2025 (11) TMI 531 - AT - IBC

Resolution plan validly approved after re-voting; AA refusal to admit MCA email set aside; Section 29A ineligibility quashed (3)

Dr. Vijay Kant Dixit & Anr. Versus Amrapali Fincap Ltd. & Ors., Amrapali Fincap Ltd. Versus Krit Narayan Mishra, RP, JC World Hospitality (P) Ltd. & Ors And (Vice-Versa)

NCLAT held the SRA's resolution plan validly approved (treated as having required votes after re-voting and application of the approved tie-breaker), set ... Approval of Resolution Plan - Resolution Plan received requisite vote shares of 66% and can be said to be approved by requisite number of votes or not - taking of additional documents on the record - ineligibility to submit the Resolution Plan under various sub-clauses of Section 29A - deposit of Performance Bank Guarantee by Rishikesh Hire Purchase and Leasing Pvt. Ltd. (Investor) violates Regulation 36B(4A) of CIRP Regulations or not - failure of disclosure of criminal proceedings as required under Regulation 38(3) of the CIRP Regulations - net worth falls significantly short of the minimum requirement under the RFRP, which makes the Consortium (Promoters) ineligible under the express terms of RFRP or not. Whether the Resolution Plan of the SRA/ Amrapali Fincap Ltd. did not receive requisite vote shares of 66% and cannot be said to be approved by requisite number of votes? - HELD THAT:- The Plan of SRA and Amrapali stood approved with 100% vote share on the basis of the re-voting by the Authorised Representative and further on the basis of Tie Breaker Formula, which is already approved by the CoC, the Plan, which had received higher votes will be treated to be approved. The SRA received the actual vote of 44.01% whereas Amrapali has received 43.27% votes. Hence, by applying Tie Breaker Formula, the SRA (Promoters) Plan was approved and they were declared SRA - the Resolution Plan of the SRA has been approved in accordance with Section 30, sub-section (4), it having received number of votes required for approval of Resolution Plan. Whether order passed by Adjudicating Authority to take additional documents on the record and the order passed by Adjudicating Authority filed by SRA to take on record email dated 07.03.2025 received from MCA, are sustainable? - HELD THAT:- The order of the Adjudicating Authority rejecting IA No.1301 of 2025 is clearly unsustainable, since the Adjudicating Authority has allowed IA No.6305 of 2024 filed by the Amrapali to submit five additional documents and the email dated 07.03.2025 was sought to be filed by the SRA to rebut the allegation of disqualification raised by the Amrapali, which document was relevant documents and was issued by MCA, who is the competent authority to clarify regarding any disqualification. Rejection of said application is wholly unsustainable and is to be disapproved - rejection of IA No.1301 of 2025 is unsustainable and the order of Adjudicating Authority rejecting the said application is set aside. Application - IA No.1301 of 2025 is allowed and the email dated 07.03.2025 is taken on record. Whether the findings returned by Adjudicating Authority in the impugned order that SRA is ineligible to submit the Resolution Plan under various sub-clauses of Section 29A are sustainable and that the SRA is not eligible to submit the Resolution Plan? - HELD THAT:- The finding of disqualification returned by the Adjudicating Authority of SRA under various clauses of Section 29-A are all unfounded and baseless. Resolution Professional himself has filed reply and answered all allegations. The SRA has also filed reply to IA No.850 of 2022 and another IA No.6035 of 2025 filed by Amrapali Fincap where all relevant materials were pleaded and placed on record. The Adjudicating Authority has not adverted to the pleas and materials brought on record by SRA. We, thus, are of the view that reasoning given by the Adjudicating Authority holding the SRA disqualified are not sustainable - SRA was fully eligible. Resolution Professional has done his due-diligence and has submitted reports finding the SRA qualified. CoC has also examined the eligibility of the SRA. It is Unsuccessful Resolution Applicant- Amrapali Fincap which has been raising objection one after another and CIRP process has been not permitted to proceed at the instance of Amrapali Fincap. The Resolution Plan was approved on re-voting held on 10th and 11th November. A letter of intent was issued on 13.11.2021 to the SRA and about four years have elapsed but CIRP has not yet been concluded. There is one more aspect of the matter which need to be noticed. The Adjudicating Authority without looking into the Resolution Plan approval application and materials brought on the record made various adverse observations regarding Resolution Plan. It is satisfied that the objections raised by the Amrapali Fincap to the Resolution Plan were without merit and Adjudicating Authority committed error by partly allowing the said objection. IA No.5752 of 2021 was quashed and set aside by the Adjudicating Authority. SRA is not ineligible under Section 29-A (c), (e), (g), (i) and (j). The finding given by the Adjudicating Authority that SRA is ineligible under clauses (c), (e), (g), (i) and (j) of Section 29-A are unsustainable. Whether deposit of Performance Bank Guarantee by Rishikesh Hire Purchase and Leasing Pvt. Ltd. (Investor) violates Regulation 36B(4A) of CIRP Regulations? - HELD THAT:- The Resolution Plan clearly provides that Investor shall in additional to the PBG to the tune of Rs. 5 crores, bring further amounts as noted therein. The Resolution Plan has been approved by the CoC with 100% vote share. When the Resolution Plan itself provided that PBG shall be given by the Investor, it is failed to sustain the observation of the Adjudicating Authority in the impugned order that there is violation of Regulation 36B(4A) of the CIRP Regulations when the PBG is submitted by third party. The said findings have been returned by the Adjudicating Authority in paragraphs 40 and 41. The Adjudicating Authority has not even adverted to the clauses of Resolution Plan, which specifically provides the PBG to be deposited by the Investor. Thus, the said ground taken by Adjudicating Authority to find fault with the Plan is wholly erroneous and unsustainable. Whether failure of disclosure of criminal proceedings as required under Regulation 38(3) of the CIRP Regulations, makes the Resolution Plan non-compliant? - HELD THAT:- The observation that SRA has failed to disclose regarding criminal proceedings, is wholly unsustainable and has been made on relying on the Regulation, which no longer existed on the date when Resolution Plan is submitted. Section 29A and some of its sub-sections has been amended with effect from 06.06.2018, by which conviction for offences punishable mentioned therein is a disqualification. Further, the SRA has before the Adjudicating Authority has given all relevant details regarding the FIR and chargesheets and has submitted that chargesheets were submitted much subsequent to filing of the Resolution Plan and further there is interim order passed by the Hon’ble Supreme Court, with regard to criminal proceedings. Be that as it may, the very basis of the observation in paragraph 42 being unfounded, there are no fault on the SRA with regard to non-compliance of Regulation 38(3) of the CIRP Regulations. It is not the case that there is non-compliance of Regulation 38(3) as it existed on the date when Resolution Plan was submitted. Whether on the basis of net worth of Rita Dixit, Dr. Vijay Kant Dixit and Vasudha Dixit, the net worth falls significantly short of the minimum requirement under the RFRP, which makes the Consortium (Promoters) ineligible under the express terms of RFRP? - HELD THAT:- The submission of the Amrapali that net worth of the Resolution Applicant is less than Rs. 50 crores is without any basis. The observation of the Adjudicating Authority in the impugned order that there is no fulfilment of eligibility criteria, is wholly erroneous as the requirement of Resolution Applicant of net worth of Rs. 50 crores was fully fulfilled. The observation of Adjudicating Authority that Promoters are ineligible under the RFRP, is without any basis. The Successful Resolution Applicant fulfils the criteria of net worth as required in the eligibility criteria and observations and findings of the Adjudicating Authority are to the contrary and are unsustainable. The impugned order passed by the Adjudicating Authority dated 22.07.2025 is unsustainable. Adjudicating Authority committed error in holding SRA ineligible and quashing and setting aside IA No.5752 of 2021 - Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a resolution plan was approved by the requisite voting share under Section 30(4) read with Section 25A(3A) where the Committee of Creditors consists solely of homebuyers forming a financial creditor class. 2. Whether the Adjudicating Authority rightly admitted additional documents filed late by an objector and correctly refused admission of an e-mail from the Ministry of Corporate Affairs sought to be relied on by the successful resolution applicant (SRA) in rebuttal. 3. Whether the SRA was ineligible under clauses (c), (e), (g), (i) and (j) of Section 29A of the Insolvency and Bankruptcy Code as held by the Adjudicating Authority. 4. Whether deposit of the Performance Bank Guarantee (PBG) by an investor/third party (and not directly by the SRA) violated Regulation 36B(4A) of the CIRP Regulations and rendered the plan non-implementable. 5. Whether alleged non-disclosure of pending criminal proceedings rendered the resolution plan non-compliant with Regulation 38(3) of the CIRP Regulations. 6. Whether the SRA met the net-worth eligibility criterion contained in the Request for Resolution Plan (RFRP) where individual promoters' net worths were below the threshold but collectively exceeded it. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Approval by requisite votes (Section 30(4) and Section 25A(3A)) Legal framework: Section 30(4) requires approval by not less than 66% of voting share of financial creditors. Section 25A(3A) directs the authorised representative of a financial creditor class to cast its vote in accordance with the decision taken by a vote of more than fifty percent of the voting share of the financial creditors it represents (of those who cast their votes). Precedent treatment: Supreme Court authority interpreting Section 25A(3A) confirms that where the authorised representative acts pursuant to the majority of voting share (of those who voted) in a class of homebuyers, that decision binds the class and may be treated as approval (including being treated as 100% when the authorised representative votes accordingly). Interpretation and reasoning: The minutes showed that among homebuyers who cast votes the majority decision exceeded 50% for each of the two competing plans; consequently the authorised representative cast the class vote in favour and such class vote was treated as 100% for the purposes of the CoC. Application of the co-ordination/tie-breaker formula (adopted by CoC) resolved competing approvals where both plans secured class assent, making the plan with higher actual individual voting share the approved plan. Ratio vs. Obiter: Ratio - where a financial-creditor class is represented by an authorised representative, the authorised representative's vote pursuant to Section 25A(3A) binds the class and may result in effective approval consistent with Section 30(4). Obiter - factual remark on tie-breaker formula specifics. Conclusion: The SRA's plan was lawfully treated as approved in compliance with Section 30(4) read with Section 25A(3A); no infirmity in treating the authorised representative's class vote as constituting approval. Issue 2 - Admission of additional documents and rejection of MCA e-mail Legal framework: Adjudicating Authority may allow additional documents where relevant to adjudication; parties must be afforded opportunity to rebut new material. Competent official communications (e.g., from MCA) are relevant where they address statutory disqualifications. Precedent treatment: Principles of procedural fairness require that when late documents are admitted the opposing party should be permitted to place rebuttal material on record and be heard on the new material. Interpretation and reasoning: The Adjudicating Authority admitted several non-judicial documents filed late by the objector without expressly considering or permitting the SRA's rebuttal materials; conversely it refused to admit the MCA e-mail offered by the SRA which directly addressed disqualification. The admitted documents were not solely judicial pronouncements as characterized by the Adjudicating Authority. Given relevance of the MCA communication to the disqualification issue, rejection of that document was unsustainable. Ratio vs. Obiter: Ratio - discretion to admit documents must be exercised with attention to relevance and fairness, including admitting rebuttal material and official communications on status of director disqualification. Obiter - criticism of Adjudicating Authority's characterization of the nature of documents. Conclusion: Admission of the objector's additional documents without providing for or considering the SRA's rebuttal materials was procedurally improper; the MCA e-mail should have been admitted and is taken on record. Issue 3 - Eligibility under Section 29A (clauses (c), (e), (g), (i) and (j)) Legal framework: Section 29A lists disqualifications for submission of a resolution plan; clause (c) (NPA classification) is subject to Section 240A exemption for MSMEs; clause (e) disqualifies persons statutorily barred from acting as directors; clause (g) bars promoters/management of corporate debtors where certain transactions have been found by adjudicating authority; clause (i) concerns disabilities under foreign law; clause (j) applies where a connected person is ineligible. Explanation defines 'connected person.' Precedent treatment: Courts require specific record and statutory findings to attract disqualification; activation of DIN and competent authority determinations are significant; application of Section 240A exempts MSME-related CIRPs from clauses (c) and (h). Interpretation and reasoning: (a) Clause (c): The corporate debtor was an MSME and Section 240A(1) exempts clauses (c) and (h) from application - therefore clause (c) ineligibility cannot be sustained. (b) Clause (e): Objector relied on earlier disqualification lists; SRA produced court and tribunal orders and documentation showing revival/activation under condonation schemes and an MCA e-mail confirming removal of disqualification dates; Adjudicating Authority failed to consider this material before finding disqualification - such a finding was perverse given active DIN status and authoritative communications. (c) Clause (g): Objector alleged association with transactions in a different corporate insolvency; there was no material showing the SRA had been promoter/management of the corporate debtor where the offending transactions occurred; application of clause (g) was unwarranted. (d) Clause (i): No pleading or evidence of foreign-law disability; the finding was unsupported. (e) Clause (j): No specific connected person was shown to be ineligible under clauses (a)-(i); the Adjudicating Authority gave no reasons identifying such connected person. Ratio vs. Obiter: Ratio - disqualifications under Section 29A must be founded on pleaded facts and admissible evidence; statutory exemptions (Section 240A) and authoritative records (court orders, MCA communication, active DIN status) negate claimed disqualifications. Obiter - comments on pattern of delay by objector in litigating objections. Conclusion: The Adjudicating Authority's findings of ineligibility under clauses (c), (e), (g), (i) and (j) are unsustainable; the SRA was eligible to submit the resolution plan. Issue 4 - Validity of PBG furnished by investor (Regulation 36B(4A)) Legal framework: Regulation 36B(4A) contemplates that the resolution applicant shall provide performance security as specified in the RFRP; the RFRP/Resolution Plan may specify the nature, value, source and timing of performance security and may permit relaxations in limited circumstances (e.g., associations of allottees). Precedent treatment: Implementation provisions of an approved resolution plan are to be read in light of terms of the plan and RFRP; where the plan itself contemplates third-party funding or implementation arrangements, the source of the PBG consistent with plan terms is permissible. Interpretation and reasoning: The Resolution Plan expressly identified an investor/co-developer who committed to provide funds including the PBG and additional equity/fund infusion; communications and plan terms indicated the investor furnished the PBG 'on behalf of' the SRA. The Adjudicating Authority did not advert to these plan clauses before holding a Regulation 36B(4A) breach. Where the plan itself contemplates third-party funding and the investor's obligations are contractually incorporated, acceptance of investor-provided PBG does not inherently violate Regulation 36B(4A). Ratio vs. Obiter: Ratio - compliance with Regulation 36B(4A) is to be judged against the RFRP and the approved plan's express terms; party-specification of the source of PBG that the plan contemplates is permissible. Obiter - observations criticising Adjudicating Authority's failure to read plan terms. Conclusion: Deposit of the PBG by the investor in conformity with the Resolution Plan's terms did not constitute a violation of Regulation 36B(4A) rendering the plan unimplementable. Issue 5 - Non-disclosure of criminal proceedings (Regulation 38(3)) Legal framework: Regulation 38(3) (as originally framed) required certain disclosures; however the provision was subsequently substituted to focus the resolution plan's demonstrable feasibility, viability and implementation capacity. Section 29A post-amendments links disqualification to convictions for specified offences. Precedent treatment: Courts give effect to the statutory text as in force at the relevant time; mere pendency of investigations or FIRs (without conviction where required by statute) does not automatically attract Section 29A disqualification unless constitutive of a specified clause. Interpretation and reasoning: The Adjudicating Authority relied on an earlier version of Regulation 38(3) that was not on the statute book at the time the plan was submitted; the substituted regulation does not impose the same disclosure requirement relied upon. Further, disqualification under Section 29A arises upon conviction for specified offences; the record did not disclose convictions undermining eligibility. The SRA had disclosed relevant criminal filings and the timing showed chargesheets followed the plan submission in large part; the presence of interim judicial orders further complicated any suggestion of suppression. Ratio vs. Obiter: Ratio - compliance with disclosure obligations must be judged against the regulatory text in force at plan submission; pendency of criminal proceedings absent convictions does not ipso facto render a plan non-compliant. Obiter - reproach of reliance on inapplicable regulation. Conclusion: The finding that nondisclosure of criminal proceedings rendered the plan non-compliant was unsustainable. Issue 6 - Net-worth eligibility under RFRP Legal framework: RFRP may prescribe net-worth thresholds for eligible resolution applicants; where multiple promoters act jointly and in concert as the resolution applicant, aggregate net worth of the named promoters is relevant to satisfy the eligibility requirement. Precedent treatment: Eligibility criteria in RFRP are to be applied to the resolution applicant(s) as presented in the plan; where the application is by persons acting jointly and in concert, combined resources/net worth are germane. Interpretation and reasoning: The SRA comprised multiple promoters whose individual net worth certificates were below the threshold but whose collective net worth (including the daughter/promoter) exceeded the Rs. 50 crore criterion. The objector had itself pleaded that the resolution applicants acted jointly and in concert; accordingly the aggregate net worth satisfied the RFRP requirement. The Adjudicating Authority's contrary conclusion ignored this composition and pleaded facts. Ratio vs. Obiter: Ratio - net-worth thresholds in an RFRP are satisfied by the aggregate/net worth of the resolution applicant(s) as constituted in the plan where they act jointly and in concert. Obiter - emphasis on treating pleadings consistently. Conclusion: The SRA met the RFRP net-worth eligibility criterion; the Adjudicating Authority's contrary finding was erroneous. OVERALL CONCLUSION Adjudicating Authority's order holding the SRA ineligible under multiple clauses of Section 29A, quashing the approved plan and dismissing the plan approval application was procedurally and legally unsustainable. The authorised representative's class vote lawfully effected approval under Section 25A(3A) and Section 30(4); the MCA communication should have been admitted and relied upon; ineligibility findings under clauses (c), (e), (g), (i) and (j) lack basis; investor-provided PBG, where provided for in the plan, did not breach Regulation 36B(4A); purported non-disclosure of criminal matters was not a valid ground of non-compliance in the circumstances; and the aggregate net worth satisfied the RFRP threshold. Accordingly the Adjudicating Authority's order was set aside and the plan approval application was restored for adjudication.