2022 (7) TMI 1480 - AT - Companies Law

NCLAT upholds resolution plan after dismissing fraud claims against Resolution Professional's capacity disclosures

Kushal Ltd and Ors Versus Kartik Baldwa and Ors.

The NCLAT dismissed an appeal challenging a resolution plan's validity based on alleged fraudulent misrepresentation. Appellants claimed the Resolution ... Validity of Resolution plan - Fraudulent misrepresentation or not - Whether the Resolution Professional made any misrepresentation or fraudulent misrepresentation, while issuing Information Memorandum, inviting expression of interest to submit resolution plan? If not, whether the order passed by the Adjudicating Authority refusing to recall the order passed in I.A. No. 224 of 2018 dated 27.02.2019 be sustained? - HELD THAT:- Based on the Information Memorandum, the amount due to the financial creditors is arrived at, therefore, the contention of the Appellants that they submitted resolution plan based on the details as to production capacity of the industry is without any substance. In the instant case, representation was made by the Resolution Professional in Information Memorandum inviting expression of interest. To constitute fraudulent misrepresentation, there must be material on record that CIRP has not exercised due diligence as a reasonable man and intentionally made such misrepresentation. But, no such material is place that misrepresentation was made intentionally, consequently failed to establish none of the ingredients to constitute misrepresentation or fraudulent misrepresentation - In the present facts of the case, there is absolutely no allegation that the Resolution Professional made any representation with fraudulent intention or with an intent to deceive the resolution applicants i.e. appellants herein. In the absence of such allegation and proof of it, by producing prima facie material, it is difficult for this Court to accept the contention of the Appellants, that the appellants have submitted the resolution plan based on such fraudulent misrepresentation made by Resolution Professional. Viewed from any angle, the Resolution Professional prima facie did make no misrepresentation or false representation, much less, fraudulent misrepresentation as alleged by the Appellants. In any view of the matter, based on fact situation, more particularly about the calculation of production capacity by specific formula extracted above and for the failure of these appellants to inspect the premises before making expression of interest for submitting resolution plan indicates that the appellants are not diligent in submitting the resolution plan. The word 'relevant information' is required under Section 29 to formulate its resolution plan. When once the Resolution Professional disclosed relevant material in Information Memorandum based on MITCON Report which is equivalent to the information collected by GITCO, which the Appellants relied on is sufficient to conclude that the Resolution Professional did make no misrepresentation or fraudulent misrepresentation, therefore, when the appellants failed to make necessary investigation in the matter and proceeded to submit its resolution plan, this the act of the Resolution Professional cannot be held to be the fraudulent misrepresentation. There are no ground to interfere with the order passed by the Adjudicating Authority - appeal dismissed. Issues Involved:1. Recall of order dated 27.02.2019 in I.A. No. 224 of 2018.2. Implementation of the resolution plan.3. Payment of dues to employees and action under Section 74 of the Insolvency and Bankruptcy Code (IBC).Issue-wise Analysis:1. Recall of Order Dated 27.02.2019 (I.A. No. 230 of 2020):The appellants sought to recall the order approving the resolution plan, alleging fraudulent misrepresentation by the Resolution Professional (RP) regarding the production capacity of the Corporate Debtor. The Adjudicating Authority dismissed the application, finding no misrepresentation or fraudulent misrepresentation. The appellants contended that the Tribunal erred in holding that it lacked the power to recall its own orders and that the doctrine of merger did not apply since the issue of misrepresentation was not raised in previous appeals. The Tribunal concluded that the RP had disclosed relevant information based on existing reports and did not commit fraudulent misrepresentation. The Tribunal also held that it had the power to recall its orders in cases of fraud but found no evidence of fraudulent misrepresentation by the RP. The appeal was dismissed, upholding the Adjudicating Authority's decision.2. Implementation of the Resolution Plan (I.A. No. 229 of 2020):The application sought directions for the implementation of the resolution plan, including the deposit of the balance amount, allotment of debentures, and giving of guarantees. The Tribunal allowed the application, directing the appellants to implement the resolution plan. The appellants challenged this order, arguing that the resolution plan was based on misrepresentation. The Tribunal found no misrepresentation by the RP and held that the appellants were obligated to implement the resolution plan. The appeal was dismissed, confirming the Tribunal's order.3. Payment of Dues to Employees and Action Under Section 74 of IBC (I.A. No. 231 of 2020):The employees of the Corporate Debtor filed an application seeking payment of dues and action against the respondent for willful contravention of the resolution plan. The Tribunal directed the respondent to implement the resolution plan and pay the dues. The appellants challenged this order on the grounds of misrepresentation. The Tribunal upheld the finding that there was no fraudulent misrepresentation by the RP and directed the appellants to implement the resolution plan. The appeal was dismissed, affirming the Tribunal's order.Conclusion:The appeals were dismissed, confirming the orders passed by the National Company Law Tribunal, Ahmedabad, in I.A. Nos. 229, 230, and 231 of 2020, and directing the appellants to implement the resolution plan and pay the dues to the employees. The Tribunal found no evidence of fraudulent misrepresentation by the RP and upheld the Adjudicating Authority's decisions. The Tribunal also clarified that it had the power to recall its orders in cases of fraud but found no grounds to do so in this case.