plan wherein the consideration offered by the anchor bidder/highest bidder was to be shared with the other Resolution Applicants to give them a fair opportunity to tender their best possible offer. Thereafter, the anchor bidder was to be given a final opportunity to improve upon its offer over other highest bids received, if any during such process. This approach adopted by the CoC cannot be faulted as it is in consonance with the intent and objective of IBC to further the value maximization of the Corporate Debtor.


# 9. When we look at the impugned order, we find that the Adjudicating Authority has taken cognisance that the RFRP provided for the Swiss Challenge Method. For easy reference, we would like to reproduce the relevant excerpts from the impugned order as below: 

  • 29. In so far as the adoption of the Swiss Challenge Method is concerned, it is relevant to mention that Clause 10(i) of the Request for Resolution Plan ('RFRP') categorically provided for adoption of the challenge mechanism by the CoC at its discretion. The relevant extract of the RFRP is reproduced hereunder: -

  • "The CoC may also use a challenge mechanism to enable resolution applicants to improve their plans in terms of Regulation 39(1A)(b) of the CIRP Regulations, 2016."”


# 10. The contention of the Appellant that the CoC had wrongfully adopted the Swiss Challenge Method goes against the teeth of CIRP Regulation 39(1A) which allows the Swiss Challenge Method as one of the options which can be adopted by the CoC in requesting for resolution plan. It may be useful to notice Regulation 39(1A) which is as extracted below:

  • "39(1A) The resolution professional may, if envisaged in the request for resolution plan-

  • (a) allow modification of the resolution plan received under subregulation (1), but not more than once; or

  • (b) use a challenge mechanism to enable resolution applicants to improve their plans."


Thus, in terms of the above regulatory framework of IBC, we cannot read any fetters on the power of the CoC to take a decision to embark on extended challenge method. The Challenge Mechanism envisaged under Regulation 39(1A) by its nature envisages multiple rounds of challenge so as to enable Resolution Applicants to improve their Plans. Regulation 39(1A) does not prohibit CoC from negotiating with Resolution Applicants or asking Resolution Applicants to further increase the Plan value. Any such step taken by the CoC to follow the Swiss Challenge Method cannot be said to be arbitrary or in violation of any statutory provisions of the IBC. We also find that in the 53rd CoC meeting, the RP requested the COC for a discussion on Swiss Challenge method adopted and its fairness and transparency as the same had been questioned by one of the PRAs. The CoC had noted that the process has been carried on by the RP and his team in a completely fair and transparent manner which process was also well explained to all the PRAs. The declaration of the Anchor Bidder was also made in a transparent manner and all the other PRAs were given opportunity to improve the consideration in two rounds of discussions held in the COC meeting on 09.05.2024.


# 11. Thus, we are of the considered opinion that this contention of the Appellant questioning Swiss Challenge method clearly lacks merit as the adoption of Swiss Challenge for value maximization was the outcome of the commercial wisdom of COC. The Adjudicating Authority has not committed any error in holding at para 30 of the impugned order that 

  • “a perusal of the 52nd CoC Meeting reveals that the agenda qua adoption of the Swiss Challenge Method and the Anchor Bidding system were duly approved by the CoC in its commercial wisdom.”


# 12. This brings us to two other important allegations of irregularity in the CIRP process levelled by the Appellant. Firstly, that the resolution plan was not shared by the RP either with the CoC or the Appellant and, secondly, that scoring of quantitative parameters as per the evaluation matrix was carried out by the RP and not by the CoC. It has been stoutly contended that the suspended management was required to be supplied with a copy of the resolution plan and valuation reports as laid down by the Hon’ble Supreme Court in Vijay Kumar Jain judgement supra.


# 13. We now proceed to examine the contentions as outlined in the preceding paragraph. To answer this question, we need to notice how the deliberations of the CoC progressed in the 53rd and 54th meetings held on 17.05.2024 and 22.05.2024 respectively. At the outset we must add that the RP took the roll call of all the participants including the Financial Creditors and suspended directors who attended the CoC meeting. Wherever required the PRAs were also invited to the meetings and admitted for discussion with CoC members. In the given circumstances, we are not impressed by the contention of the Appellant that there was violation of the CIRP Regulations 21 and 24.


# 14. When we peruse the minutes of the 53rd CoC meeting, we find that all the PRAs were given a chance to submit their best proposal in terms of the Swiss Challenge method pursuant to which 2 applicants had submitted their revised plans. Thereafter, the anchor bidder-Truflair Buildwell was allowed to revise its offer. On receipt of final revised resolution plans from the PRAs, the same were put for discussion before the CoC in the first session of the 54th CoC meeting, wherein all the PRAs were invited to participate and present their respective plans. During this meeting, one of the PRAs abstained from participating while the plan of the other PRA (who decided not to revise their plan value) could not be taken up for voting as it was found to be conditional. Thereafter, the same 54th CoC in the second session, deliberated upon the revised resolution plan submitted by the anchor bidder-Truflair Buildwell. The RP apprised the members of CoC that despite being the highest bidder, Truflair Buildwell has further improved the offer by Rs 1.50 cr and cured their plan by removing the conditional clause. Thus, clearly this is a case where the revised resolution plan of the SRA was duly considered, evaluated and approved by the CoC before the RP placed the same for the approval of the Adjudicating Authority and hence the ratio of the judgement of the Hon’ble Supreme Court in M.K Rajagopalan supra is clearly not applicable in the present factual matrix.


# 15. This brings us to the related contention raised by the Appellant that the RP had only screen shared the resolution plan during the 54th CoC meeting in the second session and this prevented effective discussion of the resolution plans by the CoC and the suspended management. When we look at the entire chain of events, we find that the Appellant has deliberately chosen to ignore the fact that all the PRAs were given opportunity to present their plan in the COC meeting held on 09.05.2024 and after threadbare discussion given opportunity to improve their plan value consideration. Thus, the CoC members were fully aware of the details of the plan proposals submitted by the PRAs. At this stage, all PRAs were asked to send their best possible offers in a closed envelope and password protected soft copy by 21.05.2024 for consideration of the CoC. This modality was equally applicable on all the PRAs in terms of the decision taken by the CoC. The resolution plans received from PRAs other than the anchor bidder were opened up during the first session of the 54th meeting and was displayed through shared screen during the said meeting. Thereafter the resolution plan submitted by the anchor bidder for approval of CoC was also shared on screen by the RP and then the same was thoroughly evaluated by COC. When the CoC, inspite of being the stakeholder whose interests were most critically affected, had evinced  no complaints about the fairness and transparency of the process which had been followed by the RP, we do not find much force in the contention of the Appellant that there were irregularities in the process followed by the RP. 


# 16. Interestingly, we notice that the Appellant had not volunteered information on his own that he was also one of the Resolution Applicants. This was vociferously contended by the SRA and asserted that the Appellant could not have claimed access to the resolution plans of other PRAs as it would tantamount to breach of the confidentiality and commercial sensitivity of the plans submitted by the other PRAs. On a pointed query made by this Bench, the Appellant admitted that it had also wanted to submit a plan but their request was rejected. A closer look at the minutes of the 53rd CoC meeting shows that a password protected resolution plan was submitted belatedly by the Appellant which was not considered as they had failed to submit EOI within the prescribed timeline in Form G and also failed to submit earnest money. Thus, when the  Appellant had themselves submitted password protected resolution plan without any protestation, they cannot now contend that this procedure suffered from irregularities. Furthermore, when the Appellant was callous, negligent and failed to adhere to the CIRP Regulations in the submission of their own resolution plan, it does not lie in their mouth to nit-pick on imaginary irregularities committed by the RP.


# 17. At this juncture, we would like to add that we have no quarrel with the proposition of law laid down by the Hon’ble Apex Court in Vijay Kumar Jain supra that the suspended management has a right to participate in the CoC  meetings and entitled to documents including resolution plan since Regulation 35 of CIRP Regulations recognises the vital interest of the suspended management in a resolution plan. This judgment of the Hon’ble Supreme Court which has been relied upon by the Appellant is however not applicable in the

facts of the present case since here in light of the distinguishing fact that suspended management had also staked their claim as a Resolution Applicant. In the present case, when it is an admitted fact that the Appellant was also a competing Resolution Applicant, no copy of the resolution plan of other PRAs could have been shared in advance with the Appellant as it would have triggered conflict of interest. Even though the resolution plan of the Appellant had been rejected, since the Appellant was admittedly in the fray until 22.05.2024, it cannot be ruled out that an element of bias would arise while considering the resolution plan of another competing Resolution Applicant.


# 18. This brings us to the submission made by the Appellant that there was irregularity in the process on account of the scoring of quantitative parameters as per the evaluation matrix having been carried out by the RP and not by the CoC. We find this allegation also to be misleading. When we look at the proceedings of the 54th CoC meeting, we find that the RP had displayed the Evaluation Matrix through screen-sharing and the CoC assigned scores on the qualitative parameters of the compliant resolution plans based on the financial parameters and other parameters for each Resolution Plan. Though the scoring of quantitative parameters was done by RP, it was clarified by the RP that the scoring on Evaluation Matrix being the prerogative of the COC, as RP, he was  only assisting the CoC members in scoring and evaluating the Matrix. The RP had further sought views of the CoC members on the scores allotted to each Resolution Applicant. Further, in accordance with Regulation 39(3) of CIRP Regulations, the CoC evaluated the resolution plan with respect to the evaluation matrix and other parameters and recorded their views on the feasibility and viability of the Resolution Plan of the SRA which had scored 95 out of 100 on qualitative parameters of resolution plan. Reliance has been placed by the Respondents on the judgment of this Tribunal in PNC Infratech Limited Vs Deepak Maini in CA(AT)(Ins)No. 143 of 2020 wherein it has been held that there is no such mechanism under the IBC that gives the right to the Unsuccessful Resolution Applicant to challenge the score granted as per the evaluation matrix prepared by the CoC and the RP. The evaluation matrix and Process Document are documents which have been issued by the CoC and the CoC is the best judge to interpret its own documents and apply it for evaluation of the plan of the Resolution Applicants. Since the RFRP document has been approved by the CoC and the RFRP document provides for the evaluation matrix, the scoring done by the RP with the approval of the CoC cannot be questioned as arbitrary or unreasonable. CoC is the best judge to decide on how the evaluation matrix contained in the RFRP can be applied. The Appellant therefore cannot go into the technical issues with regard to evaluation and score matrix which is in the exclusive domain of the CoC. This is clearly a business decision of the CoC and unless there is any clear violation of Section 30(2) of the IBC, this decision of the CoC cannot be lightly challenged.


# 19. Thus, to answer the first two parts of the questions delineated at para 6 above, we are of the considered view that there is no patent irregularity found in the conduct of CIRP proceedings by the RP nor any facts and circumstances placed on record which substantiate that the Appellant in their capacity as suspended management was prevented by the RP/CoC from effectively participating in the CoC deliberations.


# 20. This brings us to the question as to whether the Adjudicating Authority had erred in approving the resolution plan of the SRA. It is equally pertinent at this juncture to notice that the plan of SRA was put to vote and approved by the CoC with 100% voting. The Hon’ble Supreme Court in a catena of judgments has laid down that commercial wisdom of CoC has to be given paramount importance and cautioned time and again about the need of minimal interference in the commercial decision of CoC to approve the Resolution Plan. It has been held that the opinion expressed by the CoC after due deliberations in the meetings through voting, as per voting shares, is the collective business decision and that the decision of the CoC's commercial wisdom is non-justiciable, except on limited grounds as are available for

challenge under Section 30(2) or Section 61(3) of IBC. The Hon’ble Supreme Court has consistently held that it is not open to the Adjudicating Authority or the Appellate Authority under IBC to take into consideration any other factor other than the ones specified in Section 30(2) or Section 61(3) IBC in questioning the decision of the CoC. This position of law has been consistently reiterated by the Hon’ble Apex Court in Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531, Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh (2020) 11 SCC 467, Kalpraj Dharamshi v. Kotak Investment Advisors Ltd. (2021) 10 SCC 401, Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657. There are no adequate grounds shown or material placed on record by the Appellant as to how the resolution plan of the Appellant does not conform to Section 30(2) of

IBC. We also do not find that sufficient ground has been made out within meaning of Section 61(3) of the IBC to interfere with the decision of the Adjudicating Authority approving the Resolution Plan of the SRA.


# 21. Having regard to the foregoing discussion, we are of the view that the Adjudicating Authority did not err in approving the resolution plan of the SRA. We are also of the considered view that the Adjudicating Authority did not commit any error in rejecting the interlocutory application of the Appellant objecting to the approval by the CoC of the resolution plan of the SRA. In result, the impugned order does not warrant any interference. Appeal being devoid of merit is dismissed. No order as to costs.


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Thursday, 5 September 2024

Sankalp Recreation Private Limited Vs Rohit Ramesh Mehra & Ors. - 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.

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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Disclaimer:

The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.