NCLAT sets aside resolution plan after 94.98% financial creditors seek reconsideration citing 95% haircut and compliance failures

The NCLAT set aside the approved resolution plan after assessing financial creditors constituting 94.98% filed an affidavit seeking reconsideration due to unprecedented 95% haircut and public interest concerns. The tribunal held that the Committee of Creditors (CoC) has power to reconsider decisions and is not functus officio upon approval. The resolution plan failed to comply with Section 30(2)(b) and Section 31 of the Code, particularly lacking prior Competition Commission approval as mandated by proviso to Section 31(4). The tribunal emphasized statutory compliances fall outside CoC's commercial wisdom domain. The matter was remitted back to CoC for completion of Corporate Insolvency Resolution Process in accordance with Code provisions. Appeal dismissed.

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Issues Involved:
1. Non-inclusion of foreign oil and gas assets in the Information Memorandum.
2. Allegations of material irregularity and negligence by the Resolution Professional (RP).
3. Discrepancies in the distribution mechanism and liquidation value.
4. Compliance with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC).
5. Validity of the termination of the Trademark License Agreement (TLA).
6. Compliance with statutory requirements, including approval from the Competition Commission of India (CCI).

Detailed Analysis:

1. Non-inclusion of Foreign Oil and Gas Assets:
The Appellant argued that the foreign oil and gas assets were not included in the Information Memorandum, which led to a lower valuation and significant haircut for creditors. The RP justified this by citing Explanation (b) to Section 18 of the IBC, which excludes the assets of any Indian or foreign subsidiary of the Corporate Debtor (CD) from the scope of the term 'assets.' The CoC and RP maintained that the foreign oil and gas assets were not part of the consolidated CIRP due to a stay order from the Appellate Tribunal.

2. Allegations of Material Irregularity and Negligence by RP:
The Appellant accused the RP of focusing only on drawing remuneration without discharging duties, leading to erosion of the CD's value. The RP defended its actions, stating that it acted within the ambit of its duties under the IBC and CIRP Regulations. The RP also highlighted that the Adjudicating Authority had stayed the consolidation order, preventing the inclusion of foreign assets.

3. Discrepancies in Distribution Mechanism and Liquidation Value:
The Dissenting Financial Creditors (DFCs) raised concerns about discrepancies between the liquidation value mentioned in Form-H and the distribution mechanism provided by SBI Caps. The RP and SRA argued that the figures provided by SBI Caps were not binding and that the final amounts would be determined at the time of payout. The Adjudicating Authority's direction to pay DFCs in cash instead of Non-Convertible Debentures (NCDs) was seen as a modification of the Resolution Plan, which falls within the CoC's domain.

4. Compliance with Section 30(2)(b) of IBC:
The Resolution Plan did not comply with Section 30(2)(b) of the IBC, as it proposed payment to DFCs through NCDs, which is impermissible. The Adjudicating Authority's suggestion to pay DFCs in cash was not within its jurisdiction. The CoC, comprising mainly public sector banks, acknowledged the need to reconsider the Resolution Plan in light of significant haircuts and observations made by the Adjudicating Authority.

5. Validity of Termination of Trademark License Agreement (TLA):
The Appellant terminated the TLA upon initiation of CIRP, arguing that the Dhoot family no longer controlled the CD. The Adjudicating Authority allowed the agreement to continue for a year as a transitional arrangement, which was challenged. The Supreme Court's decision in Tata Consultancy Services Limited Vs. Vishal Ghisulal Jain clarified that the NCLT does not have residuary jurisdiction to entertain contractual disputes, making the Adjudicating Authority's decision to extend the TLA invalid.

6. Compliance with Statutory Requirements, Including CCI Approval:
The Resolution Plan required approval from the CCI as per Section 31(4) of the IBC, which was not obtained before the CoC's approval. This non-compliance necessitated a review and reconsideration of the Resolution Plan.

Conclusion:
The Resolution Plan did not meet the requirements of Section 30(2)(b) and Section 31 of the IBC. The approval by the CoC and Adjudicating Authority was set aside, and the matter was remitted back to the CoC for reconsideration and compliance with the provisions of the IBC. The appeal by Venugopal Dhoot (CA(AT) (Ins) No. 650 of 2021) was dismissed, while the appeals by Dissenting Financial Creditors and Electrolux Home Products INC. (CA(AT) (Ins) No. 503, 505, 529, & 545 of 2021) were allowed.

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