TaxTMI 
TaxTMI 
2020 (8) TMI 793
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....irector of 'M/s. Empee Distilleries Limited'- ('Corporate Debtor'). He is aggrieved of the impugned order dated 20th January, 2020 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai by virtue whereof the Adjudicating Authority allowed MA/780/2019 in CP/280/IB/2018 approving the Resolution Plan of 'SNJ Distilleries Limited'- (Successful Resolution Applicant) and dismissed MA/1250/2019 in CP/280/IB/2018 filed by the Promoter/ Director, seeking direction in the name of 'Financial Creditors' as also 'Union Bank of India' to submit Form FA in regard to the Settlement Plan to the Resolution Professional and Committee of Creditors, on the ground that the Promoter/ Director had failed to comply with the direction of this Appellate Tribunal and the Hon'ble Apex Court. 2. For better understanding of the controversy involved in this appeal, it is apt to have comprehensive view of the factual matrix of the subject matter. An application came to be filed by the Union Bank of India under Section 7 of the Insolvency and Bankruptcy Code, 2016 ('I&B Code', for short) for initiating Corporate Insolvency Resolution Process qua 'M/s. Empee Distilleries Lim....
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.... if the Committee of Creditors arbitrarily rejects a settlement plan, the Adjudicating Authority and this Appellate Tribunal can set aside such decision under Section 60 of the 'I&B Code'. By virtue of the summary dismissal of MA/1250/2019 liberty granted by this Appellate Tribunal and the Hon'ble Apex Court to the promoters for substantial consideration and comparison of their settlement plan, has been arbitrarily nullified. It is further submitted that the settlement plan of Appellant met all the parameters and could not be rejected on technical grounds without consideration of the merits of the plan. As regards the Resolution Plan of Successful Resolution Applicant, it is submitted that the mandatory procedure laid down in "Vijay Kumar Jain v. Standard Chartered Bank & Ors.- (2019) SCC OnLine SC 103" was violated and the suspended board was not allowed representation in the meeting approving the same. It is submitted that the declared net worth of the Successful Resolution Applicant is Rs. 182.45 Crores whereas the proposed amount under the Resolution Plan is Rs. 475 Crores. It is contended that the proposed payments may be made by infusing tainted and unaccounted money thereby ....
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.... legal process. It is submitted that the Settlement Plan of the promoters of the Corporate Debtor was not submitted in Form FA accompanied with requisite Bank Guarantee as per Regulation 30A (2) of the IB Regulations, 2016 for withdrawal of application under Section 12A of the 'I&B Code'. Besides no credible source of funds was provided for the Settlement Plan. It is further submitted that the Settlement Plan sought concession, relief, deemed consent and approvals though the same was not a Resolution Plan. It is further submitted that after comparison of the Settlement Plan with the Resolution Plan, the Committee of Creditors arrived at the unanimous decision that the Resolution Plan was better than the Settlement Plan and the Settlement Plan was not acceptable to it. It is submitted that the Union Bank of India had taken stand in Committee of Creditors' meeting on 4th November, 2019 that it had neither appropriated the amount of Rs. 12.65 Crores nor accepted it as full and final settlement of all the dues of the Appellant and had kept the amount in sundry account. It is further submitted that the same has no relevance to the present case as the rejection of the Settlement Plan was....
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....s of the court and the delay does not deserve to be condoned. It is further submitted that multiple litigations have been filed by the Appellant to stall the approved Resolution Plan. Reference is made to 13 different litigations in connection with the Corporate Insolvency Resolution Process under the ruse of a settlement offer. It is submitted that the settlement offer emanating from a Promoter and Managing Director of the Corporate Debtor is an attempt of defeating the Resolution Process when the Resolution Plan of the Successful Resolution Applicant has been approved by 100% vote shares of the Committee of Creditors members. It is further submitted that expression of interest was invited twice and on both occasions the Resolution Applicant was directed to improve its offer in comparison to the competing bidders. Finally the Resolution Plan was approved unanimously on 04th November, 2020. Approval from the Adjudicating Authority came on 20th January, 2020 i.e. after almost 15 months since initiation of Corporate Insolvency Resolution Process, delay having been occasioned on multiple occasions by the Appellant. It is further submitted that the Settlement Plan of the Appellant has ....
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....esolution Plan, prescribes a period of 30 days for filing of such appeal. This period is extendable by 15 days if this Appellate Tribunal is satisfied that there was sufficient cause for not filing the appeal within the prescribed period. It is indisputable that the period of limitation prescribed under Section 61(2) is a special provision which overrides the provisions of Companies Act dealing with appeals and period of limitation prescribed therein. A plain reading of the provisions contained in Section 61(2) makes it amply clear that ordinarily an appeal preferred against an order of the Adjudicating Authority under Part-II of the 'I&B Code' is required to be filed within 30 days and only in exceptional circumstances when this Appellate Tribunal is satisfied that Appellant was prevented by any sufficient cause from preferring the appeal that the period of limitation can be extended but such period shall not exceed 15 days. Therefore, it has to be seen whether the appeal, if not preferred within the prescribed period of 30 days, has been preferred within the extended period of 45 days and if so, whether the explanation offered for delay in preferring the appeal does constitute a ....
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....he appeal. Viewed thus objection in regard to appeal being filed beyond the extended period of limitation has no substance and the same is overruled. 9. Yet another aspect of this issue is whether the Appellant has carved out a sufficient cause for condoning the delay of 14 days and for extension of period of 14 days beyond the prescribed period of 30 days in filing the appeal. It is not in controversy that the Corporate Insolvency Resolution Process under the 'I&B Code' is a time bound process and strict compliance of the timelines and adherence to the Schedule in terms of the prescribed Regulations has to be insisted upon. In the instant case, the Appellant received the copy of the impugned order on 27th January, 2020. It is brought to our notice that on the same day the Appellant filed Writ Petition No. 1926/2020 before the Hon'ble High Court of Madras though in para 10 of the Memo of Appeal the Appellant has declared that he has not previously filed any Writ Petition with regard to the impugned order. Same is true in respect of para 6 of the Memo of Appeal wherein the Appellant has declared that the appeal is filed within the prescribed time from the date of uploading of imp....
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....ion dated 1st November, 2018. By virtue of order dated 29th July, 2018, the Adjudicating Authority declined to set aside the order of admission with observations that settlement with all the Creditors with approval of 90% of the voting shares of the Committee of Creditors would be the proper course to be adopted within the mechanism of Section 12A subject to filing of an application by the Union Bank of India for withdrawal of application under Section 7 of the 'I&B Code'. The order dated 29th July, 2019 passed by the Adjudicating Authority came to be assailed before this Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 921 of 2019 which was decided on 6th September, 2019 against the Appellant with observations that there was no illegality in the impugned order. However, this Appellate Tribunal granted liberty to the Appellant to move an application under Section 12A for settling the claims of all the creditors including the guarantors. This Appellate Tribunal, taking note of the submissions made on behalf of the Financial Creditor- Union Bank of India that the Resolution Plan has already been approved by the Committee of Creditors, further observed:- "9. If an a....
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....e assurance that Appellant will settle the dues with other creditors. However, the Bank has declined to accept the request of Appellant to issue Bank Guarantee for Rs. 10.79 Crores towards Corporate Insolvency Resolution Process cost from the amount received, same being not in consonance with its stand before this Appellate Tribunal and the Hon'ble Apex Court. Page 138 of the appeal paper book is the communication from the Appellant to the Resolution Professional requesting for re-scheduling the meeting of Committee of Creditors from 4th November, 2019 to 15th November, 2019 to enable it to participate in the meeting while submitting that to discharge its obligation of arranging the Bank Guarantee it was raising money by redemption of investments which was likely to be settled by 4th November, 2019 and he undertook to transfer Rs. 10.79 Crores towards Corporate Insolvency Resolution Process cost to Union Bank of India to facilitate issuance of Bank Guarantee as mandated under Corporate Insolvency Resolution Process Regulations. It further emerges from Page 152 (Annexure-A18) that only a Settlement Plan dated 30th October, 2019 as submitted by the promoters of 'M/s. Empee Distilleri....
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....nt is misplaced as the Settlement Plan has been unanimously rejected by the Committee of Creditors after due deliberations and application of mind. Note dated 31st October, 2019 submitted by the Resolution Professional in regard to comparison of the Successful Resolution Plan with the Settlement offer of the Appellant forming Pages 142-151 of the appeal paper book clearly brings it to fore that upon completing analysis, Resolution Plan was found better than the Settlement offer. Three reasons assigned for non-acceptance of the Settlement offer, as already noticed, are that it did not disclose source of funds besides being ambiguous in regard to instalments plan for payment of Rs. 124 Crores towards tax liabilities and for containing waivers and reliefs etc. like that of a Resolution Plan which could not be the conditions incorporated in a Settlement offer. The Settlement Plan was rejected by the Committee of Creditors in presence of the representatives of the Appellant in its meeting dated 4th November, 2019. Wading through pages 152-163 of the appeal paper book, it emerges that apart from the procedural non-compliances, the Settlement Plan submitted by the Appellant was found not ....
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....en enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the 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....
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.... viability of the enterprise is a matter of business, and that matters of business can only be negotiated between creditors and debtor. While viability is assessed as a negotiation between creditors and debtor, the final decision has to be an agreement among creditors who are the financiers willing to bear the loss in the insolvency. (2) The legislature and the courts must control the process of resolution, but not be burdened to make business decisions. (3) The law must set up a calm period for insolvency resolution where the debtor can negotiate in the assessment of viability without fear of debt recovery enforcement by creditors. (4) The law must appoint a resolution professional as the manager of the resolution period, so that the creditors can negotiate the assessment of viability with the confidence that the debtors will not take any action to erode the value of the enterprise. The professional will have the power and responsibility to monitor and manage the operations and assets of the enterprise. The professional will manage the resolution process of negotiation to ensure balance of power between the creditors and debtor, and protect the rights of....
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....ated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality. The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the I&B Code. 56. For the same reason, even the jurisdiction of Nclat being in continuation of the proceedings would be circumscribed in that regard and more particularly on account of Section 32 of the I&B Cod....
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....al 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 CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by CoC in exercise of its business decision. 58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (Nclat) is also expressly circumscribed. It ....
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....the Code mandates that the Committee of Creditors shall comprise all financial creditors of the corporate debtor. "Financial creditors" are defined in Section 5(7) of the Code as meaning persons to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. "Financial debt" is then defined in Section 5(8) of the Code as meaning a debt along with interest, if any, which is disbursed against the consideration for the time value of money. "Secured creditor" is separately defined in Section 3(30) of the Code as meaning a creditor in favour of whom a security interest is created and "security interest" is defined by Section 3(31) as follows: "3. Definitions. - In this Code, unless the context otherwise requires. - xxx xxx xxx (31) "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: ....
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....ommittee. Other than the majority vote of the creditors committee, the Resolution Professional needs to confirm to the Adjudicator that the final solution complies with three additional requirements. The first is that the solution must explicitly require the repayment of any interim finance and costs of the insolvency resolution process will be paid in priority to other payments. Secondly, the plan must explicitly include payment to all creditors not on the creditors committee, within a reasonable period after the solution is implemented. Lastly, the plan should comply with existing laws governing the actions of the entity while implementing the solutions. xxx xxx xxx 5.3.1 Steps at the start of the IRP 4. Creation of the creditors committee The creditors committee will have the power to decide the final solution by majority vote in the negotiations. The majority vote requires more than or equal to 75 percent of the creditors committee by weight of the total financial liabilities. The majority vote will also involve a cram down option on any dissenting creditors once the majority vote is obtained...The Committee deliberated on who should be on th....
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....s of how the various objectives can best be achieved. Some creditors, such as major customers or suppliers, may prefer continued business with the debtor to rapid repayment of their debt. Some creditors may favour taking an equity stake in the business, while others will not. Typically, therefore, there is a range of options from which to select in a given case. If an insolvency law adopts a prescriptive approach to the range of options available or to the choice to be made in a particular case, it is likely to be too constrictive. It is desirable that the law not restrict reorganization plans to those designed only to fully rehabilitate the debtor; prohibit debt from being written off; restrict the amount that must eventually be paid to creditors by specifying a minimum percentage; or prohibit exchange of debt for equity. A nonintrusive approach that does not prescribe such limitations is likely to provide sufficient flexibility to allow the most suitable of a range of possibilities to be chosen for a particular debtor. xxx xxx xxx 20. Rather than specifying a wide range of detailed information to be included in a plan, it may be desirable for the insolvency law ....
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.... corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case the corporate debtor is a company; (d) record any change in the ownership interest of the corporate debtor; (e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting; (f) undertake any related party transaction; (g) amend any constitutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties; (j) make any change in the management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of credi....
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.... as it deems fit." 41. This Regulation fleshes out Section 30(4) of the Code, making it clear that ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such creditors to be the best resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants. 42. In K. Sashidhar (supra), the role of the Committee of Creditors in the corporate resolution process was laid down by this Court thus: "20. The CoC is constituted as per Section 21 of the I&B Code, which consists of financial creditors. The term 'financial creditor' has been defined in Section 5(7) of the I&B Code to mean any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Be it noted that the process of insolvency resolution and liquidation concerning corporate debtors has been codified in Part II of the I&B Code, comprising of seven Chapters. Chapter I predicates that Part II shall apply in matters relating to the insolvency and liquidation of corporate debtor where the minimum amount of defaul....
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....ting to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database." xxx xxx xxx 39. As aforesaid, upon receipt of a "rejected" resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC muchless to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the 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 protecti....
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...., electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place. Jurisdiction of the Adjudicating Authority and the Appellate Tribunal 45. As has already been seen hereinabove, it is the Adjudicating Authority which first admits an application by a financial or operational creditor, or by the corporate debtor itself under Section 7, 9 and 10 of the Code. Once this is done, within the parameters fixed by the Code, and as expounded upon by our judgments in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and Macquarie Bank Ltd. v. Shilpi Cable Technologie....
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.... which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides: (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors 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. The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution ....
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....r 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 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....
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.... than the specified percent (25% in October, 2017; and now after the amendment w.e.f. 06.06.2018, 44%). The inevitable outcome of voting by not less than requisite percent of voting share of financial creditors to disapprove the proposed resolution plan, de jure, entails in its deemed rejection. xxx xxx xxx 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 th....
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....editors to question the 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." 48. Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, 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. However, Shri Sibal exhorted us to hold that K. Sashidhar (supra) missed a very vital provision of the Code which is contained in Section 60(5) of the Code. Section 60(5) reads as follows: "60. Adjudicating Autho....
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....his Appellate Tribunal is limited to the grounds under Section 61(3) of the 'I&B Code'. In the instant case, it is not disputed that the Successful Resolution Plan, apart from disclosing the source of funds in the form of infusion by the Resolution Applicant and receivables from Government has passed the muster before the Committee of Creditors and has been found better than the Settlement Plan offered by the Appellant/ promoter which was found lacking on many material aspects. A cursory look at the Resolution Plan reveals that apart from being viable it also takes care of the various stakeholders with Financial Creditors, workmen and employees and the statutory dues having their debt settled at 100% and Operational Creditors intended to be settled at 100% being currently paid 59% of their debts. That apart, an amount of Rs. 7 Crore over and above the payout has been set aside as Contingent Liability Fund. This would, therefore, clearly indicate that the Successful Resolution Plan maximises the assets of the Corporate Debtor and balances the interest of all stakeholders. 16. On a careful consideration of the contentions raised in this appeal in the context of relevant considerat....