2022 (10) TMI 431 - Tri - Insolvency and Bankruptcy

Tribunal directs negotiation with resolution applicants, actions subject to order

Phoenix ARC Private Limited Versus GPI Textiles Limited And M/s Shreeji Cotfab Limited Versus Jalesh Kumar Grover Resolution Professional, GPI Textiles Limited, Phoenix Arc Pvt. Ltd., State Bank of India

The Tribunal partly allowed the application by directing the RP and CoC to invite the present applicant, along with earlier and fresh resolution ... Rejection of Resolution Plan in view of the disqualification provided under Section 29-A (f) of the Insolvency and Bankruptcy Code, 2016 - seeking direction to Resolution Professional to place the present Applicant’s Resolution Plan for consideration before the Committee of Creditors and any other order as deemed fit - if the Committee of Creditors had rejected the resolution plan of Aggarsain Spinners Limited, erstwhile Successful Resolution Applicant before its approval on 27.03.2019, being ineligible under Section 29A of the Code then what procedure the Resolution Professional or the Committee of Creditors would have adopted in that eventuality? HELD THAT:- After the rejection of the Resolution Plan submitted by Aggarsain Spinners Limited, erstwhile Successful Resolution Applicant, there were other three Resolution Plans, namely Navraj Mittal and Others- H2; M/s Shivani Trendz Private Limited- H3; and Pankaj Bhatia & Shreeji Cotfab- H4 and obviously, these Resolution Plans were to be considered by the Committee of Creditors and all the three Resolution Applicants were required to be called for negotiations and for maximization of the value of the assets of the corporate debtor. Now, when the Resolution Plan of Aggarsain Spinners Limited has been rejected by this Bench, being ineligible under Section 29A(f) of the Code, then certainly to meet the ends of justice an opportunity is required to be given to the remaining three Resolution Applicants, who submitted their resolution plans simultaneously with erstwhile Successful Resolution Applicant- Aggarsain Spinners Limited. Although, it is contended by learned counsel for the respondents that if the earlier resolution plans are to be considered then it would amount to review of order dated 24.05.2022. More so, earlier resolution applicants including the present applicant do not meet the fresh eligibility criteria laid down by the Committee of Creditors. This contention of learned counsel for the respondents does not hold water because there is nothing on record that the new eligibility criteria is based upon any evaluation matrix. It is pertinent to note that the Resolution Professional had moved an application bearing IA No.639 of 2022 under Section 60(5) of the Code read with Rule 11 of the NCLT Rules, seeking appropriate directions to the Resolution Professional to reappoint the existing valuers duly registered with IBBI in order to ascertain fair value and liquidation value afresh in terms of Regulation 35 of the IBBI (CIRP) Regulations, 2016 but later on the said application bearing IA No.639 of 2022 was withdrawn by the Resolution Professional, as is recorded in order dated 21.07.2022 passed by this Bench. This shows that no fresh valuation of the assets of the corporate debtor was conducted. The contention of learned counsel for the respondents that the present application is hit by Regulation 36A(10) and (11) of the Regulations is also not much convincing. There is no dispute to the fact that purpose of resolution is for maximization of value of assets of the corporate debtor - the earlier resolution applicants including the present applicant may take part in the negotiation process before the Committee of Creditors and ultimately, Successful Resolution Applicant would be decided by the Committee of Creditor, which if found in consonance with maximization of value of the assets of the corporate debtor. The present application is partly allowed to the extent that Resolution Professional and Committee of Creditors are directed to invite the present applicant alongwith other earlier resolution applicants namely Navraj Mittal and Others (H2); M/s Shivani Trendz Private Limited (H3); and Pankaj Bhatia & Shreeji Cotfab (H4) and also fresh resolution applicants for the purpose of negotiations in finalization of Resolution Plan in accordance with law. Issues Involved:1. Compliance with Tribunal's previous orders.2. Eligibility criteria for resolution applicants.3. Authority and actions of the Resolution Professional (RP) and Committee of Creditors (CoC).4. Applicant's locus standi and rights.5. Interpretation of Tribunal's order dated 24.05.2022.6. Commercial wisdom and maximization of value.Issue-wise Detailed Analysis:1. Compliance with Tribunal's Previous Orders:The applicant sought compliance with the Tribunal's order dated 24.05.2022, which directed the CoC to consider other resolution plans after declaring the erstwhile successful resolution applicant ineligible under Section 29A(f) of the Insolvency and Bankruptcy Code, 2016. The applicant contended that the RP and CoC acted contrary to this order by issuing a fresh Form G and altering the eligibility criteria without Tribunal's permission, which was beyond their duties and responsibilities.2. Eligibility Criteria for Resolution Applicants:The applicant argued that the revised eligibility criteria, which included a net-worth requirement of Rs.35 Crores and an Earnest Money Deposit of Rs.100 Lacs, were impermissible and designed to exclude them. The respondents countered that the new criteria were approved by the CoC in its commercial wisdom to ensure participation from serious prospective resolution applicants.3. Authority and Actions of the RP and CoC:The RP and CoC defended their actions by stating that fresh valuation and revised eligibility criteria were necessary due to improved operations and significant time elapsed since the last valuation. They asserted that their actions were within the scope of the Code and aimed at maximizing the value of the corporate debtor. The Tribunal noted that the RP and CoC should have sought directions from the Tribunal before re-initiating the CIRP with new criteria.4. Applicant's Locus Standi and Rights:The respondents argued that the applicant, being an unsuccessful resolution applicant, had no vested right to have its plan considered and lacked locus standi to file the application. They cited precedents where it was held that resolution applicants do not have a vested right to have their plans considered. However, the Tribunal found that the applicant had locus standi as the order dated 24.05.2022 was passed in an application filed by the applicant.5. Interpretation of Tribunal's Order Dated 24.05.2022:The Tribunal clarified that the order dated 24.05.2022 directed the CoC to make another attempt for consideration of other resolution plans in accordance with law. The Tribunal interpreted this as including both earlier and fresh resolution plans. The Tribunal emphasized that the words 'other resolution plans' did not necessarily mean 'fresh resolution plans' and directed that the earlier resolution applicants should also be given an opportunity to participate in the negotiation process.6. Commercial Wisdom and Maximization of Value:The respondents argued that the fresh process and revised eligibility criteria were in line with the commercial wisdom of the CoC and aimed at maximizing the value of the corporate debtor. The Tribunal acknowledged the importance of commercial wisdom but emphasized that the earlier resolution applicants should also be considered to ensure a fair and comprehensive process.Conclusion:The Tribunal partly allowed the application, directing the RP and CoC to invite the present applicant along with other earlier resolution applicants and fresh resolution applicants for negotiations. The Tribunal clarified that steps taken by the RP or CoC during the interim period would be subject to this order. The application was disposed of accordingly.