TaxTMI 
TaxTMI 
2021 (8) TMI 553
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....ng Authority, approved the resolution plan formulated in the course of the insolvency resolution process- CIRP of the Corporate Debtor. The NCLAT has upheld the order. B Corporate Resolution Insolvency Process 2 The CIRP of the Corporate Debtor was initiated by an order dated 15 May 2018 of the NCLT. An interim resolution professional- IRP was appointed on 18 May 2018. The IRP issued a public announcement on 21 May 2018 inviting claims from the creditors of the Corporate Debtor. The order of the NCLT admitting the corporate debtor to the CIRP was challenged in appeal, and the order of admission was stayed on 30 May 2018. On 30 April 2019, the NCLAT vacated the stay on the CIRP. The appeal was withdrawn. 3 The CIRP resumed on 7 May 2019. A fresh public announcement was issued by the IRP on 7 May 2019 for inviting claims from creditors. The Committee of Creditors- CoC was constituted on 24 May 2019. On 30 May 2019, the CoC replaced the IRP with Mr. Anish Niranjan Nanavaty as the Resolution Professional- RP. This appointment was confirmed by the NCLT on 21 June 2019. 4 During the course of the process, the RP invited 'Expressions of Interest'-EOI from prospective resolutio....
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....he said appointment. iv. It was clarified by order dated 24.01.2020 that the RP and the CoC were at liberty to complete CIRP within 330 days, which was expiring on 10.03.2020.' C Approval of Resolution Plan 7 An application was submitted under Section 30(6) of the IBC by the RP, seeking the approval of the resolution plan by the NCLT. The NCLT discussed the salient aspects of the resolution plan in the course of its order on the approval application. The financial terms envisaged in the resolution plan have been tabulated thus: The plan envisages the following payments for the insolvency resolution of the Corporate Debtor as a going concern: 'G. Overall payment under the Plan: Resolution Plan contemplates following payments for the insolvency resolution of the Corporate Debtor as a going concern: Sr No. Particulars Amount (INR) 1. Amount to be infused by Resolution Applicant(Infused Resolution Amount) 3720,00,00,000/- 2. Fund infusion from Effective Date to meet working capital, capital expenditure requirements and/or funding other operational improvements of the Corporate Debtor 450,00,00,000/- 3. Upfront equity ....
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....ithin the ambit of the IBC. In the above backdrop, the NCLT by its order dated 3 December 2020 approved the resolution plan in terms of the following directions: '14. In view of the discussions and the law thus settled, the instant Resolution Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38, 38(1A) and 39(4) of the Regulations. The Resolution Plan is not in contravention of any of the provisions of Section 29A of the Code and is in accordance with law. The same needs to be approved. 15. Doha Bank one of the Financial Creditors has filed IA No. 1960 of2019 inter alia, challenging the admission of claims of few other Creditors and IA No. 3055 of 2019 impugning the decision of the Resolution Professional recognising the Indirect Lenders of the Corporate Debtor as Financial Creditors. The Applications are pending consideration. We are of the considered opinion that pendency of these and other Applications would not come in the way of approval or otherwise of the Resolution Plan. More so, when the Resolution Plan has been unanimously approved by the CoC. The distribution of the payments to the Creditors, Financial or Operational,....
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.... to time, preferably every quarter. viii. The Applicant shall forward all records relating to the conduct of the CIRP and the Resolution Plan to the IBBI along with copy of this Order for information....' D Challenge before Appellate Tribunal 9 The appellants challenged the decision of the NCLT approving the resolution plan in appeal before the NCLAT. The grounds of challenge of the appellants were: (i) The appellants were kept unaware of the CIRP and no details were provided by the RP as regards the disposal of the fund towards their claims; (ii) The claims of the appellants had not received a fair and equitable treatment; (iii) The fair market value and the liquidation value of the Corporate Debtor had not been taken into account and an amount of Rs. 800 crores, being the value of certain preference shares, did not form a part of the corpus of payments to the operational creditors; (iv) There were material irregularities in the accumulation and disbursal of funds that constituted the corpus of the corporate debtor; and (v) The appellants were made to suffer a reduction of 90 per cent of their total claims, while substant....
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....editors from the CoC would be of no consequence. However, since the issue had been raised during the course of the submission, by an order dated 10 March 2021, opportunities were granted to the parties to file affidavits explaining the position. Affidavits have accordingly been exchanged between the parties, to which a reference would be made. It is in this backdrop that the appeal has been heard finally at this stage. 13 Mr Dushyant Dave, learned Senior Counsel has appeared on behalf of the appellants. Mr Neeraj Kishan Kaul, learned Senior Counsel addressed the submissions on behalf of the Monitoring Committee. 14 Mr Dushyant Dave, learned Senior Counsel, submitted on behalf of the appellants that: (i) The stated object and purpose of the IBC is to balance the interest of all stakeholders and to maximize the value of assets. The long title to the IBC elucidates that the legislation seeks to: '... consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and....
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.... by the resolution applicant to acquire the Corporate Debtor. This sum of Rs. 800 crores is realizable from the preference shares held by Reliance Bhutan Limited, a wholly owned subsidiary of the Corporate Debtor in Reliance Reality Limited. On the other hand, if Reliance Realty Limited is unable to sell such real estate assets for Rs. 800 crores or more, the Resolution Applicant would itself buy such assets for Rs. 800 crores and make such funds available for distribution to the specified financial creditors. In apportionment, a sale of Rs. 800 crores exclusively for the benefit of specified financial creditors is a violation of Section 30(2)(b) of the IBC; (vii) The NCLT on an application filed by Doha Bank, a financial creditor of the Corporate Debtor, by its order dated 2 March 2021, set aside the inclusion of these banks (State Bank of India, Bank of India, UCO Bank, Syndicate Bank, Oriental Bank of Commerce and Indian Overseas Bank) from the CoC. Similarly, on the same analogy, various indirect creditors of the Corporate Debtor have also been excluded. The basis of the inclusion of certain financial creditors (this being challenged in the Doha Bank proceedings) was that th....
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.... to the CoC based on its commercial wisdom. One of the grounds of appeal under Section 61(3)(ii) is a material irregularity in the exercise of powers by the RP during the CIRP. The issues faced by operational creditors have also been recognized in the report of the Insolvency Committee Report of February 2020. 15 Opposing the above submissions, Mr Neeraj Kishan Kaul, learned Senior Counsel submits that: (i) In the provisions of the IBC, specific stipulations have been framed in respect of the operational creditors, namely: a. Under Section 30(2)(b), the payment of debts to the operational creditors in the resolution plan shall not be less than the amount to be paid in the event of a liquidation under Section 53; b. Priority in terms of the water fall mechanism contained in Section 53 is provided; and c. Representation of their views in the CoC is envisaged under Section 24(3)(c), through the operational creditors themselves or the representatives if they have aggregate dues which are not less than 10 per cent of the debt of the Corporate Debtor; (ii) If the proceedings were to take place strictly in accordance with the provisions of the IBC, the ....
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....te Debtor. It has been clarified in the affidavit filed by the insolvency professional, in pursuance of the order of this Court dated 10 March 2021, that under the IBC and its regulations, the RP appointed two registered valuers in accordance with Regulation 27 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016- CIRP Regulations to carry out the valuation of the Corporate Debtor and to determine the liquidation value and fair value in accordance with Regulation 35(1). These values were placed before the CoC, in accordance with Regulation 35(2) of the CIRP Regulations, upon receipt of the resolution plans. The submission of the appellants that the realisable value from these preference shares is excluded from the liquidation value of the Corporate Debtor has been rebutted by a specific clarification contained in the Monitoring Committee's affidavit, which was filed in these proceedings. As a matter of fact, the realisable value for the Corporate Debtor on account of any proceeds realised from the preference shares held by its subsidiary (Reliance Bhutan Limited), is included in the determination of the liquidation ....
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....ad requested for balance confirmation for these deposits. We were not provided with either balance confirmations/ bank statements. Since the same balance was disclosed in audited financials for the period ended 31 st March 2018 and in the provisional financial statements as on the valuation date, we......' Therefore, the submission that the value of preference shares has not been included in calculating the liquidation value of the Corporate Debtor is factually incorrect. (ii) Liquidation Value 19 The second aspect relates to the liquidation value. On this, it has been clarified that the liquidation value due to the unsecured operational creditors would remain nil in all scenarios, including if the corpus of Rs. 800 crores is separately considered. The liquidation value of the Corporate Debtor is Rs. 4339.58 crores. The amount being infused by the successful resolution applicant is Rs. 3720 crores. The amount of Rs. 800 crores is a value ascribed under the approved resolution plan to be realised by the Corporate Debtor, pursuant to the remittance of proceeds in respect of the preference shares. Hence, cumulatively, the value being distributed under the approved va....
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.... of the IBC. The jurisdiction of the Adjudicating Authority under Section 31(1) is to determine whether the resolution plan, as approved by the CoC, complies with the requirements of Section 30(2). The NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC. There is no equity-based jurisdiction with the NCLT, under the provisions of the IBC. 23 Now, it is in this backdrop that it becomes necessary for this Court to revisit some of the provisions of the IBC and to take note of the interpretation which has been placed upon them in successive decisions of this Court. Section 30(1) envisages the submission of a resolution plan by a resolution applicant. On the submission of the resolution plan, the RP is required to examine it and to confirm, in terms of sub-Section (2) of Section 30, that the plan abides by the statutory requirements spelt out in clauses (a) to (f) 17 '(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corpora....
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....solution plan with a voting percentage of not less 66 per cent of the voting shares of financial creditors after considering: (i) its feasibility and viability; (ii) the manner of distribution proposed having regard to the order of priority amongst creditors laid down in Section 53(1) of the IBC, including priority and value of the security interest of the secured creditors; and (iii) such other requirements as may be specified by the Insolvency and Bankruptcy Board of India. In other words, the decision to approve a resolution plan is entrusted to the CoC. 25 The function of the Adjudicating Authority under Section 31 is to determine whether the resolution plan 'as approved by the CoC' under Section 30(4) 'meets the requirements' under Section 30(2). If the Adjudicating Authority is satisfied that the resolution plan, as approved, meets the requirements under sub-Section (2) of Section 30, 'it shall by order approve the resolution plan' which shall then be binding on the Corporate Debtor and all stakeholders, including those specifically spelt out: '31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors und....
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....xpression 'operational creditor' is defined in Section 5(20), while the expression 'operational debt' is defined in Section 5(21). Now, insofar as the operational creditors are concerned, there are specific requirements which have been spelt out in sub-Section (2)(b) of Section 30. Section 30(2)(b) requires the RP to confirm upon examination that the resolution plan: '30...(2)....(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the....
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....n K Sashidhar vs India Overseas Bank (2019) 12 SCC 150 ("K Sashidhar"). The decision emphasizes that the Adjudicating Authority is circumscribed by Section 31 to scrutinizing the resolution plan 'as approved' by the CoC under Section 30(4). Moreover, even within the scope of that enquiry, the grounds on which the Adjudicating Authority can reject the plan is with reference to the matters specified in sub-Section (2) of Section 30. Similarly, the Court notes that the jurisdiction of the Appellate Authority to entertain an appeal against an approved resolution plan is defined by sub-Section (3) of Section 61. Now, it is in this context, that the consistent principle of law which has been laid down is that neither the Adjudicating Authority nor the Appellate Authority can enter into the commercial wisdom underlying the approval granted by the CoC to the resolution plan. The commercial wisdom of the CoC in its collegial capacity is, hence, not justiciable. 32 In K Sashidhar (supra), Justice A M Khanwilkar, speaking for the two-Judge Bench, held: '57. On a bare reading of the provisions of the I&B Code, it would appear that the remedy of appeal under Section 61(1) is against....
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....s (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers. 59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (Nclat) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors......' (emphasis supplied) The Court, also held (in paragraph 62) that the legislative history of the IBC indicated that 'there is a contra indication that the commercial or business decisions of financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority'. 33 The above principles have been re-emphasised and taken further by a three-Judge Bench in Essar Steel India Limited (supra). The Court, speaking through Justice R F Narminan, held: '73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fa....
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....review the economic and commercial basis of the decision of creditors (including issues of fairness that do not relate to the approval procedure, but rather to the substance of what has been agreed) nor that it be asked to review particular aspects of the plan in terms of their economic feasibility, unless the circumstances in which this power can be exercised are narrowly defined or the court has the competence and experience to exercise the necessary level of commercial and economic judgement.' F.3 Exercise of jurisdiction 35 Mr Dushyant Dave, learned Senior Counsel, sought to place emphasis on the abovementioned observations in paragraph 73 of the decision in Essar Steel India Limited (supra) to submit that the decision of the CoC must reflect that it has taken into account the need to: (i) Maximize the value of assets of the CD; and (ii) Adequately balance the interest of all stakeholders, including of operational creditors. The submission of learned Counsel is that in the present case, there was a failure to maximise the value of the assets and to balance the interests of the stakeholders. 36 The submission that there has been a failure to maximis....
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.... beyond any doubt that equitable treatment is only of similarly situated creditors' Available at accessed 6 August 2021, pg. 218. The Court finally also observed that the 'fair and equitable' norm does not mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, it noted: '88...Fair and equitable dealing of operational creditors' rights under the said regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together wit....
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.... paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.' . However, under the Indian insolvency regime, it appears that a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the Adjudicating Authority other than the statutory requirements laid down under sub-Section (2) of Section 30 of the IBC. 41 An effort was made by Mr Dushyant Dave, learned Senior Counsel, to persuade this Court to read the guarantees of fair procedure and non-arbitrariness as emanating from the decision of this Court in Maneka Gandhi vs Union of India (1978) 1 SCC 248 into the provisions of the IBC. The IBC, in our view, is a complete code in itself. It defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by the IBC is a direct representation of certain economic goals of the Indian economy. It is enacted after due deliberation in Parliament and accords rights and obligations that are strictly regulated and c....
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....4 Pending application(s), if any, shall stand disposed of. ============= Document 1 NCLT, Mumbai Bench-I LA No. 920 of 2020 in C.P. (IB) No. 1385/NCLT/MB/2017 Particulars Amount Admitted Amount Proposed % of under the Plan recovery under the Plan CIRP Costs To be paid in priority in 100% full. [Refer Note 1] Workmen 1 1,81,27,767/- 1,81,27,767/- 100% Employees Related 269,94,30,465/- NIL NIL Parties potential Related Parties Statutory 31,32,81,573/- 404,45,218/- 12.91% Creditors [Refer Note 2] Operational 1,29,28,99,328/- 25,36,38,128/- 19.62% Creditors [Refer (other than Note 2] Related Parties, Statutory Creditors) Other 904,45,24,882/- 43,87,534/- 100% Creditors [Refer Note 3] Financial Creditors 41055,38,58,711/- 4235,77,87,067/-[Refer -10.32% Note 4] [Refer Note 4] Document 2 NCLT, Mumbai Bench-I IA No. 920 of 2020 in C.P. (IB) No. 1385/NCLT/MB/2017 Note 1: CIRP Costs: Payment of unpaid insolvency resolution process costs (CIRP Costs) in full and in priority to all other s....