2024 (11) TMI 213 - AT - IBC

NCLAT upholds CoC's rejection of settlement proposal, bars suspended management from forcing reconsideration during CIRP

Pratham Expofab Private Limited Versus Mr. Anil Matta, Resolution Professional, Mr. Navneet Arora AR, FC in Class of Corporate Debtor, M/s. One City Infrastructure Pvt. Ltd. Successful Resolution Applicant

NCLAT dismissed appeal challenging denial of opportunity to submit Section 12A settlement proposal during ongoing CIRP. Appellant sought withdrawal after ... Seeking to place a settlement proposal under Section 12A of IBC before the Committee of Creditors - permission for withdrawal and suspension of the Corporate Insolvency Resolution Process - denial to Appellant yet another opportunity to submit a Section 12A proposal when the resolution plan of the SRA is at the stage of consideration by the Adjudicating Authority - Appellant failed to show bonafide in their previous settlement/withdrawal proposals - Appellant contends that Section 12A of IBC read with CIRP Regulation 30A provides scope for submission of multiple settlement proposals particularly when the resolution plan of the SRA has not attained finality - whether the Adjudicating Authority could have precluded the consideration of the 12A proposal of the Appellant by the CoC on the ground that the resolution plan was under consideration of the Adjudicating Authority? HELD THAT:- 80.22% of the CoC members had already voted against the settlement proposal dated 08.02.2020 of the Appellant. The 8th CoC meeting had also concluded that the 12A proposal is not feasible or commercially viable. The settlement proposal, therefore, stood clearly rejected by the CoC pursuant to deliberations in the 8th and 9th CoC meetings. It is equally significant to note that around the same time when the settlement proposal dated 08.02.2020 of the Appellant had been rejected, Respondent No. 3 had submitted their resolution plan dated 24.01.2020 with the RP. The resolution plan along with the Addendum as submitted by the Respondent No. 3 was approved by the CoC in the 8th CoC meeting held on 06.02.2020 with 80.84% voting share. The result of the voting was circulated to the CoC on 14.02.2020 and the 9th CoC meeting had noted the approval of the resolution plan of the SRA with CoC having voted with 80.84% in favour of the plan. It is the case of the Respondents that once the resolution plan has been accepted by the CoC, it becomes binding and irrevocable as between the CoC and the SRA. This Tribunal took special notice of proviso to Regulation 30A of the CIRP Regulations and the intendment of this proviso after noticing that Regulation 30A has been substituted by Notification dated 25.07.2019 to give effect to the provisions of Section 12A. In the present facts of the case, it is noticed that the CoC in its deliberations in the 8th and 9th CoC meetings had already put their stamp of approval on the resolution plan. Such opinion expressed by the CoC after due deliberations in the meetings through voting represents collective business decision and constitutes an expression of the CoC’s commercial wisdom. And it is here that primacy of the commercial wisdom of the CoC comes into play. Thus, the suspended management cannot insist, impose or force the consideration of its settlement proposal by the CoC when the CoC in the exercise of its business decision has categorically decided against considering any such proposal from the Appellant. The decision of CoC is a business decision taken in the exercise of their commercial wisdom which is clearly not amenable to judicial review and hence the Adjudicating Authority committed no error in not issuing any directions to the CoC to consider the settlement proposal. Time is a crucial facet of IBC proceedings and such proceedings cannot be subjected to indefinite delay as that would defeat the object of the statute. In the present facts of the case, it is found that it has been more than 5 years since the Corporate Debtor was admitted into CIRP and nearly 4 years since the resolution plan of the SRA was approved by the CoC in 2020. Therefore, when a resolution plan has already been received by the CoC and the CoC in the exercise of its commercial wisdom has decided to only consider this plan and has also rejected with majority voting the settlement plan given by the Appellant, no error has been committed by the Adjudicating Authority in disallowing further opportunity to the Appellant to submit a Section 12A proposal. The impugned order does not warrant any interference - The Appeal is dismissed. Issues Involved:1. Whether the Adjudicating Authority erred in denying the Appellant an opportunity to submit a settlement proposal under Section 12A of the IBC.2. Whether the resolution plan approved by the CoC can be subjected to further amendments.3. The implications of multiple settlement proposals submitted by the Appellant.4. The role and supremacy of the CoC's commercial wisdom in the CIRP process.5. The impact of judicial precedents on the application of Section 12A of the IBC.Issue-Wise Detailed Analysis:1. Opportunity to Submit Section 12A Proposal:The Appellant contended that Section 12A of the IBC, read with CIRP Regulation 30A, permits the submission of multiple settlement proposals. The argument was based on the premise that the resolution plan had not attained finality. The Appellant cited the Supreme Court's judgment in 'Brilliant Alloys Pvt. Ltd. Vs S. Rajagopal and Ors.' which states that CIRP Regulation 30A is directory and allows for a Section 12A proposal to be filed at any stage. However, the Adjudicating Authority dismissed IA No. 188 of 2024, noting that the suspended management had not shown bona fide intentions in their previous proposals and viewed the application as an attempt to derail the CIRP process. The Tribunal upheld this decision, emphasizing that the CoC had already rejected the settlement proposal with an 80.22% vote against it.2. Amendments to the Resolution Plan:The Appellant argued that the resolution plan had been subjected to impermissible amendments after CoC approval. The Respondents countered that the amendments were necessary to ensure compliance with legal requirements and were not revisions of the plan itself. The Tribunal refrained from commenting on this issue, as the plan was still under consideration by the Adjudicating Authority.3. Multiple Settlement Proposals:The Appellant had submitted several settlement proposals, all of which were rejected by the CoC. The Tribunal noted that the repeated attempts by the suspended management to invoke Section 12A were viewed as attempts to impede the CIRP process. The Tribunal found no merit in the Appellant's contention that the Adjudicating Authority should have directed the CoC to reconsider the settlement proposal.4. Supremacy of CoC's Commercial Wisdom:The Tribunal emphasized the paramount status of the CoC's commercial wisdom, as upheld by the Supreme Court in 'K. Sashidhar Vs. Indian Overseas Bank and Ors.' The CoC's decision, made after thorough deliberation and voting, represents a collective business decision that is non-justiciable. The Tribunal found that the Adjudicating Authority did not err in respecting the CoC's decision to reject the settlement proposal and proceed with the resolution plan.5. Judicial Precedents on Section 12A:The Tribunal relied on precedents such as 'Hem Singh Bharana Vs Pawan Doot Estate Pvt. Ltd.' and 'Nehru Place Hotels and Real Estates Pvt. Ltd. Vs Sanjeev Mahajan & Ors.,' which held that a Section 12A proposal cannot be entertained after the CoC has approved a resolution plan. These judgments, upheld by the Supreme Court, reinforced the Tribunal's decision to dismiss the appeal. The Tribunal clarified that the Appellant's reliance on 'Brilliant Alloys' was misplaced, as the judgment predated the substituted Regulation 30A, which requires justification for withdrawal after the issue of invitation for expression of interest.In conclusion, the Tribunal dismissed the appeal, upholding the Adjudicating Authority's decision to deny the Appellant's Section 12A proposal. The Tribunal reiterated the importance of adhering to the timelines and objectives of the IBC, emphasizing the supremacy of the CoC's commercial wisdom in the CIRP process.