National Company Law Appellate Tribunal
Alok Kailash Saksena vs Swamitva Landmarks on 19 September, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
CHENNAI BENCH: CHENNAI
Company Appeal (AT)(CH) (Insolvency) No. 173 of 2021
[Arising out of Impugned Order dated 28th May, 2021 passed by the
Adjudicating Authority (National Company Law Tribunal, Bengaluru
Bench, Bengaluru) in I.A. No. 227/2020 in C.P. (IB) No. 51/BB/2018]
IN THE MATTER OF:
Alok Kailash Saksena
Resolution Professional for
Associate Décor Ltd.
C/o Desai Saksena and Associates, CA
1st Floor, Laxmi Building,
Sir Pherozshah Mehta Road, Fort,
Mumbai - 400001 ...Appellant
Versus
1. Svamitva Landmarks
Through its Partner
No. 110/2, 1st Floor
Krishnappa Layout, Lalbagh Road
Bengaluru - 560027 ...Respondent No.1
2. Shankeshwar Landmarks, LLP
Through its Designated Partner
No. 110/2, 1st Floor,
Krishnappa Layout,
Lalbagh Road, Bengaluru - 560027 ...Respondent No.2
3. Shankeshwar Landmarks,
Through its Partner
No. 110/2, 1st Floor,
Krishnappa Layout,
Lalbagh Road, Bengaluru - 560027 ...Respondent No.3
Present:
For Appellant : Mr. Rajasekar Rao, Senior Advocate
For Respondents : None
J U D G M E N T
(Virtual Mode) KANTHI NARAHARI, MEMBER (TECHNICAL) Preamble:
The Present 'Appeal' is filed against the common order dated 28.05.2021 passed by the 'Adjudicating Authority' ('National Company Law Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 1 of 41 Tribunal', Bengaluru Bench, Bengaluru) in I.A. No. 227/2020 in C.P. (IB) No.51/BB/2018, whereby the 'Adjudicating Authority' has allowed the 'Application' filed by the 'Respondents' herein and directed the 'Appellant' to place the Respondents 'Resolution Plan', before the 'Committee of Creditors' for their consideration.
Brief Facts:
Appellant's Submissions:
2. The Learned Senior Counsel for the Appellant submitted that the Appellant is aggrieved by the common order dated 28.05.2021 limited to I.A. No. 227 of 2020 in CP No. 51 of 2018.
3. It is submitted that the `CIRP' was initiated against M/s Associate Décor Limited, the `Corporate Debtor' vide order dated 26.10.2018 by the 'Adjudicating Authority' ('NCLT', Bengaluru Bench). In compliance of the I & B Code, 2016 and Regulations, the `Resolution Professional' initiated the process namely issuance of 'Form-G', inviting 'Expression of Interest' (in short 'EoI') etc. In response thereto, the Respondents herein formed as Consortium submitted their 'EoI' on 06.09.2019 and reconfirmed their interest vide e-mails dated 14.09.2019, 03.10.2019 and 12.10.2019.
Accordingly, the Consortium was a part of the provisional list of 'Resolution Applicants' and the RP provided the copies of 'Information Memorandum' (in short 'IM'), evaluation matrix and Request For Resolution Plan (in short RFRP) in accordance with Section 25(2)(h) of the I&B Code, 2016 on 09.10.2019, in order to enable the consortium to submit Resolution Plan for the 'Corporate Debtor'. Even Virtual Data Room (in short VDR) access was Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 2 of 41 provided to the consortium on 15.10.2019 along with 20 others 'Prospective Resolution Applicants' (in short 'PRAs'). The consortium was included in the final list of 'PRAs'. The consortium vide e-mail dated 05.11.2019 requested for a site visit on 11.09.2019 and also requested for the extension of a date for submission of the Resolution Plan. However, the consortium never asked for audited balance sheet and was proceeding on the basis of information available on the 'VDR' and the 'IM' as was disclosed to all 'PRAs'.
4. It is submitted that on 06.11.2019 the consortium sent an e-mail to the 'Resolution Professional' declining their participation in submission of Resolution Plan for the non-availability of audit financial statements of 'Corporate Debtor'. It is submitted that all relevant information i.e. required under Section 2 of the Code and Regulation 36 of 'CIRP' Regulation including financial data that was available with the RP was made available to all the 'PRAs' for due diligence. None of the 'PRAs' backed out from the 'CIRP' citing reasons of non-availability of documents. It is to state that there was no request from Consortium/Respondents seeking for the said documents at any point of time after given access to the documents. The non-availability of information/audited financial statements was merely an excuse for consortium to not being able to conduct its due diligence within time and not being able to submit Resolution Plan within time lines prescribed under the 'RFRP'.
5. It is submitted that the last date for submission of plans expired on 07.12.2019 and the 330 days period of 'CIRP' expired on 16.03.2020, however, the consortium did not bother to submit a Resolution Plan or even Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 3 of 41 informed the RP that they are in the process of submitting a Resolution Plan.
6. It is submitted that two Resolution Applicants including the one 'M/s Mohammed Enterprises (Tanzania) Ltd.' (in short 'METL') had submitted their Resolution Plan within the time lines prescribed for the same. The 'RP' negotiated with the 'PRAs' and both the 'PRAs' were revised and submitted from time-to-time basis. The 19th 'CoC' meeting held on 11.02.2020 and the plans submitted by the PRAs decided to place before the CoC. The e-voting was conducting from 13.02.2020 to 06.03.2020 and the plan submitted by the 'METL' was approved by all the members of 'CoC' pursuant to the voting process. After approval of the plan by the 'CoC', the RP filed an application bearing I.A. No.161 of 2020 in CP No. 51 of 2018 under Sections 30 & 31 of the I&B Code before the 'Adjudicating Authority' for its approval.
7. It is submitted that after completion of CIR Process, the Consortium / Respondents submitted its Resolution Plan to the RP vide e-mail dated 27.05.2020 and the RP responded to the said mail on 18.06.2020 stating that 'CIRP' period was already expired on 16.03.2020. Against the said reply of the 'RP', the Respondents filed an application before the 'Adjudicating Authority' bearing I.A. No. 227 of 2020 seeking direction against the RP for placing its plan for consideration before the CoC. The RP contested the I.A. by filing its counter. The 'Adjudicating Authority' passed the impugned order in I.A. No. 227 of 2020 directing RP to place before the CoC / Appellant the Respondents (consortium) plans along with Resolution Plan submitted by 'METL' for its consideration.
Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 4 of 41
8. Apart from the facts as narrated above, the Learned Senior Counsel raised the following grounds in the appeal. It is submitted that the Respondents have not shown interest in submitting a Resolution Plan after having stated that it had decided not to submit Resolution Plan vide e-mail dated 06.11.2019. It is further submitted that the 'Adjudicating Authority' has erroneously held that the Information Memorandum (in short 'IM') did not conform with the requirement under Regulation 36(2)(b) of the 'CIRP' Regulations. The Information Memorandum clearly includes the annual financial statement as on 31.03.2019 as required under the 'CIRP' Regulation. The essence of CIRP is the strict time lines in which various processes have to be completed. In terms of Regulation 36(1), information memorandum has to be submitted to the CoC within two weeks of his appointment and not later than the 45th day from the insolvency commencement date, whichever is earlier. In terms of Regulation 36A, 'Form-G' has to be published within 75 days of insolvency commencement date. All the time lines are dependent on these actions being taken on time.
9. It is submitted that in the present case, due to mismanagement of the 'Corporate Debtor' prior to Initiation of 'CIRP', its accounts had remained un audited from FY 2015-16 onwards and the auditor appointed by the erstwhile management had also resigned on the date of Initiation of 'CIRP'. Therefore, in absence of audited financial statements being available, the Appellant included the provisional financial statements of the 'Corporate Debtor' for the FY 2016-17 and FY 2017-18 in the Information Memorandum. Further, the Appellant took appropriate steps to have the Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 5 of 41 books of accounts updated and to appoint a statutory auditor to have the financial statements audited while keeping the CoC informed of the steps taken.
10. The Hon'ble 'Adjudicating Authority' erred in holding that the delayed claims could be filed at any time as Regulation 12 of CIRP Regulations is directory. It is submitted that even if Regulation 12(2) is directory, a few days delay can be considered whereas if there is gross delay and negligence the claim ought to be legitimately denied. This view is supported by the decision of this Tribunal dated 13.04.2021 in Centrum Financial Services Limited Vs. CFM Asset Reconstruction Pvt. Ltd. in CA (AT) (Ins) No.302 of 2011, wherein, it was observed that "beneficiaries under the IBC cannot keep adopting the procedures and modes which would delay CIRP and progress in CIRP and defeat objects of IBC".
11. It is submitted that the 'Adjudicating Authority' erred in holding that issuing Information Memorandum and calling for EOI's on "as is where is"
basis is impermissible under the code. It is submitted that "as is where is"
basis is a well-established practice in other similar context such as distress sales and auctions, in which context it has been given effect to in numerous occasions by the Hon'ble Supreme Court in the matter of UT Chandigarh Admn. Vs. Amarjeet Singh (2009) 4 SCC 660 and also by this Tribunal in Tarun International Vs. Vikram Bajaj dated 03.03.2021 in CA (AT) (Ins) No. 1194 of 2019.
12. It is submitted that the 'Adjudicating Authority' erred in directing consideration of the Respondents plan despite gross delay in submission. Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 6 of 41 The Appellant issued 'Form-G' inviting 'EoI' dated 10.06.2019. The Respondents submitted its 'EoI' for submitting Resolution Plan in respect of the 'Corporate Debtor' on 06.09.2019 and confirmed the 'EoI' on 24.09.2019. The Appellant issued provisional list of Resolution Applicants including the Respondents on 09.10.2019 and a final list was issued including the name of the Appellant on 19.10.2019. The Respondents requested a site visit on 11.11.2019 and also sought an extension for submission of its plan vide its letter dated 05.11.2019. However, the Respondents vide their e-mail dated 06.11.2019 decided not so submit a Resolution Plan due to non-availability of audited financials of 'Corporate Debtor'. It is submitted that the Respondents have never requested audited financial statements before their e-mail dated 06.11.2019. The Appellant vide its letter dated 02.12.2019 informed the Respondents regarding extension of date for submission of plan.
13. It is submitted that after extensive discussions and negotiations the 'CoC' through e-voting unanimously approved the plan of the 'METL' with 100% voting share of the 'CoC' members and the 'METL' also submitted its Performance Bank Guarantee of Rs.30,00,00,000/- in accordance with the request for Resolution Plan.
14. It is submitted that the Respondents submitted its plan on 27.05.2020 almost 172 days after the last date for submission of the plan. Further, the Respondents submitted its plan 82 days after approval of METL's plan. It is submitted that allowing the Respondents to consider their plan is amounts to derail the proceedings of the 'CIRP' where extensive Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 7 of 41 deliberations and negotiations have taken place over 4 months would imperil the sanctity and confidence placed on the resolution process and would defeat the object of the Code to enable time bound resolution for maximisation of the value of the Corporate Debtor.
15. In view of the reasons as stated above the Learned Senior Counsel prayed this Bench to allow the Appeal and set aside the impugned order passed in I.A. No. 227 of 2020.
Respondent's Submissions:
16. The Learned Counsel for the Respondents submitted that the information memorandum that was shared with the 'PRAs' on 09.10.2019 contained only the provisional statements contrary to the requirements under Regulation 36(2) of the CIRP Regulations. However, the Appellant did not provide in compliance of the said Rules. The Appellant has not given any genuine reasons in not providing the audited financial statements and only stated that it was not provided due to mismanagement by the erstwhile director of the Corporate Debtor. The Appellant misreading the e-mail dated 06.11.2019 in a disjunctive manner. From the perusal of said e-mail, it is clear that the Respondents did not wish to participate in the site visit were of two-fold. The first is that the requisite data as required under Regulation 36(2)(b) of the CIRP Regulations was not provided. The second being that the time for submissions of the Resolution Plan as on 06.11.2019 was 11.11.2019. In view of non-availability of vital material, the Respondents could not submit plan. The Respondents was under the bonafide belief that the process was still ongoing, undertook all efforts to collate all information Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 8 of 41 pertaining to the Corporate Debtor from the website of the Ministry of Corporate Affairs.
17. The Respondents submitted its plan on 27.05.2020 and a reminder was sent to the Appellant on 16.06.2020 for placing their plan before the CoC. However, the Appellant vide reply dated 18.06.2020 rejected the plan without placing the same before the CoC for its considerations. Aggrieved by the same, the Respondents filed I.A. No. 227/2020 before the Adjudicating Authority.
18. It is submitted that the Respondents being consortium is one of the biggest building material constructions, home furnishing and real estate companies with more than 30 years of experience in that field. The 'Adjudicating Authority' rightly granted the relief as prayed for in I.A. No. 227 of 2020.
19. It is submitted that the submission of their plan is within the 'CIRP' period and thus rightly directed by the Adjudicating Authority to consider its plan. It is submitted that the 'CIRP' period could not have ended on 16.03.2020 as the order of the Hon'ble Supreme Court prohibiting limitation period was operative from 14.03.2020. This 'Tribunal' in Quinn Logistics India Pvt. Ltd. Vs. Macksoft Tech Pvt. Ltd. in C.A. No. 185 of 2018 has detailed out the circumstances under which certain time periods can be excluded for the purpose of counting total 'CIRP' period. It is submitted that when there is a gross violation of 'CIRP' process the 'Adjudicating Authority' has inherent powers to pass appropriate orders.
Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 9 of 41
20. It is submitted that the time line in the Code is absolutely important, however, the Appellant under the garb of adhering to the provisions cannot give a complete go by to mandatory provisions of law. The 'Adjudicating Authority' within its powers was right in sending back the plans for consideration of the 'CoC'. The Application filed by these Respondents was independently considered by the 'Adjudicating Authority' and allowed as prayed for.
21. In view of the reasons as stated above the Learned Counsel prayed this bench to dismiss the Appeal.
Analysis / Appraisal:
22. Heard the Learned Senior Counsel for the respective parties, perused the pleadings, documents and relevant citations. After analysing the pleadings, the issue fell for consideration is whether the Appellant has made out any case warranting interference by this Tribunal in the order passed by the 'Adjudicating Authority' (impugned order).
23. The 'Adjudicating Authority' entertained the Application filed by the Respondents herein in I.A. No. 227 of 2020 passed the following directions at page 118 of Appeal Paper Book as under:
"V. (1).
(2) I.A. No. 227 of 2020 CP(IB) No.51/BB/2018 is disposed of with the directions that the resolution plan submitted by Swamitva Landmark, Shankeshwar Landmarks LLP and Shankeshwar Landmarks, shall be placed before the CoC along with the Resolution Plan filed by METL and submitted for our approval in I.A. 161, for the CoCs evaluation and Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 10 of 41 approval, strictly keeping in mind the objects of the Code, and superior commercial viability. The Resolution Plan approved out of the two by the CoC shall be submitted to us for our consideration and approval.
(6) The directions at Sl. Nos1, 2, & 4 shall be carried out within a period of 12 weeks from the receipt/uploading of this order. This period is considered appropriate considering the present Covid-19 pandemic situation and the ensuing lockdown in several states. The RP is granted liberty to bring an application before this Adjudicating Authority for any further exclusion of time, if the same is for exceptional and justifiable reasons, and in the interest of completing the process and achieving the objects of the Code.
2. All the IAs in C.P. (IB) No. 51/BB/2018 are disposed of as above. No order as to cost.
3. Post the case for report of the RP on 30th June 2021."
24. Aggrieved by the above order of the 'Adjudicating Authority', the Appellant filed the present Appeal raising various grounds and sought interim stay of the impugned order vide I.A. No. 353 of 2021 in the above Company Appeal. This Tribunal stayed the impugned order on 03.08.2021 in respect of directions passed hereinabove.
25. The facts are not in dispute with regard to initiation of 'CIRP' against the 'Corporate Debtor' i.e. M/s Associate Decor Limited by the 'Financial Creditor' M/s Oriental Bank of Commerce under Section 7 of the I&B Code, 2016 and the 'Adjudicating Authority' vide order dated 26.10.2018 admitted the application filed by the Oriental Bank of Commerce and imposed moratorium. The IRP started the process with regard to publication in the Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 11 of 41 newspaper and issuing 'Form-G' i.e. Invitation for 'Expression of Interest' (in short 'EOI') in accordance with the Rules and Regulations of the I&B Code. The 'CoC' has been formed on 26.12.2018 and the list of creditors has been prepared.
26. From the records, it is a fact that one of the Suspended Director the 'Corporate Debtor' filed Writ Petition No. 26084 of 2019 before the Hon'ble High Court of Karnataka seeking stay of the CIRP and the RP and the 'CoC' have not taken any further steps in relation to the 'CIRP' till the writ petition is disposed of. The Hon'ble High Court dismissed the said writ petition on 08.08.2019 and vacated the stay granted by it on 20.06.2019. The RP issued 'Form-G' inviting 'EoI' for submission of Resolution Plans by 'Prospective Resolution Applicants' on 23.08.2019. The Respondent's formed as consortium submitted their EOI on 29.08.2019. One M/s Mohammed Enterprises (Tanzania) Ltd. (in short 'METL') also submitted its EOI on 04.10.2019. The Respondent's vide their e-mails dated 06.09.2019, 24.09.2019 and 03.10.2019 confirmed their intention with regard to submission of 'EoI'. The RP prepared final list of 'PRAs' in which the name of the consortium is reflected.
27. While so, the Respondents vide their e-mail dated 06.11.2019 (Annexure-A7 at page 159 of Vol.-I) stated as under:
"Dear Sir/Madam, With reference to the above cited subject and further to your telephonic discussion, after going through the available documents in virtual data room and non availability of Audited Financials of Corporate Debtor M/s Associate Decor Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 12 of 41 Limited and on further preliminary due-diligence from our end, have decided not to participate in submission of resolution plan of the Corporate Debtor M/s Associate Decor Limited which is due on 11.11.2019.
The above is forever information With best regards, Mahavir Shankarlal Mehta, Partner Svamitva Landmark"
28. The 'RP' vide e-mail dated 02.12.2019 addressed to all the 'PRAs' informing them that the last date for submission of Resolution Plans for Associate Decor Limited has been extended from 30.11.2019 to 07.12.2019 till 4 p.m. Further in the e-mail it is stated that no Resolution Plan shall be entertained post 4 p.m. on 07.12.2019. Thus, from the mail from RP dated 02.12.2019, the last date for submission of plan has been extended till 07.12.2019.
29. The Respondents vide their e-mail dated 06.11.2019 (supra) expressly shown their inability to submit their Resolution Plan. However, the Respondents submitted their Resolution Plan by e-mail dated 27.05.2020 and sent a reminder letter dated 16.06.2020. The fact remains that the RP vide his e-mail dated 02.12.2019 extended the time from 30.11.2019 to 07.12.2019 till 4:00 p.m. From the mail, it is evident that the said mail has been sent to the Respondents and the Respondents are aware of the said extension of date for submission of resolution plans. The Respondents have vide their communication dated 06.11.2019 expressed their inability not to participate in the Resolution Plan. However, they have submitted their Resolution Plan on 27.05.2020 i.e. after lapse of more than 5 months from Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 13 of 41 the last date of submission of plan i.e. 07.12.2019. The RP vide reply dated 18.06.2019 addressed to the Respondents as under:
"I am surprised to see this mail and submission of a purported Resolution Plan for Associate Decor Ltd. I may inform you that the CIRP was over on 16 March 2020. During this process we have been able to approve a resolution plan and the same is pending approval of the H'ble NCLT, Bengaluru. Since the process and CIRP is over there is no scope of receiving any plan in terms of the RFRP issued. Further, all timelines prescribed in the RFRP and the IBC and the Regulations have expired. I may also bring to your notice that you had initially shown some interest in participating in the process but in your mail dated 6th November 2019 decided not to participate and proceed in submission of a Resolution plan which as per your mail was to be submitted by 11 November 2019. Therefore this communication from you is even more surprising.
I confirm that I have not received any Bank Guarantee of Rs.2 Crores which has been referred to by you. I will also be returning the papers sent to my residence at the earliest considering that there is a lockdown in the city and disruption of office. Kindly refrain from sending any documents to my residence as the same will not be accepted.
Thanking you Alok Saksena"
30. Aggrieved by this reply of the 'RP', the Respondents has filed the I.A. No. 227 of 2020 and the 'Adjudicating Authority' after hearing the parties passed the aforesaid impugned order.
31. The moot point for consideration is whether the Respondents after expressing their inability to submit the Resolution Plan vide their e-mail Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 14 of 41 dated 06.11.2019 can again submit the Resolution Plan after lapse of more than 5 months and that to after approval of the Resolution Plan by the CoC in accordance with law. Before answering the issue, this 'Tribunal' intend to deal with the events subsequently happened. It is an admitted fact that the CIRP is completely a time bound process as per the mandate of the I&B Code.
32. The contention of the Respondents in I.A. No. 227 of 2020 is that the Respondents submitted their 'EoI' vide their letter dated 29.08.2019 and sought balance sheets and Profit and Loss accounts and other financial information about the 'Corporate Debtor' from the 'Resolution Professional' in order to prepare Resolution Plan, however, the RP was reluctant and did not provide the same despite several requests and email correspondences. It is also contended that the Respondents vide their e-mail dated 06.11.2019 specifically referred that non-availability of documents in virtual data room and non-availability of financials of 'Corporate Debtor' and therefore, in absence of the said documents, the Respondents decided not to participate in submission of Resolution Plan.
33. The fact remains that the Respondents themselves vide their e-mail dated 06.11.2019 clearly expressed their decision not to participate in the Resolution Plan and it is clearly stated in the letter that they have gone through the available documents in virtual data room and non-availability of audited financials of the 'Corporate Debtor' and further a preliminary due diligence from their end. The Respondents have at no point of time requested the RP to furnish the said documents. In the aforesaid e-mail, it is Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 15 of 41 only stated that the reason being non-availability of audited financials. It is also clear that the Respondents have done due diligence of the documents. It is apt to record the submissions and the stand taken by the RP before the 'Adjudicating Authority' in I.A. No. 227 of 2020 that the Respondents submitted their EoI on 06.09.2019 and was reaffirmed vide e-mails dated 24.09.2019, 03.03.10.2019 and 12.10.2019. From the aforesaid e-mails, the Respondents has shown their interest in submission of Resolution Plan. However, to the dismay the Respondents backed out and vide their e-mail dated 06.11.2019 dropped from being a PRA. The RP issued information memorandum, evaluation matrix and Request For Resolution Plan to all the Resolution Applicants including the Respondents on 09.10.2019 and also provided the access of virtual data room to the Respondents on 15.10.2019. Further, as per Clause 1.10.5 of the request for Resolution Plan of the 'Corporate Debtor' it was to be resolved on an "as is where is" basis with the available data and resources as available with the Corporate Debtor at the time of invitation for the resolution plan. Thus, the Respondents have been provided the available data as per 'RFRP' by the 'RP' thereby the 'RP' complied with the rules. Further, as on the last date for submission of plan being 07.12.2019, the Corporate Debtor has audited accounts only for Financial Year 2014-15 which was updated with the Ministry of Corporate Affairs. The unaudited and the provisional balance sheet for Financial Year 2015-16 to 2018-19 were provided. From the information provided, all the resolution applicants have access to the said documents. The Respondents vide their e-mail dated 05.11.2019 requested for site visit, however, on the next day i.e. 06.11.2019 the Respondents vide their e-mail expressed their Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 16 of 41 inability to participate in submission of resolution plan. The 'Adjudicating Authority' without going into the facts observed that the 'RP' has not followed the correct procedure as per the Code. Further, the 'Adjudicating Authority' without any basis hold that the Respondents cannot be held responsible for delay in submission of its plan on 27.05.2020 and observed that the 'RP' should have condoned such delay of 72 days and placed the plan before the CoC for its consideration and the Adjudicating Authority condoned the delay, in our view is completely misinterpreting and misjudging the facts. Further, the 'Adjudicating Authority' misread the judgment of the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta (2020) 8 SCC 531 para 73. The Hon'ble Supreme Court in the above decision held that the 'Adjudicating Authority' cannot interfere on merits with the commercial decision taken by the 'Committee of Creditors', the limited judicial review available is to see that the 'Committee of Creditors' have taken into account the fact that the Corporate Debtor needs to keep going as a going concern during the insolvency process, that it needs to maximise the value of the assets and that the interests of all stakeholders including 'Operational Creditors' has been taken care of. In view of the aforesaid facts the Hon'ble Supreme Court held that "if the 'Adjudicating Authority' finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the CoC to resubmit such plan after satisfying the aforesaid parameters". In the said context the Hon'ble Supreme Court has held that "the 'Adjudicating Authority' can only look from that point of you and if the 'Adjudicating Authority' satisfied that the CoC has paid attention Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 17 of 41 to these key features, it must then pass the resolution plan. From the aforesaid judgment, it is unequivocal that the Hon'ble Supreme Court has not given any power to the 'Adjudicating Authority' to consider the resolution plan of a new applicant who has submitted its plan beyond a period of five months from the last date for submission of plan and that too after completion of CIRP period and approval of the plan by the CoC with 100% voting share. Thus, the 'Adjudicating Authority' misinterpreted the judgment of the Hon'ble Supreme Court and gave a finding in favour of the respondents which is without applying its mind and this 'Tribunal' find that the said finding is unjust, illegal, unwarranted. The rejection of the plan submitted by the Respondents vide their mail dated 27.05.2020 which was rejected by the RP vide letter dated 18.06.2020 in all respects is holds good and no interference is called for.
34. The Learned Counsel appeared for the Respondents submitted that the plan submitted by these Respondents is within the 'CIRP' period on the ground that the Hon'ble Supreme Court has extended the limitation period post 14.03.2020, any day in the CIRP period would not be considered as a day passed by. Further Regulation 40C of the CIRP Regulation specifically excluded the CIRP period which could not be done due to the lockdown imposed. The said stand of the Respondent is against the dictum of the Hon'ble Supreme Court held in Ebix Singapore Pvt. Ltd. Vs. Committee of Creditors of Educom Solutions Ltd. & Anr. Reported in (2021) SCC Online SC 707, Para 148 as under:
"148. The evolution of the IBC framework, through an interplay of legislative amendments, regulations and judicial Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 18 of 41 interpretation, consistently emphasizes the predictability and timelines of the IBC. The legislature and the IBBI have been proactive to introduce amendments to the procedural framework, that respond to changes in the economy. For instance, Regulation 40(c), which came into effect on 20 April 2020, was inserted in the CIRP Regulations to take into account the delay that may be caused to the CIRP on account of the lockdown being imposed by the Central Government due to the COVID-19 PANDEMIC. Regulation 40(c) provides that the delay in completing any activity related to the CIRP because of imposition of lockdown will not be counted for the purposes of the timeline that has been stipulated under the statutory framework. If the CIRP is not completed within the prescribed timeline, the Corporate Debtor sent into liquidation. This understanding of the evolution of the law is critical to our task of judicial interpretation. We cannot afford to be swayed by abstract conceptions of equity and 'contractual freedom' of the parties to freely negotiate terms of the Resolution Plan with unfettered discretion, that are not grounded in the intent of the IBC.
149. The IBC and the regulations provide a detailed procedure for the completion of CIRP. An application for initiation of CIRP is filed either by the financial creditor, operational creditor or the Corporate Debtor itself under Sections 7, 9 and 10 of the IBC, respectively. Once the application is admitted by the Adjudicating Authority, it passes the following orders under Section 13(1) of the IBC: (i) declaration of a moratorium for the purposes referred to in Section 14 of the IBC; (ii) causing a public announcement to be made for the initiation of CIRP and issuing a call for submissions of claims as may be specified under Section 15 of Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 19 of 41 the IBC; and (iii) appointing an IRP in accordance with Section 16 of the IBC."
(Emphasis Supplied)
35. From the judgment of the Hon'ble Supreme Court (supra), it is clear that the delay in CIRP cannot be condoned because of imposition of lockdown and it is apt to recapitulate the relevant observation of the Hon'ble Supreme Court thus read as "Regulation 40(c) provides that the delay in completing any activity related to the CIRP because of imposition of lockdown will not be counted for the purposes of the timeline that has been stipulated under the statutory framework".
36. The submission of plan within the time stipulated cannot be excluded and the Respondents have to follow the time line as per the procedure and the law. In this regard, the relevant provision of law is necessary to be looked into for better appreciation of legal position. Section 30 of the I&B Code deal with submission of Resolution Plan, sub-section (1) thereof, a resolution applicant may submit a resolution plan along with affidavit stating that he is eligible under Section 29A to the 'Resolution Professional' prepared on the basis of the information memorandum. Sub-section (2) read that the 'Resolution Professional' shall examine each Resolution Plan received by him to confirm that each resolution plan provides the following;
"(a), (b), (c), (d), (e), (f)"
The procedure laid down in the CIRP Regulation with regard to Information Memorandum is Regulation 36, invitation for 'Expression of Interest' is Regulation 36A, request for Resolution Plans Regulation is 36B. The Regulation 39 deal with approval of resolution plan. Sub-regulation (1) Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 20 of 41 thereof, a 'Prospective Resolution Applicant' in the final list may submit resolution plans or plans prepared in accordance with the Code and the Regulations. Sub-regulation (1B) empowers the Committee shall not consider any resolution plan (a) received after the time as specified by the Committee under Regulation 36B or (b) received from a person who does not appear in the final list of Prospective Resolution Applicants, or (c) does not comply with the provisions of sub-section (2) of Section 30 and sub- regulation (1). Sub-regulation (3) thereof empowers the Committee (CoC) 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.
37. From the above provisions of law and the Regulation the procedure for submission of resolution plan and the powers of the 'Committee of Creditors' in approving the resolution plan by a vote of not less than 66% of voting share of the 'Financial Creditors' after considering its feasibility and viability may approve the plan. Once the plan is approved by the 'Committee of Creditors', the Adjudicating Authority empowered to approve the plan under Section 31 which was approved by the 'Committee of Creditors' and meets the requirements as referred to in sub-section (2) of Section 30. Further, the procedure encapsulated under the regulations and as per Regulation 39(1- B) the Committee shall not consider any resolution plan received after the time as specified by the Committee under Regulation 36B. In view of the reasons every Resolution Applicant shall comply with the procedure as Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 21 of 41 prescribed under the law and regulations. The due procedure and the scrutiny are a continuous process and cannot be considered as a simple contractual negotiation between two parties as held by the Hon'ble Supreme Court in the matter of Ebix Singapore (supra) at para 145 as under:
"145. The absence of any specific provision in the IBC or the regulations referring to a CoC-approved Resolution Plan as a contract and the lack of clarity in the BLRC report regarding the nature of such a Resolution Plan, constrains us from arriving at the conclusion that CoC approved Resolution Plans will be governed by the Contract Act and common law principles governing contracts, save and except for the specific prohibitions and deeming fictions under the IBC. Regulation 39(3) of CIRP regulations, as it stood before the IBBI (CIRP) (Fourth Amendment) Regulations 2020 and applicable to the three appellants before us, enabled a framework where a draft Resolution Plan would involve several rounds of negotiations and revisions between the Resolution Applicant and the CoC, before it is approved by the latter and submitted to the Adjudicating Authority. However, this statutorily-enabled room for commercial negotiation is not enough to over-power the other elements of regulation that detract from the view that CoC approved Resolution Plans are contracts. CoC-approved Resolution Plans, before the Approval of the Adjudicating Authority under Section 31, are a function and product of the IBC's mechanisms. Their validity, nature, legal force and content is regulated by the procedure laid down under the IBC, and not the Contract Act. The voting by the CoC also occurs only after the R.P. has verified the contents of the Resolution Plan and confirmed that it meets the conditions of the IBC and the regulations therein. The amended Regulation 39(3) further regulates the conduct of the CoC on voting on Resolution Plans and has introduced the requirement of simultaneous voting. The Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 22 of 41 IBBI's Discussion Paper issued on August 27 2021 has invited comments on regulating the process on revisions that can be made to resolution plans submitted to the CoC. These developments bolster the conclusion that the mechanism prior to submission of a CoC-approved resolution plan is subject to continuous procedural scrutiny by the IBC and cannot be considered as a simple contractual negotiation between two parties."
(Emphasis Supplied)
38. In the instant case, the Respondents have failed to submit the Resolution Plan within the time therefore there is no immunity to the respondents to file beyond the time prescribed. The RP rightly rejected the request of the Respondents.
39. The Respondents failed to establish that the RP violated the 'CIRP' process. It is only the case of the Respondents such averments allegations have been made and the 'Adjudicating Authority' without going into the reality simply ratified the submissions of the Respondents, which this Tribunal highly deprecate the said stand.
40. It is not in dispute that the 'CIRP' period has been expired prior to submission of plan by the Respondents and as held (supra) the Respondents have not evinced any interest in submitting of resolution plan, after they backed out from the submission of plans vide letter dated 06.11.2019. It is not in dispute that the Respondents backed out and submitted its plan beyond the 'CIRP' period by levelling baseless allegations against the RP to pressurise the RP to place its plan before the 'CoC'. Such conduct of the Respondents is unwarranted.
Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 23 of 41
41. It is unequivocal that the 5th Respondent M/s Mohammed Enterprises (Tanzania) Ltd. (in short 'METL') evinced its 'EoI' on 04.10.2019 and submitted its plan on 11.02.2020 and the same has been approved by the CoC in an e-voting took place from 13.02.2020 to 06.03.2020 with 100% voting share. The said 'MET'L declared as 'Successful Resolution Applicant' on 09.03.2020 and issued a Letter of Intent (in short LoI). Thus, the plan of the 'METL' has been approved by the CoC and the RP filed an application being I.A. No. 161 of 2020 before the 'Adjudicating Authority' for approval of plan. The 'METL' also furnished a performance bank guarantee on 19.03.2020 for an amount of Rs.30 Crores in favour of Bank of Baroda as per the requirement.
42. The Respondents relied upon a citation of this Tribunal in Bank of Maharashtra Stressed Asset Management Branch Janmangal Vs. Videocon Industries Ltd. & Ors., reported in (2022) SCC Online NCLAT 6. This Tribunal at para 52 observed that "the Resolution plan was not incompliance with Section 30(2)(b) of the Code read with Section 31 of the Code, hence remitted back to CoC for completion of the process relating to 'CIRP' in accordance with the provisions of the Code". In the said case, this 'Tribunal' was of the view that the resolution plan should have gone for a review to the CoC as it fails to meet the criteria of Section 30(2)(b) read with Section 31 of the Code. The said decision is not applicable to the facts of the present case. In the present case, the case of the Respondents is that despite submission of resolution plan beyond the CIRP period and much later to the last date of submission of plans, sought a direction to the RP to Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 24 of 41 place its / their plan before the CoC. Therefore, the Respondents are not at all to be considered as PRAs since they have backed out from submission of the plan and intend to make an entry in to the CIRP belatedly even beyond the period of CIRP.
43. The Learned Counsel for the Respondents also relied upon the judgment of this Tribunal in the matter of Dr. Periasamy Palani Gounder Vs. Mr. Radhakrishnan Dharamarajan & Ors. in CA(AT) (CH) (Ins) No. 164, 176, 218 & 219 of 2021 dated 17.02.2022 and this Tribunal hold that the submission of the Resolution Plan before the Adjudicating Authority violates the statutory provision of Section 30(2) & (3) of the Code and has vitiated the entire CIRP and made the resolution plan void ab initio. The said judgment is in respect of the violation of statutory requirement in approving the plan. Therefore, the said judgment is not applicable to the facts of the present case.
44. The Learned Counsel for the Appellant relied upon judgment of the Hon'ble Supreme Court in Ebix Singapore in para 169 holding that judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure such as the IBC.
"169. Judicial restraint must not only be exercised while adjudicating upon the constitutionality of the statute relating to economic policy but also in matters of interpretation of economic statutes, where the interpretative maneuvers of the Court have an effect of transgressing into the law-making power of the legislature and disturbing the delicate balance of separation of powers between the legislature and the judiciary. Judicial restraint must be exercised in such cases Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 25 of 41 as a matter of prudence, since the court neither has the necessary 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 the IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as the 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 that the IBC seeks to disavow."
(Emphasis Supplied)
45. The Learned Counsel for the Appellant relied upon the judgment of this Tribunal in Renganayaki Agencies Vs. Sreenivasa Rao Ravinuthala reported in (2021) SCC Online NCLAT 136 para 18 & 19 held that:
"18. On a careful consideration of the submissions advanced on either side, this 'Tribunal' after going through the impugned order dated 24.02.2021 in IA No. 1094/2020 in CP (IB) No. 7/HDB/2019 inter alia to the effect that ... "we are of the view that there is a need for further pursuance of the resolution plan and with the very hope that the Corporate Debtor may Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 26 of 41 fetch better value that what has been offered by the Resolution Applicants. In this case, even though the Resolution Plan M/s. KALS Group has been approved with 100% voting in favour of it by the Committee of Creditor in view of the very meagre difference between both the resolution plan, we are of the view that there is scope for further improvement of the Resolution amount to be payable by the Resolution Applicants' and the direction issued to the Committee of Creditors to take fresh bids from the existing two Resolution Applicants to submit a Resolution Plan for its consideration within a period one month" are clearly unsustainable in view of the recent judgment of the Hon'ble Supreme Court in Kalpraj Dharamshi & Anr. V. Kotak Investment Advisors Ltd. & Anr dated 10.03.2021, which squarely applies to the facts of the present case. Viewed in that perspective, this Tribunal interferes with the impugned order dated 24.02.2021 passed by the Adjudication Authority (National Company Law Tribunal, Hyderabad Bench, Hyderabad) In IA No. 1094/2020 in CP No (IB) No. 153/7/HDB/2019 and sets aside the same, in furtherance of substantial cause of justice. Consequently, the Appeal succeeds.
19. In fine, the instant Comp App (AT) (CH) (INS) No. 23/2021 is allowed. No costs. The 'Adjudicating Authority' (National Company Law Tribunal, Bench-I, Hyderabad) is to approve the 'Resolution Plan' approved by the "Committee of Creditors' with 100% voting in favour of 'KALS Group'. I A No. 53/2021 (stay application) I A No. 54/2021 (for urgent hearing) are closed."
46. This 'Tribunal' in the matter of Union Bank of India Vs. Mr. Kapil Wadhawan & Ors. in CA (AT) (Ins) Nos. 370, 376-377 and 393 of 2021 dated Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 27 of 41 27.01.2022 a similar issue fell for consideration and the 'Tribunal' framed the following issue as under:
"Whether after Approval of the resolution plan by the COC and pending Approval, the Adjudicating Authority can direct the COC to convene a meeting and place the settlement proposal as offered for consideration, decision and voting on that within a certain period?
47. In the above case, the 'Adjudicating Authority' vide its impugned order had directed the CoC to consider the 2nd settlement offer of the 1st Respondent therein, when the resolution plan after approval from 'CoC' was pending adjudication under Section 31 before the 'Adjudicating Authority'.
48. In the present case also in the 'Adjudicating Authority' in I.A. No. 227 of 2020 directed the 'RP' to place the Resolution Plan of the Respondents before the 'CoC' for its consideration when an application under Section 31 of the Code was pending before the Adjudicating Authority for its consideration.
49. This 'Tribunal' in re-Union Bank of India (supra) at para 9.2 to 9.9 answered the issue as under:
"9.2 Admittedly in the instant case, the Adjudicating Authority vide the Impugned Order had directed the COC to consider the 'IInd Settlement Offer of Ist Respondent when the Resolution Plan after Approval from CoC was pending adjudication u/s 31 of the Code.
9.3 The CoC contends that the settlement offer was neither submitted in compliance with the RFRP nor with Section 12 A of the I&B Code and related Regulations. Such a direction of the Adjudicating Authority was passed despite that the CoC of Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 28 of 41 the corporate debtor had by an overwhelming majority approved the Resolution Plan of DHFL. The Administrator had already filed the plan approval application, and that application was heard and reserved for orders by the learned Adjudicating Authority.
9.4 It is pertinent to mention that the Hon'ble Supreme Court in the case of Ebix Singapore Private Limited versus Committee of Creditors of Educomp Solutions Ltd, reported in 2021 SCC online SC 707, has very recently dealt with the same issue which has arisen in this appeal. In this case, Hon'ble Supreme Court had observed that;
"126. Since the interpretation of the IBBI (CIRP)(Fourth Amendment) Regulations 2020 and the impact on the Resolution Applicants and the CoC to negotiate the terms of the Resolution Plan is not before this Court and the present appeal essentially seeks to determine the nature of the Resolution Plan after its Approval by the CoC and prior to its Approval by the Adjudicating Authority, this Court will proceed to determine of the nature of such a Plan, on the assumption of the law as it stood then, i.e., Regulation 39(3) which directed that "[t]he committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit". This power of the CoC to suggest modifications invariably entailed an element of negotiation with the Resolution Applicants, who would make suitable revisions and re-submit their Resolution Plans. The scope of a commercial bargain with the Resolution Applicants evinces a sense of a negotiated agreement that is arrived between the parties, which resembles an Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 29 of 41 exercise of contractual freedom by the CoC and the Resolution Applicant.
127. If this court were to hold that CoC-approved Resolution Plans are indeed contracts, their provisions would still have to conform to the statutory provisions of the IBC. However, such an interpretation would entail that CoC-approved Resolution Plans are at the intersection of the IBC and the Contract Act. This would mean that certain principles of contract law, for example those relating to discharge, penalties, remedies and damages would become applicable to CoC-approved Resolution Plans. For instance, in the United States, plans confirmed by courts have been characterised as contracts, whose breach can even give rise to contractual remedies. In In re Hoffinger Indus, Inc, a bankruptcy court in Arkansas has held that "a confirmed plan should be enforceable and amenable to damages between contractually bound parties." Indeed, it has been argued before us that Resolution Plans should be enforced through the contractual remedy of specific performance. Further, a determination that Resolution Plans are contracts in the period between Approval by the CoC and the Approval of the Adjudicating Authority would require us to analyse whether all elements of contract formation have been satisfied, including the question of whether the acceptance of the Resolution Plan by the CoC fulfils the criteria laid down under Section 7 of the Contract Act or whether the conditionality of seeking Approval from the Adjudicating Authority makes the Resolution Plan a contingent contract. Our intent of laying down the consequences of our determination of Resolution Plans Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 30 of 41 as contracts is to highlight the importance of ascertaining the nature of a CoC-approved Resolution Plan, prior to its Approval by the Adjudicating Authority.
128. The text of the IBC does not specify whether Resolution Plans at the second stage of the process, i.e., in the intervening period of submission to and Approval by the Adjudicating Authority, are pure contracts. As noted previously, by specifications such as eligibility for resolution applicants, the contents of the I.M. and duties of the R.P. to prospective Resolution Applicants and statutory procedures on timelines and voting, strictly govern the insolvency process even prior to the submission of the Plan to the Adjudicating Authority. The CoC, who the appellants allege is in the nature of a free contracting party, is governed by the binding principles of the statute with regard to the contents and nature of the statutory plan that it approves under Section 30(4) and even its own composition.
129. Section 30(4) provides that the consent of all the members of the CoC, though a unanimous vote is not required and a sixty-six per cent vote is sufficient for Approval of a resolution plan. The constitution of the CoC is based on specific scenarios envisaged in the statute and accounts for varying compositions, based on factors such as the nature and quantum of debt owed. For example, if it comprises of operational creditors alone, the percentage of debt owed between the operational and financial creditors and other such variables impact voting thresholds inter se members of the CoC. A sixty-six per cent vote of the CoC is required to approve a Resolution Plan. The dissenting creditors are deemed to have given their Approval and are bound Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 31 of 41 by the decision of the majority of the CoC. The dissenting creditors are bound as a result of the statutory provision and not because they have actually consented to be parties to such an arrangement. Other elements governing the Resolution Plan indicate that the entire process from initiation and leading up to its acceptance by the CoC takes place within the framework of the IBC. In addition, the IBC provides penalties for non-compliance with the Resolution Plan after its Approval under Section 31 and forfeiture of the PBG for failing to implement the Resolution Plan or contributing to the failure of its implementation. The violation of the terms of the Resolution Plan does not give rise to a claim of damages, rather it leads to prosecution and imposition of punishment under Section 74 of the IBC. On the contrary, a CoC's withdrawal of the CIRP under Section 12A is coupled with a requirement of payment of CIRP costs, but no damages are statutorily payable to the Resolution Applicant, irrespective of the stage of the withdrawal.
130. The CoC even with the requisite majority, while approving the Resolution Plan must consider the feasibility and viability of the Plan and the manner of distribution proposed, which may take into account the Order of priority amongst creditors as laid down in sub- section (1) of section 53 of the IBC. The CoC cannot approve a Resolution Plan proposed by an applicant barred under Section 29A of the IBC. Regulation 37 and 38 of the CIRP Regulations govern the contents of a Resolution Plan. Furthermore, a Resolution Plan, if in compliance with the mandate of the IBC, cannot be rejected by the Adjudicating Authority and becomes Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 32 of 41 binding on its Approval upon all stakeholders - including the Central and State Government, local authorities to whom statutory dues are owed, operational creditors who were not a part of the CoC and the workforce of the Corporate Debtor who would now be governed by a new management. Such features of a Resolution Plan, where a statute extensively governs the form, mode, manner and effect of Approval distinguishes it from a traditional contract, specifically in its ability to bind those who have not consented to it. In the pure contractual realm, an agreement binds parties who are privy to the contract. In the context of a resolution Plan governed by the IBC, the element of privity becomes inapplicable once the Adjudicating Authority confirms the Resolution Plan under Section 31(1) and declares it to be binding on all stakeholders, who are not a part of the negotiation stage or parties to the Resolution Plan. In fact, a commentator has noted that the purpose of bankruptcy law is to actually solve a specific 'contracting failure' that accompanies financial distress. Such a contracting failure arises because "financial distress involves too many parties with strategic bargaining incentives and too many contingencies for the firm and its creditors to define a set of rules of every scenario." Thus, insolvency law recognises that parties can take benefit of such 'incomplete contract' to hold each other up for their individual gain. In an attempt to solve the issue of incompleteness and the hold-up threat, the insolvency law provides procedural protections i.e., "the law puts in place guardrails that give the parties room to bargain while keeping them from taking position that veer toward extreme hold up".
Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 33 of 41
131. It may be useful to refer to how this Court has analysed instruments that are analogous to a Resolution Plan. In SK Gupta v. KP Jain, this Court while discussing the nature of compromise or arrangements entered between a company and its creditors or members observed that such a compromise or arrangement once sanctioned by the court is not merely an agreement between parties because it binds even dissenting creditors or members through statutory force. This Court made the following observations:
"12. The scheme when sanctioned does not merely operate as an agreement between the parties but has statutory force and is binding not only on the Company but even dissenting creditors or members, as the case may be. The effect of the sanctioned scheme is "to supply by recourse to the procedure thereby prescribed the absence of that individual agreement by every member of the class to be bound by the scheme which would otherwise be necessary to give it validity" [see J.K. (Bombay) Pvt. Ltd. v. New Kaiser-i-Hind Spg. & Wvg. Co. Ltd. [AIR 1970 SC 1041: (1969) 2 SCR 866, 891: (1970) 40 Comp Cas 689]].."
132. While the above observations were made in the context of a scheme that has been sanctioned by the Court, the Resolution Plan even prior to the Approval of the Adjudicating Authority is binding inter se the CoC and the successful Resolution Applicant. The Resolution Plan cannot be construed purely as a 'contract' governed by the Contract Act, in the period intervening its acceptance by the CoC and the Approval of the Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 34 of 41 Adjudicating Authority. Even at that stage, its binding effects are produced by the IBC framework. The BLRC Report mentions that "[w]hen 75% of the creditors agree on a revival plan, this plan would be binding on all the remaining creditors". The BLRC Report also mentions that, "the R.P. submits a binding agreement to the Adjudicator before the default maximum date". We have further discussed the statutory scheme of the IBC in Sections I and J of this judgment to establish that a Resolution Plan is binding inter se the CoC and the successful Resolution Applicant. Thus, the ability of the Resolution Plan to bind those who have not consented to it, by way a statutory procedure, indicates that it is not a typical contract.
9.5 Further, the Hon'ble Supreme Court in case of Pratap Technocrats(P) Ltd v Monitoring Committee of Reliance Infratel Ltd reported in 2021 SCC Online SC 569 has held that;
"Jurisdiction to approve a Resolution Plan
26. The resolution plan was approved by the CoC, in compliance with the provisions of the IBC. The jurisdiction of the Adjudicating Authority under Section 31(1) is to determine whether the resolution plan, as approved by the CoC, complies with the requirements of Section 30(2). The NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC. There is no equity-based jurisdiction with the NCLT, under the provisions of the IBC.
58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 35 of 41 resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating Authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate Authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters "other than" enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers.
59. In our view, neither the adjudicating Authority (NCLT) nor the appellate Authority (Nclat) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors......"
38. The Court, also held (in paragraph 62) that the legislative history of the IBC indicated that "there is a contra indication that the commercial or business decisions of financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority".
39. The above principles have been re-
emphasised and taken further by a three-Judge Bench in Essar Steel India Limited (supra). The Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 36 of 41 Court, speaking through Justice R F Narminan, held:
"73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 37 of 41 taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to resubmit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal."
50. The ratio of the Judgement as observed in Paragraph 47 quoted below, in case of Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd.
(Monitoring Committee), (2021) 10 SCC 623 4 is fully applicable in this case.
"47. Hence, once the requirements of IBC have been fulfilled, the adjudicating Authority and the appellate Authority are duty-bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the adjudicating Authority nor the appellate Authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework."
9.6 Based on the law laid down by Hon'ble Supreme Court in the cases mentioned above, it is clear that;
Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 38 of 41
a) Once the Resolution Plan is approved by a
100 per cent voting share of the CoC. The
jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC.
b) Once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty-bound to abide by the discipline of the statutory provisions. Neither the Adjudicating Authority nor the Appellate Authority has an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework.
c) The jurisdiction of the Adjudicating Authority is confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC.
d) There was no scope for negotiations between the parties once the CoC had approved the Resolution Plan. Thus, contractual principles and common law remedies, which do not find a tether in the wording or the intent of the IBC, cannot be imported in the intervening period between the acceptance of the CoC and the Approval by the Adjudicating Authority.
9.7 In the instant case, we found that after Approval of the Resolution Plan by the Committee of Creditors, the application was pending before the Adjudicating Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 39 of 41 Authority under Section 31 of the Insolvency and Bankruptcy Code, 2016, for Approval of the resolution plan the Adjudicating Authority accordingly while disposing of the Interim Application, IA no. 2431 of 2020, directed the CoC to consider the 'IInd Settlement Proposal' of the First Respondent, i.e. Applicant/ Promoter, within ten days and take an appropriate decision.
9.8 Considering the ratio of the Judgement of the Hon'ble Supreme Court in the case of Ebix Singapore (supra), "there was no scope for negotiations between the parties once the CoC has approved the Resolution Plan. Thus, contractual principles and common law remedies, which do not find a rope in the wording or the intent of the IBC, cannot be imported in the intervening period between the acceptance of the CoC Approved Resolution Plan and the Approval by the Adjudicating Authority."
9.9 The said exercise was beyond the jurisdiction of the Adjudicating Authority hence unsustainable and liable to be set aside.
Consequently, the impugned Orders passed in I.A. No. 2431 of 2020 in Company Petition (I.B.) No. 4258/MB/C-II/2019 under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code') is set-aside.
(Emphasis Supplied) Conclusion:
50. In view of the decisions of the Hon'ble Supreme Court in Ebix Singapore, 'Committee of Creditors' of Essar Steel India and this Tribunal's Judgment in re-M/s Renganayaki and in re-Union Bank of India, comes to Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 40 of 41 an irresistible and inescapable conclusion that the 'Appellant' has made out a prima-facie case to be interfered with the 'Order', passed by the 'Adjudicating Authority' in I.A. No. 227 of 2020, whereby the 'Adjudicating Authority' exceeded its jurisdiction in directing the 'Resolution Professional' to place the 'Resolution Plan' of the 'Respondents' before the 'CoC' is amounts to interference with the 'Commercial Wisdom' exercised by the 'CoC' in its 'Commercial Decision', more particularly, in the absence of any 'material irregularity' and 'violation of any law' for the time being inforce.
51. With the aforesaid observation, this 'Tribunal' comes to a resultant conclusion that the 'impugned order' passed in I.A. No. 227 of 2020 in CP No. 51 of 2018 by the 'Adjudicating Authority' ('National Company Law Tribunal', Bengaluru Bench, Bengaluru) is 'illegal', exceeded its 'jurisdiction' and hence, the same is set aside. Consequently, the 'Appeal' succeeds.
52. In fine, the Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 is 'allowed'. No order as to costs. The connected pending Applications, if any, stand 'closed'. The 'interim stay', granted by this 'Tribunal' dated 03.08.2021 is made absolute.
[Justice M. Venugopal] Member (Judicial) [Kanthi Narahari] Member (Technical) 19th September, 2022 Pks Company Appeal (AT) (CH) (Ins.) No. 173 of 2021 41 of 41