TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 689
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....ed Resolution Plan by 31st December 2019 and conclude the process, ignoring the approval of the Resolution Plan by the Committee of Creditors (in short 'CoC') with a vote share of 84.70 per cent. All these three Appeals are against the common order; therefore, for the sake of convenience, they all are being decided together. 2. The Appellant in Appeal No. 1490 of 2019 is challenging the legality of the impugned order on the ground: ♦ That the Appellant herein is the successful resolution applicant, whose Resolution Plan has been approved by the Committee of Creditors with 84.70% of voting share. ♦ The Appellant contends that after the approval of the resolution plan by the CoC, the RP filed the same before the Adjudicating Authority for its approval under section 31 of the I&B Code, 2016. But during the hearing for the approval of Resolution Plan, the two other unsuccessful Resolution Applicants preferred C.A. No. 1577/KB/2019 and C.A. No. 1690/KB/2019 before the Adjudicating Authority. It further contends that the Adjudicating Authority ignored the settled position of law and had reversed the commercial decision of CoC. ♦ The Appellant herein is th....
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.... process of approval of the Resolution Plan. 5. The Appellant of Company Appeal No. 78 of 2020 contends that the prospective resolution applicant has a right to receive complete information as to the Corporate Debtor, debts owed by it, and its activities as a going concern before the commencement of CIRP. In the instant case, the Appellant was not given an opportunity, and hence the whole process is biased towards H1 bidder. 6. The Appellant further contends that there is a complete bypass of the provisions of sub-regulation (5) of Regulation 36B and sub-Regulation (2) of Regulation 39 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process) for Corporate Persons Regulation, 2016. It is further contended that the Respondent No. 1 has not complied with the provisions of Section 30(2) and further, Section 30(4) of the Code that mandatorily requires the CoC to comply with the provisions of maximization of assets before approval. Since the CoC in the instant case has overlooked the maximization of assets and as such, the Adjudicating Authority has all the right to interfere under section 31 of the Code. The appellant has placed reliance on the judgment of the Hon....
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....e defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under section 22 of the Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the ....
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....de, it would appear that the remedy of appeal under section 61(1) is against an "order passed by the adjudicating authority (NCLT)", which we will assume may also pertain to recording of the fact that the proposed resolution plan has been rejected or not approved by a vote of not less than 75% of voting share of the financial creditors. Indubitably, the remedy of appeal including the width of jurisdiction of the appellate authority and the grounds of appeal, is a creature of statute. The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order "approving a resolution plan" under section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers "by the resolution professional" during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been ....
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....roach of the dissenting financial creditors in rejecting the proposed resolution plan or to engage in judicial review thereof. Concededly, the inquiry by the resolution professional precedes the consideration of the resolution plan by CoC. The resolution professional is not required to express his opinion on matters within the domain of the financial creditors), to approve or reject the resolution plan, under section 30(4) of the I&B Code. At best, the adjudicating authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I&B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors - be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the appellate authority (NCLAT) is limited to the grounds under section 61(3) of the I&B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting. To take any other view would enable even the minority dissenting financial creditors to....
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....isions investing jurisdiction and authority in the NCLT or NCLAT as noticed earlier, has not made the commercial decision exercised by the CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order "approving a resolution plan" under section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers "by the resolution professional" during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board. Significantly, the matters or grounds - be it under section 30(2) or under section 61(3) of the I&B Code - are regarding testing the validity of the "approved" resolution plan by the CoC; and not for approving the resolutio....
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....editors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar (supra). 49. The argument, though attractive at the first blush, but if accepted, would require us to re-write the provisions of the I&B Code. It would also result in doing violence to the legislative intent of having consciously not stipulated that as a ground - to challenge the commercial wisdom of the minority (dissenting) financial creditors. Concededly, the process of resolution plan is necessitated in respect of corporate debtors in whom their financial creditors have lost hope of recovery and who have turned into non-performer or a chronic defaulter. The fact that the concerned corporate debtor was still able to carry on its business activities does not obligate the financial creditors to postpone the recovery of the debt due or to prolong their losses indefinitely. Be that as it may, the scope of enquiry and the grounds on which the decision of "approval" of the resolution pla....
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....e logic or justness of the commercial opinion expressed by the majority of the financial creditors albeit by requisite percent of voting share to approve the resolution plan; and in the process authorize the adjudicating authority to reject the approved resolution plan upon accepting such a challenge. That is not the scope of jurisdiction vested in the adjudicating authority under section 31 of the I&B Code dealing with approval of the resolution plan." 13. Further, the Hon'ble Supreme Court in case of Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Others Civil Appeal No. 4242 of 2019 judgment dated 22nd January 2020 has held that: "28. The Appellate Authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjud....
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....itors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. 14. In the instant case, the Adjudicating Authority has overturned the decision of the CoC regarding approval of the Resolution Plan despite being approved by 84.70 percent of the vote share of the CoC, on the pretext of maximisation of value of the corporate debtor. The provisions investing jurisdiction and authority in the NCLT has not made the commercial decision exercised by the CoC of not approving the resolution plan or rejecting the same, justiciable. In the circumstances as stated above, it is clear that the Adjudicating Authority cannot interfere with the commercial wisdom of CoC. The direction for rebidding for maximisation of the value of the corporate debtor also amounts to an interference in the business decision of the CoC, which is not permitted in law. 15. Thus it is clear that the Adjudicating Authority is having limited power of judicial scrutiny under s....
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....higher than the bid approved for H1, i.e. Rs. 89.86 crores. Thus, the figure of the Appellant was the highest, but the same had not been considered. 20. The object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of Sub-sections (2) and (4) of Section 30 thereof. 21. The ground that the bid amount is below the fair market value of the corporate debtor also fails in the light of the decision of the Hon'ble Supreme Court in case of Maharashtra Seamless (supra) wherein the Hon'ble Supreme Court has noted that "the Appellate Authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis." 22. Thus, in the ligh....