2021 (6) TMI 647 - AT - Insolvency and Bankruptcy

Tribunal nullifies Resolution Plan, orders liquidation due to Section 29A violation.

The Tribunal set aside the order approving the Resolution Plan, declared it null and void, and directed liquidation orders due to the ineligibility of ... Eligibility of Related Party to submit Resolution Plan - It is claimed by the Appellant that during the Corporate Insolvency Resolution Process of the Corporate Debtor, Respondent No.2 filed a resolution plan - Respondent No.2 is a a related party of Respondent No. 3 or not - Appealable order or not - Section 29A of IBC - HELD THAT:- Respondent No. 1’s claim that the retirement deeds should be accepted as Section 29A of IBC does not envisage any inquiry in the authenticity of retirement deeds is not sustainable because the retirement deeds have been, at the first instance, being disputed by the Appellant and the Appellant has placed documents in the form of GST and Income Tax returns which point towards the discrepancy in the retirement deeds. Moreover, none of the Respondents have disputed the GST and Income Tax returns, which are matters of public record. In the face of these documents the alleged retirement deeds appear suspect - it is seen that the Income Tax return for the Assessment Year 2018-19 filed by Tejinder Singh Kocher on behalf of M/s Prabh Films (attached at page 136 of the Appeal) include the name of Bhupinder Singh Mann as a partner of Prabh Films (pg. 139 of the Appeal). It is filed on 13.8.2018, much after 31.10.2017, the alleged date of retirement as claimed by Respondent No. 3. Similarly, the Income Tax return for the Assessment Year 2019-20 filed on behalf of M/s. Prabh Films by Tejinder Singh Kocher on 29.8.2019 includes the name of Bhupinder Singh Mann as a partner (attached at pages 192-193 of the Appeal). Tejinder Singh Kocher (Respondent No. 2) and Bhupinder Singh Mann (Respondent No. 3) were connected parties as per Section 29A of IBC at the time the Resolution Plan was submitted by the Respondent No. 2. This leads to the obvious and inevitable conclusion that Tejinder Singh Kocher was not eligible to submit the Resolution Plan and hence the Resolution Plan so submitted and approved by the Adjudicating Authority was bad in law. The Resolution Plan is rejected as it was submitted by a person hit by Section 29A of IBC. Issues Involved:1. Eligibility of Respondent No. 2 under Section 29A of the IBC.2. Validity of retirement deeds of Respondent No. 3.3. Authenticity of Income Tax and GST returns.4. Approval of the Resolution Plan by the Adjudicating Authority.5. Actions taken under the approved Resolution Plan.6. Costs and penalties.Issue-wise Detailed Analysis:1. Eligibility of Respondent No. 2 under Section 29A of the IBC:The primary issue is whether Respondent No. 2 was eligible to submit a Resolution Plan as per Section 29A of the IBC, given the alleged related party connection with Respondent No. 3. The Appellant contended that Respondent No. 2 was ineligible due to his relationship with Respondent No. 3, who was a suspended Director of the Corporate Debtor. Despite the retirement deeds presented by Respondent No. 2, the authenticity of these deeds was disputed by the Appellant with supporting documents like GST and Income Tax returns.2. Validity of retirement deeds of Respondent No. 3:The retirement deeds, which indicated that Respondent No. 3 retired from the firms M/s Prabh Films and M/s Prabh International on 31.10.2017, were central to determining the eligibility of Respondent No. 2. The Appellant challenged these deeds, presenting GST and Income Tax returns that continued to list Respondent No. 3 as a partner post-retirement date. The Tribunal found discrepancies in the dates and ages listed in the deeds, which cast doubt on their authenticity.3. Authenticity of Income Tax and GST returns:The Appellant provided GST and Income Tax returns showing Respondent No. 3 as a partner in the firms beyond the retirement date. These public records were not disputed by the Respondents. The Tribunal found these documents credible and indicative of the continued partnership, thus questioning the validity of the retirement deeds.4. Approval of the Resolution Plan by the Adjudicating Authority:The Adjudicating Authority approved the Resolution Plan submitted by Respondent No. 2, relying on the retirement deeds and dismissing the Appellant's evidence. The Tribunal noted that the Resolution Professional and the Adjudicating Authority failed to adequately consider the GST and Income Tax returns, which indicated a continued partnership between Respondents No. 2 and 3.5. Actions taken under the approved Resolution Plan:The Tribunal declared all actions taken under the approved Resolution Plan null and void, as the Plan was submitted by an ineligible person under Section 29A of the IBC. The matter was remitted back to the Adjudicating Authority for liquidation orders under Section 33 of the IBC.6. Costs and penalties:The Tribunal imposed costs on Respondents No. 2 and 3 for their conduct. Each was ordered to pay Rs. 1 lakh to the Appellant and Rs. 1 lakh to the Prime Minister’s Relief Fund within a month. In case of default, the Adjudicating Authority was directed to take appropriate action for recovery.Conclusion:The Tribunal set aside the Impugned Order dated 08.06.2020 approving the Resolution Plan, rejected the Plan, and directed the Adjudicating Authority to pass liquidation orders. The Tribunal also ordered the replacement of the Resolution Professional due to the failure to examine the Resolution Plan properly. Costs were imposed on Respondents No. 2 and 3 for their conduct.