2019 (4) TMI 1937 - AT - Insolvency and Bankruptcy

Tribunal rules on jurisdiction, EMD, and eligibility in resolution process

The Tribunal held that the Adjudicating Authority lacked jurisdiction to entertain Interlocutory Applications after the Committee of Creditors (CoC) ... Approval of Resolution Plan - validity of finding of the Adjudicating Authority that the ‘earnest money deposit’ is unreasonable - HELD THAT:- It is not in dispute that the ‘Resolution Professional’ fixed the ‘earnest money deposit’ as per decision of the ‘Committee of Creditors’ and issued ‘Information-Memorandum’ and invited ‘expression of interest’ on 14th May, 2018. Total 18 ‘expression of interest’ were received from the ‘resolution applicants’ but 17 ‘resolution applicants’ did not choose to deposit ₹ 100 Crores. It is also not in dispute that ‘M/s. BRS Ventures Investment Limited’ (BRSVIL) not only deposited a sum of ₹ 100 Crores towards ‘earnest money deposit’ but also filed a ‘resolution plan’ - It is also not disputed that other 17 ‘resolution applicants’ have not deposited ₹ 100 Crores and they have also not submitted the ‘resolution plan’ within the time. The total debt outstanding as adzmitted by the ‘resolution professional’ on 5th September, 2018 was ₹ 1356.89 Crores and the requirement of the ‘expression of interest’ is ₹ 100 Crores , which is less than the outstanding dues. It is true that the clause relating to forfeiture of ₹ 100 Crores was arbitrary but persons having not challenged the ‘expression of interest’ published on 14th May, 2018, till the ‘resolution plan’ was approved by the ‘Committee of Creditors’, we are of the view that after approval of ‘resolution plan’, it was not open to any person to challenge the same - The shareholders and promoters being ineligible to file the ‘resolution plan’ under Section 29A, they have no right to raise their grievance with regard to the ‘expression of interest’ published on 14th May, 2018 fixing ‘earnest money deposit’ of ₹ 100 Crores - In this background, it was not open for the Adjudicating Authority to entertain Interlocutory Application Nos. 409/2018 and Interlocutory Application Nos. 450/2018, which were filed by the ‘shareholders’ and ‘promoters’, who were ineligible to submit the ‘resolution plan’ and that too after approval of the ‘resolution plan’ by the ‘Committee of Creditors’. In the present case, it is found that two Interlocutory Applications preferred by the shareholders and promoters were not maintainable, as they were not eligible as ‘resolution applicants’. The other ‘resolution applicant’ namely ‘M/s. Well-Do Holdings and Exports Private Limited’ having not submitted the ‘resolution plan’ within the time nor the ‘earnest money’. Further, ‘M/s. Well-Do Holdings and Exports Private Limited’ having not moved before the Adjudicating Authority before the last date of submission of the ‘resolution plan’ and the Interlocutory Applications was filed without challenging the approved ‘resolution plan’, the Interlocutory Application should have been rejected. Matter remitted to the Adjudicating Authority with directions to pass appropriate order under Section 31, taking into consideration the ‘resolution plan’ of ‘M/s. BRS Ventures Investment Limited (BRSVIL)’ as approved by the ‘Committee of Creditors’ - appeal allowed by way of remand. Issues Involved:1. Jurisdiction of the Adjudicating Authority to entertain Interlocutory Applications at the final stage.2. Validity of the Earnest Money Deposit (EMD) requirement.3. Eligibility of shareholders and promoters to challenge the resolution process.4. Timeliness and maintainability of applications challenging the resolution process.Issue-wise Detailed Analysis:1. Jurisdiction of the Adjudicating Authority to entertain Interlocutory Applications at the final stage:The appellants contended that the Adjudicating Authority lacked jurisdiction to entertain Interlocutory Applications after the Committee of Creditors (CoC) had approved the resolution plan or while it was pending under Section 31 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Tribunal agreed, noting that once the resolution plan is approved by the CoC and placed before the Adjudicating Authority, no application is maintainable at that stage. This aligns with the Supreme Court's ruling in 'Arcelor Mittal vs. Satish Kumar Gupta,' which held that the Adjudicating Authority should determine the plan's compliance with the law, and only then can an appeal be made.2. Validity of the Earnest Money Deposit (EMD) requirement:The Adjudicating Authority had found the EMD of Rs. 100 Crores to be 'harsh and burdensome' and directed a re-evaluation. However, the Tribunal noted that the EMD was fixed by the Resolution Professional as per the CoC's decision, and 17 out of 18 applicants did not deposit the amount, indicating their non-compliance. The Tribunal found that the EMD was less than the outstanding dues of Rs. 1356.89 Crores and was not excessive. The clause relating to forfeiture of Rs. 100 Crores was deemed arbitrary, but since no challenge was made before the resolution plan's approval, it was not open for reconsideration post-approval.3. Eligibility of shareholders and promoters to challenge the resolution process:The Tribunal held that shareholders and promoters, being ineligible to file a resolution plan under Section 29A of the I&B Code, had no right to challenge the 'expression of interest' or the EMD requirement. Thus, Interlocutory Applications filed by shareholders and promoters were not maintainable after the CoC's approval of the resolution plan.4. Timeliness and maintainability of applications challenging the resolution process:The Tribunal noted that Interlocutory Applications by 'M/s. Well-Do Holdings and Exports Private Limited' were an afterthought, filed after the resolution plan's approval. The said applicant did not challenge the EMD clause or submit a resolution plan within the stipulated time. Therefore, the application should have been rejected as it was filed without challenging the approved resolution plan.Conclusion:The Tribunal set aside the impugned order dated 23rd January 2019 and remitted the matter to the Adjudicating Authority to pass an appropriate order under Section 31, considering the resolution plan of 'M/s. BRS Ventures Investment Limited' as approved by the CoC. The Adjudicating Authority was directed to determine the plan's compliance with Section 30(2) of the I&B Code within three weeks. The appeals were allowed with these observations and directions.