TaxTMI 
TaxTMI 
2023 (12) TMI 1149
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....Authority by impugned order allowed IA No. 985 of 2023 filed by the Resolution Professional for withdrawal of the application for approval of the Resolution Plan. IA No.2294 of 2023 filed by the Appellant- Successful Resolution Applicant has been dismissed and IA No.4041 of 2021 filed by the Resolution Professional seeking extension of Corporate Insolvency Resolution Process (CIRP) has been dismissed as having become infructuous. 2. Company Appeal (AT) (Insolvency) No.1550 of 2023 has been filed challenging the order passed by the Adjudicating Authority in IA No.2294 of 2023 which IA was filed by the Appellant- Successful Resolution Applicant. Company Appeal (AT) (Insolvency) No.1551 of 2023 has been filed against the impugned order dated 21.11.2023 passed in IA. No.985 of 2023 praying for withdrawal of IA No.4041 of 2021 seeking approval of the Resolution Plan. Company Appeal (AT) (Insolvency) No.1552 of 2023 has been filed by the Appellant challenging the order of the Adjudicating Authority dated 21.11.2023 in IA No.4041 of 2021. 3. Brief facts of the case necessary to be noticed for deciding these Appeals are:- 3.1. CIRP commenced against the Corporate Debtor- 'Metenere....
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....any actions contrary to resolution plan and also requesting to provide the information regarding the shareholding structure of the Shoora Group entities and any changes carried out in respect of the same. Appellant responded to the Resolution Professional stating that the information could not be disclosed regarding change in directorship/constitutional pattern of the Successful Resolution Applicant due to the existing confidentiality clause. Appellant however, assured the Resolution Professional that it remains fully committed to the submitted resolution plan. On 25.11.2022, meeting of the CoC was convened where CoC was apprised of the development including the e-mail received from Mr. Gaurav Gupta and 'Shoora Capital FZE'. The Resolution Professional communicated by e-mail dated 27.11.2022 and 16.12.2022 informing the Appellant that the Resolution Professional will be constrained to treat the event as violation of terms of the resolution plan and LOI and will pursue all remedies available to it including forfeiture of the performance security deposit. The meeting of the CoC was convened on 21.12.2022, Successful Resolution Applicant was also informed about the scheduled meeting d....
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....IA No.2294 of 2023 was filed by the Resolution Professional. Rejoinder Affidavits were also filed by the respective parties. Adjudicating Authority after hearing the parties on applications IA Nos. 985 of 2023, 4041 of 2021 and 2294 of 2023, allowed the IA No.985 of 2023 permitting the Resolution Professional to withdraw the plan approval application. Adjudicating Authority also directed the Resolution Professional to invite fresh Resolution Plans by issuing fresh Form-G. Exclusion of time was also allowed from 05.02.2021 till the date of passing the order. IA No. 2294 of 2023 filed by the Appellant was rejected. In view of the order passed in IA No. 985 of 2023, IA No.4041 of 2021 was dismissed as infructuous. Aggrieved by the orders passed by the Adjudicating Authority in the aforesaid three IAs, these three Appeals have been filed as noted above. 4. We have heard Shri Gaurav Mitra, Shri Anand Chhiber and Shri Sujoy Datta, Learned Counsel for the Appellants and Shri Sunil Fernandes, Learned Counsel for the Resolution Professional and Shri Ankur Mittal, Learned Counsel for the CoC. 5. Submissions advanced by Counsel for the Appellant in these Appeals are noted together. 6....
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....y Successful Resolution Applicant in terms of the LOI is not in accordance with law. Reliance has been placed in Regulation 36B (4A) of the IBBI (CIRP) Regulations, 2016. It is contended that the performance guarantee can be forfeited only when Successful Resolution Applicant fails to implement the Resolution Plan after its approval by the Adjudicating Authority. It is submitted that the Appellant with its new investors is fully eligible and competent to implement the Resolution Plan. 7. Learned Counsel for the Resolution Professional refuting the submission of the Appellant contends that at the time of submission of the Resolution Plan, ownership structure of the Appellant company was that 'Shoora Capital FZE' was 100% owned by Mr. Gaurav Gupta and 'Shoora Minerals Pvt. Ltd. was 100% owned by Shoora Capital FZE and Appellant was 100% owned by 'Shoora Minerals Pvt. Ltd.'. It is submitted that considering the eligibility and the capability of the Appellant Company to make good its commitments under the Resolution Plan and that of Mr. Gaurav Gupta's Resolution Plan was approved. It is submitted that by addendum to the Resolution Plan dated 18.06.2021 a specific undertaking was tak....
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....orfeited is not correct. The CoC is fully empowered under clause 13.2 of the RFRP to take such decision if any of the conditions under the LoI or the Resolution Plan are breached by the Appellant. 8. Learned Counsel for the CoC supported the submissions of the Resolution Professional. It is submitted that the change of Successful Resolution Applicant shareholding amounts to breach of the terms of the Resolution Plan. The Adjudicating Authority has returned a finding that the Appellant did not seek consent from top two Financial Creditors prior to changing the shareholding structure of Successful Resolution Applicant as contemplated in the plan. There is a clear breach of addendum dated 18.02.2021 as well as letter of intent. Appellant himself is to be blamed for breaching the undertaking given by the Appellant before the CoC. There being breach by the Appellant, CoC was fully justified in taking a decision to withdraw the application filed for approval of the Resolution Plan. Valuable time having been lost in the process, Adjudicating Authority has rightly directed for issue of fresh Form G and granted exclusion of the period. It is submitted that the present is a case where Suc....
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....mited India which is 100% owned subsidiary of M/s Shoora Capital FZE Ajman, UAE in India. Brief profile of the Resolution Applicant is as under: M/s Shoora Minerals Private Limited (Holding Company of Jubilee Metal (P) Ltd.) Shoora Minerals Private Limited, promoted by Mr. Gaurav Gupta, was established on August 6, 2020 in New Delhi. It is 100% owned subsidiary of M/s Shoora Capital FZE Ajman, UAE * It is engaged in the trading of metals and alloys. * The Company has emerged as an international metals aggregator and commodity trader, specializing in trading of recyclable metals, alloys, engineering products, minerals & ores. * With associate entity in Hong Kong & a trading desk in UAE; Shoora Minerals Private Limited also has strategic global hubs located across Africa, UAE, Europe, Canada and South Korea, which are supported by an extended network of operations covering more than 8 countries. M/s Shoora Capital FZE Ajman. UAE (Holding Company of Shoora Minerals Private Limited) * The Company is promoted by Mr. Gaurav Gupta, it is 100% owned by Mr. Gaurav Gupta. * Shoora Capital Group commenced its ope....
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....gibility of the Resolution Applicant, its net worth was examined with reference to 'Shoora Capital' and in the net worth of Resolution Applicant's, group was claimed in the Resolution Plan. 13. Now we come to the addendum to the Resolution Plan dated 09.06.2021 where undertaking was given that 'Shoora Capital FZE' will not dilute its investment in Companies i.e. 'Shoora Minerals Pvt. Ltd.' and 'Jubilee Metal Holding Pvt. Ltd.' (Appellant herein). Addendum reads as follows:- "In terms of the email communications received by us on 18.06.2021, following changes may be treated as an addendum to the Resolution Plan already submitted. 1. Since Shoora Capital FZE, Azman, UAE is the ultimate parent company whose net worth has been considered at Eol stage and also currently under Resolution Plan, reliance is placed on net worth of Shoora Capital FZE for source of funds to be infused by RA, an undertaking is required from Mr. Gaurav Gupta that Shoora Capital FZE will not dilute its investment in all the subsequent chain entities including the SPV Jublice Metal Holding Pvt Ltd until the implementation (5 years from effective date) of the plan in full (without the consent ....
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.... taken an exceptionally long time & we are still not sure how much more time will be needed. Kindly note that Mr. Gaurav Gupta has ceased to be a director or stakeholder in the below entities. He is neither a director nor a stakeholder in any of the below companies: 1. Shoora Minerals Private Limited 2. Jubilee Metal Private Limited 3. Jubilee Metal Holding Private Limited You are requested to kindly update your records accordingly. Regards" 16. On 25.10.2022, Mr. Gaurav Gupta has also sent an e-mail informing that there have been some changes in the directorship and constitutional pattern of the Resolution Applicant. E-mail of Mr. Gaurav Gupta does not give details, after receipt of the e-mail on 26.10.2022 the Resolution Professional wrote to Mr. Gaurav Gupta informing that there is major deviation from the conditions of the approved Resolution Plan. He asked to share the details of shareholding of all the change entities from the Resolution Applicant and effective date of change of shareholding structure. Mr. Gaurav Gupta did not give details despite several e-mails sent by the Resolution Professional to Mr. Gaurav Gupta. ....
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....tal Private Limited or Jubilee Metal Holding Private Limited, the undersigned has vide the Follow Up Emails continuously followed up with the Resolution Applicant to understand the impact of this development on the structure, shareholding and directorship of the Resolution Applicant. The undersigned draws specific reference to his email dated November 03, 2022 wherein the undersigned has particularly explained how such a development amounts to a breach of the resolution plan, as well as the letter of intent dated July 28, 2021. However, despite being sensitized of the seriousness of this situation, the undersigned received a reply from the Resolution Applicant nearly a month after the first request for further information was made by the undersigned, and the fact that such reply refuses providing such information to the undersigned under the garb of confidentiality. Against this background, in the absence of any clear information from your end suggesting otherwise and as per direction received from the CoC in the meeting dated 25 November 2022, please note that the undersigned shall be constrained to treat such event as a violation of the terms of the resolution p....
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....ent resolution plan process which was unsuccessful due to acts of the SRA" RESOLVED FURTHER THAT Mr. Surendra Raj Gang, Resolution professional of the Company is hereby authoirsed to do all acts, deeds and things, including filling suitable applications at NCLT, to give effect to above mentioned Resolution." 20. From the facts and sequence of the events as noted above, it is clear that the Resolution Applicant has undertaken in the addendum to the Resolution Plan dated 18.06.2021 as well as by LoI dated 28.07.2021 that it shall not change its shareholding in directorship and constitutional pattern of the Resolution Applicant for a period of 5 years from the effective date and for changes if any. Approval of two leading Financial Creditors shall be obtained. Replies to emails received from the Resolution Applicant indicate that no approval was taken from the Financial Creditor for effecting any change in constitutional pattern of the Resolution Applicant and directorship. Mr. Gaurav Gupta who had 100% holding company, 'Shoora Capital' has exited by transferring its 100% shareholding in holding company and consequently the constitution of holding company and all group ent....
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.... order in the CIR process of the Corporate Debtor." 22. We fully agree with the aforesaid findings. Question No.(i) is answered accordingly. Question No.(ii) 23. The submission much pressed by the Counsel for the Appellant that the CoC was precluded from withdrawal of the Resolution Plan which has been approved by the CoC. It is submitted that in view of the law laid down by the Hon'ble Supreme Court in "Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions- (2022) 2 SCC 401", Resolution Plan approved by the CoC is binding both on the Resolution Applicant as well as CoC. It is submitted that the Resolution Plan which is binding on the CoC, no decision could have been taken by the CoC to withdraw the application for approval of the Resolution Plan. 24. Before proceeding further, we need to notice the judgment of the Hon'ble Supreme Court in 'Ebix Singapore Pvt. Ltd.' (supra) which has been relied by the Appellant. 'Ebix Singapore Pvt. Ltd.' was a case where after approval of the Resolution Plan by the CoC, the Resolution Applicant filed application before the Adjudicating Authority for withdrawal of the Resolution Plan. Two applications for withdrawal of the Resolution P....
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....efers to it as a "binding agreement" in other instances. The report also refers to a CoC-approved resolution plan as a "financial arrangement"100, "revival a plan"98 or a "solution" 101, The interchangeability of the terms - "agreement", "contract", "financial arrangement", "revival plan" and "solution" indicates that there is no clear intention of the BLRC in characterising the nature of the resolution plan as a contract. The binding effect of the resolution plan has the consequence of preventing the CoC or the resolution applicant to renege from its terms after the plan has been approved by the CoC through a voting mechanism. The fleeting mention of a "binding contract" on one occasion in the BLRC Report (which was a pre-legislative text that underwent subsequent modifications by the legislature) to indicate the binding nature of the resolution plan and the finality of negotiations once it is approved by the CoC, does not establish the legal nature of the document, especially when it is not complemented by the text and design of IBC." 26. Under the heading "J. withdrawal of the Resolution Plan by a Successful Resolution Applicant under the IBC", Hon'ble Supreme Court proceeded....
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....cessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy. A court may be inept in laying down a detailed procedure for exercise of the power of withdrawal or modification by a successful resolution applicant without impacting the other procedural steps and the timelines under IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as IBC. In this case, if resolution applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a resolution plan to the adjudicating authority as a matter of law, it would dictate the commercial wisdom and bargaining strategies of all prospective resolution applicants who are seeking to participate in the process and the successful resolution applicants who may wish to negotiate a better deal, owing to myriad factors that are peculiar to their own case. The broader legitimacy of this course of action can be decided by the legislature alone, since any other course of action would result in a flurry of litigation which would cause the delay ....
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....The very basis and substratum of the Resolution Applicant which led the CoC to approve the Resolution Plan has been knocked out by changing the shareholding and directorship of the Resolution Applicant. In the present case, Mr. Gaurav Gupta who was controlling 100% shareholding in 'Shoora Capital' has withdrawn and transferred its shareholding to third party i.e. Mr. Sandeep Parwal. 29. Present is a case where in essence we may say it is a case of sale of Resolution Plan approved by the CoC to third party. CoC approves the Resolution Plan looking to the credentials of the Resolution Applicant and its credibility and finances. When very basis of Resolution Applicant is knocked out and it changes its constitution substantially the CoC cannot be faulted in view of breach of the conditions by the Resolution Applicant, application for approval of the Resolution Plan be withdrawn. We, thus, conclude that the Resolution Applicant has violated the addendum of the Resolution Plan as well as undertaking as given in the LoI and the Adjudicating Authority has rightly returned the finding as noted above. Question No.(iii) 30. We have already extracted the Resolution dated 21.12.2022 in....
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.... Guarantee shall be appropriated in a manner as may be decided by the CoC / Financial Creditors. Any such invocation will not in any manner reduce the amounts payable or the actions/obligations of the Successful Resolution Applicant under the Resolution Plan. It is clarified that the invocation of the Performance Bank Guarantee shall not limit any rights or remedies that the Corporate Debtor, the CoC and the Resolution Professional may have under Applicable Law or otherwise, against any /Resolution Applicant or Successful Resolution Applicant, as the case may be." 31. We may also notice Clause 24 of the RFRP, which is as follows:- "24. Non-Compliance by Successful Resolution Applicant In the event of non-compliance by the Successful Resolution Applicant for any reason whatsoever, with its obligations under this Request for Resolution Plans or the Letter of Intent or the Approved Resolution Plan, the Resolution Professional and the CoC reserve the right to pursue any of the following actions, in addition to other as may be available under the Applicable Laws: i. the CoC may revoke the Lol; ii. the CoC may reject the Resolution Plan sub....
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....the failure of implementation of that plan. Clauses 13.2 and 24 of the RFRP, as noted above, are the provisions which deals with a larger field where power to invoke the bank guarantee is conferred on several conditions. One of the conditions is any of the conditions under the LoI or Resolution Plan or the Definitive Agreements are breached. The breach of the above condition may arise even before approval of the Resolution Plan by the Adjudicating Authority. 34. Present is not a case where CoC has passed Resolution dated 21.12.2022 in reference to Regulation 36B (4-A). The minutes of the meeting specifically refers to clause 13.2 of the RFRP. The action of the CoC is fully covered by clause 13.2 of the RFRP and there is no occasion to resort to Regulation 36B (4-A) of the Regulation. Regulation 36B (4F) only contemplate one contingency that where performance security shall stand forfeited but the said provision does not exclude forfeiture of performance security in other conditions as contemplated in RFRP. We, thus, are of the view that the decision of the CoC for forfeiting the performance security is in accordance with RFRP. It is to be noted that at no point of time, any prov....