Tribunal rejects resolution plan, orders liquidation. New liquidator appointed. Emphasis on transparency, compliance, stakeholder equity.

Mr Dhinal Shah And Edelweiss Asset Reconstruction Company Versus Bharati Defence and Infrastructure Ltd.

Mr Dhinal Shah And Edelweiss Asset Reconstruction Company Versus Bharati Defence and Infrastructure Ltd. - TMI Issues Involved:
1. Approval of the Resolution Plan
2. Objections to the Resolution Plan
3. Compliance with Section 30(2) of the Insolvency and Bankruptcy Code (IBC)
4. Conflict of Interest
5. Valuation Discrepancies
6. Treatment of Operational Creditors
7. Treatment of Financial Creditors
8. Treatment of Employees and Workmen
9. Statutory Dues
10. Sale of Company as a Going Concern
11. Liquidation Order and Appointment of Liquidator

Detailed Analysis:

Approval of the Resolution Plan:
The Resolution Professional (RP) filed MA No. 170 seeking approval of the Resolution Plan submitted by Edelweiss Asset Reconstruction Co. Ltd (EARC), which was approved by the Committee of Creditors (CoC) with a vote share of 94.3%. The plan was submitted in response to the Corporate Insolvency Resolution Process (CIRP) initiated against the Corporate Debtor.

Objections to the Resolution Plan:
Several stakeholders, including subsidiary companies, operational creditors, and unsuccessful resolution applicants, filed applications opposing the resolution plan approved by the CoC. They raised issues regarding the transparency of the process, the rejection of other resolution plans, and the conduct of the RP. Specific objections included non-disclosure of details, defects in the process, and lack of information provided for preparing resolution plans.

Compliance with Section 30(2) of the Insolvency and Bankruptcy Code (IBC):
The RP confirmed that the resolution plan complied with Section 30(2) of the IBC, which requires the plan to meet specific criteria. However, the tribunal noted discrepancies, especially regarding the treatment of operational creditors and the proposed payments, which did not align with the requirements of Section 30(2)(b).

Conflict of Interest:
The tribunal highlighted a significant conflict of interest involving the RP, who was a partner at E&Y, which also provided support services during the CIRP. Additionally, E&Y was engaged by EARC, the resolution applicant, creating a situation where the RP's impartiality was questioned. This conflict was further compounded by the delegation of RP's duties to another partner from E&Y.

Valuation Discrepancies:
The tribunal observed discrepancies in the valuation reports submitted by different valuers, leading to a significant difference in the estimated liquidation values. The average liquidation value considered by the CoC was Rs. 536 crores, while a more accurate average should have been Rs. 761.50 crores. These discrepancies raised concerns about the accuracy and reliability of the valuation process.

Treatment of Operational Creditors:
The resolution plan proposed a payment of Rs. 9 crores to operational creditors against admitted dues of Rs. 187 crores, which amounted to only 4.81% of their dues. The tribunal noted that this treatment was not in compliance with the IBC's requirement to provide operational creditors with an amount not less than what they would receive in liquidation.

Treatment of Financial Creditors:
Financial creditors with admitted dues of Rs. 11,373 crores were to receive Rs. 1,124 crores in a phased manner, with a significant portion being converted into equity or deferred payments. The tribunal found the proposed haircut of 96.5% and the ambiguous payment schedule to be against the interests of financial creditors.

Treatment of Employees and Workmen:
The resolution plan proposed 'right-sizing' the workforce without complying with labor laws, which was vehemently opposed by employees, workmen, and suspended directors. The tribunal found this approach to be inappropriate and prejudicial to the existing employees and workmen.

Statutory Dues:
The plan proposed issuing equity shares to the Government of India for settling statutory dues amounting to Rs. 270 crores, which was not permissible under the law. The tribunal noted that this proposal was an attempt to evade liability and was not acceptable to the concerned departments.

Sale of Company as a Going Concern:
Given the national importance of the company's operations, the tribunal directed the liquidator to attempt to sell the company as a going concern. The tribunal emphasized the need to preserve the company's value, employment, and ongoing contracts with government departments.

Liquidation Order and Appointment of Liquidator:
The tribunal rejected the resolution plan under Section 31(2) of the IBC and ordered the liquidation of the Corporate Debtor under Regulation 32(b) & (e) of the IBBI (Liquidation Process) Regulations, 2016. A new liquidator, Mr. Vijay Kumar V Iyer, was appointed to oversee the liquidation process and attempt to sell the company as a going concern within six months.

Conclusion:
The tribunal's judgment highlights the importance of transparency, compliance with legal requirements, and the need to balance the interests of all stakeholders in the resolution process. The rejection of the resolution plan and the order for liquidation underscore the tribunal's commitment to ensuring a fair and just insolvency resolution process.