2022 (12) TMI 725 - AT - Insolvency and Bankruptcy

Appeal dismissed for failure to raise fraud issue. Exceeded jurisdiction leads to successful appeal. Seek rectification.

The appeal by Mr. Nandish Patel was dismissed as he failed to raise the issue of fraud or misrepresentation before the Adjudicating Authority. The ... Approval of resolution plan with modification - Power of NCLT to modify the plan - Section 31 of the IBC - HELD THAT:- There is no doubt that if a resolution plan is submitted before the Adjudicating Authority which is in compliance with sub-section (1) of Section 31 as well as in consonance with the provisions of Section 30 of the Code such resolution plan has to be approved by the Adjudicating Authority since in Section 31 word “shall” has been incorporated with proviso that the Adjudicating Authority must be satisfied that the resolution plan has provisions for its effective implementation. Sub-section (2) of Section 31 of the IBC further empowers the Adjudicating Authority to reject the resolution plan, if he is satisfied that resolution plan is not in conformity with the requirements as referred to in sub-section (1) of Section 31 of the IBC. It is clear that mandate of legislation is either to approve the resolution plan or to reject. However, there is no provision for making alteration or modification in the resolution plan. In view of the statutory provisions as contained in Section 31 of the IBC we are satisfied the learned Adjudicating Authority to some extent exceeded its jurisdiction in modifying/altering the conditions in the resolution plan - Appeal disposed off. Issues Involved:1. Approval of the Resolution Plan by the Adjudicating Authority.2. Modification of the Resolution Plan by the Adjudicating Authority.3. Allegations of fraud and misrepresentation by the Resolution Applicant.4. Eligibility of the Corporate Debtor as a Micro, Small, and Medium Enterprise (MSME).5. Maintainability of the appeal by the ex-employee of the Corporate Debtor.Detailed Analysis:1. Approval of the Resolution Plan by the Adjudicating Authority:The appeals were filed under Section 61 of the Insolvency & Bankruptcy Code, 2016 (IBC) against an order dated 28.01.2021 by the National Company Law Tribunal (NCLT), Ahmedabad Bench, which approved the Resolution Plan dated 22.09.2020 along with an addendum dated 13.11.2020. The Resolution Plan was submitted by the Resolution Professional (RP), Mr. Partiv Parikh. The approval was challenged on the grounds that the plan was obtained by suppressing the material fact that the Corporate Debtor was an MSME.2. Modification of the Resolution Plan by the Adjudicating Authority:The NCLT modified the Resolution Plan by stating that 'if any member of Resolution applicants has entered into or stand as guarantor in the individual capacity, in that event, he shall not be covered with any immunity given under the Resolution Plan.' The successful resolution applicant, who were promoters of the Corporate Debtor, challenged this modification, arguing that the Adjudicating Authority overstepped its jurisdiction by altering the Resolution Plan, which was approved by the Committee of Creditors (CoC) with a 97.79% majority.3. Allegations of Fraud and Misrepresentation by the Resolution Applicant:Mr. Nandish Patel, an ex-employee and operational creditor of the Corporate Debtor, alleged that the Resolution Plan was approved based on fraudulent misrepresentation that the Corporate Debtor was an MSME. He argued that the Corporate Debtor had obtained an Udyog Aadhar certificate fraudulently to benefit from Section 240A of the IBC and evade the provisions of Section 29A(c) & (h). He presented evidence from balance sheets showing the Corporate Debtor's investment in plant and machinery exceeded the MSME threshold.4. Eligibility of the Corporate Debtor as an MSME:The respondents argued that the Corporate Debtor was an MSME at the time of submitting the Resolution Plan due to an amendment in the MSMED Act, which came into force on 01.07.2020. The Resolution Plan was submitted on 02.07.2020, making the Corporate Debtor eligible as an MSME. The appellant, Mr. Nandish Patel, was also involved in the Corporate Debtor's affairs and had previously communicated to SBI that the Corporate Debtor was an MSME.5. Maintainability of the Appeal by the Ex-Employee of the Corporate Debtor:The respondents contended that the appeal by Mr. Nandish Patel was not maintainable as he was an ex-employee and had not raised the issue of the Corporate Debtor's MSME status before the approval of the Resolution Plan. They argued that the appellant had approached the Tribunal with malafide intentions and had not challenged the dismissal of his earlier application questioning the MSME status.Judgment:The appeal by Mr. Nandish Patel was dismissed on the grounds that he had not raised the issue of fraud or misrepresentation before the Adjudicating Authority and had not challenged the dismissal of his earlier application. The Tribunal held that the proper course for the appellant was to approach the Adjudicating Authority for rectification if there was any substance in his allegations.The appeal by M/s Mathuraprasad and others was allowed. The Tribunal held that the Adjudicating Authority exceeded its jurisdiction by modifying the Resolution Plan, as there is no provision in Section 31 of the IBC for making alterations or modifications. The condition in para 15 of the impugned order was set aside.Conclusion:- Company Appeal (AT)(Ins) No.266/2021 by Mr. Nandish Patel was dismissed.- Company Appeal (AT)(Ins) No.201/2021 by M/s Mathuraprasad and others was allowed.