2019 (9) TMI 1344 - AT - Insolvency and Bankruptcy

Supreme Court Grants Liberty to Director for Settlement Application

The Supreme Court granted liberty to the Director of a Corporate Debtor to move an application before the Adjudicating Authority regarding the rejection ... Admission of corporate insolvency resolution process - application under Section 7 of the Insolvency and Bankruptcy Code - settlement of claims under Section 12A of the Insolvency and Bankruptcy Code - role of the Committee of Creditors in evaluating a Section 12A proposal against an approved resolution plan - finality of an approved resolution planAdmission of corporate insolvency resolution process - application under Section 7 of the Insolvency and Bankruptcy Code - The challenge to the admission order dated 1st November, 2018 was not sustained and no illegality was found in the Adjudicating Authority's approach to the admission. - HELD THAT: - The Appellant's challenge to the order admitting the Section 7 application by the Financial Creditor was brought before this Tribunal after dismissal of earlier challenges and an intervening direction from the Supreme Court permitting an application to the Adjudicating Authority. The Adjudicating Authority had observed that the admission order could not be set aside except in the context of a Section 12A settlement approved in accordance with the Code. The Tribunal declined to adjudicate on disputed entitlement of a third-party creditor where that question was not raised before the Adjudicating Authority and found no illegality in the impugned order. [Paras 5]The admission order stands; no interference with the Adjudicating Authority's admission was warranted on the material before the Tribunal.Settlement of claims under Section 12A of the Insolvency and Bankruptcy Code - role of the Committee of Creditors in evaluating a Section 12A proposal against an approved resolution plan - finality of an approved resolution plan - Liberty was granted to the Appellant to file an application under Section 12A for settlement, and the Committee of Creditors was left to decide whether any Section 12A proposal is preferable to the existing approved resolution plan. - HELD THAT: - The Tribunal declined to issue specific directions altering the admitted insolvency process but permitted the Appellant to invoke the statutory route under Section 12A to seek settlement with all creditors, including guarantors and third-party claimants. If a Section 12A application is filed, it is for the Committee of Creditors to compare the settlement proposal with the resolution plan already approved by it and to take an appropriate decision; the Tribunal expressly refrained from expressing any opinion on the merits of such comparison or on the validity of claims already considered in the approved resolution plan. [Paras 8, 9]Liberty to move Section 12A; the Committee of Creditors to determine whether the Section 12A proposal is preferable to the approved resolution plan, with no opinion expressed by the Tribunal on that comparison.Final Conclusion: The appeal is disposed of: the Tribunal found no illegality in the admission order and granted the Appellant liberty to file an application under Section 12A; the Committee of Creditors is to decide on any settlement proposal in comparison with the approved resolution plan; no further directions were issued. Issues:1. Appeal against rejection of Miscellaneous application.2. Settlement with Financial Creditors.3. Setting aside the order of admission.4. Claim of 'M/s. Edelweiss Asset Reconstruction Company Ltd.'5. Approval of Resolution Plan by Committee of Creditors.6. Liberty to move application u/s 12A for settlement.Issue 1: Appeal against rejection of Miscellaneous applicationThe appeal was filed by the Director of a Corporate Debtor against the rejection of a Miscellaneous application by the Adjudicating Authority. The application under section 7 of the Insolvency & Bankruptcy Code, 2016 (I&B Code) by 'Union Bank of India' was admitted against the Corporate Debtor on a previous date. The Appellant had challenged this order before the Appellate Tribunal and subsequently before the Supreme Court. The Supreme Court granted liberty to move an application before the Adjudicating Authority.Issue 2: Settlement with Financial CreditorsThe Appellant informed the court that he had settled the matter with 'Union Bank of India' and other Financial Creditors. A miscellaneous application was filed by the Appellant seeking to set aside the previous order of admission. However, the Adjudicating Authority observed that the admission order could not be set aside unless an application under section 12A was filed, settling the matter with all Creditors with the approval of 90% of the voting share of the Committee of Creditors.Issue 3: Setting aside the order of admissionThe Adjudicating Authority, in the impugned order, stated that the order of admission could only be set aside by filing an application under section 12A, with the approval of 90% of the Committee of Creditors. The Appellant expressed readiness to settle the claim with all Creditors, including 'M/s. Edelweiss Asset Reconstruction Company Ltd.'Issue 4: Claim of 'M/s. Edelweiss Asset Reconstruction Company Ltd.'The counsel for the Appellant argued that 'M/s. Edelweiss Asset Reconstruction Company Ltd.' was not entitled to any claim. However, the court declined to decide on this issue at that stage as it was not raised before the Adjudicating Authority, finding no illegality in the order.Issue 5: Approval of Resolution Plan by Committee of CreditorsThe Resolution Plan had already been approved by the Committee of Creditors, taking into account the claim of 'M/s. Edelweiss Asset Reconstruction Company Ltd.' The Appellant was given liberty to move an application under section 12A for settling the claims of all Creditors, including the guarantors.Issue 6: Liberty to move application u/s 12A for settlementThe court granted liberty to the Appellant to move an application under section 12A for settling the claims of all Creditors, including the guarantors. The Committee of Creditors was to decide whether the proposal for settlement by the Appellant was better than the approved Resolution Plan. The court refrained from expressing any opinion on this matter, leaving the decision to the Committee of Creditors.The appeal was disposed of with no costs awarded.