AI Drafter 
TaxTMI 
TaxTMI 
2022 (1) TMI 1287
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....Advocates with Mr Ketan Gaur, Ms Lisa Mishra, Mr Vishal Hablani and Mr Avishkar Singhvi, Mr Ashish Bhan, Mrs Chitra Rentala, Mr Aayush Mitruka, Ms Samriddhi Shukla, Mr Ramji Srinivasan, Sr Advocate with Ms Madhavi Khanna, Ms Rajshree Chaudhary, Ms Saloni Kapadia, Mr Animesh Bisht, Mr Raunak Dhillon and Mr Shubhankar Jain, Advocates JUDGMENT Per; V. P. Singh, Member (T) 1. These three Appeals emanate from the Common Order dated 07.06.2021 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Mumbai in IA No 623 of 2021 in IA 449 of 2021 Company Petition (IB) No. 4258/MB/2019, whereby the Adjudicating Authority has rejected IA No. 623/2021 under Section 60 (5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code') filed for rejecting IA No. 449/2021 Applied for approval of Resolution Plan. The Parties are represented by their original status in the Company Petition for the sake of convenience. 2. Factual Background 2.1 Owing to the governance of concerns and defaults by DHFL in meeting various payment obligations, the RBI has, by notification dated 20 November 2019, superseded the Board of Directors of DHFL and appointed t....
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....d on October 5 2020, under Sections 45, 46, 49, 60(5) and 66 of the Code. The Application is in relation to the undervalued and fraudulent nature of certain agreements entered into by the Company at the time the Company sold its stake in Pramercia Life Insurance Limited to DHFL Investments Limited and certain ICDs given by the DHFL to ICD entities. The amount involved therein is Rs.2,150.84 crores. IV. 4th, 5th and 6th Applications filed in December 2020 - The Applications are about: a. Disbursement to specific entities in the form of loans against property and utilisation of the same towards premature redemption of certain NCDs, undertaken by DHFL in the past under Sections 43, 45 and 66 of the Code - as Application "A". b. Diversion of excess funds from the account of DHFL for purchase of NAPHA Building under Section 66 of the Code as Application "B". c. Fraudulent and undervalued advancement of ICDs by DHFL to certain entities in the past and the subsequent creation of a pledge over the non-convertible debentures issued by DHFL under Sections 45 and 66 of the Code - as Application "C". A copy of the letter dated December 13, 2020, iss....
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.... a. To dismiss the Interlocutory Application No.449 of 2021 filed by Respondent No.1 and reject the Resolution Plan of Respondent No.2. b. In the alternative, approve Respondent No.2's Resolution Plan, including any modification. (i) Order and declare that any term in Respondent No. 2's Resolution Plan including any modification thereto either expressly or impliedly providing that the benefit of any orders passed in the avoidance application filed or to be filed by Respondent No. 1 under sections 43 to 51 or under section 66 of the Code or any one or more of these provisions, including appeal proceedings arising therefrom, and the recoveries/ contributions made consequent thereto shall in any manner whatsoever be for the benefit of Respondent No.2 including its nominee/assignee/any person claiming through or under it, and not for the benefit of the creditors of DHFL, is contrary to law, void ab initio, non-est, and bad in law. (ii) Declare, order and direct that any recoveries/contributions made or the benefit of any orders passed in the avoidance applications filed or to be filed by Respondent No. 1 under sections 43 to 51 or under secti....
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.... favour of the Resolution Plan and it cannot agitate the same now when 94.5% of CoC members approved the Plan. The CoC by exercising its Commercial Wisdom have accepted, approved the Resolution Plan including the monies to be recovered if any from the Fraudulent Transactions. Therefore, we as Adjudicating Authority reluctant to substitute our wisdom at this stage as against their Commercial Wisdom of the CoC. Further by following the judicial precedents, discipline and various Judgements of the Hon'ble Supreme Court we restrain ourselves from interfering with the commercial decision of the CoC. 4. Ld. Sr. Counsel appearing from the side of the applicant argued that the matter be sent back to CoC for its reconsideration. However Ld. Senior Counsel appearing for the CoC vehemently argued that there is no case for sending back to CoC as they have already exercised their Commercial Wisdom and already taken a conscious decision after analysing various facts and considerations including Net Present Value (NPV) concept, as per general saying that a bird in hand is better than few in bush, risk of recovery is transferred to the Successful Resolution Applicant etc and ascribed ....
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....e shall enure to the benefit of the creditors of the Corporate Debtor and shall be a pass-through amount to them. 4.4 However, in the COC meeting held on September 10 2020, modification of this stipulation was discussed purportedly "in the mutual interest of COC members and the Resolution Applicant", and it was decided that the prospective Resolution Applicants may ascribe a value "as best as the Resolution Applicant's could" to the transactions under Section 66 of the Code and purpose the manner of the dealing with recoveries therefrom. 4.5 Following this decision of the COC, an RFRP dated September 16, 2020, was issued requiring the Resolution Applicant's inter alia ascribed a realistic value to the Section 66 transactions. 4.6 However, the Resolution Plan of the Successful Resolution Applicant viz. Respondent No. 2 values the recoveries from Section 66 transactions, in respect of which applications for recovery of more than Rs.45,000 crores have been filed by Respondent No. 1, at Rupees one notional value and seeks to appropriate the future recoveries from these transactions. In other words, by valuing the Section 66 transactions at an unrealistic and arbitrary ....
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....ts wisdom" as again the commercial wisdom of COC. c) The NCLT restrained itself from interfering with the commercial decision of the COC. d) The NCLT, while relying on the order dated March 15, 2021, passed by this Hon'ble Tribunal in the case of Interrups Inc (supra), held that this Hon'ble Tribunal had in this case "held that judgement in the matter of Venus is misplaced." 4.12 The learned NCLT misread and misapplied the ratio of the order dated March 15, 2021, passed by this Hon'ble Tribunal in the case of Interrups Inc (supra) and wrongly held that this Hon'ble Tribunal in the case held that judgement in the case of Venus Recruiters Private Limited (supra) was misplaced. What has been held by this Hon'ble Tribunal in para 9 of its order dated 15th March 2021 is that the reliance of the Appellant's, in that case, on the judgement of Hon'ble Delhi High Court in the case of Venus Recruiters Pvt Ltd was misplaced. Thus the Hon'ble Delhi High Court found on facts that the ratio laid down by Hon'ble Delhi High Court in the case of Venus Recruiters Private Limited (supra) was inapplicable to the case of Interrups Inc (supra). Th....
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....prejudice to one another: 6. APPEAL IS NOT MAINTAINABLE The Appellant has participated in the Corporate Insolvency Resolution Process ("CIRP) of the Corporate Debtor as a member of a class of secured creditors, i.e. NCD holders, represented as a class by the debenture trustee M/s 'Catalyst Trusteeship Lid'. 6.1 The present set of Appeals impugns the Adjudicating Authority's decision in dismissing IA 623 of 2021 filed by the Appellant. However, it must be remembered that this was not the first Application filed by the Appellant. Even before IA 623 of 2021 was filed on March 5, 2021, Appellant had filed IA 2352 of 2020 before the Adjudicating Authority on or around December 28, 2020 (Reply filed by Respondent No. 2 in Appeal 455 of 2021, p. 10), on the same basis as IA 623 of 2021. At the hearing of IA 2352 of 2020, the Respondents had pointed out that the Application was premature, as it had been filed even before Resolution Plans had been voted on. Accordingly, the Appellant sought and was granted leave on January 21, 2021, to withdraw IA 2352 of 2021. This was granted with the limited leave to "agitate the entire issues/ grievances at the appropriate stage, i.....
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...., clause 2.13.3 of the Resolution Plan ascribed a value of INR 1 to recoveries. Accordingly, the Resolution Plan complies with the RFRP. In any event, the fact that Respondent No. 3 ascribed a value of INR 1 for avoidable transactions under Section 66 of the IBC was pointed out to the CoC by Respondent No. 1. Therefore, even if this was assumed to be a deviation (which is denied), the CoC is well within its rights to accept and approve a departure from the RFRP, a contractual document, which is a conscious and aware commercial decision. 6.6 The Appellant has failed to point out any provision of the Code in support of its contention that the Resolution Plan is illegal and contrary to law'. The Appellant's only argument in this regard hinges on the Delhi High Court in Venus Recruiters Pvt. Ltd v Union of India & Ors. [WP(C) 8705/2019 & CM APPL 36026/2019] ("Venus"). However, the decision in Venus is inapplicable and distinguishable from the present case: (i) The primary question in Venus was whether Avoidance Applications could survive the CIRP process and continue to be adjudicated upon after approval of the Resolution Plan. (ii) The decision in Venus do....
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....he Resolution Plan but simultaneously vote against specific terms in a plan. Similarly, a party cannot approve only certain terms in a plan, but vote against the Resolution Plan itself. 6.11 FALSE ALLEGATIONS REGARDING VALUATION Appellant falsely alleges that the valuers ascribed nil value to avoidance applications. This false statement betrays Appellant's fundamental misunderstanding of valuations and the facts. 6.12 Valuers, when ascertaining fair value and liquidation value, value assets. They do not value transactions or avoidance applications. The registered valuers, in the present case, undertook the valuation in compliance with Regulation 35 of the CIRP Regulations, and any value ascribed to any specific assets is based on several factors, including the availability and quality of security. It is incorrect to say that any avoidance applications were valued at all, or in fact, ascribed nil value. It is settled law that valuation is a technical and complex exercise that is best left to the wisdom of experts. [G.L. Sultania & Anr. v. Securities and Exchange Board of India & Ors. (2007) 5 SCC 133)] 7. IInd Respondent's Submission [Piramal Capital & Housing Financ....
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....tion Plan, including on the legality of the Resolution Plan given the judgement of the Hon'ble Supreme Court in the case of Jaypee Kensington Boulevard Apartments welfare Association (supra). 8.2 The treatment of recoveries arising from avoidance applications fall within the domain of the commercial wisdom of CoC, and there is nothing in the Code that prevents the COC from dealing with such recoveries. a) It is a settled principle of law that CoC can deal with the debtor's assets in the present or that may come to the debtor in the future in its commercial wisdom. b) The assets which are the subject matter of the avoidance applications are a subset of the total assets of DHFL and are largely in relation to the NPA. From the aforesaid, it is amply clear that the avoidance applications filed with regard to the assets of DHFL. The prospective Resolution Applicants have bid for the entire assets of DHFL, including assets that are the subject matter of avoidance transactions. c) Under Section 66 of the Code, the Adjudicating Authority may direct any director or partner of the Corporate Debtor to contribute to the Corporate Debtor's assets as it ....
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....voidance applications. Accordingly, the Resolution was placed before the CoC for modification to the RFRP under which the benefits of avoidance applications under Sections 43, 45, 47, 49, 50 of the Code to be passed on by the prospective Resolution Applicant (PRAs) to the COC, for avoidance applications under Section 66 of the Code, the PRA could ascribing value under the Resolution Plan to any recoveries that are likely to be made in respect thereof and the proposed manner of treatment of any proceeds arising therefrom which the CoC may evaluate. The said Resolution was voted upon by and passed by the requisite majority of the COC, the 98.8% of the 63 Moons Class. Accordingly, the Appellant is bound by such a vote cannot raise any objection on this ground. j) In the 18th meeting of the COC held on December 24 2020, and December 25, 2020, the CoC and the Administrator have acknowledged that in the Resolution Plan submitted by the PRAs, there may be some deviation from the RFRP. The list of such deviations was placed before the CoC. In addition, by way of abundant caution, we have ascribed rupees one value of avoidance application under Section 66 of the Code was also inclu....
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....s inter alia concerned with while deciding this legal issue is whether the stipulation of future recoveries from Section 66 avoidance applications being retained by the Successful Resolution Applicant amounts to illegality (as urged by the Appellant) or whether the same is within the commercial domain of the CoC (as suggested by the Respondents). For, if it was illegality, it could not be saved by any strength of majority or voting of the CoC. 9.2 The Appellant contends that IA No. 623 of 2021was filed before the NCLT, was argued in great detail for eight days, followed by detailed written submissions. However, without dealing with the oral & written submissions of any party and without recording reasons, the Ld. NCLT simply stated that it was "reluctant to substitute" its wisdom with the commercial wisdom of the CoC and the Ld. Therefore, NCLT "restrained from making any comments". Impugned Order is a Non-Speaking Order- 9.3 The Appellant submits that the impugned order is unreasoned and non-speaking and runs afoul of the Hon'ble Supreme Court Judgement ratio in the case of Asstt. Commissioner. Commercial Tax Department v. Shukla & Bros. (2010) 4 SCC 785, wherein the ....
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....and proper reasoning is the foundation of a just and fair decision. In Alexander Machinery (Dudley) Ltd. [1974 ICR 120 (NIRC)] there are apt observations in this regard to say "failure to give reasons amounts to denial of justice". Reasons are the real live links to the administration of justice. With respect we will contribute to this view. There is a rationale, logic and purpose behind a reasoned judgment. A reasoned judgment is primarily written to clarify own thoughts; communicate the reasons for the decision to the concerned and to provide and ensure that such reasons can be appropriately considered by the appellate/higher court. Absence of reasons thus would lead to frustrate the very object stated hereinabove." (emphasis in bold supplied) Reasons stated for assigning benefit of Avoidance Transaction to the SRA 9.4 It is necessary to go through some of the details leading to the decision of CoC to ensure the benefit of avoidance applications to the Successful Resolution Applicant. 9.5 After issuing a request for Resolution Plan on March 20 2020 (the "March RFRP") (Page 283 of the Appeal Vol-II), which invited prospective Resolution Applicants to submit Resolution ....
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.... The same is also contrary to the express, authoritative treatise and Law Committee reports on the issue of treatment of recoveries from avoidance transactions: iv. By ascribing a value of INR 1 to recoveries from Section 66 transactions. Respondent No. 2 has not factored in these recoveries, and retention of such recoveries would entail a return/rate of return that is higher than what is factored in the Resolution Plan resulting in unjust enrichment of Respondent No. 2 at the cost of the creditors such as the Appellant who have been defrauded by DHFL's promoters. 9.9 A mandatory statutory duty has been cast upon the Adjudicating Authority, in terms of Section 31 read with Section 30(2) of the Code, to ensure that a Resolution Plan which is placed before it for approval is compliant with the provisions of law. Despite the limited scope of enquiry in an application for approval of a Resolution Plan, the jurisdiction of the Adjudicating Authority to go into the aspects of illegality in Resolution Plans and the Resolution Plans to be compliant with the provisions of law has been well recognised & accepted by Hon'ble Supreme Court of India in a number of judgements ....
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....er even after the approval of a Resolution Plan under Section 31. The role of a RP is finite in nature. He or she cannot continue to act on behalf of the Corporate Debtor once the Plan is approved and the new management takes over. To continue a RP indefinitely even beyond the approval of the Resolution Plan would be contrary to the purpose and intent behind appointment of a RP. The Resolution Professional (RP), as the name itself suggests has to be a person who would enable the Resolution. The role of the RP is not adjudicatory but administrative in nature. Thus, the RP cannot continue beyond an order under Section 31 of the IBC, as the CIRP comes to an end with a successful Resolution Plan having been approved. This is however subject to any clause in the Resolution Plan to the contrary, permitting the RP to function for any specific purpose beyond the approval of the Resolution Plan. In the present case, no such clause has been shown to exist." 9.13 However, learned Senior Counsel for the Appellant had based its case on the observation of the Hon'ble High Court in paragraph 73, quoted below, of the same judgement. "73. An avoidance application for any preferential tr....
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.... corporate debtor which is now under a new management unless provision is made in the final Resolution Plan". In the present case such a provision has been provided for in the JSW Plan. The same is reproduced below: "1.12 (o) Reversal of preferential transactions, undervalued transactions, extortionate transactions and fraudulent trading: ... The reversal of these transactions by the NCLT upon submission of the resolution plan to the NCLT for its approval, will be to the benefit of the Company and the Company will not be required to transfer any such amounts/assets to the creditors. Any claim from any counter party of the aforesaid transactions (in further) arising due to reversal of such transactions shall stand extinguished. The Resolution Professional shall conduct and pursue the litigation for reversal of such transactions till their final disposal (including any appeals). The costs of such litigation for the Resolution Professional shall be borne by the Resolution Professional. The decision on CA 613/2019 is not a pre-requisite for approval of resolution plan. Therefore, the Delhi High Court Judgment is inapplicable to the present case V. CI....
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....pleading it as a party in an application filed by the then resolution professional of the Corporate Debtor. The application so filed by the resolution professional was an application filed inter- alia under Sections 43 to 51 and Section 66 of the code., paragraph 12 of the Venus judgement The application filed by the RP challenging number of suspected transactions allegedly entered into by the Corporate Debtor viz. potential excess payment of lease rent to a party, preferential credit to certain customers, excess payment to certain manpower companies including the petitioner and contracted payment of interest to certain parties., paragraphs 7-9 of the Venus judgment 9.20 The other party against whom the resolution professional sought to proceed under the said application did not challenge the order of the impleadment. It was only the petitioner who challenged the said order of impleadment. Therefore, insofar as the petitioner was concerned, the suspect transaction was allegedly a preferential transaction is assailable under Section 43 of the Code. It is in this background that the petitioner filed a writ petition seeking a declaration that the proceeding against it was void and ....
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....the benefit of the Corporate Debtor and its COC. 9.26 The respondents have relied on the sentence "this is however subject to any clause in the resolution plan to the contrary, permitting the RP to function for any specific purpose beyond the approval of the resolution plan. In the present case, no such clause has been shown to exist", paragraph 77 of the Venus judgement to contend that if a resolution plan provides to the contrary, the resolution applicant can take the benefit of the recoveries. The appellant argued that the said discussion is not in the context of the question(iii) framed by the court but in the context of the question(i), which deals with the issue as to whether a resolution professional can continue to act beyond the approval of the resolution plan. The Venus judgement does not lay down any proposition that if a resolution plan provides that the resolution applicant can take the benefit of the recoveries from avoidance transactions, the same is permissible, let alone legal. 9.27 We are fully convinced with the argument advanced by the Appellants Counsel that the ratio of the 'Venus Recruiters' case applies to the facts of this case. Further, the r....
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....Report of Transaction Auditor M/s Grant Thornton and the fact that SFIO was investigating the DHFL scam, these Resolution Applicants raised issues with respect to the stipulation in the RFRP providing that the recoveries from transactions set aside/ avoided under Sections 43 to 51 and 66 would be for the benefit of DHFL's creditors. 9.33 Considering the objections of the Resolution Applicants, it was agreed that the RFRP might be suitably modified to incorporate language which was in the mutual interest of Respondent No.3 (which includes the Applicant as well) and the Resolution Applicants. 9.34 Some of the Relevant / Key observations/directions of the meeting of 7th CoC held on September 10 2020, as recorded in the minutes of the meeting, are mentioned below: The existing RFRP provides that in the eventuality transaction is avoided/set aside by the Adjudicating Authority in terms of the provisions of the Code, any amount received by the Administrator or the Resolution Applicant/Corporate Debtor (as the case may be) in accordance with such decisions of the Adjudicating Authority shall be for the benefit of the creditors and shall be a pass-through amount to the c....
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....scribe a value to the transaction to all the transaction that are being filed u/s 66 and propose the manner of dealing with any recoveries therefrom. The Administrator directed both the legal counsel alongwith the process advisors to make the appropriate changes in the RFRP to ensure that the rights of the CoC members are adequately protected. The CoC counsel and the Administrator Counsel took note of the same. The CoC members did not raise any other point and it appeared that they concurred with the suggestions of both the legal counsels." 9.35 The Appellant has filed a copy of the Piramal Resolution Plan-options 2nd Group A, dated 16 October 2020 (page 299 of the appeal paper book). Clause 2.13.2 about 'OPTION A' is quoted below for ready reference; "2.13.2 Given that these transactions primarily pertain to group B and group C, which are to be carved out of the company pursuant to section 9.1.3 of part A (financial proposal), the resolution applicant attributes NIL value to the transactions. Accordingly, any amount received by the company as a result of such orders shall be distributed to the financial creditors pro rata to the extent of the financial debt for financi....
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....t received by the company as a result of such orders shall be distributed to the financial creditors pro rata to the extent the financial debt for financial creditors. Provided that, the COC may in its discretion adopt a different manner or distribution (which may take into account the order of priority amongst financial creditors as laid down in section 53 (1) of the IBC and such decision of the COC shall be accepted by the resolution applicant, subject to there being no change in the total resolution amount. 2.14.5 The resolution applicant ascribes nil value in respect of any transactions that may be provided/set aside by the NCLT in terms of section 66 of the IBC. Accordingly, any amount received by the company as a result of such orders shall be distributed, net of taxes, to the financial creditors pro-rata to the extent the financial debt for financial creditors. Provided that, the COC may in its discretion adopted different manner of distribution (which may take into account the order of priority amongst financial creditors as laid down in section 53 (1) of the IBC and such action of the COC shall be accepted by the resolution applicant, subject to there being no cha....
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.... shall be accepted by the resolution applicant, subject to there being no change in the total resolution amount. 9.40 Considering the above, Respondent No.1 amended the abovementioned clause of the RFRP. The amended RFRP provided that the benefit of avoiding/setting aside any transaction in terms of Sections 43, 45, 47, 49, 50 (and not Section 66 of the Code) shall enure to the benefit of DHFL's creditors. In contrast, if any transaction is avoided/set aside in terms of Section 66 of the Code, the Resolution Applicant shall ascribe a value under the Resolution Plan to any recoveries that are likely to be made in respect of such transactions and shall propose the manner of continuing and dealing with any legal action initiated and the proposed manner of treatment of any proceeds arising therefrom. The relevant clauses of the RFRP in this regard are as follows: "(w) in the event any transaction is avoided/set aside by the Adjudicating Authority in terms of Section 43, 45, 47, 49, 50 of the IBC, and any amount is received by the Administrator or the Resolution Applicant/Corporate Debtor (as the case may be) in accordance with such decision of the Adjudicating Authority....
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....cant, subject to their being no change in the Total Resolution Amount. 2.13.3. The Resolution Applicant ascribes value of INR 1 in respect of any transactions that may be avoided set aside by the NCLT in terms of Section 66 of the IBC. Accordingly, any positive recovery as a result of the reversal of transactions avoided or set aside by the NCLT in terms of Section 66 of the IBC would accrue to the sole benefit of the Resolution Applicant. All the costs and expenses incurred or to be incurred towards litigation pertaining to Section 66 of the IBC shall be to the account of the Resolution Applicant." 9.43 Based on the minutes of the 17th Meeting of COC dated 18 December 2020, it is clear that during this meeting, it was informed by the Administrator that the treatment of avoidance recovery as mentioned in the plan is not in compliance with the terms of RFRP. Further attention was drawn towards the judgement of the same. Excerpts of the minutes (Page 320 of Appeal Paper book) is given below for ready reference; "7(vii) the COC legal counsel highlighted the treatment of avoidance recoveries is mentioned in the plan and is stated that the same is not in accordance ....
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....ance applications, Respondent No. 1 persisted with these valuations to the detriment of DHFL's creditors. 9.49 Appellant further submits that by letter dated 11 January 2021 addressed to Respondent No. 1, it had raised objections in this regard. However, Respondent No. 1 has not replied to this letter to date. Therefore, the Applicant once again addressed a letter dated 14th January 2021 to Respondent No.1, raising objections regarding the proposed distribution mechanism and requested Respondent No. 1 to adhere to the principles of fair and equitable distribution of proceeds among various stakeholders of DHFL. However, Respondent No.1 has not paid any heed to the Applicant's request. Appellants objection about voting on the resolution plans 9.50 Appellant alleges that despite the unlawful stipulation in the Resolution Plans regarding the treatment of recoveries from avoidance applications and instead of directing the Resolution Applicants to modify the Resolution Plans in this regard, Respondent No. 1 put the Resolution Plans to vote of the CoC. The voting window was open from 29th December 2020 to 14th January 2021. Instead of the resolution seeking a vote regardi....
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....nditions of the agreement between JIL and the dissenting financial creditor, in the following words:- "92....Therefore this argument will not be ticking to say that payment in kind to the promise is discharge of obligation. If the promisee has agreed to give up the payment obligation, he is free to do so. In this case, for the dissenting financial creditor has not agreed to the approval of the resolution plan, they shall be paid in cash, not only by virtue of the mandate under Section 53 of the Code but also by virtue of terms and conditions of the agreement between the Corporate Debtor and the dissenting financial creditor." 387. The relevant aspect for the present point for determination is that apart from such dissenting financial creditors, a few of the associations of homebuyers and some of the individual homebuyers carry their own grievances against the resolution plan and seek to submit that their interests have not been safeguarded and they are being denied of their legal rights. These dissatisfied associations and individual homebuyers seek to contend that the resolution plan is lacking in various requisite arrangements; is violative of the CIRP Regulatio....
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....ing anything to the contrary contained in sub-section (3), the AR shall cast his vote on behalf of all the financial creditors he represents 'in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote'. 425. In the face of clear language of sub-section (3A) of Section 25A of the Code, read with the law declared by this Court in Pioneer Urban (supra), the suggestion on behalf of the dissatisfied homebuyers that the said provision was only intended to iron out the logistical issues and technical difficulties is required to be rejected altogether. The said provision, as held by this Court, is to iron out the creases that might have been felt in the proper working of Section 25A; and it is made explicit that the allottees, even if not a homogeneous group, they could vote only either to approve the resolution plan or to disapprove the same. Divergence of the views within their own class may exist but, when coming to the vote in the Committee of Creditors, their vote would be that of a class. 426. Having regard to the scheme of IBC and the law declared by this Court, it is mo....
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....who voted for NBCC, 2 had dissented/abstained. Even assuming the percentage as stated by these appellants to be correct, we are at a loss to find any logic in the submissions so made. A re-look at sub-section (3A) of Section 25A would make it clear that '50%' for the purpose of the said provision is of those homebuyers who cast their vote. On the percentage figures as given before us, out of the total voting share of homebuyers at 57.66%, the persons carrying 22.51% voting share simply abstained and of the persons casting their votes, ayes were having the voting share of 34.10% whereas nays were having the voting share of 1.05%. Obviously, 50% would be counted only of the persons who chose to vote where, much higher than 50% of the homebuyers who cast their vote, stood for approval of the resolution plan of NBCC. Such a voting cannot be set at naught for the purported dissatisfaction of a miniscule minority, which was about 3.69% in terms of the number of persons voting; and about 1.05% in terms of the voting share. They have to sail along with the overwhelming majority. That is the purport and effect of 'drag along' or 'sail along' provisions in the scheme of the Code. 43....
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....in the periphery of Section 30(2) of the Code. We find none." 9.54 Based on the above judgment of the Hon'ble Supreme Court, the Learned Senior Advocate for Respondent argued that in the instant case, the appellant's NCD holders as a class had approved the Resolution Plan; therefore, the appellant as an individual NCD Holder cannot maintain any challenge to the Resolution Plan as there is estoppel under law. 9.55 In response to the above argument, learned Senior Counsel for Appellant argues that the said contention of Respondent Nos. 1 & 2 is entirely misconceived. In addition to the fact that the Appellant has voted to owe to the express liberty granted by this Hon'ble Tribunal, without prejudice to Appellant's rights & contentions, the plea of estoppel is not available to the Respondents in the present facts on the following legal grounds which are without prejudice, and in the alternative, to each other: i. A Resolution Plan, which is otherwise illegal or contains terms contrary to law, cannot be countenanced based merely on the strength of the majority that votes for such a plan. Hence, the manner in which a member of the CoC votes cannot cure illegality ....
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....n 31 read with Section 30(2) of the Code, to ensure that a resolution plan placed before it for approval is compliant with the provisions of law. Despite the limited scope of enquiry in an application for approval of a Resolution Plan, the jurisdiction of the Adjudicating Authority to go into the aspects of illegality in Resolution Plans and the Resolution Plans being compliant with the provisions of law has been well recognized & accepted by Hon'ble Supreme Court of India in several judgements. 9.60 The learned Counsel for the respondent adverted to the observations of the Hon'ble Supreme Court in paras 30 of the judgement in the case of Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, (2020) 11 SCC 467, wherein it is observed that: "30. The appellate authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. ....
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....of such proceeds, which has been recorded in Para 13 of the Addendum Letter and forms a part of the 'Resolution Plan'. Further, since this is a matter which relates to a commercial understanding between the 'Committee of Creditors' and the Resolution Applicant as recorded in the 'Resolution Plan', in light of "Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta-2019 SCC OnLine SC 1478", such commercial understanding be given effect to, without any modification. 146. In light of the above, we set aside the condition stipulated in second part of para 128(i) of the impugned order, regarding monies recovered from tainted and other such transactions, as being contrary to the agreed position in terms of para 13 of the Addendum Letter, which forms a part of the 'Resolution Plan'." 9.63 The Learned Senior Counsel for the Respondents further submits that this Appellate Tribunal ought to adopt a hands-off approach and should not undertake a judicial review of the COC is commercial wisdom exercised while dealing with the treatment of proceeds (if any) arising out of applications filed under Section 66 of the Code. 9.64 Respondent further places reliance on....
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....mited to scrutiny of the resolution plan "as approved" by the requisite per cent of voting share of financial creditors. Even in that enquiry, the grounds on 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, per....
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....ting by the CoC also occurs only after the RP has verified the contents of the Resolution Plan and confirmed that it meets the conditions of the IBC and the regulations therein. The amended Regulation 39(3) further regulates the conduct of the CoC on voting on Resolution Plans and has introduced the requirement of simultaneous voting. The IBBI's Discussion Paper issued on 27 August 2021 has invited comments on regulating the process on revisions that can be made to resolution plans submitted to the CoC. These developments bolster the conclusion that the mechanism prior to submission of a CoC-approved resolution plan is subject to continuous procedural scrutiny by the IBC and cannot be considered as a simple contractual negotiation between two parties. Section J below details how a common law remedies of withdrawal or modification on account of frustration or force majeure are not applicable to CoC-approved Resolution Plans owing to the nature of the IBC. Similarly, the whole host of remedies such as liquidated and unliquidated damages, restitution, novation and frustration, unless specifically provided by the IBC, are not available to a successful Resolution Applicant whose Pla....
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....ant has failed to implement the resolution or has contributed to its failure. Regulation 36B (4A) of CIRP regulations provides for the furnishing of such performance security once the plan is approved by creditors. The Regulations do not provide that the performance security has to be a reasonable estimate of loss as is expected of penalty clauses under contract law, rather the explanation provides that the performance security should be of "such nature, value, duration and source, as may be specified in the request for resolution plans with the approval of the committee, having regard to the nature of resolution plan and business of the corporate debtor". Further, in the event that the CoC enters into a settlement with the Corporate Debtor and withdraws from the CIRP under Section 12A, Regulation 30A provides for only payment of insolvency costs and not compensation or damages to Resolution Applicant for investing time and money in the process. The parties may resort to invoking principles of frustration or force majeure to evade implementation of the Resolution Plan leading to unnecessary litigation. This Court in Amtek Auto (supra), had curbed a similar attempt by a successful R....
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....of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan." 30. The jurisdiction which has been conferred upon the Adjudicating Authority in regard to the approval of a resolution plan is statutorily structured by sub-Section (1) of Section 31. The jurisdiction is limited to determining whether the requirements which are specified in sub-Section (2) of Section 30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equated with a jurisdiction in equity, that operates independently of the provisions of the statute. The Adjudicating Authority as a body owing its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute itself. 31. The jurisdiction of the Appellate Authority under Section 61(3), while considering an appeal against an order approving a resolution plan under Section 31, is similarly structured on specified grounds. Section 61(3) provides: "61.....(3) An appeal against an order approving a resolution plan under ....
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....he 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 NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by 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 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)....
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....ting Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximize the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of....
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....nisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code." 45. In Essar Steel India Limited (supra), this Court held that "the UNCITRAL Legislative Guide...makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors". 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 m....
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....he discipline of the statutory provisions. It needs no emphasis that neither the Adjudicating Authority nor the Appellate Authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework. G Conclusion 51. In the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with Section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law." (emphasis supplied) 9.67 Further, in case of Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 Hon'ble Supreme Court has observed that; 93....... "After CoC appr....
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....ited judicial review available to Adjudicating Authority lies within the four corners of Section 30(2) of the Code, which would essentially be to examine that the resolution plan does not contravene any of the provisions of law for the time being in force, it conforms to such other requirements as may be specified by the Board, and it provides for : (a) payment of insolvency resolution process costs in priority; (b) payment of debts of operational creditors; (c) payment of debts of dissenting financial creditors; (d) for management of affairs of corporate debtor after approval of the resolution plan; and (e) implementation and supervision of the resolution plan. 77.2. The limitations on the scope of judicial review are reinforced by the limited ground provided for an appeal against an order approving a resolution plan, namely, if the plan is in contravention of the provisions of any law for the time being in force; or there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; or the debts owed to the operational creditors have not been provided for; or the insolvency resolution process co....
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....material irregularity in the procedure adopted by the RP, an appeal under Section 61(3) of the IBC would be tenable. He submitted that the RP acted with undue haste in the present matter. Learned counsel submitted that in the proceedings of the meeting of the CoC, held on 11-12th February, 2020, the Director of PPIPL, had sought one or two days' time to submit its revised offer. He submitted that, however, the said time was not granted. He further submitted that the revised offer was submitted within two days and it was the duty of the RP to present its revised offer before the CoC. Having not done that and having hastily approved the plan of Ngaitlang Dhar, the NCLAT has rightly interfered with the decision of the CoC. In this respect, he relies on the judgment of this Court in the case of Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Limited. 31. It is trite law that 'commercial wisdom' of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the processes within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or t....
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....itted the PPIPL to participate in the process, despite it assuring the other three prospective Resolution Applicants in its meeting held on 11-12th February, 2020, that the absentee prospective Resolution Applicant (PPIPL) would be excluded from participation, it could have been said to be an irregularity in the procedure followed. 35. Insofar as the contention of the learned counsel, Shri Abhijeet Sinha, that the NCLT had already extended the CIRP period by 90 days vide order dated 26th February, 2020 and therefore, there was no necessity to hastily approve the Resolution Plan of Ngaitlang Dhar on 12th February, 2020, is concerned, we find the same to be without substance. It will be relevant to mention that the period of 180 days was to expire on 24th February, 2020, and therefore, in the meeting dated 12th February, 2020 itself, the CoC after resolving to declare Ngaitlang Dhar as H-1 bidder had resolved to authorise the RP to seek an extension of CIRP period before the NCLT. 36. It will be relevant to refer to paragraph 2 of the order dated 26th February, 2020 passed by the NCLT, which reads thus: "2. It is the submission of the RP that the CoC in its....
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....s by the RP during the corporate insolvency resolution period. It is trite law that 'commercial wisdom' of the CoC has been given paramount status without any judicial intervention for ensuring completion of the processes within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or the Appellate Authority (the NCLAT) to take into consideration any other factor other than the one specified in Section 30(2) or Section 61(3) of the IBC. 9.72 In the case of Pratap Technocrats, Hon'ble Supreme Court has observed that the opinion expressed by the CoC after due deliberations in the meetings through voting, as per voting shares, is the collective business decision and that the decision of the CoC's 'commercial wisdom' is non-justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of the IBC. This position of law has been consistently reiterated in a catena of judgments of Hon'ble Supreme Court, including; K. Sashidhar v. Indian Overseas Bank; Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta; Maharashtra ....
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....rs of the Corporate Debtor and not for the Corporate Debtor in its new avatar after the approval of the Resolution Plan. 9.76 The question of whether the stipulation of future recoveries from Section 66 avoidance applications being retained by the Successful Resolution Applicant's amounts to illegality or whether the same is within the commercial domain of COC as claimed by the respondent is to be addressed. Whether the same can be treated under the rights of commercial wisdom of the COC is also vital for the decision of these Appeals. 9.77 For the correct legal position about recoveries from avoidance transactions to the benefit of the company's creditors, the inference may be drawn from the following authoritative external aids, based on which the Indian law has developed. 9.78 The Appellant further placed reliance on the 'UNCITRAL' United Nations Commission on International Trade Law, Legislative Guide or Insolvency Law and the Report of Bankruptcy Law Reforms Committee November 2015, and Insolvency Law Committee Reports, 2020. 9.79 The relevant part of the said UNCITRAL LEGISTATIVE GUIDE is given below for ready reference; "F. Avoidance proceedi....
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....tions. The objectives are as follows: • Fraud The main and original object is to prevent the debtor from fraudulently concealing or transferring his assets beyond the reach of his creditors when he knows that his own insolvency is looming. This is the true fraudulent conveyance or transfer and often carries an element of dishonesty." 17-006 Who invokes the Avoidance "In most jurisdictions the avoidance procedure is invoked by the insolvency administrator for the benefit of all creditors. This is so in those jurisdictions which split management powers in rescue proceedings between management and creditor representative or court. The US is unusual in vesting the avoidance power in the debtor in possession. See BC 1978 s 1107. This must appear particularly galling to the creditor concerned. To provide this result, in the Japanese debtor in possession rescue proceedings, the civil rehabilitation, the court appoints a supervisor to exercise the power. A widespread exception is the power of a single creditor to initiate avoidance action for his own benefit under the Pauline action- the original intentionally fraudulent preference.....
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....ank Group Judicial Capacity-Building Initiative on International Best Practices in Insolvency Law Questions & Answers Consequences of avoidance "Can the outcome of an avoidable transaction be given to the Successful Resolution Applicant?" Ans ; See recommendations 93 and 98 of the UNCITRAL Legislative Guide on Insolvency Law and their accompanying commentary that, in particular, state that the most common approach is to treat the assets or value recovered through avoidance as part of the estate on the basis that the principal justification of avoidance proceedings is to return value or assets to the estate for the benefit of all creditors, rather than to provide a benefit to individual creditors. Other approaches may however be found in domestic insolvency laws. The World Bank ICR Principles do not address this issue specifically." 9.82 The Report of the Bankruptcy Law Reforms Committee, dated November 2015; Rationale and Design "5.5.7 Treating recoveries from vulnerable transactions The Committee discussed the possibility of identifying and recovering from vulnerable transactions. These are tractio....
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.... of the person receiving the recoveries. Due to this, many jurisdictions such as US and UK do not impose any obligation on the regulatory or other State bodies to undertake avoidance actions. State authorities in such jurisdictions utilise powers in relation to civil and criminal offences to carry on investigations of any wrongdoings by the Corporate Debtor instead. Based on this, the Committee agreed that it may not be appropriate for the IBBI to undertake investigation of avoidable transactions and improper trading under the Code. The Committee concluded that only the insolvency professional would be in a position to investigate these during a CIRP or liquidation process, and thus the present provisions of the Code need not be amended in this regard. Therefore, the Committee agreed that the status quo be maintained and the primary responsibility for investigation of these transactions should be on the insolvency professional. However, IBBI may continue to exercise its powers under Section 236 to file criminal complaints to prevent misconduct. 2. Filing of Applications to Avoid Transactions, ETC. 2.4. The Committee also considered if the successful Resolution App....
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.... stakeholders. In arriving at this decision, the Adjudicating Authority may take note of the facts and circumstances of the case, along with the above listed factors. Additionally, the Committee agreed that if the recoveries are to be vested with the creditors, they may usually be distributed per the order of priorities provided in Section 53(1) of the Code, unless an alternate manner of distribution is deemed appropriate by the Adjudicating Authority. 9.84 The learned Senior Counsel for the respondent contends that Appellant has placed selective reliance upon the recommendations of the ILC report to suit their interests. Contrary to the submissions of the appellant's, the law is indeed flexible on the question of the distribution of proceeds from avoidance applications. The ILC report itself refuses to provide any straitjacket formula for distribution of proceeds from the avoidance transactions but merely observes that the recoveries should usually go to the creditors of the corporate debtor. The Resolution Applicant has factored in the recoveries in its resolution plan proceeds arising from the avoidance applications filed under Section 66 of the Code. Accordingly, the Resolut....
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....ctors such as the kind of transaction being avoided, party funding the action, assignment of claims, creditors affected by transaction or trading may need to be considered when deciding on the distribution of recoveries. Thus, it was recommended that instead of providing anything prescriptive in this regard, the decision on the treatment of recoveries might be left to the adjudicating authority. Accordingly, the adjudicating authority should decide whether the recoveries that vest with the Corporate Debtor should be applied for the benefit of the creditors of the Corporate Debtor, the Successful Resolution Applicant or other stakeholders. In arriving at this decision, the adjudicating authority may take note of the facts and circumstances of the case and other listed factors. Additionally, the committee agreed that if the recoveries are to be vested with the creditors, they must usually be distributed per the order of priorities provided in Section 53 (1) of the code unless an alternate manner of distribution is deemed appropriate by the Adjudicating Authority. 9.89 Per contra, in this case, the Adjudicating Authority, while rejecting the IA of the Appellant in this regard made ....
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....NCITRAL; Model 6; Avoidance Transactions, Offences And Penalties, https//www.unicitral.org/pdf/English/texts/insolven/05-80722_Ebook.pdf/ 220. UNDERSTANDING THE IBC KEY JURISPRUDENCE AND PRACTICAL CONSIDERATIONS 2. Avoidance Transactions The UNCITRAL Legislative Guide on Insolvency Law defined avoidance provisions as "provisions of the insolvency law that permit transactions for the transfer of assets or the undertaking of obligations prior to insolvency proceedings to be cancelled or otherwise rendered ineffective and any assets transferred, or their value, to be recovered in the collective interest of creditors. Avoidance provisions are one of the key tools in insolvency law to match maximise assets of the CD and to prevent opportunistic and value destroying actions in does by the CD or even certain creditors prior to the ICD. It is aimed at preservation of the CD's assets pool for the collective benefit of all the stakeholders. While the conditions of avoidance may vary depending on the type of action undertaken, in general, the transactions that can be avoided or ones where, prior to the initiation of the CIRP, there has been an asset valuati....
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....nimising the potential loss to the creditors of the Corporate Debtor.[(3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under sub-section (2), in respect of such default against which initiation of corporate insolvency resolution process is suspended as per Section 10-A.] Explanation.-For the purposes of this section a director or partner of the Corporate Debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the Corporate Debtor. 67. Proceedings under Section 66.- (1) Where the Adjudicating Authority has passed an order under sub-section (1) or sub-section (2) of Section 66, as the case may be, it may give such further directions as it may deem appropriate for giving effect to the order, and in particular, the Adjudicating Authority may- (a) provide for the liability of any person under the order to be a charge on any debt or obligation due from the Corporate Debtor to him, or on any mortgage or....
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....is distributable among general creditors-under the companies act, 1929 (19 and 20Geo.5,c.23), section 265. The joint liquidators in the voluntary winding up of a company recovered a sum of money alleged to have been paid to a creditor by the company by way of fraudulent preference. A debenture holder took out a summons in the liquidation for an order that the money recovered from the creditor should be paid to the receiver of the property charged by the debenture; Held that the money did not become part of the company's General assets but was a sum of money received by the liquidator's and impressed in their hands with the trust for those creditors among whom the company's assets were distributable. Ex parte Cooper (1875) L.R. to Ch.510 and Willmott v London Celluloid Co. (1886) 34 Ch. D. 147 distinguished. "In January 17, 1933, the creditor to whom the money was paid and from whom the money was recovered was a creditor of Yegarphone, Ltd. When Yegarphone, Ltd , paid to the creditor 240 l.IIS.2d.,that sum, in my judgement, ceased to be the property of Yegarphone, Ltd. the payment to the creditor could not have been attacked or im....
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....rom a creditor who has been wrongly preferred enures for the benefit of the general body of creditors not for the benefit of the company or the holder of the floating charge. This is because it does not become part of the company's assets but is received by the liquidator impressed with a trust in favour of those creditors amongst whom he has to distribute the company's assets. 9.102 Such positive affirmation by the foreign courts evinces that the creditor of the Corporate Debtor are sole beneficiaries, and some direct benefit must ensure, in their favour. Accordingly, the proceeds may be distributed amongst them in accordance with the waterfall mechanism provided under Section 53 (1) of the I & B Code, 2016, unless an alternate one is found by the Adjudicating Authority to be appropriate. 9.103 Any decision taken by the committee of creditors which strikes at the very heart of the Code cannot simply be upheld under the garb of commercial wisdom. In other words, the COC's decision to approve the resolution plan submitted by Respondent No. 2, which contains unlawful stipulations concerning intelligible bifurcations of recoveries under two similarly placed sets, is unsustai....
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....off by the promoter directors of the Corporate Debtor. Unfortunately, such activities generally disadvantage creditors, especially small investors. 9.109 Regulation 37A of the IBBI (Liquidation Process) Regulations, 2016 (the "Liquidation Process Regulations"), which empowers a Liquidator to assign or transfer a not readily realizable asset during the liquidation of a Corporate Debtor. The conspicuous absence of a similar provision in the CIRP Regulations, which permits assignment or transfer of recoveries from avoidance transactions to a resolution applicant, supports the case of the Appellant that such recoveries cannot be transferred to a resolution applicant in the CIRP process, which is qualitatively different and distinct from the liquidation process. 9.110 Both Respondent Nos. 1 & 2 have contended that on the ground of estoppel, the Appellant is prevented from challenging Respondent No. 2's resolution plan because the Appellant itself & the class to which it belongs have voted in favour of the plan. Respondent Nos. 1 & 2 have relied on the judgement of Hon'ble Supreme Court in the case of Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC....
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....petitioner in a divorce suit cannot obtain relief simply because the respondent is estopped from denying the charges, as the court has a statutory duty to inquire into the truth of a petition. [ Halsbury's Laws of England , Fourth Edn., Vol 16, para 1515]." b) M/s Elson Machines Private Limited v. Collector of Central Excise 1989 Supp (1) SCC 671. In this case, Hon'ble Supreme Court has held that; "10. The next submission on behalf of the appellant is that the classification lists had been approved earlier and the excise authority was estopped from taking a different view. Plainly there can be no estoppel against the law. The claim raised before us is a claim based on the legal effect of a provision of law and, therefore, this contention must be rejected." c) M. Aamira Fathima & Ors. v. Annamalai University & Ors. (2018) 9 SCC 171. In this case, Hon'ble Supreme Court has held that; "21. The other submission that the students were estopped from raising a challenge must also fail. If a particular modality is prescribed by the legislature, any action in defiance or ignorance of such modality cannot be protected or preserved on the plea of estopp....
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....etter than that of NBCC". b) Para 10.2/ pg. 15: Jaypee Aman Owners Welfare Association was "aggrieved of the projected dates of completion and proportional increase in delay, as provided in the Resolution Plan" and sought penalty on account of delay. c) Para 10.4/ pg. 16: Jaypee Orchard Resident Welfare Society sought implementation of the projects but had its reservations on the terms of the Resolution Plan where the requisite compensation in relation to the delayed implementation of the project had not been provided in terms of RERA". d) Para 10.6/ pg. 17: One Mr. Ashok Chandra "sought directions to determine adequate and fair compensation to be paid to homebuyers due to unreasonable delay in completion." e) Para 158/ pg. 275: A perusal of this paragraph shows that individual homebuyers and their associations "carried their own grievances against the Resolution Plan" and contended that the Resolution Plan was lacking in various requisite arrangements". f) Para 159.4.5/ pg. 286, Para 159.6/ pg. 287: The Supreme Court has set out the commercial nature of the challenges of the appellants in the said paragraphs. 9.116 Further, in the ca....
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....20 18th CoC meeting held wherein it was decided that the Resolution Plans would be put to the vote of the CoC. 2. 21.121.2020 to At the appropriate time when the above decision to put the resolution plans to the vote was taken, this Hon'ble Tribunal, NCLT, was not available for judicial work (except Vacation Bench) due to Christmas vacation. 3. 28.12.2020 On the next working day (i.e. after the decision regarding putting the resolution plans to vote being taken in 18th CoC meeting), the Applicant filed IA No.2352 of 2020 challenging the decision of Respondent No.1 to put to the vote of CoC resolution plans which sought to appropriate for the benefit of the Resolution Applicants recoveries/ contributions from avoidance applications. 4. 30.12.2020 Respondent No. 1 opened the voting window on 30.12.2020 from 9.00 pm till 14.01.2021. Since the vacation bench of NCLT was not presiding on 30.12.2020, the Applicant could not move IA 2352 of 2020 on that day. 5. 31.12.2020 IA No. 2352 of 2020 was listed before the Vacation Bench of this Hon'ble NCLT. Respondent No. 1 contended that the said IA was premature and not maintainable and prayed for ....
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....hdraw the IA No. 2352 of 2020 and file a comprehensive application to agitate all issues at the Section 31 stage. The Hon'ble Tribunal granted the said liberty, and all issues were kept open. 9.119 The appellant submits that he did what we could as a litigant to assert rights in the circumstances. And, it is wrong to suggest that IA 2352 of 2020 was filed to set up a 2nd ambush. Thus, the respondent's narration of dates and events by learned senior counsel is factually incorrect. 9.120 In addition to the above, before the NCLT, Respondent No. 2 relied on the judgement of this Hon'ble Tribunal in the cases of Indian Renewable Energy Department Agency Ltd. v. Bhuvesh Maheshwari & Ors, and S.S. Natural Resources Pw. Ltd. v. Ramsarup Industries Ltd. These judgments also have no application to the present case and have been distinguishable. 9.121 The argument based on estoppel on the ground of acquiescence and waiver was rejected by the Hon'ble Supreme Court in the Kalpraj Judgement. (Para 132 to 135). 9.122 While the proposition that the commercial wisdom of the Committee of Creditors is supreme is not disputed in so far as the commercial aspects of the Reso....
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....orate debtor DHFL. However, this Tribunal is not a court of equity, and every stakeholder abides by the terms of the approved resolution plan. 9.127 In the circumstances, it is of utmost importance to see that there should not be any unjust enrichment at the cost of lakhs of creditors of the company whose money has been defrauded by the corporate debtor's promoters. It is also important to mention that Government Agencies like CBI, a Special Fraud Investigation officer of the Ministry of Corporate Affairs and other agencies are also investigating the fraudulent transfers of money from the corporate debtor account to the shell companies rerouting them from there. In such a scenario, chances of recovery are very high. If any such recovery is made from these avoidance transactions, the benefit should go to the creditors of the company as per the prevailing practice in other countries. 9.128 It is also important to mention that outcome of the avoidance transaction is given in the notional value of Rs.one. In such a scenario, it should not have much impact on the resolution plan. However, since we have concluded that the outcome of the avoidance transaction cannot be given to ....
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...., 47, 49, 50 or 66 of the Code, and any amount is received by the 1st Respondent, Resolution Applicant or the Corporate Debtor; such sums shall be for the benefit of the CoC. In response to the said RFRP, four entities expressed interest in submitting the Resolution Plans. 12. However, when the Resolution Applicant's raised the issue with respect to the stipulation of an RFRP providing that the recoveries from transactions debtor aside/avoided would be for the benefit of the DHFL creditors, RFRP was amended. 13. Based on the above issue raised by Resolution Applicant's, the Administrator, after deliberations with both the legal counsels and process adviser and based on their inputs, decided that the COC could evaluate options as they deem fit. Although the administrator stated that it is CoC's prerogative to fix the term of RFRP to resolve the issues raised by PRA's, CoC has the discretion to negotiate. 14. It is pertinent to mention the powers of COC where commercial wisdom can be exercised is provided under Sections 28, 30(4) of the Code. It is also provided that no action under Section 28 (1) of the Code shall be approved by CoC unless approved by a vote of 66% of the v....