AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1319
X X X X Extracts X X X X
X X X X Extracts X X X X
....te Insolvency Resolution Process' of Metalyst Forgings Ltd. (Corporate Debtor) the Resolution Plan submitted on 13th April, 2018 by 'Deccan Value Investors LLP' and 'DVI PE (Mauritius) Limited' was approved by the 'Committee of Creditors' on 28th August, 2018. 2. The Resolution Professional placed the 'Resolution Plan' before the djudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai for its approval under Section 31 of the 'Insolvency and Bankruptcy Code, 2016' ('I&B Code', for short). 3. In the meantime, the 'Resolution Professional' vide its letter dated 15th October, 2018, called upon the 'Deccan Value Investors LLP' ('Deccan', for short) to submit the performance guarantee. In reply to such demand of Performance Guarantee, Deccan, vide its letter dated 17th October, 2018 conveyed its decision to withdraw the Resolution Plan and filed for approval by the Adjudicating Authority. 4. Miscellaneous Application No. 956 of 2018 was filed by the Resolution Professional for approval of the 'Resolution Plan' of Deccan. In the said case, the Deccan also moved an application under Section 60(5) of the 'I&B Code' in MA No. 1272/2018 for withdrawal of the plan. 5. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thority is an erroneous exercise of such powers vested under the 'I&B Code'. STAND OF THE COMMITTEE OF CREDITORS 12. Learned counsel for the 'Committee of Creditors' submitted that the Adjudicating Authority's powers with respect to an application filed under Section 31 of the 'I&B Code' are circumscribed by Section 30(2) of the 'I&B Code' and, therefore, besides the jurisdiction to either approve a 'resolution plan' which passes the muster of the limited prescriptions prescribed under Section 30(2) or reject a resolution plan on any of the grounds elucidated in sub-section (a) to (e) of Section 30(2) of the 'I&B Code', the Adjudicating Authority has no jurisdiction for entertaining / allowing an application for the withdrawal of a resolution plan subsequent to approval of the resolution plan by the 'Committee of Creditors'. 13. He further submits that the impugned order is also erroneous insofar as it treads on exclusive domain of the 'Committee of Creditors' to examine and decide on the feasibility and viability of the 'approved resolution plan'. 14. He also submits that it is a settled position of law that the Adjudicating Authority being a creature of a statute (such as un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... component of the resolution plan could not be installed on Metalyst's land and needed to be installed on the land of sister concern (undergoing CIRP); (iv) Metalyst's historical financials were inaccurate and presented a false picture of its operations and turnover; (v) Reports of a transaction audit and a forensic audit revealed that practically 39% of the sales in the review period had been made to related parties and huge write-offs had been done during the three year period of January 2014 to December 2016; (vi) The Resolution Professional asserts that he only provided the information available with him and could not be expected to verify it. He also asserts that Deccan should have done its own due diligence. The said submission is misplaced as the information available with Deccan was only that on the VDR, which the resolution applicants were entitled to rely upon. There was no public source of information that would enable Deccan to ascertain production capacity. 16. He further submits that under Section 60(5) of the 'I&B Code', the Adjudicating Authority is required to consider the questions of fact raised i.e. whether Deccan has been misled in the course of the 'Cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd visited various plant sites of the Corporate Debtor. It is alleged that Deccan came to know material and contradictory information regarding production capabilities of the Corporate Debtor which has the material impact on the viability of the resolution plan. 23. In the aforesaid background, the 'Resolution Professional' vide letter dated 15th October, 2018 called upon Deccan to submit the guarantee and in reply, the Deccan intimated vide letter dated 17th October, 2018 conveyed its decision to withdraw the Resolution Plan and filed for approval by the Adjudicating Authority. 24. As per Section 30(6), the 'Resolution Professional' is required to submit the plan as approved by the 'Committee of Creditors' to the Adjudicating Authority. 25. Section 31 relates to approval of the 'resolution plan' as under: "31. Approval of resolution plan. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rritorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or bankruptcy of a personal guarantor of such corporate debtor shall be filed before such National Company Law Tribunal. (3) An insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor. (4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2). (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tatute is designed to be workable, and the interpretation thereof should be designed to make it so workable........." 76. Given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage. A writ petition under Article 226 filed before a High Court would also be turned down on the ground that no right, much less a fundamental right, is affected at this stage. This is also made clear by the first proviso to Section 30(4), whereby a Resolution Professional may only invite fresh resolution plans if no other resolution plan has passed muster. xxx xxx xxx 79. Take the next stage under Section 30. A Resolution Professional has presented a resolution plan to the Committee of Creditors for its approval, but the Committee of Creditors does not approve such plan after considering its feasibility and viability, as the requisite vote of not less than 66% of the voting share of the financial creditors is not obtained. As has been mentioned hereinabove, the first proviso to Section 30(4) furnishes the answer, which is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... MM Report Projected by the Applicants in Deccan Resolution Plan Actual position 210,747 110,000 Approx. Maximum 66,000 33. It was shown by Deccan that the financial and technical documents and data in relation to the Corporate Debtor was discrepant and false, as the Financial Statements for the Financial Years 2015-16 and 2016-17 and the Provisional Financial Statements for the period April 2017 to December 2017 were provided in the VDR for the Resolution Applicants for undertaking their due diligence. But these statements, as per the Resolution Professional and the 'Committee of Creditors', are discrepant, unreliable and contain false information since they are being subjected to the transaction and forensic audit. Therefore, any reliance upon these statements is said to have vitiated Deccan's Resolution Plan. 34. The Adjudicating Authority noticed that the income tax returns of the company for the Financial Year 2015-16 and Financial Year 2016-17 do not indicate trading operations. The audited financial statements of the Corporate Debtor also, do not indicate any trading operations at all. The Corporate Debtor was represented as a primarily manufacturing company to the Bi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itor's committee can apply to the Adjudicator to appoint a new RP to replace the interim RP. The RP must be chosen by a majority vote in the creditor's committee for the Adjudicator to accept the application. ............................................. The RP becomes the manager of the negotiation between the debtor and the creditors in assessing the viability of the entity. In this role, she has the responsibility of managing all information so that debtors and creditors are equally informed about the business in the negotiations. Finally, she is responsible for inviting and collecting proposals of solutions to keep the entity going. In this role, she is responsible for managing the process through which to invite proposals from the overall financial market, rather than just the creditors and debtor. The Committee discussed that this could include other potential market participants, such as other financial institutions, asset reconstruction companies, foreign financiers, strategic investors, other firms and minority shareholders in the entity. Part of the task of the RP is to ensure as much equality of information about the entity to all participants in the negotiations as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Finally, the RP is responsible for calling the creditors committee to evaluate the submitted proposals. She has a role to play in discussing and ranking the proposals in terms of how to maximise enterprise value. As a first stage filter, she must ensure that all the proposals have clarity on how the IRP costs and the liabilities of the operational creditors will be treated and that all parts of the proposed solutions are consistent with the relevant laws and regulations. But she must leave the choice of final solution to selection by the majority vote from the creditors Committee". 37. In the aforesaid background, the Adjudicating Authority held that the 'Resolution Professional' was duty bound to provide the list updated information about the entity as accurately as is reasonably feasible and possible to the range of solution providers. In 'Mobilox Innovations (P) Ltd. vs. Kirusa Software (P) Ltd.' - (2018) 1 SCC 353' while tracing the background of the I&B Code, referred to the "Legislative Guide on Insolvency Law of the United Nations Commission on International Trade Law" and the following pertinent provisions/clauses thereof: "11. An insolvency law should be transparent a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r prior to submission of the resolution plan. The said site visit in no manner would enable the Applicants to assess the technical capacity of the Corporate Debtor correctly, and this visit does not give/afford any basis to the Resolution Professional and the CoC to assert that there was either full knowledge or awareness on the part of the Applicants, considering that the Resolution Professional himself states that even a six month period was insufficient to conduct due diligence." 39. In the aforesaid background, the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench rightly observed that the 'Insolvency and Bankruptcy Code' do not confer any power and jurisdiction on the Adjudicating Authority to compel specific performance of a plan by an unwilling resolution applicant. 40. In absence of fact that there was any procedural infirmity and having not proceeded in the manner as was required, we hold that the plan approved was violative of Section 30(2)(e) of the 'I&B Code', having contravened the provisions of the 'I&B Code'. 41. For the said reasons, the plan approved by the 'Committee of Creditors' under sub-section (4) of Section 30 of the 'I&B Code' and reje....