TaxTMI 
TaxTMI 
2019 (9) TMI 1556
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....6 ('I&B Code') seeking cancellation of the process of submission, finalisation and filing of the resolution plan for approval of this Adjudicating Authority as being vitiated by misrepresentation and/or mutual mistake of fact and also seeking stay on encashment of Bid Bond Guarantee. 2. It is stated in the Application that on 20.04.2018 Deccan had submitted a Bid Bond Guarantee dated 13.04.2018 for Rs.40crore as required under the Process Memorandum. Subsequently, Deccan submitted its resolution plan on 30.04.2018, and the plan was approved by the Committee of Creditors (CoC) on 28.08.2018. 3. It is stated that on 04.09.2018, 05.09.2018, 08.10.2018 and 09.10.2018 the representatives of Deccan conducted various meetings with the Resolution Professional and the management of the Corporate Debtor and visited various plant sites of the Corporate Debtor during which it is alleged that Deccan came to know material and contradictory information regarding production capabilities of the Corporate Debtor that are said to have material impact on the viability of the resolution plan. 4. The Resolution Professional, vide its letter dated 15.10.2018, called upon Deccan to submit the per....
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....ion plan on account of fraud, non-disclosure and misrepresentation of facts. 9. It is submitted that Deccan are merely seeking time to negotiate and submit revised resolution plan in light of new material facts and circumstances and the CoC shall not encash the Bid Bond Guarantee as it would be highly detrimental to Deccan. 10. The Resolution Professional has filed its Affidavit in Reply date 07.12.2018stating that this application by Deccan is an attempt to renegotiate the terms of its approved resolution plan, which is conclusive and binding. It is submitted that ambit of examination, by the Adjudicating Authority, of an application under section 31 is limited and cannot be expanded beyond those stipulated in the section to decide disputed questions of fact and any triable issues. It is further submitted that the I&B Code does not have any provision for withdrawal of a resolution plan in contrast with the section 12A that provides for the withdrawal of application filed under section 7, 9 or 10 of I&B Code. 11. The Resolution Professional had prepared a data room for ease of access to data by the potential resolution applicants to enable them to make an informed decision....
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.......................................................... 40. In this background, while we hold that this appeal preferred by 'Tata Steel Limited' is premature, uncalled for, in absence of any final decision taken by the Adjudicating Authority under Section 31, this appeal is not maintainable" 14. It is further submitted that, in case of Arcelor Mittal India Private Limited v. Satish Kumar Gupta &Ors. (Civil Appeal Nos. 9402-9405 of 2018 etc.), the Hon'ble Supreme Court has held: "75. What has now to be determined is whether any challenge can be made at various stages of the corporate insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage, is it open to the concerned resolution applicant to challenge the Resolution Professional's rejection? It is settled law that a statute 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 p....
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....etermination made by the Adjudicating Authority. The non-obstante clause in Section 60(5) is designed for a different purpose: to ensure that the NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings." 15. Given the above, it is submitted that in terms of the Code, a Resolution Plan can only be challenged, once the resolution plan has not only been approved by the Committee of Creditors but has also passed the muster before the Adjudicating Authority. In view thereof, Deccan has no right to challenge, withdraw or modify the resolution plan, pending the adjudication of the Adjudicating Authority. 16. It is submitted that Deccan, by participating in the process for submission of the Resolution Plan, is bound by the terms of the Process Note which is "irrevocable and binding on the Shortlisted Applicant". Further, the Resolution Applicants cannot unilaterally change/withdraw the financial bid or resolution plan, once the same has been submitted to the Resolution Professional. Moreover, the Resol....
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....3 M.T. (which would potentially annualise to around 42,156 M.T.) of production done in March 2018. Deccan was also informed that this was above the average production of 3059 M.T. (which would potentially annualise to around 36,078 M.T.). 22. However, it was made clear that Deccan, vide their independent due diligence is required to ascertain the production capacity of the Corporate Debtor, based on the details of the machinery provided and after conducting a physical inspection at the site of the condition of the equipment, if necessary along with their specialised/advisory experts. 23. The Resolution Professional also gave detailed financial information with the plant-wise profit and loss statements, including specific classification of the revenues for the year 2015-16 and 2016-17 and for the six months up to September 2017 into "Manufacturing" and "Trading/Metals". These were part of the "H.O. Model" placed in the VDR and made available to all potential Resolution Applicants. 24. Based on the information available and their due diligence exercise, Deccan, with the aid of their experts, submitted their Resolution Plan. For their calculation purposes, Deccan appear to ha....
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....otential resolution applicants, the Resolution Professional had negotiated and agreed to a lease agreement between the Corporate Debtor and Clover. 30. The Resolution Professional has opposed Deccan's case that since corporate insolvency resolution process has been commenced with respect to Clover, the press may not be available for Deccan, and this has led to the Resolution Plan of Deccan being impossible to be implemented as an attempt to resile from binding and irrevocable Resolution Plan approved by the COC. 31. It was pointed out that as per Resolution Professional's understanding, Deccan itself has participated in the CIRP process of Clover and has submitted an expression of interest for Clover. Further, as is admitted by each party, the Resolution Professional had negotiated and agreed to a lease agreement between Corporate Debtor and Clover. The Clover land could also be made available to Deccan using a simple application in the CIRP of Clover by Deccan. 32. It is submitted that Deccan had arranged an inspection of 12,500 Ton press by the SMS team, which was facilitated by the Resolution Professional in good faith. The SMS team stated during their visit to Aurangab....
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....or any Person on behalf of Resolution Professional, shall not limit any rights or remedies that the Resolution Professional may have under Applicable Laws or otherwise, against any Applicant, or Shortlisted Applicant or Successful Applicant, as the case may be" 38. Given Deccan's failure in providing the performance guarantee, the State Bank of India invoked the Bid Bond through a letter dated 23rd October 2018. Moreover, the invocation of the Bid Bond could not have limited the rights and remedies available to the Resolution Professional under law or otherwise against Deccan. 39. In terms of Clause 1.9.1 of the Process Note, the COC was provided with discretion whether or not to treat the non-submission of the performance guarantee by the successful applicant as an event which leads to cancellation of LoI. The relevant portion of the Clause 1.9.1 of the Process Note reads thus:- "It is hereby clarified that non-submission of the Performance Guarantee by the Successful Applicant, along with the acceptance of the LoI, shall lead to cancellation of LoI issued by the CoC, unless determined by the CoC at its sole discretion." 40. It was thus the sole discretion of the....
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....rutiny of the Resolution Plan by the Adjudicating Authority is also limited to the parameters set out in section 31, and the Adjudicating Authority ought not to consider many factors beyond those enlisted in the I&B Code, including Deccan's present application. 44. It is stated that on a bare perusal of the resolution plan it is apparent that Deccan made representations to the CoC about their capacity and their intent, to convince the CoC of their ability to perform the Resolution Plan and eliminate other potential bidders. It is stated that if Deccan is allowed to resile from its resolution plan at this belated stage, the Corporate Debtor will be forced into liquidation, causing huge loss to the CoC. 45. About the invoking of the Bid Bond Guarantee, it is submitted that as per the Letter of Intent and the Process Note, Deccan was required to submit the Performance Bank Guarantee on or around 08.09.2018. Deccan admittedly failed in submitting the Performance Bank Guarantee, and therefore the CoC invoked the Bid Bond Guarantee strictly as per the terms of the Bid Bond Guarantee. 46. We have heard the Ld. Counsels appearing from both the sides and perused the records. 47.....
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.... estimated by the Applicants as 'conservative'. It is submitted that in light of the revelation that the production of the Corporate Debtor was at best 36,000 MTPA - 42,000 MTPA and can potentially only be increased up to 66,000 MTPA, the conclusion of the 2018 MM Report that Deccan resolution plan was 'conservative' is incorrect. 48. It is noted that the Committee of Creditors discussed the 2018 MM Report with the RP, following which the Resolution Applicants were requested to increase the bid-offer made, as is evident from the minutes of the Meeting held on 21st August 2018. The Resolution Professional has also sought to distance himself from the 2018 MM Report which he commissioned. 49. It is further stated that in the interactions and/or meetings held on 4th/5th September 2018 and 8th October 2018, it emerged that the realistic production volume from the existing facilities represented by the RP's team was not higher than 25 % - 30% than the prevailing levels [i.e. 25% - 30% higher than average monthly production volume during the CIRP of 3059 MT per month, with a peak of 3513 MT in March 2018 therefore, potentially between approx. 36,000 MTPA - 42,000 MTPA and confir....
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....ofessional, based upon the document purporting to be the "relevant excerpt of the details of historical revenues provided to the Resolution Applicant in the "Metalyst HO Model" under the tab Historical Financial", the obvious implications would be that almost 70% of the revenue of the Corporate Debtor would come from trading, and not from manufacturing, which would mean that the Corporate Debtor's business has been misrepresented to bidders as a primarily manufacturing company, and the size and scale of the purported revenues from manufacturing were also misrepresented. 54. With regard to the installation and utilization of the 12.5K ton press, it is submitted that at the meeting held on 05.09.2018, and thereafter, by way of the Resolution Professional's letter dated 23.10.2018 it was informed that the 12,500 ton Press that was proposed to be installed as part of Deccan's Resolution Plan, would only be installed on-premises owned by a third-party, Clover Forgings and Machining Pvt. Ltd. ("Clover") and that it is not possible to install the 12.5k ton Press at the Aurangabad plant of the Corporate Debtor. It was also pointed out that insolvency resolution proceedings had been ....
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..................................... 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 is possible. Thus, the RP needs to ensure several features in the IRP, giving priority to the need to preserve time value and equality in negotiations in the process. 1. The RP must provide the most....
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....ms 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." 60. Thus, on perusal of the above report, regarding the role of the Resolution Professional about the preparation of the Information memorandum, it is clear that Resolution Professional is duty-bound to provide the most updated information about the entity as accurately as is reasonably possible to this range of solution providers. 61. It is also the duty of the Resolution Professional to prepare the Information Memorandum, in order for the prospective investors to provide solutions to keep the entity as a going concern, the information memorandum must be made available to potential financiers within a reasonable period of time and if the information is not comprehensive, the Resolution Professional must put out the Information Memorandum with a degree of completeness....
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....ion process. A well functioning system of resolution driven by IPs enables the adjudicator to delegate more and more powers and duties to the professionals. This creates the positive externality of better utilisation of judicial time. The worse the performance of IPs, the more the adjudicator may need to personally supervise the process, which in turn may cause inordinate delays. Consumers in a well functioning market for IPs are likely to have greater trust in the overall insolvency resolution system. On the other hand, poor quality services, and recurring instances of malpractice and fraud, erode consumer trust."(Emphasis supplied) 63. It is also to be noted that the Hon'ble Supreme Court in the case of Mobilox Innovations (P) Ltd vs. Kirusa Software (P) Ltd (2018 1 SCC 353, while tracing the background of the I&BCode, 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 and predictable. This will enable potential lenders and creditors to understand how insolvency proceedings operate and to assess the ris....
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....ess and assets for several months whereas the Applicants have had no time for independent evaluation. It is submitted that the Resolution Professional cannot urge that the Applicants were not entitled to rely upon either the information and documents made available in the VDR or that it was obligatory on the Applicants to conduct independent due diligence. The VDR was created and maintained by the Resolution Professional for the admitted purpose of the due diligence of the resolution applicants. 68. The Applicants were entitled to rely on the data provided in the VDR and to proceed on the basis that the said data was accurate in its representation of the Corporate Debtor, especially since the Applicants were only afforded a 2-2.5 hour walk-through site visit at the plants of the Corporate Debtor 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 Profe....
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....ed by the proviso to Section 31(1). 73. At this point, it is fit to refer to the subsection (4) of section 30 of the I&B Code as it lays down the basis on which a resolution plan would be approved by the committee of creditors. For the sake of reference, the said clause is reproduced below: "(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board." 74. Thus, a resolution plan is to be approved by the CoC only after being satisfied that it is feasible and viable. This clearly implies that if a resolution plan is not viable and found unfit for implementation or does not have proper provisions for its successful implementation or is based on incorrect assumptions which would lead to failure of the resolution plan and eventual, inevitable death of the Corporate Debtor, then the CoC ought to reject such a Resolution Plan. Regulation 38(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that the resolution plan shall demonstra....
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....ue diligence. But the cumulative outcome of the mistakes by both the sides have led us all to this situation wherein the time for CIRP period have elapsed. In the circumstances, approval of the only resolution plan by the CoC would not serve its purpose ,if allowed to be implemented. 78. We are of the considered opinion that the Resolution Professional has merely uploaded the data available with him regarding the Corporate Debtor, which he was duty-bound to do. The M M Report 2016 was relating to the production capacity of the corporate debtor,though it was admittedly prepared for the particular purpose for inviting investment, was uploaded in VDR at the instance of Resolution Applicant has derailed the Resolution Plan. It is on record that the Resolution Professional had negotiated a lease agreement for installation of the 12.5k ton Press with Clover. However, the land on where press was to be installed, was of sister concerns land, i.e. Clover, which also went into CIRP, that created uncertainty over the lease and installation of the said Press. 79. The resolution Professional cannot be said to have misrepresented any fact or misled the Resolution Applicant in any way as he....
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.... Applicant which is below the Financial Bid submitted by such Shortlisted Applicant, then the Resolution Professional and the CoC shall reject such Resolution Plan and such Shortlisted Applicant will not have any right to object to such rejection. For the avoidance of doubt, it is clarified that such rejection is without prejudice to the right to invoke the BBG." 83. Clause 1.8 of the Process note defines the terms and conditions related to Bid Bond Guarantee. It is required for all the applicants to provide a Bank Guarantee of Rs.40,00,00,000/- from an India Bank along with the Financial Bid which shall be valid for atleast six months from the last date for submission of the resolution plan as may be amended. The non-submission of the Bid Bond Guarantee along with the Financial Bid would lead to rejection of the Financial Bid. 84. The Bid Bond Guarantee is to be returned to the applicants who are not shortlisted within 45 days from the declaration of the list of shortlisted applicants or in case of expiry of the resolution plan validity period, whichever is earlier. Further, the Bid Bond Guarantee is to be returned to the shortlisted applicants who are not selected as Succes....
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....arises due to : (a) Non-receipt of the Letter of intent from the CoC; or (b) The Successful Applicant not accepting additional terms stipulated by the CoC in addition to the Resolution Plan, pursuant to negotiations with the Successful Applicant. 1.8.5 It is clarified that any invocation of the Bid Bond Guarantee by MFL, or any Person on behalf of the Resolution Professional, shall not limit any rights or remedies that the Resolution Professional may have under Applicable Laws or otherwise, against any Applicant, or Shortlisted Applicant or Successful Applicant, as the case may be." 87. Further, the BBG is forfeited in the following conditions which also leaves the financial bid or the resolution plan rejected: (a) the Applicant fails to provide the Bid Bond Guarantee in the format and the as per conditions as specified in Clause 1.8.1 of the Process note and the clause 1.8.1 itself provides that non-submission of the BBG would lead to rejection of the Financial Bid; or (b) in case of any non-compliance with the Resolution Plan Process or unilateral change by the Shortlisted Applicant to the Resolution Plan submitted by it and if the ....
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....d Guarantee as per the terms of the Process Document, Bid Bond Guarantee and Letter of Intent. However, this can't be denied that information uploaded on VDR, which was the very basis of submission of the resolution plan was based on misinformation and was based on M. M. Report 2016, which was admittedly prepared for the particular purpose for invitation of investment. Although the Resolution Applicant was also required to apply due diligence before submission of the Resolution Plan. Other reason of then on availability of the Clover Land for installation of 12500 tons of Resolution Applicant has also affected the viability and fesibility of the Resolution Plan, hence liable to be rejected. 91. It is also well-established that the object of the I&B Code is not liquidation of the Corporate Debtor but resolution of the insolvency situation. This is clear by the Preamble of the I&B Code and more specifically explained by the Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. &Anr. Vs Union of India &Ors. (WRIT PETITION (CIVIL) NO. 99 OF 2018) judgment dated 25.01.2019 in the following extracts of the judgment: "11. As is discernible, the Preamble gives an insight into what i....
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....cess is not adversarial to the corporate debtor but, in fact, protective of its interests." 92. Further, in a recent order of the Hon'ble Supreme Court dated 24.09.2019 in Committee Of Creditors Of Amtek Auto Limited Through Corporation Bank vs. Dinkar T. Venkat Subramanian & Ors., Civil Appeal No(s). 6707/2019, the Resolution Professional was permitted to invite the fresh offers and the COC was directed to take a final call on the fresh offers so received, if any, within a time bound manner. The order was passed after considering that a resolution plan was prepared but has failed owing to non-fulfilment of the commitment by the resolution applicant which resulted in expiry of CIRP period available under section 12 of the I&B Code. Further, the Apex Court also considered that as per The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (No. 26 of 2019) with effect from 16.08.2019, by which the resolution process may be permitted to be completed within 90 days from the date of the commencement of the Amendment Act and there were eight other parties which have submitted their expression of interest. The relevant portion of the Amtek order (supra.) is reproduced below: ....
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....ion applicants out of which three were allowed, as per the resolution plan process, to submit their financial bids and resolution plan which was then voted upon by the COC. Therefore, there are other parties interested in submitting a resolution plan for Corporate Debtor. 94. In the peculiar circumstances in the present case, and to prevent the Corporate Debtor from being liquidated, and as other potential resolution applicants had shown interest in bidding for the Corporate Debtor, there is still value and hope for the Corporate Debtor. 95. MA no. 956/2018 for approval of the Resolution Plan of Deccan, in light of the above observations and decision, is rejected. We further pass an order for inviting fresh Bid. 96. We are of the considered opinion that the entire Resolution Process was derailed and the Resolution Applicant withdrew its Plan, on account of uploading of M.M.Report 2016 which contains misleading and incorrect information in the VDR and further by non-availability of the lease of the land where the 12500 Tons of Press was to be installed. Therefore the applicant will also be allowed to submit fresh bid based on same BBG,to avoid the Liquidation of the Corpora....