2019 (12) TMI 629 - AT - Insolvency and Bankruptcy

Judgment sets aside approved Resolution Plan, remits for reconsideration.

The judgment set aside the approval of the Resolution Plan while upholding the rejection of the Plan submitted by M/s. Dhanuka Laboratories Ltd. The ... Approval of Resolution plan - Section 30(4) of the Insolvency and Bankruptcy Code, 2016 - whether the approved ‘Resolution Plan’ submitted by M/s. Dhanuka Laboratories Ltd. is viable and feasible or not? - HELD THAT:- The objective of the I&B Code, 2016 is ‘Resolution’ and not ‘Liquidation’. Further, the aim of the Code is to consolidate and amend the law relating to reorganization and insolvency resolution of corporate persons, partnership firms and individual persons in a time bound manner for maximization of the value of assets of such persons (Corporate persons herein), to promote entrepreneurship availability of credit and balance interest of such persons (Creditors)/ stakeholders. The maximization of value of assets of the ‘Corporate Debtor’ as also the maximization of the assets of the ‘Financial Creditors’ and the ‘Operational Creditors’, are the basic essence of the I&B Code - Even if the earlier unamended Section 30(2)(b) is considered, the basic feature of the I&B Code was that an ‘Operational Creditor’ cannot be paid anything less than the ‘Liquidation Value’ and the basic principle is the maximization of the assets of the ‘Corporate Debtor’, balancing all the stakeholders by maximization of their assets, no ‘Resolution Plan’ can offer any amount upfront or by other way, which is less than the ‘Liquidation Value’. It will be against the object of the Code as also the provisions of Section 30(2) of the I&B Code. Infusions of fund for maximization of the assets of the ‘Corporate Debtor’ cannot be counted for the purpose of the amount, which is being kept for distribution amongst the stakeholders, including the ‘Financial Creditors’ and ‘Operational Creditors’, if it is less than the ‘Liquidation Value’, such ‘Plan’ cannot be upheld, being against the object of the I&B Code and Section 30(2) of the said Code - Admittedly, the amount offered in favour of stakeholders including the ‘Financial Creditors’ and the ‘Operational Creditors’ is being much less than the ‘Liquidation Value’, such ‘Plan’ cannot be accepted. The impugned order dated 25/27th June, 2019 ordering approval the ‘Resolution Plan’ is set aside - matter stands remitted to the Adjudicating Authority for decision in accordance with law. Issues:1. Challenge to the rejection of a Resolution Plan by the Committee of Creditors.2. Approval of a Resolution Plan by the Adjudicating Authority.3. Discrepancy in the voting share for the approved Resolution Plan.4. Viability and feasibility of the approved Resolution Plan.5. Comparison of Liquidation Value and Resolution Plan value.6. Inclusion of equity infusion in the Resolution Plan value.7. Legality of a Sub-Committee formed by the Committee of Creditors.8. Compliance with Section 30(2) of the Insolvency and Bankruptcy Code.Analysis:1. The judgment dealt with a challenge to the rejection of a Resolution Plan by the Committee of Creditors and the subsequent approval of the same Plan by the Adjudicating Authority. The Appellant sought direction for reconsideration of the Plan submitted by another party, which was initially rejected by the Committee of Creditors.2. The Resolution Plan submitted by M/s. Dhanuka Laboratories Ltd. was approved by the Adjudicating Authority, leading to an appeal challenging this approval. The Appellant raised concerns regarding the statutory requirement of a 66% voting share for approval under Section 30(4) of the Insolvency and Bankruptcy Code.3. Discrepancies in the voting share for the approved Resolution Plan were highlighted, with the Appellant claiming a lower percentage than what was officially recorded. The Resolution Professional and the impugned order confirmed a higher voting share, leading to a dispute over the accuracy of the voting results.4. The viability and feasibility of the approved Resolution Plan were questioned by the Appellant, citing dissent among Committee members initially. However, as the Plan was eventually approved with a sufficient voting share, the objections were not upheld.5. A detailed comparison between the Liquidation Value and the Resolution Plan value was presented, emphasizing the financial aspects and assets involved in both scenarios. The Appellant raised concerns about the adequacy of the approved Plan in relation to the Liquidation Value.6. The inclusion of equity infusion in the Resolution Plan value was contested, with arguments against considering it for determining the Plan's overall value. The Appellant claimed that the upfront payment was lower than the Liquidation Value, raising doubts about the Plan's adequacy.7. The legality of a Sub-Committee formed by the Committee of Creditors was questioned, citing a previous decision by the Appellate Tribunal on the matter. The formation of such a Sub-Committee was deemed illegal, adding to the concerns raised by the Appellant.8. Compliance with Section 30(2) of the Insolvency and Bankruptcy Code was a crucial aspect of the judgment. The Court emphasized the importance of ensuring that the Resolution Plan meets the requirements specified in the Code, particularly in terms of payment to creditors and the maximization of assets.In conclusion, the judgment set aside the approval of the Resolution Plan while upholding the rejection of the Plan submitted by M/s. Dhanuka Laboratories Ltd. The matter was remitted to the Adjudicating Authority for further consideration in accordance with the law, with no costs imposed due to the decision to set aside the approved Plan.