2022 (3) TMI 602 - AT - Insolvency and Bankruptcy

Appellate Tribunal corrects errors, converts dissenting vote, upholds Resolution Plan approval

Committee of Creditors of Ushdev International Limited through State Bank of India Versus Mr. Subodh Kumar Agrawal, Resolution Professional of Ushdev International Limited., Taguda Pte. Limited, ICICI Bank Limited And ICICI Bank Limited Versus Mr. Subodh Kumar Agrawal, Resolution Professional of Ushdev International Limited.

The Appellate Tribunal allowed the appeals, correcting the Adjudicating Authority's errors regarding the enforceability of excluded securities in the ... Validity of approval of Resolution Plan - It is submitted that Adjudicating Authority while approving the Resolution Plan has erroneously directed that Excluded Securities are no longer enforceable as defined under Resolution Plan which direction is contrary to the Resolution Plan. - HELD THAT:- The view which was taken by the Adjudicating Authority both in the Order dated 03.02.2022 approving the Resolution Plan and Clarification Order was that in view of the fact that unpaid debt shall stand converted into non-convertible redeemable preference share hence the excluded securities are no longer enforceable. The Adjudicating Authority held that excluded securities are subsumed under Clause 3.3.(iii). The Adjudicating Authority obviously referred to Paragraph 3.3. (e) (H) which provided that balance Financial Debt forming part of the Admitted Debt shall stand converted into non-convertible redeemable preference shares of the company which shall be issued to the Financial Creditors upon conversion of the unpaid debt. The above provision in the Plan for conversion into non-convertible redeemable preference shares of the balance financial debt has no bearing on specific provisions in the plan by 3.3.(iii)(g) which clearly provided that excluded securities shall not be extinguished or waived under this Resolution Plan. In the clarification Order dated 03.02.2022, the Adjudicating Authority in Paragraph 29 has again observed that excluded securities are subsumed under Clause 3.3(iii)(c )(h) wherein the plan proposed that any balance financial debt forming part of admitted debt shall be converted into non-convertible redeemable preference share, for the reasons which are noticed, the observations in Paragraph 29 of the Clarification Order also cannot be sustained and deserves to be deleted. The observations of the Adjudicating Authority in Paragraph 29 that ‘the approval of the resolution plan ipso facto discharge the enforcement of excluded securities’ is not in accordance with the Resolution Plan and is hereby deleted. Appeal are allowed by deleting the relevant part in Direction 1 of the Impugned Order under the heading ‘Reliefs, Concessions and Dispensations to the extent ‘hence, the excluded securities are no longer enforceable as defined under the resolution plan’. Issues Involved:1. Approval of the Resolution Plan.2. Clarification on the enforceability of Excluded Securities.3. Conversion of ICICI Bank's dissenting vote to an assenting vote.Detailed Analysis:1. Approval of the Resolution Plan:The Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor was initiated on 14th May 2018. The Resolution Plan submitted by Respondent No. 2 was approved by the Committee of Creditors (CoC) with a 91.06% majority on 25th June 2021. The Resolution Professional filed an application for the approval of the Resolution Plan, which was granted by the Adjudicating Authority on 3rd February 2022. The Appellate Tribunal reviewed the Resolution Plan, noting that the plan did not contemplate the extinguishment of excluded securities, contrary to the Adjudicating Authority's conclusion.2. Clarification on the Enforceability of Excluded Securities:The Resolution Plan defined 'Excluded Securities' as certain guarantees and encumbrances. The Adjudicating Authority's order suggested that these excluded securities were no longer enforceable, as the unpaid debt would be converted into non-convertible redeemable preference shares. However, the Appellate Tribunal found that the Resolution Plan explicitly stated that excluded securities would not be extinguished or waived. The Tribunal concluded that the Adjudicating Authority erred in its interpretation and deleted the part of the order stating that excluded securities were no longer enforceable.3. Conversion of ICICI Bank's Dissenting Vote to an Assenting Vote:ICICI Bank filed an application seeking clarification on the enforceability of excluded securities and requested that its dissenting vote be considered as an assenting vote if the excluded securities were enforceable. The CoC had no objection to this request. The Appellate Tribunal allowed this prayer, noting that the approval of the Resolution Plan by the CoC with a 91.06% majority would not be affected by converting ICICI Bank's dissenting vote to an assenting vote. The Tribunal emphasized that this direction should not be treated as a precedent in other matters.Conclusion:The Appellate Tribunal allowed the appeals, deleting the parts of the Adjudicating Authority's orders that incorrectly stated that excluded securities were no longer enforceable. The Tribunal also permitted the conversion of ICICI Bank's dissenting vote to an assenting vote, with the CoC's consent. The Resolution Plan's approval remained unaffected except for the corrected interpretations regarding excluded securities.