TaxTMI 
TaxTMI 
2024 (10) TMI 1407
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....ocates for R-2. Mr. Gurjot Singh, Advocate for R-3 JUDGMENT ASHOK BHUSHAN , J. These Appeal(s) by Resolution Professional ("RP") of M/s Vibrant Buildwell Pvt. Ltd.; the Committee of Creditors ("CoC") of Vibrant Buildwell Pvt. Ltd. and Successful Resolution Applicant ("SRA") of the Corporate Debtor ("CD")has been filed against the same order dated 24.01.2024 passed by National Company Law Tribunal, New Delhi Bench, Court-IV in I.A. No.4173 of 2023 filed by Raj Kumar Sahani, Suspended Director and Shareholder of the CD and IA No.5458 of 2022 filed by RP for approval of Resolution Plan. The Adjudicating Authority by the impugned order allowed IA No.4173 of 2023 accepting the objection raised by Raj Kumar Sahni, Suspended Director and shareholder of the CD and consequently rejected IA No.5458 of 2022 filed by the RP for approval of Resolution Plan. Aggrieved by the order dated 24.01.2024, these three sets of the Appeal(s) have been filed. 2. Brief facts of the case necessary to be noticed for deciding the Appeal(s) are: (i) On an Application filed by a Financial Creditor of the Corporate Debtor - Dilwara Leasing and Investment Ltd., Corporate Insolvency Resolution ....
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.... 4289 of 2023, which was allowed by order dated 24.01.2024. IA No. 4173 of 2023 was heard by the Adjudicating Authority and orders were reserved on 10.11.2023. The Application, IA No.5458 of 2022 also heard and orders reserved on 11.12.2023. By the impugned order dated 24.01.2024, the Adjudicating Authority allowed IA No.4173 of 2023 filed by Raj Kumar Sahani and held that Bishwanath Traders as ineligible under Section 29A (c) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC"). Aggrieved by the aforesaid order, the RP, CoC of the CD as well as SRA have filed these Appeal(s), challenging order dated 24.01.2024. 3. We have heard Shri Abhishek Anand, learned Counsel appearing for RP; Shri Krishnendu Datta, learned Senior Counsel appearing for SRA; Shri Abhijeet Sinha, learned Senior Counsel appearing for Coc; and Shri Ramji Srinivasan, learned Senior Counsel appearing for Raj Kumar Sahani, the Suspended Director and Shareholder of the Corporate Debtor, who had filed IA No.4173 of 2023. 4. The submission advanced by the Appellant(s) in all these Appeal(s) being common, we proceed the note the submission, as submissions on behalf of learned Counsel ....
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....ath Traders was raised by Raj Kumar Sahani. The list of PRAs' was shared with Members of the CoC, including the Suspended Director and no objection has been raised. After approval of the Plan by 100% votes of the CoC, the Plan approval Application filed by the RP on 29.10.2022, it was after more than 10 months period that Raj Kumar Sahani filed IA No.4173 of 2023, raising objection to the eligibility of SRA. It is submitted that Section 240A, which has been inserted in IBC by legislature, the object and purpose of legislation has to be given effect by all concerned. The benefit, which ensues to a Corporate Debtor under Section 240A, cannot be denied by the. The submission of the Suspended Director that before the Adjudicating Authority benefit of Section 240A was not pleaded, was due to the law, which was holding the field, i.e. judgment of the NCLAT, Chennai Bench in Hari Babu Thota, which could be reversed only on 29.11.2023. The law declared by the Hon'ble Supreme Court in Hari Babu Thota vide order dated 29.11.2023, is binding on all concerned and has to be given due effect. 6. Shri Ramji Srinivasan, learned Senior Counsel appearing for the Suspended Director, refuting the s....
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....tention of the legislature behind Section 29A(c). 7. As noted above, learned Counsel for the CoC as well as SRA have also made the similar submission as was raised by learned Counsel for the RP. The learned Senior Counsel appearing for the CoC has submitted that CoC after examining all aspect of the matters, including eligibility of the SRA, has approved the Resolution Plan. It is submitted that due diligence Report was obtained by the RP, which was placed before the Coc and at no point of time Raj Kumar Sahani raised any objection regarding eligibility of the SRA. 8. We have considered the submissions of the learned Counsel for the parties and have perused the records. 9. We need to first notice the reasons given by the Adjudicating Authority in the impugned order dated 24.01.2024, by which IA No.4173 of 203 filed by Raj Kumar Sahani has been allowed and SRA had been held to be ineligible. The Adjudicating Authority in the impugned order dated 24.01.2024 after noticing the submission of Application in IA No.4173 of 2023, reply of RP, reply of SRA and the rejoinder submissions of the Applicant in IA No.4173 of 2023, has noted the issue, which came for consideration before ....
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....se, who wishes to submit a resolution plan, wherein one Mr. Birendra Kumar Pasari is the person who in his capacity of Director happens to manage, control as well as promoters of a corporate debtor Vibrant Buildwell Pvt. Ltd and the Successful Resolution Applicant. The account of the Corporate Debtor had become Non Performing Asset on 14.06.2020 in this case and whose debts have not been paid off for a period of at least one year before commencement of CIRP on 22.02.2022, therefore in the considered view of this Adjudicating Authority, in view of Section 29A of the Code, 2016, the Successful Resolution Applicant becomes ineligible to submit the resolution plan." 11. After declaring the SRA as ineligible under Section 29A(c), the Adjudicating Authority proceeded to dismiss IA No.5458 of 2022 and directed for liquidation of the CD. Paragraphs 50 and 51 of the order are as follows: "50. The present application i.e., I.A.(IBC) No. 5458/2022 has been filed under Section 30(6) read with Section 31(1) of the Insolvency & Bankruptcy Code, 2016 (‗the Code') read with Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corpora....
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....ity, 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 1 [or completion of such transactions as 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;] 13. Sub-clause (c), thus, makes a person ineligible, who 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 and nonperforming asset, in accordance with the guidelines ....
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....e element of the [Ed. : The matter between double asterisks has been emphasised in original.] shared common objective or purpose [Ed. : The matter between double asterisks has been emphasised in original.] the idea of "person acting in concert" is as meaningless as a criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition or substantial acquisition of shares, etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares, etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares, etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being." (emph....
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....d form as may be agreed upon by both the Houses, as the case may be. (5) The period of thirty days referred to in sub-section (3) shall not include any period during which the House referred to in subsection (4) is prorogued or adjourned for more than four consecutive days (6) Every notification issued under this section shall be laid, as soon as may be after it is issued, before each House of Parliament. Explanation.- For the purposes of this section, the expression "micro, small and medium enterprises" means any class or classes of enterprises classified as such under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006)." 15. Section 240A was inserted subsequent to insertion of Section 29A in the IBC. The clear intendment of Section 240A was to take out applicability of Section 29A, clauses (c) and (h) for micro, small and medium enterprises. The Report of the Insolvency Law Committee, March 2018 recommended the Central Government to exempt MSME from application of certain provisions of the Code, including Section 29A. Following part of the recommendation of the Insolvency Law Committee, March 201....
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....port clearly stated: "In relation to applicability of Section 29-A(c), the Committee also discussed that it must be clarified that the disqualification pursuant to Section 29-A(c) shall be applicable if such NPA accounts are held by the resolution applicant or its connected persons at the time of submission of the resolution plan to the RP." 17. The facts of the present case as noted above, clearly indicate that the Corporate Debtor was registered as MSME much prior to the submission of the Resolution Plan by Bishwanath Traders & Investment Ltd. Thus, the eligibility of SRA has to be seen on the date of submission of Resolution Plan. A perusal of the judgment of the Adjudicating Authority indicate that Adjudicating Authority has not adverted to Section 240A of the IBC and declared the SRA ineligible on the strength of Section 29A(c). We have noticed above that hearing in IA No.4173 of 2023 was concluded and orders were reserved on 10.11.2023. When the orders were reserved on 10.11.2023, the law which was holding the field was judgment of this Appellate Tribunal of Chennai Bench in Hari Babu Thota. Hence, it appears that argument on the basis of Section 240A was neither ....
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....o referred to in paragraphs 16 and 17 of the judgment of the Hon'ble Supreme Court, which are as follows: "16. Under the heading "exemption of Micro, Small and Medium Enterprises from Section 29-A" the discussion begins. It is referred to the ILC report of March, 2018 and its finding that Micro, Small and Medium Enterprises form the foundation of the economy and are key drivers of employment, production, economic growth, entrepreneurship and financial inclusion. The ILC report 2018 exempted these industries from Section 29-A (c) and (h) and the rationale for the same was contained in para 27.4 of the report which reads as under: "27.4 Regarding the first issue, the Code is clear that default of INR one lakh or above triggers the right of a financial creditor or an operational creditor to file for insolvency. Thus, the financial creditor or operational creditors of MSMEs may take it to insolvency under the Code. However, given that MSMEs are the bedrock of the Indian economy, and the intent is not to push them into liquidation and affect the livelihood of employees and workers of MSMEs, the Committee sought it fit to explicitly grant exemptions to corporate debtors....
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....e defect can be cured as set out in proviso (1) before submission of the plan, making the submission of the plan the crucial date." 21. The Hon'ble Supreme Court taking the view that provisions of Section 29A (c) shall not be attracted, set aside the order passed by NCLT and NCLAT. The law declared by the Hon'ble Supreme Court in Hari Babu Thota (supra) clearly support the submissions of the Appellant that no ineligibility shall attach to the SRA by virtue of Section 240A. 22. The learned Counsel for the Respondent - Suspended Director has contended that the RP has not relied on Section 240A before the Adjudicating Authority and in the grounds of Appeal of Company Appeal (AT) (Insolvency) Nos.253-254, ground (B) stated in the Appeal as follows: "B. BECAUSE Ld. Adjudicating Authority whilst passing the Impugned Order failed to consider that the Successful Resolution Applicant was not disqualified under Section 29A(c) of the Insolvency and Bankruptcy Code, 2016 as at no point of time the account of the Corporate Debtor had been declared as NPA by any financial institutions including any banks." 23. Although, it is true that RP as well as SRA have been pleading that ....
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....hould be the date of application of making a bid. Thus, to opine that it is the initiation of the CIRP proceedings which is the relevant date, cannot be said to reflect the correct legal view and thus, we are constrained to observe that the law laid down in Digambar Anand Rao Pigle (supra) case by the Tribunal is not the correct position in law and the cut off date will be the date of submission of resolution plan. 23. Thus, even on this count, the plan submitted in question will not incur the disqualification. We may also note that the aforesaid intent is reflected in the statutory provision itself that in Section 29A (c) which begins with "at the time of submission of the resolution plan". 24. It is also pointed out that even if it was an NPA, the defect can be cured as set out in proviso (1) before submission of the plan, making the submission of the plan the crucial date. 25. We are thus, setting aside the impugned orders of the NCLT dated 28.02.2023 and NCLAT dated 02.06.2023 and allow the appeal leaving parties to bear their own costs." 24. We have noticed above that IA No.4173 of 2023 was heard on 10.11.2023, by which time, judgment of NCLAT Che....
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....roved , since the SRA proposed set off of debt of Rs.12 crores, which was due by the Financial Creditor to the SRA and when the set off of Rs.12 crores is deducted from the Resolution Plan value, the Resolution Plan value comes below the liquidation value. The learned Counsel for the SRA, referring to the relevant clauses of the Resolution Plan has submitted that Financial Creditor owed Rs.12 crores to the SRA and adjustment of Rs.12 crores in the amount to be paid to the SRA as per the Resolution Plan, cannot be faulted. In any view of the matter, the CoC has approved the Resolution Plan, which contained the said clause. 27. The learned Counsel for the Appellant has referred to judgments of the Hon'ble Supreme Court in K. Sashidhar vs. Indian Overseas Bank - (2019) 12 SCC 150; Committee of Creditors of Essar Steel India Ltd. through Authorised Signatory vs. Satish Kumar Gupta & Ors. - (2020) 8 SCC 531; and judgment of the Hon'ble Supreme Court in Kalpraj Dharmashi and Anr. vs. Kotak Investment Advisors Ltd. and Anr. - Civil Appeal Nos.2943-2944 of 2020, where the Hon'ble Supreme Court referring to earlier judgments has held that it is not open to the Adjudicating Authority or A....
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....g on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification 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 supplied) 144. This Court held, that what is left to the majority decision of CoC is the "feasibility and viability" of a resolution plan, which is required to take into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. It has further been held, that CoC is entitled to suggest a modification to the prospective resolution applicant, so that carrying on the business of the Corporate Debtor does ....
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....ght not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality. The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the I&B Code." 147. It has been held, that in an enquiry under Section 31, the limited enquiry that the Adjudicating Authority is permitted is, as to whether the resolution plan provides: (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operationa....