2022 (3) TMI 992 - Tri - Insolvency and Bankruptcy

Tribunal rejects CIRP extension, stresses compliance with IBC regulations

The Tribunal declined the extension of the Corporate Insolvency Resolution Process (CIRP) period, citing non-compliance with the Insolvency and Bankruptcy ... Seeking extension of CIRP period by 60 days as per the decision taken in the 18th COC meeting - there is no clarity from the NITHM/Govt. of Telangana on terms of renewal of lease - HELD THAT:- Admittedly, this application seeking one more extension of 60 days for competition of CIRP, has been filed in the backdrop of availing of the two exclusions for a total period of 159 days and one extension of 90 days, once again reiterating the same ground, which is nothing but one of the 'conditions' put forth by the two out of the four prospective resolution applicants, Viz., M/s. Anirudh Agro Farms and M/s. Shreemukh Builders that the lease should be allowed be renewed by another 33 years lest, the first payment will not be made, on the premise that the director of NITHM, who is one of the members of CoC has 'informed' the CoC that the clause enabling renewal of lease by another term is under consideration by the Government of Telangana. Hon'ble Supreme Court of India, in Committee of Creditors of Essar Steel vs. Satish Kumar Gupta & Ors. [2019 (11) TMI 731 - SUPREME COURT], while striking down, the word 'mandatorily' used in the amended proviso as being manifestly arbitrary under Article 14 of the Constitution of India and as being an excessive and unreasonable restriction on the litigant's right to carry on business under Article 19(1)(g) of the Constitution. A prospective Resolution Applicant is required to submit an unconditional EOI within the time stipulated under the invitation, which shall not be less than fifteen days from the date of the issue of invitation. Form G (IFEI), in this case has been published on 04.04.2021 by the RP clearly discloses that the property which is in a 4 star hotel is in a leased land. Form-G/IFEI admittedly did not contain any assurance of incorporation of renewal clause in the existing lease document - In the case on hand, since the plans submitted by the above Prospective Resolution Applicants being conditional, the Resolution Professional ought to have insisted the Prospective Resolution Applicants to make their plans un-conditional and ought not to have included in the provisional list of eligible Prospective Resolution Applicants. However, the Resolution Professional treated these two conditional plans as eligible and included them in the list of eligible Prospective Resolution Applicants. Thus, it as clear as crystal that the CoC, instead of rejecting at the threshold the resolution plans submitted by the prospective resolution applicants Viz., M/s. Anirudh Agro Farms and M/s. Shreemukh Builders, as the same being conditional (sic), has been rigorously pursuing 'the cause' of the prospective resolution applicants by seeking exclusion and also extension of time, so that the condition; by these prospective applicants could be complied with. Therefore, allowing an application of this nature results in extending time to perpetuate a 'wrongful act' by the CoC and the Resolution Professional, which is neither the intent nor the object of IBC, hence relief prayed for is liable to be rejected out-rightly. The members of CoC and the Resolution Professional are responsible for the loss of time prescribed under the Code, which is valuable and limited for completion of CIRP - In order to facilitate such resolution, Suo moto exclusion is granted of the time consumed in pursuing this application, i.e., from 1st March 2022 till the date of this Order. In default, the CoC shall resort to the next step as provided under IBC, without consuming any further time on pursuing the existing conditional plans, since any further delay in taking necessary steps will result in further deterioration of the already eroded asset value. This petition is therefore disposed of. Issues Involved:1. Extension of Corporate Insolvency Resolution Process (CIRP) period.2. Conditional resolution plans submitted by prospective resolution applicants.3. Compliance with Insolvency and Bankruptcy Code (IBC) and IBBI Regulations.Issue-wise Detailed Analysis:1. Extension of Corporate Insolvency Resolution Process (CIRP) Period:The application sought an extension of the CIRP period by 60 days due to the lack of clarity from the Government of Telangana regarding the renewal of the lease. The Tribunal noted that the company petition was admitted on 18.01.2021, and the Committee of Creditors (COC) was formed. The CIRP period had already been extended multiple times due to various reasons, including the Omicron variant. The Tribunal emphasized that the timelines prescribed under IBC must be strictly adhered to, as the primary objective is the maximization of asset value. The Tribunal referred to the Supreme Court ruling in the case of Committee of Creditors of Essar Steel vs. Satish Kumar Gupta & Ors., which allows for an extension beyond 330 days only in exceptional cases. The Tribunal concluded that the grounds for extension did not meet the parameters set by the Supreme Court ruling and the IBC.2. Conditional Resolution Plans Submitted by Prospective Resolution Applicants:The Tribunal observed that the resolution plans submitted by M/s. Anirudh Agro Farms and M/s. Shreemukh Builders were conditional, requiring the renewal of the lease for another 33 years. The Tribunal noted that the Resolution Professional (RP) and the COC had been actively pursuing the inclusion of a renewal clause in the lease document, which was under consideration by the Government of Telangana. The Tribunal highlighted that as per IBBI (Resolution Process for Corporate Persons) Regulation 36A, an expression of interest (EOI) must be unconditional. The Tribunal criticized the RP and the COC for treating the conditional plans as eligible and seeking time to fulfill the contractual terms dictated by the prospective resolution applicants, which is contrary to the IBBI Regulations and the intent of the IBC.3. Compliance with Insolvency and Bankruptcy Code (IBC) and IBBI Regulations:The Tribunal underscored the importance of adhering to the IBC and IBBI Regulations. It noted that the conditional plans submitted by the prospective resolution applicants should have been rejected at the threshold. The Tribunal referred to the Supreme Court ruling in Ebex Singapore, which emphasized that the terms of the resolution plan should not be freely negotiated in a manner that is not grounded in the intent of the IBC. The Tribunal concluded that allowing the application for an extension would perpetuate a wrongful act by the COC and the RP, which is neither the intent nor the objective of the IBC.Conclusion:The Tribunal declined the relief prayed for in the petition and directed the COC to decide on the conditional resolution plans submitted by M/s. Anirudh Agro Farms and M/s. Shreemukh Builders, keeping the provisions of the IBC and the relevant IBBI Regulations in mind. The Tribunal granted a suo moto exclusion of the time consumed in pursuing the application, from 1st March 2022 till the date of the Order. The Tribunal emphasized that any further delay would result in the deterioration of the asset value and directed the COC to proceed to the next step as provided under the IBC if the conditions were not withdrawn by the prospective applicants. The petition was disposed of accordingly, with no costs.