2018 (11) TMI 250 - AT - Insolvency and Bankruptcy

NCLAT judgment on Section 29A eligibility overturns ineligibility based on 'related party' status

SREI Infrastructure Finance Limited Versus Mr. Sumit Binani, Price Water House Coopers Private Limited, State Bank of India, Kolkata, ICICI Bank, Kolkata, IFCI, Kolkata, Punjab National Bank, Allahabad Bank, Reliance Commercial Finance Limited, Bhagwati Power And Steel Ltd, And Orissa Metaliks Pvt. Ltd.

The NCLAT's judgment resolved the primary issue of the Appellant's eligibility under Section 29A, overturned the previous finding of ineligibility based ... Corporate Insolvency Resolution Process (CIRP) - Adjudicating Authority declined to pass an order of restraint upon the Respondents from continuing with the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor, negotiating with any other bidder and/or approving any Resolution Plan till the pendency of application - Appellant to be treated as related party - Held that:- The issue of Appellant being in control of DCHL by virtue of holding more than 20 per cent shares and thereby attracting ineligibility as a 'related party' was involved in DCHL matter. Determination of the question as to whether the Appellant held 24.6% shareholding in DCHL at the relevant time thereby attracting ineligibility in terms of provisions of Section 29A of I&B Code is relevant notwithstanding the fact that R-9 was not a party to the DCHL matter. The finding recorded in DCHL matter in regard to status of Appellant as a 'related party' qua DCHL stands dislodged in appeal. The edifice upon which rested the plea of R-9 in regard to alleged ineligibility of Appellant stands demolished. It is not in controversy that the judgment rendered by this Appellate Tribunal in appeal stands unassailed and has attained finality. In view of the same the finding in appeal that the Appellant was not a related party of DCHL would be binding though it may liberally not fall within the contours of 'Res Judicata'. The Appellant came to be held as ineligible on the strength of order passed by Adjudicating Authority (National Company Law Tribunal) Hyderabad Bench on 16.11.2017 paving way for approval of Resolution Plan submitted by R-9 who figured as H-2 Bidder. Since the allegation in regard to ineligibility of the Appellant was founded upon the order passed by Adjudicating Authority, Hyderabad Bench in DCHL matter which has since been reversed by this Appellate Tribunal, it would not be open to R-9 to insist on fresh consideration in regard to the issue of ineligibility of Appellant, which was based solely on order passed in DCHL matter. Corporate Insolvency Resolution Process being a time bound exercise, would not allow such indulgence. The legal impediment in the form of ineligibility alleged against the Appellant having been removed by process of law, the BPSL Resolution Plan pending approval before the Adjudicating Authority under Section 31(1) of the I&B Code no more survives for consideration. The Resolution Professional shall now be required to place the Resolution Plan submitted by the Appellant and approved by the CoC before the Adjudicating Authority for its approval in terms of provisions of Section 30(6) of the Code. The Adjudicating Authority shall accord consideration thereto in accordance with law except for the issue in regard to eligibility of Appellant as a Resolution Applicant which stands settled. The appeal is allowed in the aforesaid terms. Since the extended period of 270 days for conclusion of the Corporate Insolvency Resolution Process has expired on 18th May, 2018, the period for which this appeal has remained pending shall be excluded. The Resolution Professional is granted seven days' time from date of pronouncement of this judgment to submit the resolution plan of Appellant as approved by CoC, before the Adjudicating Authority for approval. Issues Involved:1. Eligibility of the Appellant under Section 29A of the Insolvency and Bankruptcy Code (I&B Code).2. Validity and impact of the previous judgment regarding the Appellant's status as a 'related party.'3. Approval process of the Resolution Plan submitted by the Appellant.Detailed Analysis:1. Eligibility of the Appellant under Section 29A of the Insolvency and Bankruptcy Code (I&B Code):The Appellant, 'SREI Infrastructure Finance Limited,' was initially declared the highest evaluated Resolution Applicant (H1) by the Committee of Creditors (CoC). However, Respondent No. 9, 'Bhagwati Power & Steel Ltd.' (BPSL), challenged the Appellant's eligibility under Section 29A of the I&B Code, alleging that the Appellant was a 'related party' of 'Deccan Chronicle Holdings Limited' (DCHL), which had been declared a Non-Performing Asset (NPA) for more than a year. The Resolution Professional, after obtaining a legal opinion, held the Appellant ineligible, and the CoC decided to negotiate with the H2 bidder, BPSL. The Appellant contested this decision, leading to a series of legal proceedings.2. Validity and Impact of the Previous Judgment Regarding the Appellant's Status as a 'Related Party':The crux of the dispute centered on whether the Appellant was a 'related party' of DCHL, thereby making it ineligible under Section 29A. The Appellant's ineligibility was initially based on an order by the National Company Law Tribunal (NCLT) Hyderabad Bench, which was later overturned by the National Company Law Appellate Tribunal (NCLAT) in the case of 'SREI Infrastructure Finance Ltd. v. Canara Bank & Ors.' The NCLAT judgment held that the Appellant could not be treated as a 'related party' in relation to DCHL, thus removing the legal impediment to its eligibility. The NCLAT emphasized that the finding of ineligibility was not based on the records of DCHL and that the Appellant's shareholding had not been legally approved as equity shares. This finding was deemed binding and not subject to further challenge, effectively resolving the issue of the Appellant's eligibility.3. Approval Process of the Resolution Plan Submitted by the Appellant:Given the NCLAT's judgment, the CoC's earlier decision to approve the BPSL Resolution Plan with 100% voting was rendered moot. The NCLAT directed the Resolution Professional to place the Appellant's Resolution Plan, which had been approved by the CoC before the dispute arose, before the Adjudicating Authority for approval. The Adjudicating Authority was instructed to consider the plan in accordance with the law, excluding the issue of the Appellant's eligibility, which had already been settled. The NCLAT also ordered that the period during which the appeal was pending should be excluded from the 270-day timeline for the Corporate Insolvency Resolution Process (CIRP).Conclusion:The NCLAT's judgment resolved the primary issue of the Appellant's eligibility under Section 29A, overturned the previous finding of ineligibility based on the 'related party' status, and directed the approval process for the Appellant's Resolution Plan to proceed. The judgment underscores the importance of adhering to legal findings and timelines in the CIRP to ensure a fair and efficient resolution process.