TaxTMI 
TaxTMI 
2026 (7) TMI 248
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....No. 714 of 2025 The Company Appeal (AT) (Ins.) No. 714 of 2025 has been filed by Micro Capitals Private Limited (Successful Resolution Applicant) who is the Appellant herein. It arises from the order dated 24.03.2025 passed by the National Company Law Tribunal, Mumbai (Adjudicating Authority), in I.A. (IBC) (PLAN) No.04 of 2024 in C.P.(IB) No. 748/MB/2022. The Adjudicating Authority vide the impugned order had rejected the IA No. 04 of 2024 filed by the Resolution Professional/ Respondent No.4 for the approval of resolution plan submitted by the Appellant (SRA). The Appellant is the majority Financial Creditor of the KSS Limited (Corporate Debtor) having a voting right of 77.97% in the CoC; it is also the Successful Resolution Applicant of the Corporate Debtor. The Commissioner of Income-Tax, Mumbai has been arrayed as Respondent No.1; Principal Chief Commissioner of Customs is the Respondent No.2; Principal Officer of SEBI, is the Respondent No.3; Mr. Dharmendra Dhelariya, the Resolution Professional of KSS Limited and Respondent No.4; and KSS Limited (CD) is the Respondent No.5. For the sake of convenience this appeal would be treated as first appeal. Company Appeal (AT) (I....
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....ximately Rs. 3.21 crores and the Liquidation Value at approximately Rs. 2.52 crores as per valuation. (v) An Invitation for Expression of Interest ("EOI") in Form-G was published on 25.03.2023 and subsequently revised on 17.04.2023. Eight prospective resolution applicants submitted EOIs. (vi) Out of the eight prospective resolution applicants, only the Appellant/Micro Capitals Private Limited submitted a Resolution Plan on 14.06.2023. (vii) During CIRP, the premises of the Corporate Debtor had been sealed by the Enforcement Directorate in connection with alleged offences committed by the erstwhile management, thereby restricting access to crucial records. Accordingly, the Resolution Professional filed an application seeking de-sealing of the premises, which was disposed of as infructuous on 07.09.2023 upon the statement of the Enforcement Directorate that de-sealing was underway. (viii) The Resolution Plan submitted by the Appellant was placed before the CoC and approved in the 7th CoC meeting held on 17.10.2023 with 77.97% voting share. The Axis Bank which was holding 22.07% voting share was the dissenting Financial Creditor. (ix) The R....
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....s pronounced after an inordinate delay of nearly seven months from the date on which orders were reserved on 29.08.2024. According to the Appellant, such extraordinary delay has resulted in erroneous appreciation of pleadings, documents and submissions advanced before the Learned Adjudicating Authority and is contrary to the time-bound framework envisaged under the IBC. III. It is submitted that the Appellant, despite being the Successful Resolution Applicant ("SRA"), was not impleaded as a party in I.A. (IBC) (Plan) No. 04 of 2024 filed by the Resolution Professional under Section 30(6) of the Code seeking approval of the Resolution Plan. IV. Ld. Counsel further submits that the Learned Adjudicating Authority gravely erred in rejecting the Resolution Plan on the premise that a Financial Creditor cannot submit a Resolution Plan and that the approval of such Plan by the CoC violates the principle of nemo judex in causa sua. It is submitted by the Appellant that the aforesaid finding is contrary to the express provisions of the IBC itself. Reliance is placed upon the proviso to Section 30(5) of the Code, which specifically contemplates a situation where a Resolution....
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.... be paid in priority and not less than the liquidation value in terms of Section 30(2)(b) of the Code. He submitted that the exact bifurcation could not have been specified at the stage of submission of the Resolution Plan since the Resolution Applicant could not have anticipated the final voting pattern of assenting and dissenting Financial Creditors. X. Learned Counsel further submits that the finding regarding alleged violation of Regulation 38(1)(b) of the CIRP Regulations is wholly misconceived since the Resolution Plan expressly provides priority payment to dissenting Financial Creditors. Reliance is placed upon Clause 3.2, Clause 4.3.3(1), and Clause 4.4 of the Resolution Plan, which collectively provide that dissenting Financial Creditors shall be paid in priority within thirty days from the Effective Date and such payment shall not be less than the liquidation value payable under Section 53 of the Code. XI. Insofar as the findings concerning feasibility and viability of the Resolution Plan are concerned, Learned Counsel submits that the Learned Adjudicating Authority could not have substituted its own subjective assessment over the commercial wisdom exerc....
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.... otherwise Clause 9.7.5 of the Resolution Plan specifically provides that in the event of any inconsistency between the Resolution Plan and any other document; the provisions of the Resolution Plan shall prevail. XV. With regard to the alleged discrepancy in the total Plan value, Learned Counsel submits that there exists no discrepancy whatsoever. It is submitted that Clause 4 of the Resolution Plan stipulates the Plan value as Rs. 2.65 Crores together with CIRP Costs of Rs. 35 Lakhs, whereas Form-H reflects an aggregate amount of Rs. 3.01 Crores after inclusion of CIRP Costs and ex-gratia payment of Rs. 1 Lakh proposed for Operational Creditors. According to the Appellant, the figures are fully reconcilable and the Learned Adjudicating Authority erroneously treated the same as contradictory. XVI. Learned Counsel further submits that the observation regarding non-filing of minutes of the 2nd to 6th CoC Meetings and Information Memorandum is also untenable. It is submitted that Regulation 39(4) read with Form-H merely requires annexing the minutes of the meeting approving the Resolution Plan and there exists no statutory requirement mandating filing of all previous....
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....king to enforce recovery of penalty amounts subsequent to approval of the Resolution Plan is contrary to the scheme, object and overriding effect of the IBC and deserves to be set aside. XIX. Ld. Counsel further submits that Section 32A of the IBC grants complete immunity to the Corporate Debtor and its assets from liabilities arising out of offences committed prior to the approval of the Resolution Plan. According to the Appellant, the legislative intent behind Section 32A is to ensure that the Successful Resolution Applicant acquires the Corporate Debtor on a "clean slate" basis, free from past liabilities and encumbrances, so as to maximize value and ensure successful revival of the Corporate Debtor. In view of the aforesaid submissions, Learned Counsel appearing for the Appellant prayed that the present Appeal be allowed. Submissions of the Respondent No. 2/Pr. Ch. Commr. Customs 8. Ld. Counsel for the Respondent No.2 on behalf of Customs (Dept. of Revenue), Govt. of India made the following submissions: I. Ld. Counsel submits that the Customs Department of the Union of India, has lawful and admitted statutory dues amounting to approximately Rs. 23.14 Cr....
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.... wisdom. IV. Ld. Counsel further submits that the CIRP Regulations mandate that the Committee of Creditors must examine feasibility and viability of a Resolution Plan before approval under Regulation 39(4). In the present case, the Resolution Plan suffers from serious deficiencies and lack of transparency, including: (a) Non-placement of Minutes of CoC Meetings 2 to 6; (b) Non-placement of the Information Memorandum; (c) Non-placement of the Request for Resolution Plan ("RFRP"); and (d) Exclusion of de-sealed Enforcement Directorate properties from valuation exercise. These deficiencies strike at the very root of transparency and fairness in the CIRP process. He further submits that the absence of crucial documents and suppression of material particulars prevented proper judicial scrutiny and raises substantial concerns regarding the legitimacy and viability of the Resolution Plan itself. V. Ld. counsel further submits that the Appellant's contention that the Ld. Adjudicating Authority impermissibly interfered with the commercial wisdom of the CoC is wholly misconceived. It is now well settled that while commercial wisd....
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....ion Plan must provide fair and equitable treatment to Operational Creditors and ensure payment to such creditors in the manner contemplated under Section 53 of the Code. The legislative intent behind the 2019 Amendment to Section 30(2) was to protect the interests of Operational Creditors and ensure balanced treatment amongst all stakeholders in the CIRP. II. The Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta categorically held that while commercial wisdom of the Committee of Creditors ("CoC") is paramount, the distribution mechanism under a Resolution Plan must reflect the objectives of the Code namely: (a) maximisation of value of assets of the Corporate Debtor; and (b) balancing of interests of all stakeholders including Operational Creditors. III. In the present case, the Resolution Plan allocates merely Rs. 1,00,000/- collectively towards all Operational Creditors despite admitted claims running into several crores including statutory claims of Government Authorities such as SEBI. The records further reveal that the SRA itself, being the dominant financial creditor with 77.97% voting share....
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....d viability contemplated under Section 30(4) of the Code and Regulation 38 of the CIRP Regulations. VII. SEBI also relied upon the judgment of the Hon'ble Supreme Court in State Tax Officer vs. Rainbow Papers Ltd. Ld. Counsel further submits that the aforesaid principle has subsequently been reaffirmed by the Hon'ble Supreme Court in Sanjay Kumar Agarwal vs. State Tax Officer while dismissing review petitions against Rainbow Papers. In the present case, SEBI had filed its statutory claim arising from adjudication proceedings under the SEBI Act for violations committed by the Corporate Debtor under securities laws. The penalties imposed under the SEBI Act constitute statutory dues recoverable by a Government Authority and are payable to the Consolidated Fund of India. VIII. Ld. Counsel reiterated that despite the admitted nature of such dues, the Resolution Plan provides merely a token allocation collectively for all Operational Creditors and statutory authorities. The Resolution Plan therefore effectively extinguishes sovereign statutory liabilities contrary to the law laid down by the Hon'ble Supreme Court. The Ld. Adjudicating Authority therefore rightly rejecte....
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....Adjudicating Authority regarding compliance with Section 30(2) of the Code. The Ld. Adjudicating Authority therefore rightly exercised judicial scrutiny and rejected the Resolution Plan. XIII. He submits that Section 65 of the IBC empowers the Adjudicating Authority to examine whether CIRP proceedings have been initiated fraudulently or with malicious intent for purposes other than genuine insolvency resolution. This Hon'ble Appellate Tribunal in Shree Ambica Rice Mill vs. Kaneri Agro Industries Ltd. held that the Adjudicating Authority is obligated to investigate suspicious transactions and prevent misuse of IBC proceedings. Ld. counsel further submits that this Appellate Tribunal in Expert Realty Professionals Private Limited vs. Logix Infrastructure Private Limited held that fraud vitiates every stage of CIRP including approval of a Resolution Plan. In the present case the SRA advanced substantial unsecured loans despite weak financial condition of the Corporate Debtor; the SRA thereafter initiated CIRP proceedings itself; the SRA emerged as sole Resolution Applicant; the SRA approved its own Resolution Plan using dominant voting share; and the Resolution Plan substanti....
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.... 23.02.2023. Therefore, no question arose for inclusion of the said rented premises as an asset in the Information Memorandum or in the Resolution Plan. The adverse remark has thus been rendered on an erroneous factual premise and deserves to be set aside. IV. It is submitted by RP that the Ld. Adjudicating Authority further erred in holding that the Appellant failed to consider the Revenue Department as a secured creditor in view of Section 142A of the Customs Act and the judgment in State Tax Officer vs. Rainbow Papers Ltd. The said finding is contrary to both facts and settled law. V. Firstly, the claim submitted by the Revenue Department itself specifically disclosed that no security interest was held in respect of its claim. Thus, the Revenue Department never asserted itself to be a secured creditor at the stage of claim verification. VI. Secondly, Section 142A of the Customs Act is materially distinguishable from Section 48 of the Gujarat VAT Act considered in Rainbow Papers. Unlike Section 48 of the Gujarat VAT Act, Section 142A of the Customs Act does not override the provisions of the IBC. Consequently, the status and treatment of such claims nec....
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....the Ld. Adjudicating Authority, despite recording these figures elsewhere in the Impugned Order, erroneously treated the same as inconsistency. Such contradictory findings clearly demonstrate non-appreciation of the financial structure of the Resolution Plan. XII. Ld. Counsel submits that finding of the Ld. Adjudicating Authority that Resolution Professional failed to place all CoC minutes, Information Memorandum, and RFRP on record, thereby raising concerns regarding transparency, is wholly unjustified. It is submitted that throughout the proceedings for approval of the Resolution Plan, the Ld. Adjudicating Authority never directed the Appellant to produce any additional document. The matter was repeatedly adjourned on multiple dates and ultimately heard and reserved for orders. At no point was any deficiency recorded by the Ld. Adjudicating Authority regarding the documents filed by the Appellant. In absence of any direction calling upon the Appellant to furnish additional material, the adverse observations alleging lack of transparency are wholly unwarranted and violative of principles of natural justice. XIII. RP submits that the Ld. Adjudicating Authority fur....
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....enting financial creditor participated in the process and exercised its rights under the Code. The observation that the dissenting creditor remained a "spectator" is therefore contrary to the statutory framework of the IBC. XVIII. Ld. Counsel for RP submits that the finding that the Resolution Plan failed to provide for contingent liabilities is equally unsustainable. The treatment of disputed and contingent claims falls squarely within the commercial domain of the Resolution Applicant and Committee of Creditors. The Resolution Applicant had undertaken to deal with disputed claims in accordance with law. The Hon'ble Supreme Court has consistently held that once a Resolution Plan satisfies the requirements under Section 30(2), the Adjudicating Authority cannot sit in appeal over the commercial wisdom of the CoC. XIX. Ld. counsel further submits that in view of the aforesaid facts and settled position of law, it is respectfully submitted that the adverse remarks recorded against the Appellant/Resolution Professional in Paragraph Nos. 12 to 17 of the Impugned Order are based on patent errors of fact, misreading of documents, contradictory findings, and impermissible ....
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....plication. • Absence of crucial documents including minutes of 2nd to 6th CoC meetings, Information Memorandum, and RFRP. • Glaring inconsistency in Form H regarding the Resolution Applicant's track record of implementation of previous resolution plans. 21. In light of the above violations, inconsistencies and the fact that the Resolution Applicant is virtually acting as a sole CoC member approving its own plan, this Bench finds the Resolution Plan submitted by Micro Capitals Private Limited unsuitable for approval in view of the afore- stated violation of material provisions and regulations of the Code. The principle of "nemo judex in causa sua" has been violated, and the commercial wisdom, if any. exercised in this case fails to protect the interests of all stakeholders as envisioned under the Code. Accordingly, the Application seeking approval of the Resolution Plan is hereby rejected." 13. One of the main contentions of the Respondents against the Resolution Plan has been that a Financial Creditor cannot submit a resolution plan and at the same time approve the same as he holds the majority share in the CoC. Approval of such plan by CoC....
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....ant has relied upon the judgment of this Appellate Tribunal in "Midpoint Commodeal Pvt. Ltd. v. Neha Chhawchharia and Others, 2024 [CA (AT) (Ins) No. 1839 of 2024]". The relevant paras 8, 13 & 14 are extracted below: - "8. When this, Appellant is Secured Financial Creditor as well as Resolution Applicant and has proposed in the plan itself providing that RA being secured creditor will adjust the settlement amount payable against the admitted claim, we do not find that above is a sufficient ground for interfering with the Resolution Plan which has been approved by the CoC. It is also relevant to notice that appellant has 99.87%; vote share in the committee of creditors which has been captured by Adjudicating Authority in paragraph 34 of the Judgment Para 34 is as follows: "34. The Committee of Creditor is comprising of Two (2) Financial Creditor, Namely; S. No. Name of the Financial Creditors Voting Share (%) 1. Midpoint Commodeal Pvt. Ltd. 99.87 2. GDSK Jewels Pvt. Ltd. 0.13%; Though the Committee of Creditor of the Corporate Debtor is having Two Financial Creditors in its constitution, it is pertinent to note that all the meeti....
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....ays i. The Resolution Applicant proposes to distribute the amount proposed to secured financial creditors in the following order of priority: - 1) Dissenting Financial Creditors shall be paid amounts not less than the Liquidation value due to each dissenting financial creditors, in case the proposed amount is less than the liquidation value. 2) The Assenting financial Creditors shall be paid the remaining amount on a pro rata basis of claim value due to each such financial creditors. 4.4 Dissenting members of the COC Liquidation value of the Company is not known to the Applicant. In terms of IBC, and under regulation made thereunder, the amount payable in respect of Financial Creditors who do not vote in favour of the Resolution Plan would be paid not less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of liquidation of the Company. The dissenting members of CoC will be paid the proceeds as per the clause 4.3.3, within 30 days of the effective date. As per the Insolvency & Bankruptcy Code, 2016, the dissenting financial creditors should be paid in priority to the....
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....Plan in the 7th CoC Meeting and the same is in violation of Regulation 39(3)(b) of the Code. We note from the minutes of the meeting that the Regulation 39(3) of the CIRP Regulations, 2016 was brought to the notice of all CoC Members which is extracted below :- "The Committee shall- (a) Evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix; (b) record its deliberations on the feasibility and viability of each resolution plan; and (c) vote on all such resolution plans simultaneously. "The Committee of Creditors shall approve the Resolution Plan considering the feasibility and viability of the resolution plan in order to maximise the value of the Corporate Debtor." 26. We note that the consultant of the resolution applicant briefed the members present about the revised resolution plan submitted by the Micro Capital Limited (SRA). It is further noted that in the Minutes of the Meeting that after due discussion the following resolution was put-up for consideration: "RESOLVED THAT in terms of Section 30(4) of the Insolvency and Bankruptcy Code, 2016 and the Rules and Regulations made thereunder, ....
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....both financial and technical capabilities, the Resolution Applicant is confident of successfully turning-around the Corporate Debtor." 28. The SRA has relied upon its capability to turn around similar units and has submitted projected financial figures for next five years, which show a growing turnover and increased profit over this period. Similarly, they have stated that the SRA has experience in similar line of activity and would be able to turn the CD into a viable unit. It is the settled position that the commercial wisdom of CoC is supreme and judicial authorities should not substitute their own judgment over the commercial wisdom of the CoC. In view the settled legal position we are of the view that Ld. Adjudicating Authority should not have substituted its own subjective assessment over the commercial wisdom exercised by the CoC. 29. Regarding the finding of the Adjudicating Authority that the collation of all the assets of the Corporate Debtor has not been done by the RP and properties have been left out of the valuation of the Corporate Debtor. This finding of the Ld. Adjudicating Authority does not seem to be borne on facts, as the property under reference is the r....
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....nder Section 53 in the judgment. Section 53 places the dues payable to secured creditors at a higher footing, than dues payable to Central and State Government. In the instant case, the Revenue Department and SEBI are Central Government Department and Statutory Authority respectively, whose dues under waterfall mechanism fall below those of secured creditors. 32. The Respondent No.2 Revenue (Customs) Department has relied upon Section 142A of the Customs Act, 1962 to claim that it is also a secured creditor, and in view of the Rainbow Papers (supra) should be treated as the same. Ld. Adjudicating Authority has upheld this contention of Customs. The Section 142A of the Customs Act, 1962 is extracted below: - "142A. Liability under Act to be first charge.-Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Fi....
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....nd SEBI have to be dealt with in accordance with Section 53(1)(e)(i) of the Code as unsecured operational creditor. Therefore, the finding recorded by the Adjudicating Authority treating Customs and SEBI as secured creditor is not in accordance with provisions of the Code and judicial precedents. 35. Regarding compliance of Regulation 38(1B) the Resolution Professional has given the following in item no.9 of Form-H (Compliance Certificate). Section of the Code/ Regulation No. Requirement with respect to Resolution Plan Clause of Resolution Plan Compliance (Yes/No) Regulation 38(1B) (i) whether the Resolution Applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any resolution plan approved under the Code. (ii) If so, whether the Resolution Applicant has submitted the statement giving details of such non-implementation? Para 3.5 on Page No. 18 N.A. Yes 36. It is clear from the information provided in item no.9 regarding compliance with Regulation 38(1B) that the RP has mentioned "Yes" against item seeking information, whether the Resolution Applicant or any of its related parties has fai....
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....er to operate the Corporate Debtor as a going concern, need base working capital of upto Rs 5.00 Crores (approx.) would be infused through Financing within 6 months and an additional amount of Rs 5.00 Crores within 12 months of the Approval of this Resolution Plan to ensure that operations of CD run efficiently. The decision to infuse funds will be taken according to the need at that time. Accordingly, the infusion can be increased or decreased as well. The additional funding will not affect rights and interest of financial creditors and also not deal with assets of corporate debtor till time debt financial creditor has been repaid. 4.20.4 (b) Infusion of Fund by Applicant (i) To enable the implementation of the Resolution Plan, Applicant may incorporate / use a Special Purpose Vehicle ("SPV"). The SPV shall be funded by way of equity infusion by Applicant or its Promoters/Relatives/ Associates/ Investors ("Subscribers") and debt raised at the SPV/ Applicant Level. (ii) Simultaneously, with the Capital Reduction, the Applicant will make necessary subscription for allotment of 3,00,00,000 (Three Crores) equity shares of Rs. 1 each at par aggregati....