2018 (7) TMI 633 - Tri - Insolvency and Bankruptcy

Tribunal Directs Revision of Criteria for Prospective Resolution Applicants

The Tribunal found the eligibility criteria for prospective resolution applicants to be arbitrary and unreasonable, particularly the minimum tangible net ... Corporate insolvency process - eligibility criteria for resolution application - Held that:- Referring to the note of the 1(a) of the category A of eligibility criteria for resolution applicant (vide Annexure-A), it has been submitted for and on behalf of the RP/CoC that said eligibility criteria allows two or more companies to form a SPV and to participate in the bidding. Therefore, it is not correct say that any company whose minimum NTW is less than 400 crores is not allowed to participate in the CIRP. On considering such submission in the light of material on record, it is found that such an argument too is found unequal to the task, assigned. It is for the reason that I have already found that fixation of minimum NTW for corporate for participating in the CIRP at ₹ 400 crores is found to be quite arbitrary and unreasonable. My discussion hereinbefore makes such position very clear and same needs no further restatement Since the very fixation of minimum NTW for corporate for participating in the CIRP at ₹ 400 crores is held to be arbitrary and consequently illegal, it is irrelevant to argue that two or more companies may come together to form a SPV to attain such qualification in order to participate in the CIRP under consideration. Being so, I have no hesitation at all to reject such a contention, advanced from the side of the RP/CoC. As found that both applicant and RP/CoC got locked over some other controversies as well in the proceeding under consideration. But then, since some alleged offending conducts of the RP and CoC are to be found unreasonable and arbitrary, I have found those remaining controversies to be redundant and they, therefore, merit no further discussion. As already held that the keeping the companies- who are best players in the tea industry beyond the purview of CIRP under consideration--- was not in the best interest of the CD undergoing CIRP - since--- I have also found that the ratio between the debts and minimum NTW fixed for corporates for participation in the CIRP, is illogical and unrealistic and since I have also held that such acts on the part of RP/CoC make the eligibility criteria in 1(a) of the category A totally arbitrary and unreasonable, therefore, in my considered opinion, the application under consideration deserves acceptance . This Authority deems it proper and appropriate to interfere, of course in a very limited way, the ongoing CIRP in order to remove some illegalities that had occurred in prescribing the criteria for the submission of Eol from the prospective resolution applicants. In the light of various observations made herein before, the eligibility criterion, viz, a) The eligibility criteria regarding requirement of minimum Tangible Net Worth of ₹ 400 crores for Category-A prospective resolution applicants, i.e. private/ public limited companies, LLPs, body corporates -and--- b) Publish /advertise such revised the eligibility criteria afresh pursuant to such relaxation/modification in accordance of the prescription of law as well as the Rules, framed there-under; c) All these must be complete as early as possible having regard to various time limits, prescribed under Code and rules framed there under. Upon the above directions, the present application stands disposed of. Issues Involved:1. Eligibility criteria for prospective resolution applicants.2. Jurisdiction of the Tribunal.3. Allegations of arbitrariness and unreasonableness in setting eligibility criteria.4. Requirement of expertise in the tea industry for prospective resolution applicants.5. Impact of high eligibility criteria on participation in the Corporate Insolvency Resolution Process (CIRP).6. Timelines for completion of CIRP.Issue-wise Analysis:1. Eligibility Criteria for Prospective Resolution Applicants:The applicant sought the relaxation of the eligibility criteria, specifically the requirement of a minimum tangible net worth (TNW) of Rs. 400 crores for Category-A prospective resolution applicants. The applicant proposed either reducing the TNW requirement or allowing proof of availability of cash and cash equivalents of at least Rs. 50 crores. The Tribunal found that the criteria were set arbitrarily high compared to other CIRPs, making it difficult for major tea companies to participate. The Tribunal directed the Resolution Professional (RP) and Committee of Creditors (CoC) to reconsider and revise the eligibility criteria.2. Jurisdiction of the Tribunal:The RP/CoC argued that the Tribunal lacked jurisdiction to entertain the application. However, the Tribunal referred to Section 60(5)(c) of the Insolvency and Bankruptcy Code (IBC), which grants the National Company Law Tribunal (NCLT) jurisdiction to entertain matters arising out of or in relation to insolvency resolution or liquidation proceedings. The Tribunal concluded that it had limited jurisdiction to entertain the application.3. Allegations of Arbitrariness and Unreasonableness:The applicant contended that the eligibility criteria were arbitrary and unreasonable, particularly the minimum TNW requirement. The Tribunal found that the ratio between the debts incurred by the Corporate Debtor (CD) and the minimum TNW was disproportionately low compared to other CIRPs. The Tribunal concluded that the criteria were arbitrary and unreasonable, thereby justifying its interference.4. Requirement of Expertise in the Tea Industry:The applicant argued that the eligibility criteria should include expertise in the tea industry, given that the CD was primarily a tea company. The Tribunal agreed, noting that the CD's main business was in the tea industry and that expertise in this sector was crucial for its revival. The Tribunal criticized the RP/CoC for not including this criterion, which would have ensured the qualitative competence of prospective resolution applicants.5. Impact of High Eligibility Criteria on Participation in CIRP:The Tribunal observed that the high eligibility criteria excluded major players in the tea industry from participating in the CIRP. This exclusion was not in the best interest of the CD, which required the best resolution plans for its revival. The Tribunal emphasized that the criteria should be realistic and reasonable to attract competent applicants.6. Timelines for Completion of CIRP:The RP/CoC argued that relaxing the eligibility criteria would delay the CIRP, which has statutory timelines. The Tribunal acknowledged the importance of adhering to timelines but emphasized that ensuring the participation of competent applicants was crucial for the successful revival of the CD. The Tribunal directed the RP/CoC to revise the criteria promptly, considering the statutory timelines.Conclusion:The Tribunal found the eligibility criteria for prospective resolution applicants to be arbitrary and unreasonable, particularly the minimum TNW requirement. It directed the RP/CoC to reconsider and revise the criteria, including expertise in the tea industry, and to publish the revised criteria afresh. The Tribunal concluded that it had jurisdiction to entertain the application and emphasized the importance of realistic and reasonable criteria to attract competent applicants for the successful revival of the CD. The application was disposed of with directions to the RP/CoC to act promptly in revising the criteria.