2020 (4) TMI 385 - AT - IBC

Tribunal Validates Resolution Plan, Upholds CoC's Commercial Wisdom, Dismisses Appeals, Extinguishes Unapproved Claims.

Santosh Wasantrao Walokar, Dalmia Cement (Bharat) Limited, M/s Sneha Traders, M/s Shamrao Baliram, Mr. Nitin Murlidhar Suganchand Agrawal, Mr. Lalchand Maloo, Ms. Prakriti Nigam Versus Vijay Kumar V. Iyer, Dalmia Cement (Bharat) Limited, M/s. Murali Industries Limited

The Tribunal upheld the Adjudicating Authority's approval of the Resolution Plan, confirming its compliance with the I&B Code and relevant legal ... Approval of Resolution plan - initiation of CIRP - approved Resolution Plan has been alleged to be discriminatory and threatening the livelihood of 1184 workers of the paper unit and solvent extraction industrial units of Murli Industries Ltd. (Corporate Debtor) by not paying outstanding wages and compensation for retrenchment as per the provisions of Industrial Disputes Act, 1947. Whether the approval of Resolution Plan and the distribution/payment to various stakeholders therein was in accordance with the provisions of I&B Code? - HELD THAT:- When the Adjudicating Authority is satisfied that the Resolution Plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this subsection, satisfy that the resolution plan has provisions for its effective implementation - Where the Adjudicating Authority is satisfied that the Resolution Plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the Resolution Plan. Scope and ambit of jurisdiction of Adjudicating Authority and Appellate Tribunal while approving Resolution Plan - Whether a conditional Resolution Plan can be approved? - HELD THAT:- The Adjudicating Authority and Appellate Authority cannot go into the feasibility and viability of the Resolution Plan which requires commercial wisdom of the Committee of Creditors. The Adjudicating Authority and Appellate Authority has to go by the various propositions of law stated above accordingly to which they have to go by the commercial wisdom of committee of creditors while approving the Resolution Plan. The given Resolution Plan is conditional but since according to the express directions given by Supreme Court in the various cases stated above. The Adjudicating Authority per se will have to go the Commercial wisdom of Committee of Creditors. Whether those claims that are not dealt under the resolution plan can be held to be extinguished under the provisions of the I&B Code? - HELD THAT:- A successful Resolution Applicant cannot suddenly be faced with “undecided” claims after the Resolution Plan submitted by him has been accepted as this would amount to an extra amount coming up for payment after the debts have been dealt by the Resolution Applicant and the Resolution Plan has been approved. This would throw into uncertainty amounts payable by a prospective Resolution Applicant who successfully takes over the business of the Corporate Debtor - All claims must be submitted to and decided by the Resolution Professional so that a prospective Resolution Applicant knows exactly who has to be paid in order that it may then take over and run the business of the Corporate Debtor. Therefore, claims that are not submitted or are not accepted or dealt with by the Resolution Professional and such Resolution Plan submitted by the Resolution Professional is approved then those claims would stand extinguished. Whether the Adjudicating Authority has power to modify its own order? - HELD THAT:- An error cannot be said to be apparent on the face of the recorded if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent on the face of the record means an error which strikes on mere looking and does not need long-drawn out process of reasoning on points where there may conceivably be two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no court would permit it to remain on record. This does not include the power to modify any substantial part of the judgment which determines rights of one party or the other. Whether the initiation of CIRP was vitiated in view of the pendency of winding up petition before the Hon’ble High Court of Bombay, Nagpur Bench? - HELD THAT:- The Hon’ble High Court of Bombay had granted leave to the Respondents to initiate CIRP vide order dated 02.11.2018 and put the matter to rest by retrospectively validating the CIRP. Overriding effect has also been given to the I&B Code over any other law in force and therefore, the Adjudicating Authority had rightly initiated The Resolution Plan as approved by the Adjudicating Authority is in accordance with Insolvency and Bankruptcy Code, 2016 and various propositions of law as laid down by the Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. [2019 (11) TMI 731 - SUPREME COURT]. The Hon’ble Supreme Court has reiterated the issue on commercial wisdom of Committee of Creditors, hence the Adjudicating Authority per se is not to be involved in the commercial wisdom area of the Committee of Creditors, particularly, in the approval of commercial side of Resolution Plan/Modified Resolution Plan - there are no ground to interfere with the impugned order dated 22nd July, 2019 passed by the Adjudicating Authority - order of NCLT upheld. Issues Involved:1. Approval of the Resolution Plan and its compliance with the I&B Code.2. Scope and jurisdiction of the Adjudicating Authority and Appellate Tribunal in approving a Resolution Plan.3. Extinguishment of claims not dealt with under the Resolution Plan.4. Power of the Adjudicating Authority to modify its own order.5. Validity of the initiation of CIRP in view of a pending winding-up petition.Issue-wise Detailed Analysis:1. Approval of the Resolution Plan and Distribution/Payment Compliance:The appellants argued that the Adjudicating Authority erroneously approved the Resolution Plan submitted by Dalmia Cement (Bharat) Limited, which allegedly discriminated against 1184 workers by not paying outstanding wages and compensation as per the Industrial Disputes Act, 1947. The appellants contended that their claims should be treated pari passu with secured financial creditors as per the Insolvency and Bankruptcy (Amendment) Act, 2019. However, the Resolution Professional (RP) and Respondent-2 argued that the plan complied with the amended Section 30(2)(b) and Section 53 of the I&B Code, ensuring equal payment proportions to employees and financial creditors. The Tribunal upheld the commercial wisdom of the Committee of Creditors (CoC) and approved the Resolution Plan.2. Scope and Jurisdiction of Adjudicating Authority and Appellate Tribunal:The Tribunal emphasized that the Adjudicating Authority and Appellate Tribunal cannot delve into the feasibility and viability of the Resolution Plan, which falls under the commercial wisdom of the CoC. The Tribunal cited the Supreme Court's ruling in 'K. Sashidhar Vs. Indian Overseas Bank' and 'Essar Steel India Limited Vs. Satish Kumar Gupta,' affirming that the Adjudicating Authority must adhere to the CoC's decisions regarding the Resolution Plan. The Tribunal also noted that the Resolution Plan, although conditional, was approved by the CoC and thus binding.3. Extinguishment of Claims Not Dealt Under the Resolution Plan:The Tribunal referred to the Supreme Court's Essar Judgment, stating that a successful Resolution Applicant cannot face undecided claims post-approval of the Resolution Plan. All claims must be submitted and decided by the RP to ensure the Resolution Applicant knows the exact liabilities. Claims not submitted or accepted by the RP and not included in the approved Resolution Plan stand extinguished.4. Power of the Adjudicating Authority to Modify Its Own Order:The Tribunal clarified that the Adjudicating Authority does not have the power to modify its own order but can correct mistakes apparent on the record as per Section 420(2) of the Companies Act, 2013 and Rule 154 of the NCLT Rules, 2016. The Tribunal cited the Supreme Court's ruling in 'Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Limited,' emphasizing that an error apparent on the face of the record can be corrected without extensive reasoning or extraneous matters.5. Validity of CIRP Initiation Amid Pending Winding-Up Petition:The Tribunal noted that the Bombay High Court had granted leave to initiate CIRP, retrospectively validating the process. The Tribunal highlighted the overriding effect of the I&B Code over other laws, justifying the initiation of insolvency proceedings by admitting Edelweiss Asset Reconstruction Company Ltd.'s application under Section 7 of the I&B Code.Conclusion:The Tribunal upheld the Adjudicating Authority's approval of the Resolution Plan, affirming its compliance with the I&B Code and various legal precedents. The Tribunal emphasized the primacy of the CoC's commercial wisdom and dismissed the appeals, stating no grounds for interference with the impugned order dated 22nd July 2019.