2022 (1) TMI 1182 - AT - Insolvency and Bankruptcy

Adjudicating Authority Cannot Override CoC Approval of Resolution Plan

Union Bank of India on behalf of the Committee of Creditors of Dewan Housing Finance Corporation Limited Versus Mr Kapil Wadhawan, Dewan Housing Finance Corporation Limited, The Reserve Bank of India

The National Company Law Appellate Tribunal (NCLAT) held that the Adjudicating Authority cannot direct the Committee of Creditors (CoC) to consider a ... Validity of Direction to place Settlement Proposal, sent by Respondent No. 1, i.e. Kapil Wadhwan before the CoC for its consideration - Approval of Resolution plan - during the pendency of the present Appeal, Adjudicating Authority has passed an Order approving the Resolution Plan - appellant contended that only a Resolution Plan compliant with the provisions of the Code or an Application under Section 12A of the IBC could be placed before the CoC, and here it is undisputed that the Second Offer is neither a compliant Resolution Plan nor an application under Section 12A. Whether after Approval of the resolution plan by the COC and pending Approval, the Adjudicating Authority can direct the COC to convene a meeting and place the settlement proposal as offered for consideration, decision and voting on that within a certain period? HELD THAT:- Admittedly in the instant case, the Adjudicating Authority vide the Impugned Order had directed the COC to consider the 'IInd Settlement Offer of Ist Respondent when the Resolution Plan after Approval from CoC was pending adjudication u/s 31 of the Code - the CoC contends that the settlement offer was neither submitted in compliance with the RFRP nor with Section 12 A of the I&B Code and related Regulations. Such a direction of the Adjudicating Authority was passed despite that the CoC of the corporate debtor had by an overwhelming majority approved the Resolution Plan of DHFL. The Administrator had already filed the plan approval application, and that application was heard and reserved for orders by the learned Adjudicating Authority. It is pertinent to mention that the Hon'ble Supreme Court in the case of Ebix Singapore Private Limited versus Committee of Creditors of Educomp Solutions Ltd, [2021 (9) TMI 672 - SUPREME COURT], has very recently dealt with the same issue which has arisen in this appeal where it was held that In this case, if Resolution Applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a Resolution Plan to the Adjudicating Authority as a matter of law, it would dictate the commercial wisdom and bargaining strategies of all prospective Resolution Applicants who are seeking to participate in the process and the successful Resolution Applicants who may wish to negotiate a better deal, owing to myriad factors that are peculiar to their own case. The broader legitimacy of this course of action can be decided by the legislature alone, since any other course of action would result in a flurry of litigation which would cause the delay that the IBC seeks to disavow.' In the instant case, it is found that after Approval of the Resolution Plan by the Committee of Creditors, the application was pending before the Adjudicating Authority under Section 31 of the Insolvency and Bankruptcy Code, 2016, for Approval of the resolution plan the Adjudicating Authority accordingly while disposing of the Interim Application, directed the CoC to consider the 'IInd Settlement Proposal' of the First Respondent, i.e. Applicant/ Promoter, within ten days and take an appropriate decision. Considering the ratio of the Judgement of the Hon'ble Supreme Court in the case of Ebix Singapore, 'there was no scope for negotiations between the parties once the CoC has approved the Resolution Plan. Thus, contractual principles and common law remedies, which do not find a rope in the wording or the intent of the IBC, cannot be imported in the intervening period between the acceptance of the CoC Approved Resolution Plan and the Approval by the Adjudicating Authority.' The said exercise was beyond the jurisdiction of the Adjudicating Authority hence unsustainable and liable to be set aside - appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the Adjudicating Authority can direct the Committee of Creditors (CoC) to consider a settlement proposal after the CoC has approved a resolution plan and the plan is pending approval by the Adjudicating Authority.2. Whether the Adjudicating Authority has jurisdiction to compel the CoC to consider a settlement proposal that does not comply with the provisions of the Insolvency and Bankruptcy Code (IBC) or its regulations.Issue-wise Detailed Analysis:1. Direction to CoC to Consider Settlement Proposal Post-Approval of Resolution Plan:The primary issue revolves around whether the Adjudicating Authority can direct the CoC to consider a settlement proposal after the CoC has approved a resolution plan and the plan is pending approval by the Adjudicating Authority. The National Company Law Appellate Tribunal (NCLAT) referred to the Supreme Court's decision in *Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Ltd.* which clarified that once the CoC has approved a resolution plan, there is no scope for further negotiations or modifications. The Supreme Court emphasized that the resolution plan, once approved by the CoC, represents a binding agreement subject to statutory approval by the Adjudicating Authority. The NCLAT concluded that the Adjudicating Authority's direction to consider a new settlement proposal was beyond its jurisdiction and contrary to the established legal framework.2. Jurisdiction of Adjudicating Authority to Compel CoC:The second issue concerns whether the Adjudicating Authority can compel the CoC to consider a settlement proposal that does not comply with the IBC or its regulations. The NCLAT highlighted that the Adjudicating Authority's jurisdiction is limited to ensuring compliance with Section 30(2) of the IBC, which outlines the requirements for a resolution plan. The Supreme Court in *Pratap Technocrats (P) Ltd v. Monitoring Committee of Reliance Infratel Ltd.* reiterated that neither the Adjudicating Authority nor the Appellate Authority has an equity-based jurisdiction to interfere with the commercial decisions of the CoC. The NCLAT found that the Adjudicating Authority's direction to consider the second settlement proposal, which did not comply with the IBC or its regulations, was not within its jurisdiction and was thus unsustainable.Order:The NCLAT allowed the appeals, setting aside the impugned orders dated May 19, 2021, which directed the Administrator of Dewan Housing Finance Corporation Limited (DHFL) to place the second settlement proposal before the CoC for consideration. The NCLAT concluded that the Adjudicating Authority's direction exceeded its jurisdiction and was contrary to the legal framework established by the IBC and relevant judicial precedents.