2020 (9) TMI 172 - SC - Insolvency and Bankruptcy

Supreme Court reinstates NCLT's Resolution Plan approval, setting aside NCLAT's order

The Supreme Court reinstated the National Company Law Tribunal's approval of the Resolution Plan, setting aside the National Company Law Appellate ... Viability and feasibility of Resolution Plan - NCLAT remitted /remanded back the matter to the NCLT with a direction to have the Resolution Plan resubmitted before the Committee of Creditors - HELD THAT:- The law is now well settled - reliance can be placed in the case of K. Sashidhar vs. Indian Overseas Bank [2019 (2) TMI 1043 - SUPREME COURT]. The principles laid down in the aforesaid decision, make one thing very clear. If all the factors that need to be taken into account for determining whether or not the corporate debtor can be kept running as a going concern have been placed before the Committee of Creditors and the CoC has taken a conscious decision to approve the resolution plan, then the adjudicating authority will have to switch over to the hands off mode. It is not the case of the corporate debtor or its promoter/Director or anyone else that some of the factors which are crucial for taking a decision regarding the viability and feasibility, were not placed before the CoC or the Resolution Professional. The only basis for the corporate debtor to raise the issue of viability and feasibility is that the ownership and possession of the ethanol plant and machinery is the subject matter of another dispute and that the resolution plan does not take care of the contingency where the said plant and machinery may not eventually be available to the Successful Resolution Applicant. Therefore, the fact that there was an issue with regard to the ethanol plant and machinery, had been taken note of by the Resolution Professional, the Committee of Creditors and the Successful Resolution Applicant. Once all these three parties have taken note of the said fact and taken a conscious decision to go ahead with the Resolution Plan, it cannot be stated that the question of viability and feasibility was not examined in the proper perspective - the first ground and actually the main ground on which NCLAT interfered with the decision of the NCLT to approve the Resolution Plan, is wholly untenable, misconceived and unjustified. Alleged breach of confidentiality - contention of the Promoter/Director of the corporate debtor is that the liquidation value mentioned in the Resolution Plan submitted by the SRA exactly tallied with the liquidation value obtained by the Resolution Professional and that the whole sequence of events would show clearly that there was an attempt to cover up - HELD THAT:- It appears from the impugned order of NCLAT that only in the course of hearing of the appeal, the date “09th February 2019” typewritten at the bottom of the selfdeclaration (page 29 of the Resolution Plan) was sought to be taken advantage of. Since this was not raised as one of the grounds in the Memorandum of Appeal but raised in the course of arguments, the Resolution Professional could do no more than to file the printout of the email correspondence between him and the SRA dated 07.02.2019. In the first email dated 07.02.2019, the Resolution Professional had sought a clarification from the SRA as to how they discovered the liquidation value and the source for the same. In response to this mail, the SRA sent a reply email contending that they undertook a due diligence to know the current market value and liquidation value and that what was quoted by them in the Resolution Plan, was something that an independent agency provided to them. It is obvious from the material on record that the Promoter/Director of the Corporate Debtor has tried to take advantage of two small mistakes on the part of the SRA, one of which was a typographical error mentioning the date “09th February 2019” at the bottom of the selfdeclaration and the other, which happened as a matter of coincidence. The NCLAT appears to have made a mountain out of a molehill and has recorded a finding even beyond the pleadings in the Memorandum of Appeal. Hence, the second ground on which the NCLAT was convinced to pass the impugned order, is legally and factually untenable. Ethanol plant and machinery - HELD THAT:- The SRA admittedly did not make his Resolution Plan on the strength of the ethanol plant and machinery in question. The threat looming large over the availability of the ethanol plant and machinery has admittedly been taken note of by the SRA and the CoC. The Resolution Plan does not give an indication anywhere that without this plant and machinery the whole resolution plan will fail. In paragraph 8.04 of the Resolution Plan, the SRA has undertaken to continue the operations in the normal course of business. It is a commercial decision that they have taken. The corporate debtor cannot cry wolf over the said decision. Therefore, the third ground on which NCLAT chose to interfere, is also bound to be rejected. Advertisement issued by the Resolution Professional on 30.03.2018 - NCLAT holds that the advertisement was not in conformity with Regulation 36A of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and as per Form G of the Schedule - HELD THAT:- But the conclusions reached by NCLAT in this regard cannot hold water for two reasons. If NCLAT was convinced that the very process of inviting Expression of Interest was vitiated, NCLAT should have issued a direction to start the process afresh all over again by issuing a fresh advertisement. NCLAT did not do this and the person who raised this point is not on appeal - The second meeting of the Committee of Creditors was held on 27.03.2018. The advertisement was approved in the said meeting. It was the unamended Regulation 36A that was in force at that time. This has not been appreciated by NCLAT. Therefore, the NCLAT was wrong in its approach even in this regard. The impugned order of NCLAT is flawed and hence, liable to be set aside - Order of NCLT restored - Appeal allowed. Issues Involved:1. Viability and feasibility of the Resolution Plan.2. Alleged breach of confidentiality regarding liquidation value.3. Ownership of the ethanol plant and machinery.4. Validity of the advertisement inviting Expression of Interest.Detailed Analysis:1. Viability and Feasibility of the Resolution Plan:The Supreme Court emphasized that the commercial wisdom of the Committee of Creditors (CoC) is paramount and should not be interfered with lightly by tribunals. The court cited precedents from *K. Sashidhar vs. Indian Overseas Bank* and *Essar Steel India Ltd.* to assert that the CoC’s decision on the viability and feasibility of a resolution plan is a collective business decision and non-justiciable. The court noted that the CoC and the Successful Resolution Applicant (SRA) were fully aware of the issues regarding the ethanol plant and machinery and had accounted for these in their decision-making process. Therefore, the NCLAT's interference on this ground was deemed 'wholly untenable, misconceived, and unjustified.'2. Alleged Breach of Confidentiality:The Supreme Court found that the NCLAT's conclusion of a breach of confidentiality was not supported by substantial evidence. The court noted that the Resolution Plan was submitted before the last date, and the matching liquidation value was a coincidence rather than proof of collusion. The SRA’s total payout was significantly higher than the liquidation value, negating any benefit from alleged leaked information. The court criticized the NCLAT for rejecting email evidence submitted by the Resolution Professional and concluded that the finding of a breach of confidentiality was 'legally and factually untenable.'3. Ownership of the Ethanol Plant and Machinery:The court reiterated that the issue of the ethanol plant and machinery was known to all parties involved, including the CoC and the SRA. The SRA's plan did not hinge solely on the ethanol plant, and they had provisions for capital expenditure to address any contingencies. The court found that the NCLAT's interference on this ground was also unjustified, as the Resolution Plan accounted for the potential unavailability of the ethanol plant and machinery.4. Validity of the Advertisement Inviting Expression of Interest:The Supreme Court pointed out that the NCLAT failed to appreciate the regulatory context under which the advertisement was issued. Regulation 36A, which mandated the publication of the invitation in Form G in newspapers, came into effect after the advertisement was issued. The court noted that the Promoter/Director of the corporate debtor had not raised any objections during the CoC meetings or in earlier proceedings. Therefore, the NCLAT's conclusion that the advertisement was defective was incorrect. The court emphasized that if the NCLAT believed the process was vitiated, it should have ordered a fresh start, which it did not.Conclusion:The Supreme Court set aside the NCLAT's order, reinstating the NCLT's approval of the Resolution Plan. The court found that the NCLAT's grounds for interference were flawed and unsupported by the facts and legal standards. The appeals were allowed, and the NCLT's decision was restored without any order as to costs.