2024 (12) TMI 1316 - AT - IBC

NCLAT dismisses appeal challenging resolution plan approval, finds CIRP process compliant with regulations and procedures

The NCLAT upheld the NCLT's approval of a resolution plan, dismissing challenges to the corporate insolvency resolution process. The tribunal found that ... Challenge Process conducted by the Resolution Professional - Negotiation Process initiated by the CoC/Resolution Professional after the Challenge Process - eligibility to submit a Resolution Plan as per Clause 3 of the Invitation for Expression of interest and the net worth and the turnover of the promoter - material irregularities committed by the Resolution Professional within the meaning of Section 61(3)(ii) of the IBC. Whether the Challenge Process conducted by the Resolution Professional on 27.10.2023 was not in accordance with the CIRP Regulations, 2016 as well as Process Note dated 12.10.2023? - HELD THAT:- After receipt of the Resolution Plans, the CoC decided to hold a Challenge Process. The Resolution Professional issued a Challenge Process Document on 12.10.2023 containing Rules of the Challenge Process. Resolution Professional also asked by email dated 12.10.2023 to the Resolution Applicants asking them to submit undertaking before commencement of the Challenge Process. As per Annexure 1, the details pertain to financial bid in Challenge Process, base price, increment and other relevant clauses were mentioned. Clause 5(h) provided that value submitted by highest bidder of each round will be disclosed at the end of each round during the meeting to all the participating Resolution Applicants. There are no error in the Challenge Process insofar as consortium was exited after 2nd round. In the 3rd round, SRA has given a bid of Rs.251 Crores which was with increment of Rs.10 Crores to its earlier bid which was Rs.241 Crores. In the 3rd round, highest bid was Rs.251 Crores and there are no other Resolution Applicants. The Challenge Process was rightly closed - the Challenge Process was conducted by the Resolution Professional in accordance with Process Note. Counsel for the Appellant has also contended that the Challenge Process adopted by the Resolution Professional is in violation of Regulation 39(1A) of the CIRP Regulations - there are no violation of Regulation 39(1A) of the CIRP Regulations in the Challenge Process conducted by the Resolution Professional. Whether Negotiation Process initiated by the CoC/Resolution Professional after the Challenge Process was in accordance with the CIRP Regulations and RFRP/ Process Note? - HELD THAT:- The Consortium as well as SRA gave their enhanced financial offers by submitting a plan on 04.11.2023. The SRA has given proposal for Rs.261 Crores and Consortium has given proposal for Rs.248 Crores, thus, both the SRA and the Consortium have increased their last financial proposal which was given in the challenge process. Creative also gave proposal of Rs.240 Crores although did not participate in the Challenge Process. In the 12th CoC meeting held on 06.11.2023, the revised proposals received from the Resolution Applicants were opened. One of the CoC members even asked the Consortium if they are satisfied with the Challenge Process and further negotiations by the CoC. In the minutes of 12th CoC meeting, representative of the Consortium stated that they are satisfied with the negotiation process which is recorded in the minutes. Resolution Professional has filed the minutes of 12th CoC meeting. The Consortium participated in the negotiation process and also gave increased bid. Negotiation process was conducted by the CoC for the value maximisation as is permitted by the RFRP - there are no error in the negotiation process conducted by the Resolution Professional under the decision of the CoC. From the above discussions, it is opined that there is no error in the Challenge Process conducted by the Resolution Professional on 27.10.2023 as well as negotiation process which was undertaken by the CoC after challenge process. Whether the SRA was ineligible to submit a Resolution Plan as per Clause 3 of the Invitation for Expression of interest and the net worth and the turnover of the promoter Mr. Sahil Mangla could not be included for purpose of net worth of a group it being not a ‘entity’ within the meaning of Clause 3 of Invitation for Expression of Interest? - HELD THAT:- It is true that when no objection was raised to inclusion of Resolution Applicants in the provisional list and the final list, the Resolution Applicants are to be treated eligible to participate in the process and in the process, no objection can be taken regarding eligibility. However, when the Resolution Plan came for approval before the Adjudicating Authority, in a case where it is found that Resolution Applicant is not eligible and does not fulfil any requirement of eligibility, the Adjudicating Authority in no manner is deprived from considering the said question regarding eligibility. The objection regarding eligibility of Resolution Applicant, thus, can very well be considered by the Adjudicating Authority while considering the approval of the Resolution Plan - regarding eligibility of the Resolution Applicant, the same can very well be considered and examined by the Adjudicating Authority when the application to approve the Resolution Plan comes for consideration. The CoC which consists of financial institutions is well versed with the financials of all Resolution Applicants. The CoC under whose direction the Resolution Professional has issued Invitation for Expression of Interest is well aware of the clauses and eligibility provided. As noted above, the Resolution Plan has placed before the CoC, while computing the net worth and turnover of the SRA, net worth and turnover of the promoter has been included. The definition of ‘entity’ as occurring in Note 5 ‘group’ also includes an individual - the SRA was fully eligible to submit Resolution Plan it having complied with the eligibility as prescribed in Clause 3. The SRA was eligible to submit a Resolution Plan as per Clause 3 of Invitation for Expression of Interest and the net worth and turnover of the promoter Mr. Sahil Mangla could be included for purposes of net worth of a group it being entity within the meaning of Clause 3 of Invitation for Expression of Interest. Whether there are any material irregularities committed by the Resolution Professional within the meaning of Section 61(3)(ii) of the IBC so as to interfere with the order of the Adjudicating Authority approving the Resolution Plan dated 06.05.2024? - HELD THAT:- It is already found that the challenge mechanism as well as negotiation conducted by the Resolution Professional is in accordance with the CIRP Regulations and Process Note. In evaluation of eligibility of the SRA also there is no irregularity committed by the Resolution Professional. There are no tenable ground raised within the meaning of Section 61(3)(ii) of the IBC, to interfere with the order approving the Resolution Plan. Conclusion - The processes and decisions made during the CIRP upheld, emphasizing adherence to regulations and the commercial judgment of the CoC - there are no ground to interfere in the impugned order - appeal dismissed. Issues Involved:1. Whether the Challenge Process conducted by the Resolution Professional on 27.10.2023 was not in accordance with the CIRP Regulations, 2016 as well as Process Note dated 12.10.2023Rs.2. Whether Negotiation Process initiated by the CoC/Resolution Professional after the Challenge Process was in accordance with the CIRP Regulations and RFRP/ Process NoteRs.3. Whether the SRA was ineligible to submit a Resolution Plan as per Clause 3 of the Invitation for Expression of Interest and the net worth and the turnover of the promoter Mr. Sahil Mangla could not be included for purpose of net worth of a group it being not an 'entity' within the meaning of Clause 3 of Invitation for Expression of InterestRs.4. Whether there are any material irregularities committed by the Resolution Professional within the meaning of Section 61(3)(ii) of the IBC so as to interfere with the order of the Adjudicating Authority approving the Resolution Plan dated 06.05.2024Rs.Detailed Analysis:Issue 1: Challenge Process ComplianceThe Challenge Process was conducted on 27.10.2023 by the Resolution Professional in accordance with the CIRP Regulations and the Process Note dated 12.10.2023. The Process Note outlined that the base price was INR 240 crores, and bids had to be in multiples of INR 10 crores. The Consortium was exited from the process after the second round as their bid of INR 242 crores was not in accordance with the required increment of INR 10 crores over their previous bid of INR 240 crores. The SRA's bid of INR 251 crores in the third round was valid as it followed the increment rule. The Tribunal found no error in the Challenge Process, and it was held that the process was conducted properly.Issue 2: Negotiation Process ComplianceThe CoC was fully competent to conduct a Negotiation Process for value maximization after the Challenge Process, which was conducted in accordance with the RFRP and Process Note. The CoC invited all Resolution Applicants for negotiation, which is permissible under Clause 2.3.11 of the RFRP. The Appellants participated in the negotiation process and submitted revised financial proposals. The Tribunal found no error in this process, affirming that the negotiation was conducted for value maximization and was in line with the RFRP.Issue 3: Eligibility of SRAThe SRA was deemed eligible to submit a Resolution Plan as per Clause 3 of the Invitation for Expression of Interest. The net worth and turnover of the promoter, Mr. Sahil Mangla, could be included for purposes of net worth of a group, as the term 'entity' within the meaning of Clause 3 includes individuals. The Resolution Professional and CoC interpreted the term 'entity' to include individuals, which was upheld by the Tribunal. The Tribunal rejected the Appellant's claim that the SRA was ineligible due to being blacklisted by the Indian Oil Corporation, as this did not fall under Clause 5(d) of the Invitation for Expression of Interest.Issue 4: Material IrregularitiesThe Tribunal found no material irregularities in the process adopted by the Resolution Professional. The Challenge Process and negotiation were conducted in compliance with CIRP Regulations and Process Note. The eligibility evaluation of the SRA was also proper. Consequently, there were no grounds under Section 61(3)(ii) of the IBC to interfere with the order approving the Resolution Plan.Conclusion:The Tribunal dismissed all appeals, upholding the order dated 06.05.2024, which approved the Resolution Plan submitted by Sapphire Media Ltd. The processes followed were found to be in compliance with relevant regulations and guidelines, and the commercial wisdom of the CoC was respected.