Resolution plan refusal upheld; remitted to CoC; valuation, Form G and s.164(2)(b) findings set aside; s.88 and s.166(4) ineligibility upheld

SC upheld NCLAT's refusal to sanction the resolution plan but on modified grounds. The Court set aside NCLAT's adverse findings on valuation, publication technicalities (Form G) and alleged disqualification under s.164(2)(b), while approving findings that the applicant was ineligible under s.88 Trusts Act and conflicted under s.166(4) Companies Act, and that the final revised plan was not placed before the CoC. The matter is remitted to the CoC with directions to the RP to proceed from publication of Form G and invite fresh EOIs under the CIRP regulations; other procedural objections to the process were rejected.

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Issues Involved:
1. Valuation Process
2. Publication of Form G
3. Eligibility of Resolution Applicant
4. Revised Resolution Plan Approval
5. Increase in Fees of Resolution Professional
6. Treatment of Related Party
7. Settlement Offer of Promoter
8. Impact of Subsequent Events

Summary:

Valuation Process:
The Appellate Tribunal's findings on the valuation process were erroneous. The members of the Committee of Creditors (CoC) were provided with fair and liquidation values after obtaining confidentiality undertakings. The Adjudicating Authority independently verified the valuation process and found no errors. The resolution plan is not required to match the liquidation value. Thus, the findings of the Appellate Tribunal on valuation are set aside.

Publication of Form G:
The Appellate Tribunal's emphasis on non-compliance with Regulation 36-A(2)(iii) for not publishing Form G on the designated website was misplaced. Form G was published in leading newspapers and IBBI was informed about technical issues in uploading the form. The CoC's decision to proceed without re-publication was a commercial decision, and the process could not be annulled on such technicalities. The findings of the Appellate Tribunal on this issue are set aside.

Eligibility of Resolution Applicant:
- Section 164(2)(b) Companies Act: The resolution applicant was not disqualified under Section 164(2)(b) of the Companies Act as there was no specific order disqualifying him. The Appellate Tribunal's findings on this issue are set aside.
- Section 88 Trusts Act: The resolution applicant, being the Managing Trustee of an ineligible trust (Sri Balaji Vidyapeeth), cannot act as its alter ego. The resolution plan is in contravention of Section 88 of the Trusts Act. The Appellate Tribunal's findings on this issue are upheld.
- Section 166(4) Companies Act: The resolution applicant's proposal to convert the corporate debtor's property into a hospital conflicts with his role as Managing Director of another hospital chain, violating Section 166(4) of the Companies Act. The resolution plan stands in contravention of the law.

Revised Resolution Plan Approval:
The revised resolution plan submitted by the resolution applicant was not placed before the CoC for approval before being presented to the Adjudicating Authority. This procedural irregularity is material and cannot be ignored. The Appellate Tribunal's disapproval of the resolution plan on this ground is upheld.

Increase in Fees of Resolution Professional:
The Appellate Tribunal's observations linking the increase in fees of the resolution professional to the irregularity in the process are not justified. The CoC's decision on the fees was independent and cannot be correlated with the procedural irregularity. The findings of the Appellate Tribunal on this issue are set aside.

Treatment of Related Party:
The Appellate Tribunal erred in applying the principles of non-discrimination to related parties. There is no mandate in the Code that related parties should be paid in parity with unrelated parties. The resolution plan's treatment of related parties was in accordance with the law. The findings of the Appellate Tribunal on this issue are set aside.

Settlement Offer of Promoter:
The Appellate Tribunal erred in holding that the settlement offer of the promoter was not considered by the CoC. The CoC's decision to not discuss the settlement offer in its ninth meeting was justified. The findings of the Appellate Tribunal on this issue are set aside.

Impact of Subsequent Events:
The subsequent approval of the promoter's settlement proposal by the CoC with 100% voting share requires consideration by the Adjudicating Authority. All relevant aspects, including the justification for invoking Section 12-A after receiving resolution plans, are left open for the Adjudicating Authority's consideration.

Conclusion:
The impugned judgment and order dated 17.02.2022 are not interfered with regarding the disapproval of the resolution plan for reasons affirmed in points C2, C3, and D1. Other findings, observations, and directions of the Appellate Tribunal are set aside. The Adjudicating Authority is to consider the fresh settlement proposal of the promoter, keeping in view the applicable law and facts of the case.

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