TaxTMI 
TaxTMI 
2026 (8) TMI 1613
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..... Saurabh Jain, Mr. Prayag Jain, Advocates for RP. Ms. Surbhi Mehta, Advocate for R-3. JUDGMENT [Per: Arun Baroka, Member (Technical)] Introduction These are two Section 61 Appeals - Company Appeal (AT) (Insolvency) No. 1032 of 2024 (by Niharika Goel, suspended director of Corporate Debtor) and Company Appeal (AT) (Insolvency) No. 1038 of 2024 (by Vinay Gupta, suspended director of Corporate Debtor) - both challenge the same Impugned Order dated 23 April 2024 passed by the NCLT, New Delhi, Court- III in IA (PLAN) No. 5 of 2024 in CP (IB) No. 1185/(ND)/2019, approving the Resolution Plan of M/s Suraj Garg (Successful Resolution Applicant) in respect of M/s Satellite Cables Private Limited (Corporate Debtor). Submissions of the Appellant in CA (AT) (Ins.) No. 1038 of 2024 2. The Appellant - Vinay Gupta-Suspended Director of Corporate Debtor contends that the Adjudicating Authority approved the resolution plan of the Successful Resolution Applicant in respect to the Corporate Debtor without giving the Appellant herein an opportunity to peruse the said resolution plan and file objections/ contentions to the resolution plan. 3. Appellant brings to our notice that th....
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....ting Authority. The Respondent No. 2 was appointed resolution professional of the Corporate Debtor. Respondent No. 2 commenced the Corporate Insolvency Resolution Process by inviting claims. Thereafter, Respondent No. 2 issued FORM G, and received Expression of Interest from Respondent No. 4 along with two parties i.e., Respondent No. 1 (practicing chartered accountant) and M/s Sunrise Industries. Respondent No. 2 being very well aware of the fact that Respondent No. 1 is a practicing-chartered accountant being barred under Clause (11) of Part I of First Schedule to the Chartered Accountant Act, 1949 being not permitted to engage in any business or occupation other than the profession of Chartered Accountancy has declared Respondent No. 1 (SRA) as eligible and allowed him to submit a resolution plan. 8. Thereafter, Corporate Debtor along with MICA Industries Ltd. (Corporate Guarantor to the Corporate Debtor) vide letter dated 08.06.2023 had proposed a onetime settlement to Respondent No. 3 (i.e., sole financial creditor) and on 19.07.2023 the onetime settlement proposal was accepted and repayment schedule was proposed by Respondent No. 3 which was duly accepted by the Corporate ....
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....es the statutory dues of the government. 12. Respondent No. 2/RP vide email dated 23.12.2023 issued letter of intent to Respondent No. 1 and requested him to submit payments as per resolution plan documents. Thereafter, Respondent No. 2/RP on 27.12.2023 filed IA No. 5 of 2024 before the Ld. Adjudicating Authority for approval of resolution plan of Respondent No. 1. 13. The Respondent No. 1 being a practicing-chartered accountant as per Chartered Accountants Act, 1949 has filed the resolution plan and the same was approved by the Ld. Adjudicating Authority without considering the fact that a chartered accountant cannot engage in business or occupation besides their own profession. If a practicing-chartered accountant indulges in any other business it is considered to be professional misconduct under Clause 11 of Part 1 of the First Schedule of the Chartered Accountants Act, 1949. In the present case the Respondent No. 1 has submitted a resolution plan on 02.06.2023 to Respondent No. 2 wherein it is specifically mentioned that the Corporate Debtor shall be managed under the leadership of resolution applicant i.e., Respondent No. 1. As per Section 30(2)(e) of IBC, the Respondent....
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.... both the companies but instead Respondent No. 3 did not inform the CoC of the onetime settlement proposal and instead passed the resolution plan. Further, the onetime settlement proposal of MICA Industries Ltd. was accepted by Respondent No. 3 and MICA Industries was saved from the clutches of insolvency process. 17. Respondent No. 2 and Respondent No. 3 with a mala-fide intent had accepted the resolution plan of Respondent No. 1 which was of lower bid of Rs.5,85,00,000/- than the bid of the Respondent No. 4. i.e., Rs. 6,00,00,000/-. During the 10th meeting of CoC the bidding of Respondent No. 1 closed at Rs. 5,85,00,000/- and the bid amount of Respondent No. 4 was Rs. 5,73,00,000/. Subsequently, Respondent No. 4 vide email had informed Respondent No. 2 of their intention to increase their offer of Rs. 5,73,00,000/- to Rs. 6,00,00,000/-and by doing so became the highest value bidder. Due to the reason best known to Respondent No. 2, instead of accepting the higher bid of Respondent No. 4, went on to admit the Respondent No. 1 as the highest bidder. Thereafter, the Respondent No. 2 did not even inform the CoC about the enhanced bid of Respondent No. 4 and the resolution plan sub....
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....t issued information memorandum, evaluation matrix and a request for resolution plans to all Prospective Resolution Applicants vide email dated 01.05.2023. That thereafter, the Applicant issued the Final list of Prospective Resolution Applicants who are eligible to file the Resolution Plan in the CIRP of present Corporate Debtor vide email dated 01.05.2023 to all the Prospective Resolution Applicants. 24. Further, the Resolution Plan was received from the following Prospective Resolution Applicants along with Bid Bond amount of Rs. 25,00,0000 (Rupees Twenty-Five Lacs) which are as follow: a. Suraj Garg b. Anuj Goyal c. Sunrise Industries 25. R-2/RP vide email dated 13.06.2023, 30.06.2023, 11.07.2023, 18.07.2023, 12.09.2023 and 22.09.2023 informed the Prospective Resolution applicants about the observations and remarks on the resolution plan submitted to the CoC members. Thereafter, on the basis of the observations and remarks the Prospective Resolution Applicants were given the opportunity to submit their cured Resolution Plan. 26. Pursuant to the Regulation 27 of IBBI (Insolvency Resolution Process for Corporate Person) Regulations 2016, the R-2....
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....isions of Section 30(4) of Code with a majority of 100%. 31. Pursuant to Section 30(1) of the Code, the Successful Resolution Applicant has submitted affidavit confirming his eligibility to submit resolution plan under Section 29A of the Code. The contents of the said affidavit are in order. 32. Subsequent to the approval of Resolution Plan by the Committee of Creditors, the R-2/RP issued the Letter of Intent (LoI) vide email dated 23.12.2023 to the Successful Resolution Applicant and requested him to submit the performance bank guarantee of Rs. 54,74,500/- as obligated in request for resolution plan documents. 33. The Appellant has never cooperated in the CIRP process, even though an application under Section 19(2) of the Insolvency and Bankruptcy Code was filed against the Appellant. It is relevant to mention at this stage that the since the Appellant herein did not appear before the Hon'ble Adjudicating Authority in the said application w/s 19(2), the Ld. Adjudicating Authority directed the Respondent to serve a public notice, pursuant to which the Ld. Adjudicating Authority vide its order dated 25.10.2023, proceeded ex parte against the Appellant. Subsequently at t....
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....l is not required to express his opinion on matters within the domain of the Financial Creditor(s) to approve or reject the Resolution Plan under Section 30(4) of the I&B Code." 38. It is further submitted that the CIRP period is a time-bound process, the whole process is required to be completed within the stipulated period which is fact well known to all the parties concerned herein, despite this, if the Appellant wishes to enter into a One Time Settlement with the Financial Creditor, the same must be done in compliance with the law. A mere approach by the Appellant to the Financial Creditors/CoC with a One Time Settlement offer is not sufficient to stop the CIRP process. Furthermore, it seems evident that the offer made by the Appellant never materialized with the members of the CoC. It is further submitted that once the CIRP is initiated, it will continue until a withdrawal application under Section 12A, with the approval of the requisite members of the CoC, is allowed by the Learned Adjudicating Authority. Until such approval is granted, the Resolution Professional is required to perform his duties. Section 12 A read as: Section 12A. Withdrawal of application admit....
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....thority has rightfully rejected the oral submission of the Appellant's counsel. The Ld. Adjudicating Authority provided the Appellant's counsel with the opportunity to submit their objections, which they failed to do. Accordingly, the Ld. Adjudicating Authority duly acknowledged that Respondent No. 2 was not required to supply any advance copy of the application to the Appellant. Therefore, a mere non-supply of a copy of the Resolution Plan application was not sufficient grounds to delay the CIRP process. 45. It is respectfully submitted that the Appellant has misled this Hon'ble Court by making false and unfounded allegations against the Respondent specifically claiming that the Respondent has deliberately withheld or failed to provide necessary information and documents during the CIRP process. In fact, the Respondent had sent multiple emails asking the Appellant to submit undertaking for confidentiality as required in terms of the process, so that the Respondent may provide a copy of the Proposed Resolution Plans. The Appellant never submitted the required undertaking for confidentiality. 46. It is further submitted that the Suspended Board of Directors was dul....
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.... Code, 2016. 51. At the same time, the Proviso to Clause (11) of Part-I of the First Schedule of the Chartered Accountants Act, 1949, provides that the restriction contained in clause (11) shall not disentitle a chartered accountant from being a director of a Company, (not being a managing director or a whole-time director), unless he or any of his partners is interested in such company as an auditor. For the purposes of the Proviso to clause (11), the Council of the Institute has considered related issues and has taken decisions detailing the nature of the directorship and association of a practicing Chartered Accountant in a company, which are detailed in the Code of Ethics framed by the Institute. 52. However, there is no express provision in the Code of Ethics or any precedent on the issue in question i.e. whether a Chartered Accountant in practice can submit a Resolution Plan. 53. From the view point of applicable provisions contained in the Code of Ethics, it is to be noted that a member in practice is permitted to become a Director Simplicitor (i.e. not a Whole-Time Director or a Managing Director) in a company. The expression 'Director Simplicitor' means an....
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....d illegally by approving the Resolution Plan of M/s Suraj Garg despite the alleged higher offer from another applicant? • Whether the alleged non-provision for Government dues makes the Resolution Plan contrary to Section 30(2)^2 of the Code? • Whether there is any material irregularity in the CIRP or in the exercise of powers by the Resolution Professional which would justify interference under Section 61 of the Code? 58. During his final arguments the resolution professional raises the locus of the Appellant in challenging the resolution plan and claims that the suspended director has no locus to the resolution plan and relies on the judgment of this Appellate Tribunal in Praful Satra vs Vaishali Patrikar and Ors. (CA (AT) (Ins.) No.1627/2024). We do not find such an argument to be of any assistance to the resolution professional. We observe that Section 24(3)(b) IBC treats suspended directors as members of the CoC (without vote) - a member of the CoC is presumptively an aggrieved person. The resolution plan binds the erstwhile management under Section 31 - a party bound by an order is aggrieved by it. The Honourable Supreme Court in ^1Vijay Kumar Jai....
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....ion Plan is liable to be set aside on the ground that the suspended director was not supplied a copy of the Resolution Plan before the plan-approval hearing? 65. The issue is whether the failure of the Adjudicating Authority to supply the suspended director of the Corporate Debtor with a copy of the RP's plan-approval application (IA(PLAN)-5/2024) and the Resolution Plan annexed thereto, and its refusal to grant an opportunity to peruse those documents and file objections before approving the plan on 23.04.2024, vitiates the Impugned Order for breach of the principles of natural justice. 66. We note that there can be no dispute that a suspended director is not completely excluded from the CIRP. Section 24(3)(b)5 requires that notice of meetings of the CoC to be given to the members of the suspended Board of Directors. 67. We further note that the Hon'ble Supreme Court in Vijay Kumar Jain v. Standard Chartered Bank & Ors., (2019) 20 SCC 455^6 recognised the right of the suspended Board to meaningfully participate in the meetings of the CoC and held that relevant documents, including the Resolution Plans, have to be made available for that purpose. However, the said prin....
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....n business through companies, trusts and firms. Appellant claims that the said principle directly bears upon the eligibility and proposed role of Respondent No. 1 under the Resolution Plan and the judgment of Board of Discipline constituted under Section 21A of the Chartered Accountants Act, 1949^8 of ICAI, itself shows that the sole Resolution Applicant being entrusted with the role of Resolution Applicant is ineligible. Particularly, Clauses 4.2, 6.3.1, 6.3.2, 6.3.3, 6.3.4 of the Resolution Plan delineates his exclusive role as Resolution Applicant. 75. We note that Section 29A of the Code specifies the persons who are ineligible to submit a Resolution Plan. A practising Chartered Accountant is not, merely by virtue of being a practising Chartered Accountant, included in the disqualifications enumerated in Section 29A. 76. The Appellant seeks to invoke Section 30(2)(e), which requires that a Resolution Plan must not contravene any provision of law for the time being in force. The claim of the Appellant is based primarily upon ^9Clause (11) of Part I of the First Schedule to the Chartered Accountants Act, 1949. 77. We have carefully considered this submission as well as t....
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....ess is required to continue in accordance with the Code. In such a situation if a settlement has to happen then withdrawal will have to be done as per Section 12A of the Code. Section 12A provides a specific statutory mechanism for withdrawal of an application admitted under Sections 7, 9 or 10. Such withdrawal requires approval of not less than 90% of the voting share of the CoC and an application in the manner prescribed. We find no material before us showing that the CIRP was withdrawn under Section 12A. A settlement proposal between the parties, therefore, cannot by itself nullify the CIRP or prevent the CoC from considering Resolution Plans. The Resolution Professional was correct in pointing out that the mere existence of an OTS proposal did not authorise him to discontinue the CIRP in the absence of an order under Section 12A. 82. We also take note of the submission that the OTS did not ultimately materialise in the manner contended by the Appellant and that the financial creditor subsequently withdrew the terms of the proposal. In these circumstances, the alleged OTS cannot invalidate the subsequent approval of the Resolution Plan. Issue of alleged acceptance of a low....
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....sider the totality of the circumstances, including feasibility, viability, implementation capability, conditions attached to the plan and the interests of the various stakeholders. 87. In the present case, the CoC approved the Resolution Plan with 100% voting share. 88. We observe that the Hon'ble Supreme Court in K. Sashidhar^10 has clearly held that the commercial wisdom of the CoC in approving a Resolution Plan is not subject to substitution by the Adjudicating Authority or the Appellate Tribunal. The same principle was reiterated in Pratap Technocrats (supra), where the Hon'ble Supreme Court held that the Adjudicating Authority and Appellate Authorities cannot enter into the commercial wisdom underlying the CoC's decision. 89. We observe that the commercial wisdom of the CoC in accepting the SRA's plan (100 % vote) is not justiciable - Essar Steel^11; K. Sashidhar (supra). Thus, neither NCLT nor NCLAT can substitute its assessment for that of the CoC. 90. We further find that no material before us to establish that the CoC's decision was actuated by fraud, discrimination or any consideration prohibited by the Code. Thus, this ground is also rejected. ....
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....s which are not part of the approved Resolution Plan are dealt with in accordance with the statutory scheme. Therefore, the mere existence of a Government demand does not mean that the Resolution Plan must necessarily provide for payment of the entire demand. The question under Section 30(2) is whether the Resolution Plan satisfies the statutory requirements of the Code. Moreover, the Honourable Supreme Court has itself clarified on November 2023 judgment on review petitions in Rainbow Papers - that Rainbow Papers turned on its own facts (in particular the GVAT Act creating a first-charge deemed statutory charge) and it does not lay down a general rule that all statutory dues must be paid at par with secured creditors [^13Sanjay Kumar Agarwal v. State Tax Officer, (2024) 2 SCC 362 ]. 95. Further, the Appellant, who is a suspended director and not the statutory creditor concerned, cannot seek to invalidate the Resolution Plan merely on the basis of the alleged Government dues, particularly when the competent Government authority itself has not challenged the approval of the Resolution Plan on this ground. The statutory scheme of the Code is to provide a resolution of the Corporat....
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.... in the CIRP or in the exercise of powers by the Resolution Professional which would justify interference under Section 61 of the Code? 101. Appellant claims that Shri Vivek Raheja, IP, has been suspended for his conduct by IBBI and the RP was a Director in the firm in which Vivek Raheja was also a Director. The nexus between the two was so thick and the RP failed to disclose the same to either the COC or the Suspended Board i.e. the Appellant. The Directors of Osrik Resolution Private Limited were de-facto Resolution professionals and were present in all COC meetings. Shri Vivek Raheja has attended all the COC meetings with the RP without any authorization and has diluted the purity of COC meetings. Thus, the Appellant has alleged that the Resolution Professional failed to conduct the CIRP in a transparent manner and failed to maximize the value of the assets. 102. It is brought to our notice by the resolution professional that the alleged suspension of a director of Osrik Resolutions Pvt. Ltd. is (i) unrelated to the RP personally, and (ii) not particularized - no order, no date. 103. Furthermore, we have considered the material placed before us. The record shows that: ....
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....r stage, seek to invalidate the entire process on general allegations of lack of transparency unless a specific and material violation of the Code is established. We further observe that the CIRP is a time-bound statutory process. The conduct of all stakeholders must be viewed in the context of the legislative objective of completing the process within the prescribed time and avoiding unnecessary delay. Whether the Resolution Plan satisfies the statutory requirements 107. The present Resolution Plan was considered by the CoC and approved by 100% voting share. The Resolution Professional thereafter filed the application under Sections 30(6)^2 and 31^15 for approval. Adjudicating Authority is required to examine whether the Resolution Plan satisfies the requirements of Section 30(2)^2 and the applicable Regulations and the jurisdiction of the Adjudicating Authority under Section 31^15 is not an appellate review of the commercial decision of the CoC. 108. The material before us does not demonstrate that the Resolution Plan violates any mandatory provision of Section 30(2)^2. Nor has the Appellant demonstrated any material irregularity in the exercise of powers by the Resoluti....
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....bjection concerning the status of the Successful Resolution Applicant as a practising Chartered Accountant is not supported by any statutory disqualification under Section 29A, and the ICAI has specifically stated that a practising Chartered Accountant can act as a Resolution Applicant, subject to the applicable restriction regarding acting as a whole-time director. The objection regarding Government dues also does not establish that the Resolution Plan is liable to be rejected, particularly in view of the law laid down by the Supreme Court in Ghanashyam Mishra (supra). As regards the grievance of Vinay Gupta concerning non-supply of the Resolution Plan, although a suspended director is entitled to meaningful participation in the CIRP in accordance with the Code, the Appellant has failed to demonstrate any specific prejudice which has materially affected the approval of the Resolution Plan. In the facts of the present case, this ground also does not justify setting aside the completed CIRP and the Resolution Plan approved by the CoC. 115. The Insolvency and Bankruptcy Code does not contemplate that a completed resolution process should be reopened merely because a suspended dire....
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....specified by the Board in priority to the [2][payment] of other debts of the corporate debtor; 4 ^[3][(b) provides for the payment of debts of operational creditors in such 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 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 purpose of this clause, it is hereby declared tha....
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.... 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 subsection]: ^[8][Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.] (5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of credi....
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....Standard Chartered Bank & Ors., (2019) 20 SCC 455 Although non-voting participants, members of the erstwhile Board are entitled, as a matter of natural justice and under Section 24(3)(b), to be given copies of resolution plans placed before the CoC and to participate meaningfully in CoC meetings; the NCLAT's contrary order was set aside. 7 Council of Institute of Chartered Accountants of India v. Subodh Gupta & Anr (2017) 202 Comp Cas 115 Para 18. "In the instant case the admitted position is that the respondent is registered with the Council to practice as a Chartered Accountant. He cannot be a director of a company without the permission of the Council. The appellant is the promoter of various companies of which he is a director as per the evidence on record. Being a Chartered Accountant the respondent cannot actively carry on business through companies, trusts and firms. There is evidence that the respondent is doing so." 8 In the matter of C.A. Vinay Dattatray Balse versus C.A. Yogender N. Thakkar, in file number PR-208 14-BD242-14-BOD229-16, dated 10th Feb 2018 9 Clause (11) of Part I of the First Schedule to the Chartered Accountants Act, 1949 A Chartered Acco....
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....waterfall mechanism under Section 53, and the provision was neither adverted to nor extracted therein. The Rainbow Papers judgment has not taken note of IBC provisions treating secured creditors' dues at a higher footing than government dues. Dues payable to statutory corporations with distinct juristic entity, which do not constitute government dues payable into the Consolidated Fund, stand on a different footing. 15 SECTION 31. APPROVAL OF RESOLUTION PLAN. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, [1][including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan. [2][Provided that the Adjudicating Authority shall, before passing ....