AI Drafter 
TaxTMI 
TaxTMI 
2023 (5) TMI 344
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....R Mr. Dheeraj Nair, AOR Ms. Vishrutyi Sahni, Adv. JUDGMENT DINESH MAHESHWARI, J. Preliminary and brief outline .............................................................................. 2 Particulars of the proceedings and the parties .................................................. 7 The relevant factual and background aspects ................................................ 13 Initiation of CIRP ................................................................................................... 14 CoC Meetings and ancillary proceedings .............................................................. 16 Resolution plan approved by the Adjudicating Authority (NCLT) .................... 26 Disapproval of the Appellate Tribunal (NCLAT) .............................................. 40 Proceedings in this Court ................................................................................ 59 The events during pendency of these appeals...................................................... 62 Rival submissions ............................................................................................ 65 Points for determination ..................
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....short with directions to the resolution professional 'RP', for short to proceed from the stage of publication of Form 'G', and invite the expression of interest 'EOI', for short afresh as per the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Hereinafter also referred to as 'the CIRP Regulations'. 2. In view of multiple issues raised in this batch of matters, where several steps have been taken at different stages and different parties are having different stands and interests, we may draw a brief outline with salient features of the factual and background aspects, in order to indicate the contours of the forthcoming discussion. 2.1. CIRP against the corporate debtor got initiated on 05.05.2020, with the NCLT admitting an application moved under Section 7 of the Code by one of its financial creditors, Tourism Finance Corporation of India Limited 'TFCI', for short. In the course of proceedings, after various rounds of CoC meetings, ultimately, the resolution plan in question was approved with 87.39 per cent. majority of voting share on 22.01.2021. However, the CoC recommended certain changes to be made in the re....
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....on applicant as also by the resolution professional on several counts, which could be broadly summarised thus: First, that Regulation 35 of the CIRP Regulations does not mandate sharing of the valuation report to the CoC and instead mandates only sharing of liquidation value. Second, that the non-core assets were not significant in value and the valuation was communicated to and agreed upon by the members of the CoC on 15.12.2020. Third, that non-publication of Form G on the designated website was a mere procedural irregularity which did not prejudice interests of any of the parties. Fourth, that the commercial wisdom of CoC was not justiciable and once the CoC had approved the resolution plan by the requisite majority, there was very limited scope of interference by the Courts. Fifth, that the Appellate Tribunal has overstepped its jurisdiction by declaring the resolution applicant ineligible under Section 88 of the Trusts Act and disqualified under Section 164(2)(b) of the Companies Act. Sixth, that the claims of related party creditors cannot be treated at par with the unrelated creditors. And seventh, that Section 12-A IBC application of the promoter was merely a dilatory tacti....
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....en placed before the Adjudicating Authority for approval. Having regard to the events aforesaid and looking to the overall circumstances, while keeping the judgment reserved, we requested the Adjudicating Authority to await the decision of this Court in these matters. Particulars of the proceedings and the parties 5. In view of the issues arising for determination in these appeals, with several parties carrying different roles, interests, and positions, worthwhile it would be to narrate at the outset, in brief, the relevant particulars of the proceedings leading to these appeals as also the principal parties involved herein. 6. As noticed, the CIRP against the corporate debtor got initiated on 05.05.2020, with the NCLT admitting an application moved under Section 7 of the Code by one of its financial creditors, TFCI. This application had been registered as IBA No. 1459 of 2019. The application for approval of the resolution plan, moved before NCLT was registered as IA No. 150/CHE/2021 in the said IBA No. 1459 of 2019. This application and several other correlated applications were considered together and were dealt with in the common order dated 15.07.2021 whereby, the Nat....
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.... and claim of the promoter and erstwhile director of the corporate debtor (in Appeal Nos.164 of 2021 and 219 of 2021 before NCLAT) by way of Civil Appeal Nos. 1756 of 2022 and 1807 of 2022 respectively. The resolution professional has further questioned the order passed in relation to the claim of the related party (in Appeal No. 176 of 2021 before NCLAT) by way of Civil Appeal No. 1757 of 2022. Lastly, the resolution professional has questioned the order passed in relation to the claim of the NRI shareholder (in Appeal No. 218 of 2021 before NCLAT) by way of Civil Appeal No. 1759 of 2022. 7. Now, we may take note of the relevant particulars of the principal parties involved in this litigation. The parties could broadly be divided into three categories with reference to their respective stands vis-à-vis the order of the Appellate Tribunal, the CIRP, and the resolution plan in question. 7.1 The first category is of the parties who are aggrieved of the order passed by the Appellate Tribunal on several counts and are opposing the rejection of resolution plan and remand of the matter to CoC. They are: 7.1.1. Mr. M.K. Rajagopalan He is the resolution applicant and had....
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....al creditors and having their own role in CIRP in question. They include: 8.1. State Bank of India 'SBI', for short This financial creditor of the corporate debtor with nearly 26.41% voting share in CoC, though had earlier voted in favour of the resolution plan in question but now, looking to the order of NCLAT relating to eligibility deficiency of the successful resolution applicant as also the deficiency in process, is essentially supporting the rejection of resolution plan in question and remand of matter to CoC for consideration afresh. 8.2. Edelweiss Asset Reconstruction Company Limited along with IDBI Debentures Trusteeship Limited and Allium Finance Private Limited 'Edelweiss & associates', for short and collectively These financial creditors, with about 21.13% voting share in CoC, too had voted in favour of the resolution plan in question. They have raised questions on the order passed by NCLAT on various grounds. This apart, they have underscored certain other areas of concern including the amount deposited by the resolution applicant, and have also suggested that CIRP must be allowed to go on while leaving the promoter a right to better the resolution plan by ....
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....art of the corporate debtor, the application moved by the financial creditor was bound to be admitted and as a consequence, triggering the corporate insolvency resolution process. Accordingly, the NCLT, by its order dated 05.05.2020, admitted this application and appointed one Mr. Mukesh Kumar Gupta as interim resolution professional 'IRP' for short with other necessary directions in the following terms: - "12. Heard the Counsel for both the parties and perused the documents placed on record. It Is a fact borne on record that the Corporate Debtor is unable to repay the dues to the Financial Creditor and as such on the garb of OTS settlement the Corporate Debtor wanted to gain time to settle of the dues to the Financial Creditor. Further, a perusal of the record of proceedings dated 04.02.2020, also shows that the Corporate Debtor was putting in efforts to settle of the dues of the Financial Creditor and upon such representation being made, the Corporate Debtor was granted time to settle the matter and the matter was finally posted to 02.03.2020 for reporting settlement or to proceed with the matter. Thus, when the matter was taken up for enquiry on 02.03.2020, it has been ....
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....inted shall take in this regard such other and further steps as are required under the Statute, more specifically in terms of Section 15,17,18 of the Code and file his report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIR Process in relation to the Corporate Debtor in terms of the provisions of I&B Code, 2016. *** *** *** 19. Based on the above terms, the Petition stands admitted in terms of Section 7 of the Code and the Moratorium shall come into effect as of this date. A copy of the order shall be communicated to the Petitioner as well as to the Respondent above named by the Registry. In addition, a copy of the order shall also be forwarded to IBBI for its records. Further, the IRP above named be also furnished with copy of this order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned." CoC Meetings and ancillary proceedings 12. CIRP in relation to the corporate debtor having thus been initiated, various steps were taken in terms of the r....
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....rustee), was declared ineligible since a charitable trust cannot run a profit-making entity. Hence, the final list of eleven prospective resolution applicants was submitted before the CoC on 26.09.2020. Finally, three resolution plans were received, from Mr. Madhav Dhir, Mr. M.K. Rajagopalan (the resolution applicant - appellant herein) and Kotak Special Solutions. 12.5. In the fourth CoC meeting held on 12.10.2020, IRP apprised the members about the valuers visiting the properties of the corporate debtor and the valuation being in process. 12.6. On 27.10.2020, the appellant Mr. M.K. Rajagopalan submitted his resolution plan alongwith a demand draft in the sum of Rs. 2 crore. On 02.11.2020, the Tribunal approved the appointment of Mr. Radhakrishnan Dharmarajan as the resolution professional. 12.7. In the fifth CoC meeting held on 12.11.2020, in the first item on the agenda, the members took note of the appointment of Mr. Radhakrishnan Dharmarajan as the resolution professional. Thereafter, on the second item, the CoC approved that the resolution professional shall file an application before NCLT to seek extension of time period from 05.05.2020 to 31.10.2020 under Section 1....
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....e same had been shared with CoC members who had submitted their undertaking. The RP emphasized that their value was not very significant, and it would not affect the liquidation value much. The relevant part of the minutes of this sixth CoC meeting could be reproduced as under: - "The RP apprised the CoC members that based on the resolution passed in 5th CoC meeting an exclusion application along with an urgent application was filed before the NCLT Chennai on 19.11.2020. The application was listed for hearing 15.12.2020 and the Order has been reserved. The RP further apprised that he has provided the CoC members with the fair value and liquidation value to all those who have submitted the confidential undertaking. RP further apprised, that due to significant difference in the value of land and building submitted by the valuers appointed by IRP, the RP has to appoint third valuer in accordance with provisions of Regulation 35 of CIRP Regulations 2016. After it was noted that valuation of non-core assets was not done, the third valuer appointed by RP has submitted the value of non-core assets and the same has been shared with CoC members who have submitted ....
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.... the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process. 8. The Learned Counsel for the Applicant submitted that he sought to exclude the period from 05.05.2020 till 31.10.2020, a total of 179 days from the period of CIRP. Thus, as to the facts of the present case, in view of Regulation 40C of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 the period from 05.05.2020 till 31.10.2020 is excluded from the period of CIRP in terms of Section 12(2) of IBC, 2016. The Applicant shall make every endeavour to complete the CIRP in relation to the Corporate Debtor within the timelines as prescribed under the Code. Accordingly, the application stands allowed." 12.9.1. Two equity shareholders of the corporate debtor challenged the aforesaid order of the Tribunal before the Appellate Tribunal in Company Appeal (AT)(CH)(Ins.) Nos. 19 of 2021 and 20 of 2021 but, the appeals were dismissed on 05.05.2021 with the foll....
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....oter and erstwhile director of the corporate debtor - Dr. Periasamy Palani Gounder - submitted another OTS proposal with reference to Section 12-A of the Code to the CoC. A so-called "Term Sheet" dated 22.01.2021 issued by Deutsche Bank was relied up as a proof of funding. 12.13. However, the CoC stuck to the agenda before it and the resolution plan submitted by the resolution applicant - Mr. M.K. Rajagopalan - was put to vote in the ninth CoC meeting held on 22.01.2021. Though, the said plan was approved with 87.39% of the total voting share of financial creditors present and voting in the meeting, the RP was required to send the resolution plan back to the resolution applicant as there was dissent by some of the financial creditors and in terms of Section 30 (2) of the Code, the amount to be paid to dissenting financial creditors shall not be less than the amount paid to such creditors in accordance with Section 53 in the event of liquidation of the corporate debtor. Therefore, resolution applicant was asked to further revise the resolution plan. The relevant resolution on Agenda Item No. A.1. in the ninth CoC meeting, having its relevance to the present matter is reproduced a....
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....esolution applicant submitted the revised resolution plan incorporating the changes. He also submitted a bank guarantee to the tune of Rs. 25 crore to the resolution professional on 01.02.2021. Thereafter, on 03.02.2021, the resolution professional furnished Form H Compliance Certificate, containing the details of the compliance of the resolution plan submitted by the resolution applicant. 12.15. Though, in the chronology of events, after the aforesaid proceedings of CoC and submission of Form H by the RP, the proceedings before the Adjudicating Authority are to be noticed but, there remains one significant feature of this case that in the ninth meeting dated 22.01.2021, even while approving the resolution plan, the CoC asked the resolution applicant to further revise the resolution plan, particularly in relation to the dissenting financial creditors. The resolution applicant indeed revised the resolution plan but, such a revised plan was not placed in CoC before presenting the matter to the Adjudicating Authority for approval. This aspect has formed a part of contentions in these appeals and, in this regard, it has been one of the contentions on the part of the resolution appli....
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....eetha Institute of Medical and Technical Sciences. 13. Having taken note of the basic background aspects in relation to the initiation of CIRP and CoC meetings as also the ancillary matters, we may now examine the decision of the Adjudicating Authority leading to the approval of the resolution plan in question in necessary details. Resolution plan approved by the Adjudicating Authority (NCLT) 14. As noticed, upon approval of the resolution plan of the resolution applicant - Mr. M.K. Rajagopalan - by CoC with 87.39% majority of the voting share, the application bearing IA No. 150 of 2021 was filed by the resolution professional under Section 30(6) of IBC before the Adjudicating Authority (NCLT) for approval of the resolution plan. 14.1. During the proceedings before the Adjudicating Authority, several objections were raised by the related party, the promoter, an unsuccessful potential resolution applicant and by some of the unsecured financial creditors. 14.2. One of the objectors to the resolution plan was the suspended director/promoter of the resolution plan - Dr. Periasamy Palani Gounder - who filed MA No.13 of 2021 alleging procedural irregularities in the conduc....
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....nder: - "(I) VALUATION REPORT:- *** *** *** 80. In the present case, it is seen from the minutes extracted supra from the 6th CoC meeting that RP further apprised the CoC members, that due to significant difference in the value of land and building submitted by the valuers appointed by IRP, the RP had to appoint third valuer in accordance with provisions of Regulation 35 of CIRP Regulations, 2016. Accordingly, the third valuer has submitted his report before the RP and accordingly the fair value and the Liquidation value in relation to the Corporate Debtor was arrived at by the Resolution Professional. 81. Thus, it is clear that the RP has arrived at a Fair Value and the Liquidation Value based on the average of all the three valuers and the same has been done in accordance with Regulation 35 of the IBBI (IRPCP) Regulations 2016. Further, the valuation certificate dated September 2019 relied on by the promoter / suspended Director of the Corporate Debtor would be of no relevance as the same was not done in accordance with the Regulations framed under the IBC, 2016. Also, the RP who is in charge of the affairs of the Company Debtor once the CIRP h....
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....e approval of the Resolution Plan which the Committee of Creditors has approved with a majority of 87.34% which is pending for approval before the Adjudicating Authority. 15. The Appellant's contention about the valuation of the Corporate Debtor of Rs.1600 crores is unsupported by any evidence. The fact remains that the Resolution Plan amount has arrived after following the procedure prescribed under the Code and the Rules and Regulations made thereunder (emphasis supplied) 83. Thus, the Hon'ble NCLAT also has rendered a finding that the Resolution Plan amount has been arrived at after following the procedure prescribed under the Code and the Rules and Regulations made thereunder. 84. Hence for reasoning stated supra, this Adjudicating Authority finds that there was no error committed by the IRP / RP in so far as appointing the registered valuers in relation to the Corporate Debtor, nor there was any error on the valuation being submitted by those Registered valuers and as a consequence thereof, the objections as raised by all the objectors in relation to the valuation of the Corporate Debtor are overruled. Accordingly, MA/13/CHE/2021 stands ....
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.... Kaliannan, that this letter is being put up through TFCI, Mr. Anoop Bali said that this can't be taken up as it has not come in the appropriate required form and he will not be able to comment on this and requested the RP to carry on with the agenda for the day, that of voting on the Resolution Plan. Mr. Senni Malai requested other creditors to comment. Mr. Arun Shah of Aryav Exports said that CoC can discuss this. However other creditors with significant voting share such as SBI, Bank of India said that we should stick to the Agenda on hand and not deviate from the main agenda. RP then requested the representatives from Corporate Debtor to allow for the agenda items to go through as the majority of the CoC in favour of that and no further discussions can be made on the letter sent to the CoC." 86. A perusal of the aforesaid minutes would show that the promoter of the Corporate Debtor has proposed for a 12A settlement only at the 9th CoC meeting, when the Resolution Plan of the Resolution Applicant was about to be put to vote. Further, it is also seen that the Petitioning Creditor viz. Toursim Finance Corporation of India (TFCI) was also kept in dark about the 12A pro....
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.... 89. Another major objection in relation to the Resolution Plan was that the IRP I RP has violated umpteen provisions of the Regulations by not adhering to the timelines framed thereunder. In this regard, it is to be seen that the model timelines given under the IBBI Regulations were designed by keeping into mind the CIRP period of 180 days; however in many cases the CIRP period has exceeded more than 330 days and still continues. Thus, it cannot be gainsaid that the IRP or the RP as the case may be has to strictly adhere to the model timelines stipulated under the Regulations. For instance, an avoidance Application as found in Section 43, 45 and 50 can be filed either by the RP or by the Liquidator and the model timeline prescribed under the attendant Regulations states that the same should be filed in T+75 days. If the said model timelines is construed as mandatory then the avoidance transactions which entitle the Liquidator to file an Application, would be rendered as nugatory. 90. It is significant to note here that, a statutory provision regulating a matter of practice or procedure will generally be read as directory and not mandatory. Thus, even though the ob....
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.... and that the decision of the IRP / RP in categorizing the Applicant viz. M/s. Dharani Finance Limited as "Related Party" of Corporate Debtor is free from all legal infirmities and does not warrant any interference by this Adjudicating Authority. Accordingly, MA/18/CHE/2021 and MA/48/CHE/2021 stands dismissed." 15.4.1. The Adjudicating Authority also examined the question of discrimination in the resolution plan in respect of distribution of amount to the financial creditor-related party compared with the financial creditor-unrelated party. The Adjudicating Authority referred to the principles stated by this Court in Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta and Ors.: (2020) 8 SCC 531 and rejected those contentions while observing that in the scheme of the Code, there was no provision which mandatorily requires payment to the related party in parity with the unrelated party. In this regard, the Adjudicating Authority, inter alia, observed as under: - "(IV) DISCRIMINATION IN THE RESOLUTION PLAN:- 94. Another rival contention put forth by the Learned Senior Counsel for the objectors was that there was i....
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....(V) APPROVAL OF RESOLUTION PLAN 103. Thus, after overruling all the objections raised in relation to the Resolution Plan, this Adjudicating Authority in so far as the approval of the Resolution Plan is concerned, section 30(6) of the IBC, 2016 cast certain duties upon this Adjudicating Authority to examine the Resolution Plan as to whether the Plan falls within the contours of the said Section. Hence, a comparison of the mandatory compliance as required under IBC, 2016 vis-a-vis the compliance as made in the Resolution Plan is being tabulated hereunder. MANDATORY COMPLIANCE UNDER IBC CODE AND REGULATIONS COMPLIANCE UNDER RESOLUTION PLAN S. 30(1) - Resolution Applicant to submit an affidavit stating that he is eligible under Sec.29A of the Code, 2016 The Affidavit of the Resolution Applicant (RA) is found in "Format 3B" in Volume II of the Resolution Plan wherein Mr. M. K. Rajagopalan, the Resolution Applicant has stated that he is eligible under Section 29A of IBC, 2016 to submit a Resolution Plan. Further, the Resolution Professional in Form - H has certified that the said Affidavit is in order. S. 30(2)(a) - Payment of Insolvency and Resolution cost in the....
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.....16, 5.10, 5.13 and 5.16(iv) of the Resolution Plan deals with the causes of default of the Corporate Debtor and the operational Viability of the project by the Resolution Applicant. S. 30(2)(e) - Does not contravene any of the provisions of the law for the time being in force The Resolution Professional in Form H has confirmed that the Resolution Plan is not in contravention with the provisions of any Applicable Law.- S. 30(4) - Committee of Creditors approve the Resolution Plan by not less than 66% of voting share of Financial Creditors, after considering its feasibility, viability and such other requirement as specified by the Board The CoC in its 9th meeting held on 22.01.2021 has approved the Resolution Plan in the following voting pattern; S. Name of Assent Dissent No. Creditor (%) (%) 1. State Bank of India 26.41 - 2. IDBI Debentures Trustees hip Ltd. 19.64 - 3. Indian Bank 17.80 - 4. Bank of India 13.41 - 5. TFCI 5.62 - 6. IDBI 3.03 - 7. Edelweiss ARC 1.06 - 8. Allium Finance (P) L....
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....ll be applicable and because of this reason a copy of this Order is to be submitted in the Office of the Registrar of Companies, Chennai. 114. The Resolution Professional is further directed to handover all records, premises / documents to Resolution Applicant to finalise the further line of action required for starting of the operation as contemplated under the Resolution Plan. The Resolution Applicant shall have access to all the records premises / documents through Resolution Professional to finalise the further line of action required for starting of the operation. Accordingly, the Application IA/150/CHE/2021 stands allowed. All other connected Applications, as arrayed in the cause title, stands dismissed." Disapproval of the Appellate Tribunal (NCLAT) 18. Being aggrieved of the order dated 15.07.2021 so passed by the Adjudicating Authority, approving the resolution plan of the resolution applicant and declaring it to be binding on the corporate debtor and other stakeholders, four appeals were preferred before the Appellate Tribunal, respectively by the promoter Dr. Periasamy Palani Gounder, the related party Dharani Finance Limited and the NRI shareholder Dr. V.....
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....since the 2nd COC meeting. The concern stems from the fact that the valuers were based in Delhi and had little knowledge of the prevailing real estate market conditions in Tamil Nadu. The circumstances were further separated by the fact that valuers lacked adequate experience with the hospitality industry. In this regard, it is pertinent to note the minutes of the 2nd COC meeting, which reads as follows; "At this juncture, the COC members have raised concerns regarding the appointment of the valuers as the appointed valuers are Delhi-based and are not privy to the area/properties of Tamil Nadu and might also a struggle to visit the collective sites of the corporate debtor located at Tamil Nadu given that travel restrains in the current period----- the competency of the process valuation might decrease. The COC members also requested the chairman to circulate the profiles in a comparative chart. The members had difficulty being faced evaluating the profile/experience of the appointed valuers with respect to the hospitality industry." 81. It is further evident from the minutes of the COC meetings that the two valuers appointed by the IRP differs significantly and th....
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....e corporate debtor's assets despite that Regulation 35 (1) (a) of the CIRP Regulations mandates explicitly that the estimator fair value and liquidation value shall be computed after physical verification of the assets of the Corporate Debtor. It is further revealed that the valuation report was never circulated either to the Appellant or to other members of the COC. Mere production of naked values without the detailed adjunct report would materially handicap the commercial wisdom of the Committee of Creditors. 87. Further, Regulation 27 Regulation 35 mandates that two registered valuers value the Corporate Debtor's assets. It is an admitted fact that the two registered valuers appointed by the Resolution Professional did not value the non-core assets of the Corporate Debtor. However, in view of the detailed valuation report, no member of the COC of the Appellant herein has any idea as to what was categorised as a 'Non-Core Assets' by the Resolution Professional or what its value could be. These are the blatant statutory violations and irregularities committed in violation of the corporate debt assets." 19.2. The Appellate Tribunal also held that compliance with....
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....itself records that the plea of non-compliance of regulation 36A was raised. 93. Non-publication of 'Form-G' violates Circular No. IP (CIRP)/006/2018 dated 23.02.2018 issued by the IBBI, which provides the designated website for publication of 'Form-G', i.e. [email protected]. Failure to advertise as mandated to ensure that more Resolution Applicants could come forward directly impacts the maximization of asset value. 94. Despite violations above about the publication of 'Form-G', the Learned Tribunal has approved the Resolution Plan. On pages 142-144 of Vol. of Appeal, sets out a list of provisions that have been complied with. Regulation 36A does not even find a mention in this. *** *** *** 97. Further, it is well settled that the scope of interference concerning the Successful Resolution Plan is extremely limited in nature. Challenge can only be in respect of grounds as provided in Section 30 (2) or Section 61 (3) of the IBC 2016, which is limited to matters "other than" the enquiry into the autonomy or commercial wisdom of the Committee of Creditors. 98. It is pertinent to mention that an appeal against the approval of the Resolu....
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....st was none other than the 2nd Respondent's Trust, namely 'Balaji Vidyapeeth', which was never disclosed to the COC and has been deliberately suppressed. The IRP/ Resolution Professional should have informed the CoC that the 2nd Respondent had presented the Resolution Plan by competing with the said Trust. He has used the very same ''Trust' to support his credentials and creditworthiness in the Resolution Plan. The relevant portions of the Resolution Plan are extracted hereunder for ready reference: "3.5. Sri Balaji Vidyapeeth: Mr M.K. Rajagopalan is the founder and managing trustee of Sri Balaji Vidyapeeth... 3.10. Financial Snapshot" The entities under the leadership of Mr. M.K. Rajagopalan have been growing rapidly while ensuring quality of service to nation and public at large... These entities have achieved turnover of Rs.417.94 Crores in FY 2016-2017; Rs.500.03 Crores in FY 2017-2018; Rs. 679.23 Crores in FY 2018-2019 and Rs.860.59 Crores (estimated) for FY 2019-2020. The above growth is ample testimony of the credentials of the RA as a competent business leader and his capability to manage and turn around vari....
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....independently and both of them were aware that the other was submitting their EOIs is purely mischievous. Admittedly, the 2nd Respondent is the Managing Director of the said Trust, and the fact remains that two EOIs were submitted by the 2nd Respondent, one for himself and the other on behalf of the Trust. 110. However, the said facts have been suppressed from the CoC, and the CoC did not have an occasion to consider that the 2nd Respondent had submitted two EOIs. Therefore, it is also false to claim that the 2nd Respondent had complied with the provisions of the RFRP and the IBC. The 2nd Respondent suppressed material facts and gave false declarations about his ineligibility and the conflict of interest. 111. The argument of IInd Respondent that a conflict of interest would arise in case the Trust were allowed to submit a Resolution Plan is incorrect and misleading. The purported Explanation of conflict of interest' stated in the RFRP would not absolve the duty cast upon the IInd Respondent under Section 88 of the Indian Trusts Act. Further, it is incorrect to state that a conflict of interest could arise only between two Resolution Applicants. Such an interp....
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.... 118. The Ld Senior counsel for the Appellants, in response to the above submissions of Respondent No.2, regarding the disqualification of the 2nd Respondent, argued that the 2nd Respondent is a Director of M/s. International Aviation Academy Private Limited, and it is seen from the audited financial statements of the said Company for the period 2010-2011 to 2017-2018 that a sum of Rs.12,03,000/- has been collected as 'share application money pending allotment'. 119. It appears that the said sum has not been refunded, and as such, the same shall be treated as 'deposit' in terms of Explanation (a) of Rule 2(1)(c)(vii) of The Companies (Acceptance of Deposits) Rules, 2014. In the above circumstances, given Section 164 (2) (b) of the Companies Act, the 2nd Respondent has been disqualified from acting as a Director in any Company for five years from the date on which the said Ms International Aviation Academy Private Limited failed to repay the deposit amounts collected towards 'share application money pending allotment' aggregating to Rs.12,03,000/. 120. Even assuming these amounts have been repaid during 2018-2019, the 2nd Respondent is disqu....
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.... the CIRP and the Resolution Plan. 127. Based on the above discussion, it is clear that the 2nd Respondent is disqualified as a director under section 164 (2) (b), Companies Act, 2013 and consequently ineligible to submit a Resolution Plan under Sec. 29A(e) of the Insolvency and Bankruptcy Code 2016." 19.5. In relation to the assertion of the resolution professional that the revised resolution plan was approved in the ninth CoC meeting, the Appellate Tribunal examined the relevant minutes and observed that in the said meeting, the resolution plan was sent back to the resolution applicant for further revision based on the CoC resolution; and the revised resolution plan submitted by the resolution applicant dated 25.01.2021, was directly filed in the NCLT for approval without being put to vote before CoC. The Appellate Tribunal observed that as per the requirements of Sections 30 and 31 of the Code, only the plan approved by CoC was to be presented before NCLT for approval. It was further held by the Appellate Tribunal that such procedural failure was that of a material irregularity, undermining the integrity of the process and rendering the resolution plan void and non e....
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....s filed to NCLT directly, without any approval from the COC on the revised Resolution Plan. Sections 30(2), 30(4), 30(6) and Section 31 mandate that only a plan as approved by the 'COC' can be presented to the NCLT for its approval under Section 31. Such kind of procedural failure amounts to material irregularity and goes to the root of the matter, making the plan void and non-est in law, as it is trite law that where the law permits a thing to be done in a particular manner if the same is not done in that manner, the same is non-est in the eyes of the law." 19.6. As regards the issue of non-consideration of Section 12-A IBC application of the promoter of the corporate debtor, the Appellate Tribunal observed that the consideration of settlement offer was essential and that the settlement offer could not have been rejected without consideration by the CoC. It was further held that CoC, in its commercial wisdom, had full liberty to either accept or reject the settlement offer but, consideration of the settlement offer was indispensable. In regard to this aspect, the Appellate Tribunal observed and held as under: - "140. Based on the pleadings of the parties, it is clear t....
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....Professional has contended that the COC has rejected the settlement offer in its 9th meeting. This statement is also not as per the minutes of the 9th COC meeting. It appears from the minutes of the 9th COC that only a Resolution Plan was discussed in that meeting. After that, the Resolution Plan was sent back to the resolution applicant by CoC for reconsideration and revision. In the 9 COC meetings, no discussion about the settlement offer occurred. It is essential to mention that after admission of the petition and formation of the Committee of Creditors, Section 12A application for withdrawal could only be accepted if the CoC approves the proposal with a 90% vote share. It is undisputed that COC, under its commercial wisdom, had full liberty to either accept or reject the settlement offer. But consideration of the settlement offer is essential. At this juncture, this tribunal "Worth recalls and recollects" the judgement of Hon'ble 3 Member Bench of this Tribunal in Company Appeal (AT) (Ins) No.91 of 2019 dated 6 September 2019 between Shaji Purusothaman v Union Bank of India and others (reported in MANU/NL/0438/2019) whereby and whereunder at paragraph 9 it is observed that; ....
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....itself and restrict the involvement of a 'related party' in any situation where the CIRP is likely to get affected. As held by the Hon'ble Supreme Court in Phoenix ARC, the purpose is to ensure that external creditors drive the CIRP. Following statutory provisions clarify that related party' is a class in itself. Accordingly, a related party is prohibited from acting in any of the following capacities in a CIRP: Particulars Provisions Cannot be part of Committee of Creditors Sec. 21, IBC, 2016 Cannot be a Resolution Applicant Sec. 29A, IBC, 2016 Cannot be an authorized representative Reg. 4A, IBBI (Insolvency Resolution Process for Corporate Persons) Reg, 2016 Cannot be a liquidator Reg. 3, IBBI (Liquidation Process) Reg. 2016 Cannot be a part of the governing board Reg.9, IBBI (Information Utilities) Reg, 2017 Cannot act as a professional Reg. 7, IBBI (Insol. Professionals) Reg. 2016 In case there any only related parties as financial creditors, the CoC would be formed of the Operational Creditors Reg. 16, IBBI(Insolvency Resolution Process for Corporate Persons) Reg. 2016 150. The underlying object is that the i....
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....C under Section 21 and disqualifying them from being Resolution Applicants under section 29A. However, the IBC does not treat Related Party as a separate class for any other purpose. Therefore, a rationale nexus must exist for any classification between the object sought to achieve the classification and sub-classification. Therefore, the Related Party financial or operational creditor cannot be discriminated against under the Resolution Plan, denying their right to get payments under the Resolution Plan only on being a Related Party. It is also made clear that by getting only payment under the Resolution Plan, related party creditors could in no way sabotage the CIRP." 19.8. The Appellate Tribunal, while concluding on its findings and reiterating its observations on several issues including those noticed above, held that increase in RP's fees with retrospective effect was not a prudent decision of CoC; the possibility of an impact on the decision of RP for submission of the resolution plan before the Adjudicating Authority without approval of CoC cannot be ruled out. The Appellate Tribunal disapproved the order passed by the Adjudicating Authority for the reasons: (a) existence....
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....ation report is also erroneous. 176. A valuation consisting of mere naked values without a detailed report is not valid. It is a settled proposition that the Valuation exercise is conducted to facilitate the CoC's decision-making process. Therefore, the existence of a valid and accurate valuation report is a sine qua non for the COC to exercise its commercial wisdom. A natural sequitur to those above would be that a detailed valuation report is necessary for the CoC to exercise its commercial wisdom objectively. 177. The Adjudicating Authority's observation that a statutory provision regulating a matter of practice or procedure will generally be read as a directory and not mandatory is erroneous. Compliance with statutory requirements in regulating a matter of practice and procedure are mandatory. The Tribunal is a creature of statute, and by interpretation, it cannot dilute the statutory compliances. 178. Further, observation of the Adjudicating Authority that procedural irregularities in relation to the conduct of the proceedings in relation to the CoC will not be material when the objectors failed to establish prejudice caused to them in respect of....
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....operational creditor cannot be discriminated against under the Resolution Plan, denying their right to get payments under the resolution Plan only on being a Related Party. It is also made clear that by getting only payment under the Resolution Plan, related party creditors could in no way sabotage the CIRP. 185. Based on the above discussion, it is clear that the approved Resolution Plan is in contravention of Section 30 (2) of the Insolvency and Bankruptcy Code 2016, which contravenes the provision of law." 20. Hence, the Appellate Authority set aside the resolution plan approved by the Adjudicating Authority; directed the resolution professional to proceed with the CIRP from publication stage of Form G for inviting EOI afresh as per the CIRP Regulations and further to put up the settlement proposal of the promoter for consideration before CoC; and ordained that the claim of related party financial/operational creditor be not discriminated from unrelated financial/operational creditors. Proceedings in this Court 21. Aggrieved of the aforesaid judgment and order dated 17.02.2022 passed by the Appellate Authority, eight appeals are filed before this Court. As noti....
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...., subject to the final orders to be passed in these appeals. 23. However, learned counsel for the resolution applicant filed an application for appropriate directions in this matter on 14.05.2022, seeking ad interim direction of staying the CIRP as initiated by the resolution professional by publishing Form G on 26.04.2022 pursuant to directions of the NCLAT in its judgment dated 17.02.2022; or to stay the operation of impugned judgment dated 17.02.2022 as regards disqualification of the resolution applicant and to direct the resolution professional to consider his EOI in the fresh CIRP as initiated. 23.1. The aforesaid application was taken on board by this Court on 20.05.2022. Having taken note of the averments of the application and having regard to the order as passed on 16.03.2022, making all the proceedings subject to final outcome of these appeals, this Court did not consider it necessary or expedient at that stage to pass any further order or direction as regards the averment therein. 24. On 07.11.2022, Dr. Periasamy Palani Gounder - the promoter and erstwhile director of the corporate debtor, filed an application bearing IA No. 168602 of 2022 in Civil Appeal Nos. ....
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....pproved with 92.52% of total voting power of CoC members. 26.2. In the thirteenth CoC meeting held on 23.05.2022, resolution professional informed the members of CoC that EOI was published on 26.04.2022 with last date of submission fixed as 15.05.2022 and 7 EOIs had been received. As regards the extension of time to submit EOI, the CoC resolved that the last date of submission of EOI be extended to 09.06.2022 with 93.46% of the total voting powers of CoC. It was further resolved that nothing in the Request for Resolution Plan (RFRP) be changed and the performance bank guarantee (PBG) amount as decided earlier by CoC of Rs. 25 crore shall stand approved and shall remain unchanged. 26.3. In the fourteenth CoC meeting held on 27.05.2022, it was resolved by CoC that RP shall immediately seek extension of CIRP timelines further by 90 days with effect from 13.05.2022 under Section 12(2) IBC application to be filed with the Adjudicating Authority. Further, in relation to extension of time for submission of resolution plan, the CoC in its fifteenth meeting held on 19.07.2022, resolved with 92.70% voice vote to extend the timeline to 01.08.2022. As regards further extension of time, i....
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....esolutions adopted in this meeting and the final conclusion post voting, as stated in the minutes of the nineteenth meeting read as under: - "Resolution for Voting by the CoC "Resolved that the settlement proposal submitted by Mr. Palani G Periasamy (Promoter) under Section 12A of the IBC, 2016 which was placed before the COC for discussion and approval in the nineteenth COC meeting held on 12.10.2022 is hereby approved". (The above Resolution is being put to vote from 14/10/2022 12 PM till 21/10/2022 11.59 PM and based on the result of this voting, the post voting minutes will be updated and sent to the CoC.) Result of the Resolution,Post Voting ended on 31/10/2022 at 10 PM The above Resolution of the Promoter for settlement under Section 12 A of the IBC,2016, which was put to vote on 14.10/2022 to 31/10/2022 is approved with 100% of the Total voting powers of the CoC. The Voting results and the approval sheet from the E-Voting is sent to the CoC separately." Rival submissions 27. We have heard learned senior counsel Dr. Abhishek M. Singhvi and Mr. C. Aryama Sundaram appearing for the resolution applicant; learned senior ....
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....ligible at the stage of EOI, the appellant was still held to be eligible in his individual capacity. Thus, while the trust may be disqualified, the trustee, being a separate entity, cannot be disqualified and the financial capability of the appellant was independent of the trust money. 28.2.1. Learned senior counsel would submit that the appellant could not be held ineligible under Section 29-A(e) of the Code, as the registrar of companies had not disqualified him under Section 164(2)(b) of the Companies Act for the alleged non-refunded deposit in the other company International Aviation Academy Pvt. Ltd, in which the appellant was a director. Further, the DIN status of the appellant was "active compliant" and NCLAT did not consider its own judgment in C. Raja John v. R. Raghavendran and Ors.: Comp. Appl. (AT)(CH)(Ins) No. 207 of 2021 wherein it was held that if DIN is activated, Section 29-A(e) of the Code will not be applicable. 28.2.2. This apart, it has also been submitted that since the issue of ineligibility was a mixed question of fact and law, it could not have been raised before NCLAT for the first time, since there is no concept of deemed disqualification under Sect....
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....y SBI for impleadment, learned senior counsel would submit that SBI attended all meetings and voted in favour of the resolution plan, did not raise any objection before the NCLT or NCLAT and is receiving 100% of its dues under the resolution plan. Learned senior counsel has also referred to the judgment in EBIX Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. and Anr.: (2022) 2 SCC 401 to submit that the resolution plan between a successful resolution applicant and the CoC would be binding. Thus, being a part of CoC, SBI cannot subsequently raise a contrary stand to the stand taken by the CoC. 28.7. On the aspect of commercial wisdom of the CoC, emphatic reliance has been placed on the decisions of this Court in K. Sashidhar, Maharashtra Seamless, Essar Steel, Jaypee Kensington, Kalpraj Dharamshi (supra); and Pratap Technocrats (P) Ltd. and Ors. v. Monitoring Committee of Reliance Infratel Ltd and Anr.: 2021 SCC OnLine SC 569 to submit that scope of interference in matters concerning the successful resolution plan is extremely narrow, and the challenge is only limited to matters 'other than' enquiry into the autonomy or commercial wisdom of the CoC as unde....
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....ni Finance (the related party), has relied on various decisions of this Court including those in Phoenix ARC, Pratap Technocrats, and Kalpraj Dharamshi (supra) as also in Facor Alloys Ltd. v. Bhuvan Madan and Ors.: Civil Appeal No. 5129 of 2021 to submit that even though the resolution applicant has admitted certain dues towards related parties, the final resolution plan did not provide for any payment and the plan was upheld by this Court in these cases. On previous occasions, this Court as well as other fora had differentiated between related and non-related parties under resolution plans. Learned senior counsel would argue against the proposition that a related party could be part of the CoC when it is a financial creditor. Further, it has been submitted that Article 14 of the Constitution in stricto sensu would not be applicable to the decision of the CoC, as it is not a 'State' as defined under Article 12 of the Constitution. 30. Learned senior counsel Mr. Vijay Narayan appearing on behalf of the resolution professional has mainly questioned the findings and observations in the order impugned as regards the process adopted and steps taken by RP and has made a variety of sub....
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....on 30(2)(b) of the Code. Pursuant to this, the resolution applicant submitted the modified resolution plan in which the allocation for the unsecured dissenting financial creditors was revised from 29 crore to 49.13 crore. The revised plan was then placed before the Coc in the tenth CoC meeting and no objections were raised at that time. 30.4. It has also been submitted that the settlement proposal put forth by the corporate debtor was not in consonance with the mandate specified under Regulation 30-A of the CIRP regulations read with Section 12-A of IBC. 30.5. On the issue of increase in the fee of RP which was not raised before the NCLT and was only raised before the NCLAT, it has been submitted that the request for revision of fee had indeed been made with reasons for said revision, much prior to the date on which the resolution plan was approved by the CoC. 30.6. It has also been submitted that the issue of ineligibility of the resolution applicant was not raised before NCLT but, NCLAT in its impugned order, has held him ineligible. In this regard, the RP could have only carried out public domain search and take into account the affidavit of compliance submitted by reso....
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.... as a going concern but his genuine efforts were sought to be frustrated by hasty and illegally conducted CIRP and thereby, the approved resolution plan was essentially giving away the substantial assets of the corporate debtor at a highly undervalued price. Thus, the decision of the Appellate Tribunal in this case is correct on law as also on facts. 31.2. It has also been vehemently argued that the resolution plan in question is contrary to law, as it clearly violates the underlying principles of Section 88 of the Trusts Act and Section 164(2)(b) of the Companies Act, 2013. The main plank of submissions with respect to violation of Section 88 of the Trusts Act has been that there is a conflict of interest, as the appellant is competing in his capacity as an individual with interests of a trust in which he was the founding managing trustee. Further, it has already been ruled by the resolution professional that the said trust Sri Balaji Vidyapeeth was ineligible to be a resolution applicant due to its status as a charitable trust and a non-profit making entity. In the face of these facts, the appellant simultaneously submitting a resolution plan in his individual capacity by taki....
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....uers must submit an estimate of the 'fair value' and 'liquidation value' of the corporate debtor after physical verification to the resolution professional, and Regulation 35(2) requires the resolution professional to provide the aforesaid valuation to every member of the CoC. 31.3.1. It has been argued that in the present case, there was no physical verification because the appointed registered valuers were based in Delhi and sought to delegate the process of physical verification to their associates in Tamil Nadu. Concerns regarding this were also highlighted in the second CoC meeting dated 06.08.2020. Further, it has been submitted that the valuation of the non-core assets was carried out irregularly and not in accordance with Regulation 35 of the CIRP Regulations. In addition, only bare valuation figures were shared and the valuation reports were not furnished to the erstwhile directors and the members of CoC. Thus, according to the learned senior counsel, it was rightly noticed by NCLAT that mere production of the naked value of assets without detailed adjoining report would handicap the commercial wisdom of the CoC. Reliance has also been placed on the seventh CoC meeting ....
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...., 30(4), 30(6) and 31 of the Code. Further, it has also been contended that Section 31 of the Code does not envisage any post facto ratification of a resolution plan. 31.6. With reference to the application to bring on record the subsequent event of acceptance of his settlement proposal under Section 12-A IBC by CoC with 100% voting powers of the members in its nineteenth meeting, placing reliance on Section 12-A and Regulation 30-A of CIRP Regulations, learned counsel has submitted that there is neither any bar on the submission of multiple settlement proposals for withdrawal under the said Section nor a cut-off date within which the proposal has to be made during the CIRP. He would also argue that the application under Section 12-A styled as 'withdrawal' also calls into play the principle that the creditors are dominus litis in an insolvency proceeding and they have the right to withdraw a proceeding subject to approval by the Adjudicating Authority. 31.7. Learned counsel for promoter would also contend that the resolution applicant has no vested right to have his plan accepted and implemented under the provisions of the Code. In response to the argument of the reso....
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....come a part of the CoC. However, there is no reason for them to be treated as a separate class when it comes to payment of dues under the approved resolution plan. Further, it has been contended that the resolution professional in this case undertook a hasty process, without adjudicating on all the claims received by it. 34.1. Relying on the seventh and eighth CoC meetings, it has been submitted that there was a certain amount set apart for related parties, however, in the final resolution plan, there was no amount stated to be paid to the related parties and there had not been any discussion in the CoC in this regard. Thus, for Dharani Finance being an operational and a financial creditor, the failure to provide for discharge of its debt in the final resolution plan, is in violation of Sections 30(2)(b), (e) and (f) of the Code. It has been strenuously argued that at the very least, CoC must discuss whether Dharani Finance is to be repaid, which has not been done. 35. Learned Solicitor General of India Mr. Tushar Mehta, appearing for SBI, has submitted that this financial creditor has a voting share of about 26% in the CoC with an admitted claim of Rs. 102.88 crore. As a mat....
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....ed on behalf of these financial creditors that CIRP must be allowed to go on while leaving promoter a right to propose a better resolution plan by way of a Swiss Challenge Process; and for that purpose, he should be made to deposit at least a sum of Rs. 471.70 crore in an escrow account prior to the voting on his settlement offer. Points for determination 37. For what has been noticed hereinabove and looking to the overall scenario, the following principal points arise for determination in this batch of appeals: A. Whether the valuation process of the assets of the corporate debtor had been in violation of the Regulations 27 and 35 of the CIRP Regulations and thereby, approval of the resolution plan had been in contravention of Sections 30(2) and 61(3) of the Code? B. Whether there had been non-compliance of Regulation 36-A(2)(iii) of the CIRP Regulations for want of publication of Form G on the designated website not later than 75th day from the insolvency commencement date; and failure to advertise as mandated had a direct impact on the maximization of asset value, particularly when the entire CIRP was conducted during lockdown at the time of Covid-19 pand....
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....s; the relevant factual and background aspects that have led to the present set of appeals, including various meetings of the CoC and other events that occurred during the CIRP; the impugned orders of the NCLT and NCLAT dated 15.07.2021 and 17.02.2022 respectively; and the principal points to be determined in these appeals. Before proceeding further, worthwhile it would be to take note of the statutory provisions, which are relevant to the contentions urged in these appeals It may be observed that the relevant provisions have been extracted herein as presently noticeable, while indicating, as far as possible, the amendments thereto. 38.1. We may also take note of some of the other relevant statutory provisions of the IBC including Section 12-A which provides for withdrawal of application admitted under Sections 7, 9 or 10; Section 21 in regard to constitution and composition of the CoC; Section 24 which specifies about meetings of the CoC; Section 25 which lays down the duties of the resolution professional in respect to the corporate debtor; Section 29-A which provides that certain persons may be ineligible to be resolution applicants; Section 30 relating to submission of resol....
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.... financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them. (4) Where any person is a financial creditor as well as an operational creditor, - (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. (6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility The words "or issued as securities" omitted by Act. No 26 of 2018, sec. 15(iii) (w.r.e.f. 6-6-2018) [***] provide for a single trustee or agent to act for all ....
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.... of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6A). (8) Save as otherwise provided in this Code, all decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors: Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified.] (9) The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process. 10) The resolution professional shall make available any financial information so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition. Section 24. Meeting of committee of creditors. - (1) The members of the committee of creditors may meet in person or by such electronic means as may be specified. (2) All meetings of....
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....the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with section 29; Subs. by Act 8 of 2018, sec. 4, for clause (h) (w.r.e.f. 23-11-2017). [(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.] (i) present all resolution plans at the meetings of the committee of cre....
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....may be prescribed], prior to the insolvency commencement date. Explanation. II.-For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;] Subs. by Act 26 of 2018, sec. 22(ii), for clause (d) (w.r.e.f. 6-6-2018) [(d) has been convicted for any offence punishable with imprisonment- (i) for two years or more under any Act specified under the Twelfth Schedule; or (ii) for seven years or more under any other law for the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment: Provided further that this clause shall not apply in relation to a connected person referred to ....
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.... or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii). Subs. by Act 26 of 2018, sec. 22(vii), for proviso (w.r.e.f. 6-6-2018) [Provided that nothing in clause (iii) of Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor: Provided further that the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares Ins. by Act 1 of 2020, sec. 9(ii) (w.r.e.f. 28-12-2019) [or completion of such transactions as may be prescribed], prior to the insolvency commencement date;] Ins. by Act 26 of 2018, sec. 22(viii) (w.r....
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....h 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 event of a liquidation of the corporate debtor. Explanation 1.--For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2.-- For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply....
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....nt) Ordinance, 2017(Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A: Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section.] Ins. by Act 26 of 2018, sec. 23(iii)(b) (w.r.e.f. 6-6-2018) [Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of t....
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.... obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.] Section 32. Appeal. -Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61. Section 61. Appeals and Appellate Authority.-(1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Com....
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....075, dated 14th July, 2021, for regulation 27 (w.e.f. 14-7-2021). Earlier regulation 27 was substituted by Notification No. IBBI/2017-18/GN/REG024, dated 6th February, 2018 (w.e.f. 6-2-2018) and amended by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 4-7-2018). Regulation 27 before substitution, stood as under: "27. Appointment of registered valuers.- The resolution professional shall within seven days of his appointment, but not later than forty-seventh day from the insolvency commencement date appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35: Provided that the following persons shall not be appointed as registered valuers, namely: (a) a relative of the resolution professional; (b) a related party of the corporate debtor; (c) an auditor of the corporate debtor to any time during the five years preceding the insolvency commencement date; or (d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director". [27. Appointment of Professionals.- (1....
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....itation. (2) The application under sub-regulation (1) shall be made in Form-FA of the Schedule accompanied by a bank guarantee- (a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of sub-regulation (1); or (b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of sub-regulation (1). (3) Where an application for withdrawal is under clause (a) of sub-regulation (1), the interim resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt. (4) Where an application for withdrawal is under clause (b) of sub-regulation (1), the committee shall consider the application, within seven days of its receipt. (5) Where the application referred to in sub-regulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, t....
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....professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value." Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, for regulation 36A (w.e.f. 4-7-2018) [36A. Invitation for expression of interest.- (1) The resolution professional shall publish brief particulars of the invitation for expression of interest in Form G of the Schedule at the earliest, not later than seventy-fifth day from the insolvency commencement date, from interested and eligible prospective resolution applicants to submit resolution plans. (2) The resolution professional shall publish Form G- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the resolution professional, the corporate debtor conducts material business operations; (ii) on the website, if any, of the corporate debtor; (iii) on the website, if any, designated by the Board for the purpose; and (iv) in any other manner as may be decided by the committee. (3....
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....imate the resolution professional forthwith if it becomes ineligible at any time during the corporate insolvency resolution process; (f) an undertaking by the prospective resolution applicant that every information and records provided in expression of interest is true and correct and discovery of any false information or record at any time will render the applicant ineligible to submit resolution plan, forfeit any refundable deposit, and attract penal action under the Code; and (g) an undertaking by the prospective resolution applicant to the effect that it shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29. (8) The resolution professional shall conduct due diligence based on the material on record in order to satisfy that the prospective resolution applicant complies with- (a) the provisions of clause (h) of sub-section (2) of section 25; (b) the applicable provisions of section 29A, and (c) other requirements, as specified in the invitation for expression of ....
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....r other terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporate debtor; (i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; (j) change in portfolio of goods or services produced or rendered by the corporate debtor; (k) change in technology used by the corporate debtor; and (l) obtaining necessary approvals from the Central and State Governments and other authorities.] 38. Mandatory contents of the resolution plan.- Subs. by Notification No. IBBI/2019-20/GN/REG052, dated 27th November, 2019, for sub-regulation (1) (w.e.f. 28-11-2019) [(1) The amount payable under a resolution plan - (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.] Ins. by Notification No. IBBI/2017-18/GN/REG018, dated 5....
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....ay submit resolution plan or plans prepared in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with - (a) an affidavit stating that it is eligible under section 29A to submit resolution plans; Clause (b) omitted by Notification No. IBBI/2018-19/GN/REG032, dated 5th October, 2018 (w.e.f. 5-10-2018) [***] (c) an undertaking by the prospective resolution applicant that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action under the Code. Subs. by Notification No. IBBI/2021-22/GN/REG078, dated 30th September, 2021, for sub-regulation (1A) (w.e.f. 30-09-2021). Sub-regulation (1A), before substitution, stood as under: - "(1A) A resolution plan which does not comply with the provisions of sub-regulation (1) shall be rejected." [(1A) The resolution professional....
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....e on all such resolution plans simultaneously. (3A) Where only one resolution plan is put to vote, it shall be considered approved if it receives requisite votes. (3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the highest votes, but not less than requisite votes, shall be considered as approved: Provided that where two or more resolution plans receive equal votes, but not less than requisite votes, the committee shall approve any one of them, as per the tie-breaker formula announced before voting: Provided further that where none of the resolution plans receives requisite votes, the committee shall again vote on the resolution plan that received the highest votes, subject to the timelines under the Code. *** *** ***] Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, for sub-regulation (4) (w.e.f. 4-7-2018) [(4) The resolution professional shall endeavour to submit the resolution plan approved by the committee to the Adjudicating Authority at least fifteen days before the maximum period for completion of corporate insolvency resolution process unde....
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....f. 24-1-2019) [(9) A creditor, who is aggrieved by non-implementation of a resolution plan approved under sub-section (1) of section 31, may apply to the Adjudicating Authority for directions.] 38.3. We may further take note of Section 88 of the Trusts Act which essentially provides for nullifying the pecuniary advantage if gained by a fiduciary and ordains that where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage; or where the person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby the fiduciary gains for himself a pecuniary advantage, he would hold the advantage so gained for the benefit of such other person. Section 88 of the Trusts Act with a few of its illustrations read as under: - "Section 88. Advantage gained by fiduciary.-Where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interes....
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....ll be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. Ins. by Act 1 of 2018, sec. 52(i) [w.e.f. 7-5-2018, vide S.O. 1833(E), dated 7th May, 2018] [Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), we shall not incur the disqualification for a period of six months from the date of his appointment.] *** *** ***" "Section 166. Duties of directors.- *** *** *** (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. *** *** ***" Objectives and scheme of IBC: crucial role-players : 39. For dealing with the questions involved, at the outset, a brief reference to the scheme of the Code, as noticed from its Preamble and as exposited by this Court need to be taken note of. The Preamble of the Code reads as under: - "An Act to consolidate and amend the laws relating to reorganisation and insolvency resoluti....
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....ed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta & Ors: (2019) 2 SCC 1] at para 83, fn 3) 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests....." (emphasis in bold supplied) 39.2. As regards to the process of insolvency resolution, while dealing with various provisions of Chapter II of Part II of the Code, this Court in the case of Essar Steel (supra) ....
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.... of the Code. It is also relevant to point out that though the resolution professional is to run the business of the corporate debtor as a going concern during the corporate insolvency resolution process but, as per Section 28(3) of the Code, he cannot take certain decisions relating to the management of the corporate debtor without prior approval of the Committee of Creditors by a vote of at least 66% of the voting shares This percentage of minimum votes of CoC, for approval of resolution plan as also for prior approval of certain actions, was "seventy-five" in the Code as originally enacted and was altered to "sixty-six" by way of an amendment with effect from 6-6-2018. 97.1. It is, therefore, evident that corporate insolvency resolution, with approval of the plan of resolution, is ultimately in the exclusive domain of the Committee of Creditors. Even during the resolution process, major decisions as regards management and finances of the corporate debtor are in the control of the Committee of Creditors. As per the composition delineated in Section 21 of the Code, the Committee of Creditors is comprised of all financial creditors of the corporate debtor; and the frame of....
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....unt status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the "commercial wisdom" of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable. 53. In the report of the Bankruptcy Law Reforms Committee of November 2015, primacy has been given to CoC to evaluate the various possibilities and make a decision. It has been observed thus: "The key economic question in the bankruptcy process When a firm (referred to as the corporate debtor in the draft law) defaults, the question arises about what ....
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....once the majority vote is obtained. ... The Committee deliberated on who should be on the creditors committee, given the power of the creditors committee to ultimately keep the entity as a going concern or liquidate it. The Committee reasoned that members of the creditors committee have to be creditors both with the capability to assess viability, as well as to be willing to modify terms of existing liabilities in negotiations. Typically, operational creditors are neither able to decide on matters regarding the insolvency of the entity, nor willing to take the risk of postponing payments for better future prospects for the entity. The Committee concluded that, for the process to be rapid and efficient, the Code will provide that the creditors committee should be restricted to only the financial creditors." (emphasis in italics is in original) 97.4. In Essar Steel, the Court referred to the above-quoted and other passages from the judgment in K. Sashidhar (supra) and explained the decisive role of the commercial wisdom of the Committee of Creditors, inter alia, in the following passages: "54. Since it is the commercial wisdom of the Committee of C....
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....ification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place." (emphasis in bold supplied) 97.5. In Maharashtra Seamless Ltd. (supra), again, a three-Judge Bench of this Court referred extensively to the enunciations in Essar Steel and reiterated the primacy assigned to the commercial wisdom of the Committee of Creditors in the matter of corporate insolvency resolution. 98. For what has been noticed hereinabove, it would not be an exaggeration in terms that, in corporate insolvency resolution process, the role of Committee of Creditors is akin to that of a protagonist, giving finality to the process (subject, of course, to approval by the adjudicating au....
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....d in paragraph 15.1.1. hereinabove) make it clear that the Adjudicating Authority independently applied its mind to the process of valuation and presentation of the matter to CoC. Rejection of all the objections in that regard by the NCLT, called for no interference. 41.2. The Appellate Tribunal appears to have unnecessarily and rather unjustifiably presumed that there had been blatant statutory violations and irregularities. Even if certain issues were raised in some of the meetings of CoC as regards the process of valuation, the clarifications from the resolution professional and the steps taken by him for valuation and re-valuation had been to the satisfaction of CoC. It has rightly been contended on behalf of the appellants with reference to the decision in Maharashtra Seamless (supra) that resolution plan is not required to match the liquidation value as such. 41.3. The findings of the Appellate Tribunal in regard to the question of valuation and thereby taking the resolution plan to be in contravention of Sections 30(2) and 61(3) of the Code cannot be approved and are required to be set aside. Point B - Publication of Form G: Regulation 36-A 42. A long deal of dis....
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....oC about the legal options available either to seek an extension of the timeline for submission of Resolution Plan or to make the decision for publication of fresh Form-G. It was the CoC's commercial decision that "no extension of time for submission of Resolution Plan should be done and RP was directed to expedite the valuation process and check the feasibility and viability of the Resolution Plan already submitted and present the eligible Resolution Plan before the CoC for consideration." 42.3. The NCLAT held that the aforesaid was a commercial decision of CoC not requiring interference of the Court. It has been argued on behalf of the contesting respondents that, the aforesaid decision cannot be considered res judicata for they being not the parties to the said appeals decided by NCLAT on 05.05.2021. In our view, even if principles of res judicata are as such not applied, fact of the matter remains that at the given stage, the process as undertaken by the resolution professional had been consistently approved by CoC, Adjudicating Authority and the Appellate Tribunal. Even otherwise, as observed hereinabove, there had not been any such illegality or material irregularity for w....
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.... the resolution applicant goes to the root of the matter but, we do agree with the other part of the submission in this regard that there is no concept of deemed disqualification under Section 164(2)(b) of the Companies Act. 43.3. Hence, in our view, the Appellate Tribunal had not been right in holding the resolution applicant ineligible by virtue of Section 164(2)(b) of the Companies Act. Point C1 is answered accordingly. Point C2 - Effect of Section 88 Trusts Act 44. What has been stated hereinabove in relation to the question of ineligibility of the resolution applicant in terms of Section 164(2)(b) of the Companies Act, however, does not apply in relation to the other material objection as regards Section 88 of the Trusts Act. 44.1. It is not in dispute that the trust "Sri Balaji Vidyapeeth" of which the appellant-resolution applicant is the Managing Trustee, was one of the disqualified resolution applicants on the ground that the said entity was a charitable trust. It has been argued on behalf of the appellant that his status as Managing Trustee of the said trust does not render him ineligible while submitting the resolution plan in his individual capacity. It has ....
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....018; Rs. 679.23 Crores in FY 2018-2019 and Rs.860.59 Crores (estimated) for FY 2019-2020. The above growth is ample testimony of the credentials of the RA as a competent business leader and his capability to manage and turn around various diverse businesses." 44.3.1. It is thus obvious that the appellant-resolution applicant admitted his status as founder and managing trustee of said Sri Balaji Vidyapeeth and then, boldly claimed that the entities under his leadership were growing rapidly while ensuring quality of service to nation and public at large. In view of the claim made by the resolution applicant himself, coupled with the fact that in CIRP in question, two resolution plans were submitted by this appellant, one in individual capacity and another as managing director of the said trust, it is difficult to detach him from the said resolution applicant-Sri Balaji Vidyapeeth. Hence, it cannot be said that the Appellate Tribunal committed any error in observing that the appellant was attempting to act as alter ego of the said ineligible applicant (the trust); and the benefit from his own (individual's) resolution plan cannot escape the operation of Section 88 of the Trusts Act....
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.... forward had been stated extensively by the resolution applicant in his profile submitted with the resolution plan. As per the resolution plan, the appellant-resolution applicant had proposed to convert the Coimbatore property of the corporate debtor into a hospital. The said MGM Healthcare Private Limited is also said to be a super-speciality hospital and the company is said to be looking forward to set-up new hospitals and aspires to be a leading hospital chain in India. 45.2. In the backdrop of the aforesaid facts, noticeable it is that Section 166(4) of the Companies Act prohibits a director of a company from involving himself in a situation in which he may have a direct or even indirect interest that conflicts, or may possibly conflict, with the interest of the company. Given the status of the resolution applicant as Managing Director of MGM Healthcare Private Limited, his dealing with property of the corporate debtor and converting the same into a hospital cannot be said to be having no impact on the activities of the said MGM Healthcare Private Limited. A direct conflict of interest being writ large on the face of the record, it cannot be said that the prohibition in term....
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....the body of persons who are most vitally interested in rapid and efficient decision making. It follows as a necessary corollary that to be worth its name, the commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its members, who have direct and substantial interest in the survival of corporate debtor and in the entire CIRP. 47.1. In light of the aforesaid position of law and its operation in relation to the decision-making process of CoC, it needs hardly any emphasis that each and every aspect relating to the resolution plan, and more particularly its financial layout, has to be before the CoC before it could be said to have arrived at a considered decision in its commercial wisdom. 48. From the facts and the proceedings pertaining to the present case, as noticed in detail hereinbefore, it is but clear that in the ninth CoC meeting held on 22.01.2021, the resolution plan submitted by the appellant-resolution applicant was approved with 87.39% of the total voting share of the financial creditors present and voting. However, this approval came with a significant conditi....
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.... its financial layout, has to be considered by the CoC before it could be said to have arrived at a considered decision. The fact that there had been a change in financial layout in the resolution plan in question is not a matter of dispute. When CoC applied itself and arrived at a decision in its commercial wisdom with approval by the requisite majority, it was equally the requirement that the resolution applicant would revise the plan. In terms of the minutes of the ninth CoC meeting, it is difficult to assume that the CoC had even in anticipation given an approval to the plan which was to be revised. As to what decision CoC would have taken after examination of the revised plan, pursuant to its decision in the ninth meeting, cannot be a matter of guess or assumption that it was bound to be approved. As to which aspect would have arisen for consideration of CoC after revision of the plan is again a matter of uncertainty but it cannot be said that the conditional approval in the ninth CoC meeting was to be treated as fait accompli. This, in our view, is not the true operation of the scheme of the process of corporate insolvency resolution nor could the commercial wisdom of CoC be ....
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....or condoned. As stated above, when commercial wisdom of CoC is assigned primacy, it presupposes a considered decision on the resolution plan in its final form. 50. For what has been discussed hereinabove, disapproval of the resolution plan by the Appellate Tribunal for want of presentation of final resolution plan before CoC remains unexceptionable and calls for no interference. Point D2 - Increase of fees of resolution professional 51. Though we have approved the findings of the Appellate Tribunal that the resolution plan in question, which was placed before Adjudicating Authority for approval without having been put to vote before CoC was void and non-est but, an ancillary observation of the Appellate Tribunal in correlating this material irregularity with increase of fees of resolution professional is difficult to be accepted. 51.1. The CoC had precisely deliberated over the question of increase of fees of resolution professional and its decision in that regard could not have been correlated with any shortcoming in the process undertaken, which might have occurred for want of an erroneous assumption on the part of the resolution professional in view of the contents o....
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.... have been reproduced in paragraph 19.7 hereinabove) depict rather unsure and irreconcilable observations of the Appellate Tribunal. 54.1. After taking note of the fact that related party is prohibited to be a part of CoC and is further prohibited to be a resolution applicant or an authorized representative etc., the Appellate Tribunal has rightly observed that involvement of a related party in CIRP in any capacity was seen as giving unfair benefit to the corporate debtor; and that the statutory recognition of related party as a different class would apply even to resolution plan when CoC would decide whether in its commercial wisdom it should pay to related party at all because that would mean paying to the same persons who are behind the corporate debtor. However, thereafter the Appellate Tribunal proceeded to observe that related party was required to be equated with the promoters as equity share-holders and then, further made certain observations about discrimination between related party unsecured financial creditor and other unsecured financial creditors as also between related party operational creditor and other operational creditors. Such far-stretched observations of t....
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.... attempts on the part of corporate debtor by way OTS settlement proposal had only been to gain time. Yet again, when the process has gone several steps ahead and when the resolution plans were being put to vote, just a day before voting, the promoter put forth yet another settlement proposal without any concrete plan and without disclosing the source of funds to complete the settlement. The CoC, after due deliberation, refused to consider the same and thereafter voted on the resolution plan in question. 57. The Adjudicating Authority (NCLT) dealt with the matter in sufficient detail (vide paragraph 15.2 and relevant extraction therein) while noting that even the original applicant of CIRP, i.e., TFIC, was kept in dark about such a proposal. It was also noticed that even the term-sheet to support the proposal from Deutsche Bank came with a disclaimer. In the totality of facts and circumstances, the proposals as made by the promoter and erstwhile director were all of eyewash and of dilatory tactics. However, the Appellate Tribunal (NCLAT) proceeded to observe that in the ninth CoC meeting, no discussion about settlement proposal had occurred and that CoC never considered the settl....
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....n 12.10.2022 by 100% majority of the voting share. Thus, the question is about the impact and effect of such subsequent events. For dealing with this question, we need to recapitulate the relevant background aspects of the case and the chronology of subsequent events. 60. As noticed, in the impugned judgment and order dated 17.02.2022, the Appellate Tribunal had directed the CoC to reconsider the offer of the promoter within fifteen days from the date of its order (i.e., within fifteen days from 17.02.2022). Prior to this, twice over the propositions of such settlement offer by the promoter had been dealt with disfavourably. The relevant parts of proceedings in the ninth CoC meeting concerning such proposal have already been noticed hereinbefore. It is noticed that after approval of the resolution plan, the promoter again submitted a settlement proposal on 08.03.2021 which was followed by a letter dated 14.07.2021 from one Saveetha Institute of Medical and Technical Sciences as proof of funding, but the said letter was subsequently withdrawn by the said Institute. The resolution plan was approved by the Adjudicating Authority on 15.07.2021, which was challenged by the promoter a....
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....nded with effect from 25.07.2019, providing for withdrawal of CIRP even after issuance of expression of interest but, with the condition that the applicant shall state the reasons justifying withdrawal after issuance of EOI. 64. As noticed from various events, even at the threshold stage, the NCLT noticed the settlement proposal on behalf of the corporate debtor but then, found the same to be an eyewash which was put forward only to gain time. The petition was admitted, triggering CIRP. Significantly, the settlement proposal then came up from the promoter only a day before the received resolution plans were to be put to vote, i.e., on 21.01.2021. The CoC, even when not formerly voting on it, clearly rejected the same for the Agenda having already set for dealing with the resolution plan received from the resolution applicant. As noticed, after approval of the resolution plan, the promoter again submitted a settlement proposal but the Institute, said to be supporting the same, subsequently withdrew. After allowing of the appeal by NCLAT and in terms of those directions, the new settlement proposal was precisely put to vote and was rejected. Thereafter, fresh EOIs were invited and....
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....te Tribunal (NCLAT) in the impugned order dated 17.02.2022 is not to be interfered with but, not for all the reasons which weighed with the Appellate Tribunal. As observed hereinabove, the reasons and findings of the Appellate Tribunal in relation to the valuation process and alleged non-compliance of some of the procedural provisions as also the observations against increase of fees of resolution professional (points A, B and D2) are not to be approved. Similarly, the Appellate Tribunal has not been right in holding the resolution applicant ineligible to submit a resolution plan with reference to Section 164(2)(b) of the Companies Act, 2013 (as held in point C1). The disapproval by the Appellate Tribunal, with reference to the settlement offer of promoter in terms of Section 12-A of the Code, and its purported non-consideration is also not approved by us and such findings of the Appellate Tribunal are required to be set aside (as held in point F). Similarly, the Appellate Tribunal has erred in applying the principles of non-discrimination in relation to the related party (as held in point E). However, the other findings in relation to points C2, C3 and D1 and the consequential ord....