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

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

JM Financial Asset Reconstruction Company Ltd., Resolution Professional of Sevenhills Healthcare Pvt. Ltd., B.R. Shetty & Anr. Versus M/s. Well-Do Holdings and Exports Pvt. Ltd., Sevenhills Healthcare Pvt. Ltd. & Ors.

JM Financial Asset Reconstruction Company Ltd., Resolution Professional of Sevenhills Healthcare Pvt. Ltd., B.R. Shetty & Anr. Versus M/s. Well-Do ... 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.