2019 (2) TMI 1042 - AT - Insolvency and Bankruptcy

Tata Steel appeal dismissed, case remitted for new order under Section 31. Stakeholders treated equally.

The appeal by Tata Steel was dismissed as premature and not maintainable. The case was remitted to the Adjudicating Authority for passing an appropriate ... Resolution Plan consideration - period of pendency of this appeal - delay emanating from process document or any other document internally circulated by the RP or the COC - main plea taken by the Appellant is that the Adjudicating Authority cannot provide the numerous opportunities at the belated stage - HELD THAT:- From the ‘Process Document, it is clear that the ‘Committee of Creditors’ have absolute discretion but without being under any obligation to do so, update, amend or supplement the information, assessment or assumptions and right to change, update, amend, supplement, modify, add to, delay or otherwise annul or cease the ‘Resolution Process’ at any point in time. Thus, the ‘Resolution Plan’ can be modified as per dates or other terms and conditions set out in the ‘Process Document’. As per Clause 1.3.6, the ‘Committee of Creditors’ have right to negotiate better terms with the ‘Compliant Resolution Applicant(s)’. In terms of Clause 1.14.13, the ‘Resolution Professional’ in consultation with the ‘Committee of Creditors’ can extend the timelines at its sole discretion if expedient for obtaining the best ‘Resolution Plan’ for the Company. Therefore, granting more opportunity to all the eligible ‘Resolution Applicants’ to revise its ‘financial offers’, even by giving more opportunity, is permissible in the Law. However, all such process should complete within the time frame. Similar provisions were noticed by this Appellate Tribunal in “Binani Industries Limited” [2018 (11) TMI 803 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] and held that the ‘Committee of Creditors’ in its sole discretion can ask the ‘Resolution Professional’ to negotiate better terms with the ‘Compliant Resolution Applicant(s)’. However, such negotiation to be made and completed within the timeframe i.e. within 180 days’ subject to extension if granted by the Adjudicating Authority which should not be extended beyond 270 days. In this background, while we hold that this appeal preferred by ‘Tata Steel Limited’ is premature, uncalled for, in absence of any final decision taken by the Adjudicating Authority under Section 31, this appeal is also not maintainable. Though we have held that the appeal at the instance of the ‘Tata Steel Limited’ is premature and not maintainable but we are of the view that the observations made by the Adjudicating Authority against the ‘Resolution Professional’ was uncalled for. We have opened the sealed cover submitted by the ‘Committee of Creditors’ enclosing the copy of the ‘Resolution Plan’ approved by it. We find that the ‘Resolution Plan’ submitted by ‘JSW Steel’ has been approved by the ‘Committee of Creditors’ with 97.12% voting shares and voters having 2.88% voting shares remained absent. If some members of the ‘Committee of Creditors’ having 2.88% voting shares remained absent, it cannot be held that they have considered the feasibility and viability and other requirements as specified by the Board, therefore, their shares should not have been counted for the purpose of counting the voting shares of the ‘Committee of Creditors’. In fact, 97.12% voting shares of members being present in the meeting of the ‘Committee of Creditors’ and all of them have casted vote in favour of ‘JSW Steel’, we hold that the ‘Resolution Plan’ submitted by ‘JSW Steel’ has been approved with 100% voting shares. For the reasons aforesaid, while we are not inclined to interfere with the substantive part of the impugned order dated 23rd April, 2018, set aside part of the order whereby adverse observation has been made against Mr. Mahender Kumar Khandelwal (‘Resolution Professional’). The case is remitted to the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, for passing appropriate order under Section 31. The ‘Resolution Professional’ will immediately place the ‘approved Resolution Plan’ before the Adjudicating Authority for its order. In case, the Adjudicating Authority is of the opinion that the discrimination has been made between the ‘Financial Creditors’ and the ‘Operational Creditors’, it may give opportunity to the ‘JSW Steel’ to improve its plan and thereby, by substituting the approved ‘Resolution Plan’ with such improvement. Let the period of pendency of this appeal i.e. from 7th May, 2018 till date be excluded for the purpose of counting of the period of 270 days. Issues Involved:1. Adjudicating Authority's directive to consider Liberty House's Resolution Plan.2. Alleged delay and multiple opportunities given to Liberty House.3. Submission and consideration of improved financial offers by JSW Steel.4. Tata Steel's objection to the improved financial offers.5. Committee of Creditors' (CoC) discretion in considering revised offers.6. Allegations of bias and malafide conduct against CoC.7. Prematurity and maintainability of Tata Steel's appeal.8. Approval process and voting shares within CoC.9. Treatment of Operational Creditors in the Resolution Plan.Detailed Analysis:1. Adjudicating Authority's Directive to Consider Liberty House's Resolution Plan:The Adjudicating Authority directed the CoC to consider the Resolution Plan submitted by Liberty House, emphasizing that considering another competitor's plan would advance the objective of maximizing the assets of the Corporate Debtor. The directions included placing the unopened sealed cover containing Liberty House's plan before the CoC and ensuring that the plan is not rejected on grounds of delay.2. Alleged Delay and Multiple Opportunities Given to Liberty House:The appellant, Tata Steel, argued that Liberty House failed to participate and provide necessary documents within the timelines set by the Resolution Professional. Despite this, Liberty House was given multiple opportunities to submit its documents and express interest. However, during the appeal, Tata Steel did not strongly challenge the opportunities given to Liberty House.3. Submission and Consideration of Improved Financial Offers by JSW Steel:JSW Steel submitted an improved financial offer after the Adjudicating Authority's order, which included better offers for various creditors and substantial upfront equity for improving the Corporate Debtor's operations. The CoC allowed all three Resolution Applicants, including Tata Steel, Liberty House, and JSW Steel, to submit improved financial offers by a specified date.4. Tata Steel's Objection to the Improved Financial Offers:Tata Steel objected to the consideration of improved financial offers and filed an application to restrain the CoC from considering these offers. However, Tata Steel failed to implead JSW Steel as a party respondent, despite knowing that JSW Steel would be affected by the application.5. Committee of Creditors' (CoC) Discretion in Considering Revised Offers:The CoC has the discretion to consider improved financial offers to ensure value maximization within the timeframe prescribed by the Insolvency and Bankruptcy Code (I&B Code). The CoC can negotiate better terms with compliant Resolution Applicants and extend timelines if necessary for obtaining the best Resolution Plan.6. Allegations of Bias and Malafide Conduct Against CoC:Tata Steel alleged malafide conduct by the CoC, claiming that the CoC favored JSW Steel. The CoC refuted these allegations, stating that the orders of the Appellate Tribunal did not restrict the CoC from seeking clarifications from the Resolution Applicants and that the CoC acted in accordance with the law.7. Prematurity and Maintainability of Tata Steel's Appeal:The Appellate Tribunal held that Tata Steel's appeal was premature and uncalled for, as no final decision had been taken by the Adjudicating Authority under Section 31. The Tribunal emphasized that a Resolution Applicant has no vested or fundamental right to have its Resolution Plan considered or approved.8. Approval Process and Voting Shares Within CoC:The CoC is required to approve a Resolution Plan by a vote of not less than sixty-six percent of the voting share of the financial creditors. Only members of the CoC who attend the meeting directly or through video conferencing can exercise their voting powers. In this case, the Resolution Plan submitted by JSW Steel was approved with 97.12% voting shares.9. Treatment of Operational Creditors in the Resolution Plan:The Adjudicating Authority must ensure that all stakeholders, particularly Operational Creditors, are treated similarly and that no discrimination is made between Financial Creditors and Operational Creditors. If discrimination is found, the Adjudicating Authority may give JSW Steel an opportunity to improve its plan.Conclusion:The appeal by Tata Steel was dismissed as premature and not maintainable. The case was remitted to the Adjudicating Authority for passing an appropriate order under Section 31, ensuring that all stakeholders are treated similarly. The period of pendency of the appeal was excluded from the counting of the 270-day period for the Corporate Insolvency Resolution Process.