TaxTMI 
TaxTMI 
2020 (11) TMI 669
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.... Resolution Plan in the matter of Corporate Debtor under CIRP. The applicants/Interveners is a consortium consisting of three Resolution Applicants (RAs), viz. RA-1-Messrs Prudent ARC Ltd. (Applicant No. 3 herein); RA-2-Nikhil Narayanam (Applicant No. 1 herein); and RA-3- N Circle Exim LLP (Applicant No. 2 herein). Applicant No. 1 is the lead Member of the Consortium and is authorised to act on behalf of the Consortium in all matters related to Resolution Plan. 3. It is averred in paras 3 to 6 of the application that the main petition is pending and the Resolution Proposals made by the eligible Resolution Applicants are under consideration. The applicants herein being eligible Resolution Applicants have submitted Final Resolution Plan dated 23.05.2020. However, the Resolution Professional denied consideration thereof on the ground that Resolution Plan is not in accordance with the Request for Resolution Plan (RFRP) dated 13.01.2020 and thereby the applicants/interveners were denied access to the Meeting of CoC, through virtual mode held on 26.05.2020. 4. AVERMENTS IN THE APPLICATION: 4.1 The main petition filed by the Financial Creditor under section 7 of the I&B Code, 201....
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.....05.2020 stated that even the Revised Resolution Plan submitted to Resolution Professional on 25.05.2020 is not in compliance of RFRP, due to which the same could not be produced before the CoC and thereby the Resolution Professional denied the applicants access to the CoC Meeting dated 26.05.2020. 4.5 The applicants challenged the action of the Resolution Professional on the following GROUNDS: (A) That certain requirements contained in RFRP are arbitrary and not in consonance with fair bidding. The RFRP to be harmonious with the objectives of I&B Code. (B) That Resolution Professional failed to comprehend that Final Resolution Plan dated 23.05.2020 complies with the provisions of IBC, as the role and responsibility of each of the RA under Consortium has been specifically and mutually described for implementation of the approved Resolution Plan. (C) That Resolution Professional failed to understand that Asset Reconstruction Company (ARC) ought to follow provisions of SARFAESI Act as well as the guidelines of RBI. The ARC, for asset reconstruction, adopts one or more measures under section 9 of the SARFAESI Act. Other functions of ARC apart from securit....
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..../investing in the required equity share capital of Corporate Debtor and ownership interest and will also manage the affairs of the business, with relation to Corporate Debtor, till residual payment is paid out. (F) That the objections raised by the Resolution Professional are unreasonable and devoid of merit, as RFRP formulated by the Resolution Professional itself is flawed to the extent that major contraventions can be observed in the RFRP. The disclaimer provided in RFRP, at page No. 2, reads thus, ''Neither this document nor anything contained herein or anything contained in the Information Memorandum (defined below) or provided in the Data Room (defined below) or otherwise shall form the basis of, or be relied upon in connection with any contract, agreement, undertaking, understanding or any commitment whatsoever. This document has not been approved and will or may not be reviewed or approved by any statutory or regulatory authority in India or by any stock exchange in India or any other jurisdiction." It is contended that section 29 of the I&B Code provides that Resolution Professional to circulate Information Memorandum to all eligible resolut....
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....imeline under sub-regulation (3)" It is contended that such powers provided to Resolution Professional through RFRP would result in unfair bid process. (K) It is contended that Clauses 3.3.9, 3.3.12(v), 3.3.13(c), 3.3.14(a), 3.3.14(c), 3.3.14(d) of RFRP, run contrary to what is provided in I&B Code, 2016 and IBBI (IRPCP) Regulation, 2016. (L) The contravention under Clause 4.6 of the RFRP is mentioned in Clause (vi), page 24 of the IA. It is contended that the complete discretion and powers provided to the Resolution Professional under Clause 4.6 are against the provisions of the IBC, the IBBI Regulations, 2016, and other statutory provisions. (M) The contravention under Clause 5 of the RFRP is mentioned in Clause (vii), page 25 of the IA. It is contended that submission of Resolution Plan is for resolution of the Corporate Debtor as a going concern. The Resolution Professional has to maintain health of assets and keep running the Corporate Debtor as a going concern. The Resolution Plan needs to be viable and feasible. It is further contended that the condition imposed under Clause 5(f) of the RFRP is against the requirements of IBC, 2016. (N) It is contended on page....
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....tions/attachments. Thus, the Resolution Professional ought not to have rejected the Resolution Plan. 7. REPLY DATED 02.07.2020/17.07.2020 FILED BY THE RESOLUTION PROFESSIONAL. 7.1 It is submitted by the Resolution Professional in paras 6-8 of the reply that Resolution Professional has filed IA No. 19 of 2020 on 23.12.2019 seeking confirmation of extension of CIRP period for a total period of 330 days under section 12(3) of the Code and also sought approval of the Tribunal for re-issuance of RFRP for Corporate Debtor without first inviting EoI. The Tribunal vide order dated 31.01.2020 allowed the said IA observing that the Resolution Professional has to act basing on approval of CoC to issue new RFRP in case Resolution Plans received earlier are not satisfactory. It is therefore, for CoC to approve reissuance of request for RFRP. The Tribunal directed the Resolution Professional to act in terms of approval of the Resolution, if passed by the CoC in connection with re-issuance of RFRP. 7.2 It is submitted by the Resolution Professional in paras 9 of the reply that the Resolution Professional has received a request on 11.02.2020 from applicant No. 3 to extend timeline for sub....
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....the Resolution Professional sent email dated 24.05.2020, emphasising points (a), (b) and (c) to the Resolution Applicant and the Consortium Resolution Applicant. It is contended that the above excerpt is in contravention of RFRP, specifically: "3.3.12(b)(ix). All the members of the consortium shall be jointly and severally liable in respect of obligations under the Bid Document, the Resolution Plan and for the implementation of the Approved Resolution Plan." 7.9 It is averred in paras 25 and 26 of the Reply that the Resolution Professional was not legally empowered to present the Consortium Resolution Applicant's Resolution Plan to the CoC due to noncompliance of the Resolution Plan. It is averred that the Resolution Plan of the applicants being non-compliant was duly communicated to the CoC. The CoC refused to consider the said non-compliant Resolution Plan. 7.10 It is averred in paras 34 and 35 of the Reply that clause 3.3.12(b)(ix), "All the members of the consortium shall be jointly and severally liable in respect of obligations under the Bid Document, the Resolution Plan, and for the implementation of the Approved Resolution Plan. ..." Whereas th....
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....RC is bound to comply with the provisions of the RFRP to be an eligible Resolution Applicant and for successful submission of a Resolution Plan and its subsequent presentation to CoC. With the aforesaid submissions the Resolution Professional requests dismissal of the IA. 8. WRITTEN SUBMISSIONS OF RESOLUTION PROFESSIONAL DATED 24.07.2020. 8.1 In paras 6-12 of the Written Submissions it is averred that Resolution Professional has received multiple requests from the applicants for extension of time for submission of Resolution Plan on 08.04.2020 and 14.04.2020, which have been accepted by CoC and Resolution Professional. Consequently, the applicants were allowed to submit Resolution Plan, after extending the time limit for submission. The Consortium submitted Resolution Plan on 27.04.2020. The Resolution Professional having examined the Resolution Plan articulated his observations and 'Compliance Checklist' was shared with the Consortium Resolution Applicant vide email on 07.05.2020, seeking certain amendments/clarifications/modifications qua the Resolution Plan in order to submit a compliant Resolution Plan. The Resolution Professional shared another compliance chec....
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....ttee of Creditors. The process of evaluation is guided by the said criteria as set out in the 'Request for Resolution Plan'. If the evaluation criteria suggest that only top three 'Resolution Applicants' should be negotiated, the Appellant who ranked 6th among the 'Resolution Applicants' cannot have any right to participate for re-negotiation over the decision of the 'Committee of Creditors'. 8.7. It is further submitted that in a decision in the case of COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VS. SATISH KUMAR GUPTA & Ors. - CIVIL APPEAL NOS. 8766-67 OF 2019 ETC.", the Hon'ble Supreme Court held that the commercial aspects of a 'Resolution Plan', its viability of otherwise, and, distribution of proceeds amongst stakeholders, were to be looked only by the 'Committee of Creditors' who are competent to go through all relevant aspects. Therefore, this Appellate Tribunal cannot deliberate on such issue." 8.8 By virtue of the above decision it is contended that approval by CoC vests binding effect and the Prospective Resolution Applicants must abide by the provisions laid out in the RFRP. T....
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....objectives and intent of I&B Code. 12. The learned counsel contended that in Resolution Plan, ARC plays a specific role within the guidelines of the RBI and under the provisions of the SARFAESI Act with intent to achieve its objective of revival, rehabilitation and reconstruction of the Corporate Debtor. It looks for strategic investors willing to become promoters by investing fresh equity and at the same time control the management of the Corporate Debtor. Thus, M/s. Prudent ARC joined applicants No. 1 and 2 and proposed the Resolution Plan. The Resolution Professional failed to consider the intent of the plan to make the Corporate Debtor/company as a going concern. Consortium of applicants was formed for the sole purpose of rehabilitating the Corporate Debtor. 13. The learned counsel contended that certain clauses of RFRP are arbitrary. The learned counsel challenged the action of the Resolution Professional and contended that Resolution Plan was submitted as per the direction of the Resolution Professional. The Resolution Plan was submitted within the time limit. However, it was rejected on the ground that the Plan was not complying with the RFRP Guidelines. It is the case....
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....ution Applicant did not conform to the objections raised in the First Compliance Check List. Again Second Compliance Check List was shared with the Resolution Applicant and revised Resolution Plan was submitted on 22.05.2020. Again the Resolution Professional shared Third Compliance Check List seeking certain amendments/modifications to the Resolution Plan and finally the Third Resolution Plan was received on 23.05.2020 and this Plan was also not in conformity with the RFRP. The learned counsel contended that certain clauses in the Resolution Plan are in conflict with the provisions of the RFRP, which are as under: "(a) On page 1 of the resolution plan dated 23.05.2020, Clause 1 states: "The Resolution Applicant SPV shall not unilaterally change/withdraw the Resolution Plan once submitted to the RP in case there is no Material Adverse Change from the Information Memorandum dated June 2019 provided to the Resolution Applicant." The above excerpt is in contravention of the RFRP. specifically: 3.3.6 The Resolution Applicant cannot unilaterally change/withdraw the Resolution Plan once submitted to the Resolution Professional. (a) On page 10 of the Co....
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....said decision reads as under: "9. It is a settled law that the 'Resolution Applicant' has no right for renegotiation or further negotiation. After submission of the 'Resolution Plan', if it is found in order and in accordance with Section 30(2), it is required to be placed before the 'Committee of Creditors. The process of evaluation is guided by the said criteria as set out in the 'Request for Resolution Plan'. If the evaluation criteria suggest that only top three 'Resolution Applicants' should be negotiated, the Appellant who ranked 6th among the 'Resolution Applicants' cannot have any right to participate for re-negotiation over the decision of the 'Committee of Creditors'. 10. In "Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta & Ors.-- Civil Appeal Nos. 8766-67 of 2019 etc.", the Hon'ble Supreme Court held that the commercial aspects of a 'Resolution Plan', its viability or otherwise, and, distribution of proceeds amongst stakeholders, were to be looked only by the 'Committee of Creditors' who are competent to go through all relevant....
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.... the requirement of RFRP that the Resolution Applicant cannot unilaterally change/withdraw Resolution Plan once it is submitted to the Resolution Professional. According to the Resolution Plan filed by the Resolution Applicants, M/s. Prudent ARC, they will not participate in the equity as per the extent of RBI Guidelines. It is further the contention of the Resolution Professional that the said clause in the Resolution Plan is in contravention of Clause 3.3.12(vii) of the RFRP, which provides that, "(vii) The consortium shall collectively hold entire (100%) share capital and the ownership interest in the SPC if SPC is formed." 21. The Resolution Professional has specifically stated that in the Resolution Plan filed by the applicants, sections 5.4 and 5.5 provide that only RA-2 and RA-3 are responsible and liable for any and all the obligations under the RFRP and for implementation of the Resolution Plan. Clause 5 in the Financial Proposal states that the RA1 is responsible only to the extent of purchasing the debt but will not be liable in the event of any failure to implement the Plan, managing the affairs of the Corporate Debtor. 22. It is the case of the Resolu....