2023 (8) TMI 1 - AT - Insolvency and Bankruptcy

Tribunal approves Resolution Plan by Square Four, dismisses appeals on fraudulent lease agreements and business changes

The Tribunal approved the Resolution Plan submitted by Square Four Housing and Infrastructure Development Pvt Ltd, dismissing the appeals of suspended ... Approval of Resolution Plan - seeking injunction be passed restraining the respondents either by himself and/or his men or agents or assigns or otherwise howsoever from taking any step or further steps - HELD THAT:- In the present case, primarily it is satisfying that conduct of the appellants in both the appeals is not transparent - It is also noticed that more than Rs.57 crores with interest was outstanding. The principal borrowers’ account was declared NPA on 10.03.2017. Charge in respect of entire land of the Corporate Debtor was created in favour of financial creditor i.e. Vijaya Bank. Even thereafter one of the directors of the appellant namely Mr. Harshvardhan Tantia of Company Appeal (AT)(Ins) No.861/2022 who was also having 6.22% shares holding in the Corporate Debtor company entered into lease agreement on 27.07.2014 with CD in respect of major portion of the land of the Corporate Debtor. The lease agreement was signed by Mr. Jaydeep Ghosh on behalf of the Corporate Debtor and Mr. Harshvardhan Tantia signed as one of the directors of T-RMC Pvt Ltd who is appellant in Company Appeal (AT)(Ins) No.861/2022. The lease agreement dated 27.07.2014 was for a period of five years which was to end on 26.7.2019. It is mandatory that if a tenancy is created on the basis of an agreement/lease agreement for one year or more then the said deed is required to be registered. The law is settled on the point that the suspended Board of Directors have got no locus to file an appeal against the approval of the plan by CoC and finally approved by the Adjudicating Authority and as such Company Appeal (AT)(Ins) No.839/2022 is liable to be rejected on this sole ground besides the facts relating to fraudulent lease rent agreement which we have noticed hereinabove. So far as plea taken on behalf of the appellant in Company appeal (AT)(Ins) No.861/2022 that change of business of the Corporate Debtor was not permissible. Section 5(26) of the IBC permits a resolution plan that entails restructuring. Similarly Regulation 37(ba) also permits restructuring, whereas Regulations 37(a)and (b) even permit for transfer of all or part of the assets and also sale of all or part of the assets of the CD. Only requirement is to see whether situation permits to do the same in the interest of the concerned creditors - In the present case it has been noticed that CD was not doing any business. Licence for running the factory had lapsed and not renewed for several years. There was no insurance of the factory premises since several years and even Insurance Company has refused to insure such factory/plant. It has also been noticed that for several years municipal tax were not paid by the CD. Even during CIRP the factory was non- operational. It is opined that it was commercial wisdom of the CoC to accept the plan which has been noticed by way of change of the business of the CD. It has already been held that an unsuccessful resolution plan applicant has got no vested right and also settled that acceptance of plan is commercial wisdom of the CoC. Accordingly, there is no reason to entertain both the appeals particularly in view of the fact that the plan has finally been approved by Adjudicating Authority. Thus, creation of aforesaid two doubtful and suspicious lease agreements which have been used in the court proceeding to defeat the objective of IBC, requires enquiry - appeal dismissed. Issues Involved:1. Approval of the Resolution Plan.2. Validity of Lease Agreements.3. Change in the Nature of Business.4. Locus Standi of Suspended Directors.5. Commercial Wisdom of the Committee of Creditors (CoC).Summary:1. Approval of the Resolution Plan:The impugned order dated 29.06.2022 approved the Resolution Plan submitted by Respondent No.2, Square Four Housing and Infrastructure Development Pvt Ltd. The three appellants in Company Appeal (AT)(Ins) No.839/2022 are suspended directors of the Corporate Debtor, Castal Extrusion Pvt Ltd, while the appellant in Company Appeal (AT)(Ins) No.861/2022 claimed to be a tenant and had their resolution plan rejected.2. Validity of Lease Agreements:The Corporate Debtor provided a corporate guarantee to Vijaya Bank and furnished industrial land as security. Despite the loan account being declared NPA, the Corporate Debtor entered into unstamped and unregistered lease agreements with the appellant in Company Appeal (AT)(Ins) No.861/2022. These agreements were deemed fraudulent and undervalued transactions by the Transactional Auditor, and the Adjudicating Authority directed the appellant to vacate the land.3. Change in the Nature of Business:The appellant in Company Appeal (AT)(Ins) No.861/2022 argued that the approved plan changed the nature of the business from industrial to residential/commercial, which they claimed was contrary to statutory provisions. However, the Tribunal held that such changes are permissible under Regulation 37 of the IBBI Regulations and Section 5(26) of the IBC, especially given the dilapidated state of the factory and its surrounding residential area.4. Locus Standi of Suspended Directors:The Tribunal dismissed Company Appeal (AT)(Ins) No.839/2022 on the ground that suspended directors have no locus to challenge the approval of a resolution plan. This is in line with the precedent set by the Supreme Court in Innoventive Industries Ltd Vs ICICI Bank.5. Commercial Wisdom of the Committee of Creditors (CoC):The Tribunal emphasized that the approval of the resolution plan by the CoC, based on their commercial wisdom, should not be interfered with. The plan submitted by Respondent No.2 was found viable and approved by the Adjudicating Authority, which the Tribunal upheld.Conclusion:Both appeals were dismissed. The Tribunal also directed an inquiry into the fraudulent lease agreements by the Delhi Police Commissioner.