Appellate Tribunal Quashes Resolution Plan for Irregularities

The Appellate Tribunal set aside the order approving the resolution plan due to various irregularities, including valuation discrepancies, exclusion of unsecured creditors, non-publication of Form-G, ineligibility of the resolution applicant, lack of CoC approval for the revised plan, failure to consider a settlement proposal under Section 12A, and discrimination against related party creditors. The Tribunal directed the Resolution Professional to restart the Corporate Insolvency Resolution Process (CIRP) from the publication of Form-G stage, consider the settlement offer, and ensure fair treatment of related party creditors.

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Issues Involved:
1. Irregularities in Valuation of the Corporate Debtor
2. Exclusion of Unsecured Creditors from Decision-Making Process
3. Non-Publication of Form-G
4. Resolution Applicant’s Ineligibility under Section 29A(e) of the Code
5. Non-Approval of Revised Resolution Plan by CoC
6. Non-Consideration of Section 12A Application
7. Discrimination Against Related Party Creditors

Detailed Analysis:

1. Irregularities in Valuation of the Corporate Debtor:
The Appellant contended that the valuation process conducted by the IRP and RP was contrary to statutory provisions, impairing the commercial wisdom of the Committee of Creditors (CoC). The two valuers appointed did not physically verify the corporate debtor’s assets, violating Regulation 35(1)(a) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Additionally, the non-core assets were valued by only one valuer, contrary to Regulation 35(1). The valuation report was never circulated to the Appellant or other CoC members, and the process was marred by procedural inadequacies and statutory violations.

2. Exclusion of Unsecured Creditors from Decision-Making Process:
The Appellant argued that the IRP received claims from unsecured financial creditors but did not proceed to accept or reject these claims, excluding them from the decision-making process. This exclusion was a significant procedural irregularity affecting the CIRP.

3. Non-Publication of Form-G:
Regulation 36A(2)(iii) mandates the publication of Form-G on the corporate debtor’s and IBBI websites to ensure adequate publicity to prospective resolution applicants. The IRP published Form-G only in a newspaper, violating the regulation and impacting the maximization of asset value.

4. Resolution Applicant’s Ineligibility under Section 29A(e) of the Code:
The Appellant contended that the Resolution Applicant (R-2) was ineligible under Section 29A(e) due to disqualification under Section 164(2)(b) of the Companies Act, 2013. R-2 was a director of a company that failed to repay deposits, making him ineligible to submit a resolution plan. Additionally, R-2, as the managing trustee of Sri Balaji Vidyapeeth, a trust found ineligible to act as a resolution applicant, violated Section 88 of the Indian Trusts Act, 1882.

5. Non-Approval of Revised Resolution Plan by CoC:
The revised resolution plan dated 25 January 2021 was never placed before the CoC for approval. The CoC had only approved the plan on 22 January 2021, which was later revised. The final revised plan was directly submitted to the Adjudicating Authority without CoC’s approval, violating Sections 30(2), 30(4), 30(6), and 31 of the Code.

6. Non-Consideration of Section 12A Application:
The Appellant’s proposal for settlement under Section 12A was not considered by the CoC. Despite submitting a settlement offer backed by Deutsche Bank, the CoC did not convene to discuss the proposal. The Appellant argued that the settlement proposal should have been considered to maximize the value of the corporate debtor as a going concern.

7. Discrimination Against Related Party Creditors:
The Appellant argued that the resolution plan discriminated against related party creditors by providing no payment to them, contrary to the IBC and Article 14 of the Constitution. The IBC does not permit discriminatory plans, and related parties should not be treated differently for payments under the resolution plan.

Conclusion:
The Appellate Tribunal found that the approved resolution plan contravened Section 30(2) of the Insolvency and Bankruptcy Code 2016, citing irregularities in valuation, exclusion of unsecured creditors, non-publication of Form-G, ineligibility of the resolution applicant, non-approval of the revised plan by CoC, non-consideration of Section 12A application, and discrimination against related party creditors. The Tribunal set aside the common order approving the resolution plan and directed the Resolution Professional to proceed with the CIRP from the publication stage of Form-G, consider the settlement proposal, and ensure related party creditors are not discriminated against.

Order:
The appeals were allowed, and the order approving the resolution plan was set aside. The Resolution Professional was directed to reinitiate the CIRP process, consider the settlement proposal under Section 12A, and ensure non-discrimination against related party creditors. The time taken in the appeal was excluded from the CIRP period.

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