After incorporating the changes as suggested by CoC, an application was moved before the Adjudicating Authority (NCLT) under Section 30(6) of IBC for approval of the resolution plan. The Appellate Tribunal, while upholding several of the objections against the process of consideration of the resolution plan as also the eligibility of the successful resolution applicant, allowed all the appeals; set aside the aforesaid order dated 15.07.2021; rejected the resolution plan so approved by the NCLT; declared the resolution applicant ineligible in terms of Section 88 of the Indian Trusts Act, 1882 and disqualified in terms of Section 164(2)(b) of the Companies Act, 2013 ; and issued directions to the resolution professional to proceed with CIRP from the stage of publication of Form ‘G’ while inviting EOI afresh as per the CIRP Regulations.
Also Read: https://newslaw.in/supreme-court/constitutionality-of-lotteries-regulation-act-1998/
The aforesaid order of NCLAT dated 17.02.2022 is under challenge before this Court by the resolution applicant as also by the resolution professional on several counts, which could be broadly summarised thus: First, that Regulation 35 of the CIRP Regulations does not mandate sharing of the valuation report to the CoC and instead mandates only sharing of liquidation value. Second, that the non-core assets were not significant in value and the valuation was communicated to and agreed upon by the members of the CoC on 15.12.2020. During the pendency of these appeals, this Court did not stay the operation of impugned order dated 17.02.2022; and during the course of hearing of these appeals, on 07.03.2022, it was informed by RP that pursuant to the order impugned, another meeting of CoC had been conducted on 03.03.2022.
These matters were again taken on board on 20.05.2022 when this Court took note of the submissions made in another application moved by the resolution applicant for directions while pointing out that the fresh process had been initiated by the RP by publication of Form G on 26.04.2022, inviting fresh EOIs. In view of the issues arising for determination in these appeals, with several parties carrying different roles, interests, and positions, worthwhile it would be to narrate at the outset, in brief, the relevant particulars of the proceedings leading to these appeals as also the principal parties involved herein. This application and several other correlated applications were considered together and were dealt with in the common order dated 15.07.2021 whereby, the National Company Law Tribunal, Chennai rejected the objections and approved the resolution plan approved by the committee of creditors. In the present set of appeals in this Court against the aforesaid judgment and order dated 17.02.2022, one sub-set is of appeals preferred by the resolution applicant which could be noticed as follows: 6.2.1. The resolution professional has further questioned the order passed in relation to the claim of the related party (in Appeal No 176 of 2021 before NCLAT) by way of Civil Appeal
The first category is of the parties who are aggrieved of the order passed by the Appellate Tribunal on several counts and are opposing the rejection of resolution plan and remand of the matter to CoC. In all the civil appeals filed by the resolution professional, he is arrayed as one of the respondents. In all the civil appeals filed by the resolution applicant, he is arrayed as proforma respondent No 2. Dharani Finance Limited The claim of this company, in its capacity as an operational creditor as also a financial creditor of the corporate debtor, was rejected by NCLT for being a related party. He is an NRI shareholder and erstwhile director of the corporate debtor who had, along with other shareholders, invested money in the corporate debtor.
State Bank of India This financial creditor of the corporate debtor with nearly 26.41% voting share in CoC, though had earlier voted in favour of the resolution plan in question but now, looking to the order of NCLAT relating to eligibility deficiency of the successful resolution applicant as also the deficiency in process, is essentially supporting the rejection of resolution plan in question and remand of matter to CoC for consideration afresh. The corporate debtor, Appu Hotels Limited, is a limited company with corporate identification number U92490TN1983PLC009942 and registered office at PGP House, No.57, Sterling Road, Nungambakkam, Chennai – 600 034. The default on the part of corporate debtor in payment of overdues led to the application under Section 7 of the Code for initiation of CIRP by one of its financial creditors, TFCI (who holds about 5% of the total loan amount) before the NCLT, in Application No IBA/1459/2019. Further, a perusal of the record of proceedings dated 04.02.2020, also shows that the Corporate Debtor was putting in efforts to settle of the dues of the Financial Creditor and upon such representation being made, the Corporate Debtor was granted time to settle the matter and the matter was finally posted to 02.03.2020 for reporting settlement or to proceed with the matter. (2018) 1 SCC 353 after going through the Scheme of l&B Code, 2016 in depth in relation to an Application under Section 7 filed by a Financial Creditor as compared to the one filed under Section 9 by an Operational Creditor, in relation to a Section 7 Application where there is an existence of a ‘financial debt’ and when there is a default, this Tribunal is bound to admit the Application and as a consequence trigger the Corporate Insolvency Resolution Process (CIRP) and in relation to a Section 7 Application defence of set off or counter claim put forth by the Corporate Debtor cannot be considered as a dispute In relation to the Financial debt and default In relation to It.
The Financial Creditor has proposed the name of one MUKESH KUMAR GUPTA having Registration Number [IBBI/IPA-001/IP- P00207/2017-18/10407] (Email id :- guptam11@ gmail.com) (Mob:- +91-9810798961) as Interim Resolution Professional (IRP) and a written communication in the format prescribed under Form 2 of the Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, 2016 has been filed by the proposed IRP who is appointed as the IRP to take forward the process of Corporate Insolvency Resolution of the Corporate Debtor. Further, the IRP above named be also furnished with copy of this order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned. Pursuant to the initiation of CIRP, IRP issued a public announcement in Form A on 08.05.2020 inviting claims from various stakeholders in the corporate debtor. It was in the same meeting that the list of fifteen EOIs received from the prospective resolution applicants and placed by IRP, was approved by CoC. In the fifth CoC meeting held on 12.11.2020, in the first item on the agenda, the members took note of the appointment of Mr. Thereafter, on the second item, the CoC approved that the resolution professional shall file an application before NCLT to seek extension of time period from 05.05.2020 to 31.10.2020 under Section 12(2) of the Code due to Covid-19 and lockdown. With the consensus of CoC members, it was decided that no extension of timeline for submission of Resolution Plan should 19 be done and the RP was directed to expedite the valuation process and check the feasibility and viability of the Resolution Plans already submitted and present the eligible Resolution Plans before the CoC for consideration. In the sixth CoC meeting held on 16.12.2020, the RP apprised the CoC members about three resolution plans having been received out of which, the plan received from Kotak Special Solutions did not meet the criteria laid down under the Code.
RP further apprised, that due to significant difference in the value of land and building submitted by the valuers appointed by IRP, the RP has to appoint third valuer in accordance with provisions of Regulation 35 of CIRP Regulations 2016. After it was noted that valuation of non-core assets was not done, the third valuer appointed by RP has submitted the value of non- core assets and the same has been shared with CoC members who have submitted their undertaking. No 447, Revenue and Disaster Management (DM- IV) Department, Government of Tamil Nadu dated 30.08.2020 in order to substantiate the during such time, where the exclusion is sought for, the lockdown was in existence in the Government of Tamil Nadu.
Thus, as to the facts of the present case, in view of Regulation 40C of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 the period from 05.05.2020 till 31.10.2020 is excluded from the period of CIRP in terms of Section 12(2) of IBC, 2016. In the instant case, even though we find that Regulation 30-C could have been applied for exclusion of 179 days on account 22 of the unprecedented situation created by the Covid 19 pandemic and some of the Financial Creditors opined for fresh publication of form G for the invitation of EOI. After discussing on the resolution plan so submitted, the resolution applicant was asked to submit the revised resolution plan after incorporating the changes suggested by the CoC members and he promised to do so by 30.12.2020. Though, the said plan was approved with 87.39% of the total voting share of financial creditors present and voting in the meeting, the RP was required to send the resolution plan back to the resolution applicant as there was dissent by some of the financial creditors and in terms of Section 30 (2) of the Code, the amount to be paid to dissenting financial creditors shall not be less than the amount paid to such creditors in accordance with Section 53 in the event of liquidation of the corporate debtor. in the ninth CoC meeting, having its relevance to the present matter is reproduced as under: – “ Agenda Item No A.1 – To discuss and put to vote the Resolution Plan submitted by Mr. The Resolution Professional then asked each member of CoC present in the meeting whether the revised Resolution Plan have their approval or not and the result of physical voice voting is as follows: S.No. Since there was dissent by some of the financial creditors, the Resolution Professional will send back the Resolution Plan to the Resolution Applicant for further revision, as Section 30 (2) of IBC 2016, provides that the amount paid to dissenting financial creditors shall not be less than the amount paid to such creditors in accordance with Section 53 in the event of liquidation of the Corporate Debtor. Though, in the chronology of events, after the aforesaid proceedings of CoC and submission of Form H by the RP, the proceedings before the Adjudicating Authority are to be noticed but, there remains one significant feature of this case that in the ninth meeting dated 22.01.2021, even while approving the resolution plan, the CoC asked the resolution applicant to further revise the resolution plan, particularly in relation to the 9. This aspect has formed a part of contentions in these appeals and, in this regard, it has been one of the contentions on the part of the resolution applicant that there had not been any material change in the plan and in any case, in the later meeting of CoC, there had been a deemed post facto approval of the revised resolution plan incorporating the changes earlier suggested by CoC.
The Resolution Professional welcomed the CoC members and others to the meeting • RP informed that post approval of the Resolution plan in the nineth CoC meeting held on 22.01.2021, the plan was put up for revision to the RA to provide for liquidation value where relevant based on voting and the revised Resolution plan was received on 25/01/2021 and it was filed with the NCLT on 04.02.2021 • RP confirmed that the CD has been kept on a going concern basis from that date, however there are challenges from the advent of severe Covid wave from the beginning of April 2021, which has dented the business and cash flows of the CD. It is noticed that while the proceedings before the Adjudicating Authority were pending, the promoter, again, on 08.03.2021, submitted a settlement proposal to TFCI and sought consequent withdrawal of CIRP under Section 12-A of the Code; and also submitted a ‘letter of support’ dated 14.07.2021 issued by one Saveetha Institute of Medical and Technical Sciences addressed to the CoC to demonstrate its ability and bonafide in support of its withdrawal proposal. Rajagopalan – by CoC with 87.39% majority of the voting share, the application bearing IA No 150 of 2021 was filed by the resolution professional under Section 30(6) of IBC before the Adjudicating Authority (NCLT) for approval of the resolution plan. Two applications were filed by Dharani Finance Limited seeking that resolution professional be directed to admit its claim of Rs.1,94,14,024, as operational creditor in application bearing MA No.18 of 2021; and of Rs. Thus, the Adjudicating Authority found no error committed by IRP or RP in appointing registered valuers and further found that there was no error in regard to the valuation submitted by those registered valuers. Thus, it is clear that the RP has arrived at a Fair Value and the Liquidation Value based on the average of all the three valuers and the same has been done in accordance with Regulation 35 of the IBBI (IRPCP) Regulations 2016.
Also, the stance of the Learned Senior Counsel for the promoter I suspended Director of the Corporate Debtor that the CIRP was triggered during the peak of Covid would be of no relevance since at that point of time, there was no statutory bar for this Adjudicating Authority to initiate CIRP in relation to a Company. Further, it is also seen that as against the order of exclusion of CIRP, passed by this Tribunal in IA/1001/IB/2020, the erstwhile promoter or Corporate Debtor has filed an appeal before the Hon’ble NCLAT and the Appellate Tribunal vide its order dated 05.05.2021 in Company Appeal (AT)(Ins) No 19 & 20 of 2021 while dealing with the valuation of the Corporate Debtor in para 14 and 15 has held as follows; 14. The fact remains that the Resolution Plan amount has arrived after following the procedure prescribed under the Code and the Rules and Regulations made thereunder (emphasis supplied) 83. As regards the question of non-consideration of the proposal given under Section 12-A IBC by the promoter, the Adjudicating Authority referred to the proposition made by another erstwhile promoter of the corporate debtor which was considered by CoC in its ninth meeting and it was found that even the original applicant of CIRP, i.e., TFIC was kept in dark about such a proposal. Raman, appearing on behalf of the erstwhile Promoter I Director of the Corporate Debtor contended that the Resolution Professional and the CoC has not considered the proposal as given under Section 12A of IBC, 2016. Anoop Bali said that this can’t be taken up as it has not come in the appropriate required form and he will not be able to comment on this and requested the RP to carry on with the agenda for the day, that of voting on the Resolution Plan. RP then requested the representatives from Corporate Debtor to allow for the agenda items to go through as the majority of the CoC in favour of that and no further discussions can be made on the letter sent to the CoC.” 86. The terms and conditions of the term sheet remain subject to the diligence, internal approvals, credit committee approval, successful syndication, KYC and satisfactory documentation.” Thus, it is seen that the proposal as projected by the Learned Senior Counsel for the promoters to be made under Section 12A, seems to be only an eye wash and a dilatory tactics to delay the process of CIRP in relation to the Corporate Debtor and that the fact that the proposal has been mooted only during the eleventh hour is to stall the Resolution Plan as moved by the Resolution Applicant. The Adjudicating Authority observed that the objections in relation to the procedural irregularities were not so grave as to defeat the resolution plan. For instance, an avoidance Application as found in Section 43, 45 and 50 can be filed either by the RP or by the Liquidator and the model timeline prescribed under the attendant Regulations states that the same should be filed in T+75 days. Thus, even though the objectors to the Resolution Plan have alleged many procedural irregularities in relation to the conduct of the proceedings in relation to the CoC; however those objectors have miserably failed to establish as to what prejudice has been caused to them in respect of the same. Moving on to the questions concerning the related party – Dharani Finance Limited – and the applications moved by it, the Adjudicating Authority took note of the submissions on its behalf with reference to 34 Section 21(2) of the Code that it could not have been categorised as related party but rejected this contention while observing as under: – “93. ” The Adjudicating Authority also examined the question of discrimination in the resolution plan in respect of distribution of amount to the financial creditor-related party compared with the financial creditor- unrelated party. Another rival contention put forth by the Learned Senior Counsel for the objectors was that there was is a discrimination in respect of the distribution of amount to the Financial Creditor – Related Party compared with the Financial Creditor – unrelated Party. Thus, the contentions of the Learned Senior Counsel for the objectors that differential treatment are being made to them since they are related party in respect of the Corporate Debtor do not hold any merit in view of the discussions made supra and also the decisions referred in support of the same. Thus, after overruling all the objections raised in relation to the Resolution Plan, this Adjudicating Authority in so far as the approval of the Resolution Plan is concerned, section 30(6) of the IBC, 2016 cast certain duties upon this Adjudicating Authority to examine the Resolution Plan as to whether the Plan falls within the contours of the said Section. 30(1) – Resolution Applicant to submit an affidavit stating that he is eligible under Sec.29A of the Code, 2016 The Affidavit of the Resolution Applicant (RA) is found in “Format 3B” in Volume II of the Resolution Plan wherein Mr. 37 financial creditors and operational creditors of the Corporate Debtor S.30(2)(c) – Management of the affairs of the Corporate Debtor after approval of the Resolution Plan Clause 5.11 of the Resolution Plan deals with the Management and Control of the Corporate Debtor after the approval of the Resolution Plan S.30(2)(d) 38(3) – Resolution Plan shall demonstrate: a) it address the cause of default b) it is feasible and viable c) it has provisions for effective implementation d) it has provisions for approval required and the timeline for the same e) the resolution applicant has the capability to implement the resolution plan Clause 4.7, 5.16, 5.10, 5.13 and 5.16(iv) of the Resolution Plan deals with the causes of default of the Corporate Debtor and the operational Viability of the project by the Resolution Applicant. 30(4) – Committee of Creditors approve the Resolution Plan by not less than 66% of voting share of Financial Creditors, after considering its feasibility, viability and such other requirement as specified by the Board The CoC in its 9 meeting held on 22.01.2021 has approved the Resolution Plan in the following voting pattern; S. IDBI Debentur es Trustees hip Ltd. : (2020) 11 SCC 467 as regards the principles that the Adjudicating Authority would not be sitting in appeal over the commercial wisdom of CoC and also observed that there was no requirement that the bid of the resolution applicant has to match the liquidation value of the corporate debtor. The Adjudicating Authority also left the questions of various reliefs/concessions sought for by the resolution applicant to be taken up in the appropriate forum or before the appropriate authority in accordance with law. Thus the Resolution Plan is hereby approved and is binding on the Corporate Debtor and other stakeholders involved so that revival of the Debtor Company shall come into force with immediate effect and the “Moratorium” imposed under section 14 of IBC, 2016 shall not have any effect henceforth.
The Resolution Applicant shall have access to all the records premises / documents through Resolution Professional to finalise the further line of action required for starting of the operation. Being aggrieved of the order dated 15.07.2021 so passed by the Adjudicating Authority, approving the resolution plan of the resolution applicant and declaring it to be binding on the corporate debtor and other stakeholders, four appeals were preferred before the Appellate Tribunal, respectively by the promoter Dr. As regards the issue of valuation, the Appellate Tribunal, after discussing the requirements of Sections 30(2) and 61(3) of the Code and taking note of the minutes of the second CoC meeting as to the appointment of valuators and the other legal issues concerning the valuation of assets, held that the valuation process had been in violation of the Regulation 27 and 35 of the CIRP Regulations for the reasons that the appraisal of a property situated in Tamil Nadu by Delhi-based valuers was a point of contention during the second CoC meeting; the non-core assets were not valuated by the registered valuers; the valuation report was never circulated either to the promoters or to the other members of the CoC; and physical verification of the assets of the corporate debtor was not carried out by the two valuers appointed by
It is pertinent to mention that the Approval of the Resolution Plan by the COC is directly attributable to the fact that the COC was not properly apprised of the actual value of the Corporate Debtor’s assets. In 42 this regard, it is pertinent to note the minutes of the 2nd COC meeting, which reads as follows; “At this juncture, the COC members have raised concerns regarding the appointment of the valuers as the appointed valuers are Delhi-based and are not privy to the area/properties of Tamil Nadu and might also a struggle to visit the collective sites of the corporate debtor located at Tamil Nadu given that travel restrains in the current period—– the competency of the process valuation might decrease. Therefore, further physical verification of the assets by the registered valuers is indispensable, and the Respondent has taken the same note before furnishing the Valuation to the COC. Even in the 7th 43 meeting of the COC, concerns were raised as to the fact that the Resolution Plan values the Corporate Debtor at a rate that is significantly lower than the already paltry Valuation arrived at by the IRP. However, in view of the detailed valuation report, no member of the COC of the Appellant herein has any idea as to what was categorised as a ‘Non -Core A ssets’ by the Resolution Professional or what its value could be. Compliance with statutory requirements in regulating a matter of practice and procedure are mandatory.’ The Tribunal is a creature of statute, and by interpretation, it cannot dilute the statutory compliances. As per Regulation 36A(2)(iii), the RP shall publish ‘Form – G’ on the Corporate Debtors and IBBI websites.
Despite violations above about the publi cation of ‘Form – G’, the Learned Tribunal has approved the Resolution Plan. Further, it is necessary to mention that Regulation 36 A of CIRP Regulations mandates publication of Form-G at the earliest, not later than the 75th day from the commencement date, from interested and eligible prospective resolution applicants to submit Resolution Plans. As regards the ineligibility in terms of the Trusts Act, it was held that the case of resolution applicant was unambiguously falling within the scope of Section 88 of the Trusts Act, rendering the resolution plan in question as illegal because the trust ‘Sri Balaji Vidyapeeth’ was already declared ineligible, of which, the resolution applicant was the managing trustee that precluded him from acting as its alter ego during the execution of the resolution plan and obtaining any financial advantage or benefit as being barred under Section 88. The IRP/ Resolution Professional should have informed the CoC that the 2nd Respondent had presented the Resolution Plan by competing with the said Trust. Since the said ‘Sri Balaji Vidyapeeth’ has already been declared as ineligible, the 2nd Respondent cannot act as its alter ego in implementing the Resolution Plan and attain any financial advantage or gain is barred by Section 88 of the Indian Trusts Act.
Therefore, it is submitted that even as per the provisions of IBC, a Resolution Plan shall be by the provisions of all other statutes, and the Resolution Plan mustn’t contravene the law of the land. Admittedly, the 2nd Respondent is the Managing Director of the said Trust, and the fact remains that two EOIs were submitted by the 2nd Respondent, one for himself and the other on behalf of the Trust. Since the said ‘Sri Balaji Vidyapeeth’ has already been declared as ineligible, the 2nd Respondent cannot act as its alter ego in implementing the Resolution Plan and attain any financial advantage or gain is barred by Section 88 of the Indian Trusts Act. The learned Senior Counsel for the 2nd respondent has vehemently argued that the objection raised by the appellant was never raised before the Adjudicating Authority. It appears that the said sum has not been refunded, and as such, the same shall be treated as ‘deposit’ in terms of Explanation (a) of Rule 2(1)(c)(vii) of The Companies (Acceptance of Deposits) Rules, 2014. In the above circumstances, given Section 164 (2) (b) of the Companies Act, the 2nd Respondent has been disqualified from acting as a Director in any Company for five years from the date on which the said Ms International Aviation Academy Private Limited failed to repay the deposit amounts collected towards’share application money pending allotment’ aggregating to Rs.12,03,000/. It is thus patent that the said sum of Rs.12,03,000/- is a deposit, and as such, the 2nd Respondent is disqualified from acting as a Director given Section 164(2)(b) of the Companies Act, 2013. In relation to the assertion of the resolution professional that the revised resolution plan was approved in the ninth CoC meeting, the Appellate Tribunal examined the relevant minutes and observed that in the said meeting, the resolution plan was sent back to the resolution applicant for further revision based on the CoC resolution; and the revised resolution plan submitted by the resolution applicant dated 25.01.2021, was directly filed in the NCLT for approval without being put to vote before CoC. The observations of the Appellate Tribunal with respect to this issue of want of approval of the revised resolution plan by CoC could be usefully reproduced as under: – “130.
Revised Resolution Plan dated 25 January 2021, without further approval of CoC, was presented by RP before the Adjudicating Authority for approval, which was finally approved by the impugned Order. Therefore, based on the resolution of the 9th COC meeting, the Resolution Plan was to be sent back to the Resolution Applicant for further revision. As regards the issue of non-consideration of Section 12-A IBC application of the promoter of the corporate debtor, the Appellate Tribunal observed that the consideration of settlement offer was essential and that the settlement offer could not have been rejected without consideration by the CoC.
It appears that based on the settlement offer, the appellant sent a letter to the Financial Creditor Tourism Finance Corporation of India that an investor has expressed its willingness to infuse funds of 350 crores to settle the secured Financial Creditors in full within 30 days. The Resolution Professional has contended that the COC has rejected the settlement offer in its 9th meeting. It is essential to mention that after admission of the petition and formation of the Committee of Creditors, Section 12A application for withdrawal could only be accepted if the CoC approves the proposal with a 90% vote share. At this juncture, this tribunal “Worth recalls and recollects” the judgement of Hon’ble 3 Member Bench of this Tribunal in Company Appeal (AT) (Ins) No.91 of 2019 dated 6 September 2019 between Shaji Purusothaman v Union Bank of India and others (reported in MANU/NL/0438/2019) whereby and whereunder at paragraph 9 it is observed that; “ if an application u/s 12 A is filed by the Appellant, the Committee of Creditors may decide as to whether the proposal given by the appellant for settlement in terms of Section 12 A is better than the resolution plan as approved by it, and may pass appropriate order. : (2021) 3 SCC 475 observed that ‘related party’ was specifically treated as a class unto itself and was restricted from any involvement in the CIRP in any capacity (under Section 21 IBC) and disqualified from being a resolution applicant (under Section 29-A IBC), the underlying object being that involvement of a related party in the CIRP is seen as giving unfair benefit to the corporate debtor and in fact, the related party is treated in the same class as the corporate debtor itself. After discussing various decisions of NCLT and NCLAT as also of this 54 Court as regards the position of related party vis–vis the unrelated, the Appellate Authority held that the related party financial or operational creditor cannot be discriminated against under the resolution plan, by denying their right to get payments under the resolution plan only for being a related party. Accordingly, a related party is prohibited from acting in any of the following capacities in a CIRP : Particulars Provisions Cannot be part of Committee of Creditors Sec. Therefore, this statutory recognition as a different class would apply even to a Resolution Plan when the CoC decides whether, in its commercial wisdom, it should pay to a related party at all as this would mean paying to the same persons who are behind the Corporate Debtor. In the instant case of approved resolution plan discriminates between related party unsecured Financial Creditor and other unsecured Financial Creditors, likewise related party operational creditors and other operational creditors. After completion of the CIRP and after approval of the Resolution Plan, if any amount is allotted to related party financial or operational creditors, it would not impact the CIRP.
Therefore, the Related Party financial or operational creditor cannot be discriminated against under the Resolution Plan, denying their right to get payments under the Resolution Plan only on being a Related Party. The Appellate Tribunal disapproved the order passed by the Adjudicating Authority for the reasons: (a) existence of a valid and accurate valuation report was a sine qua non for the CoC to exercise its commercial wisdom and observation of the Adjudicating Authority that Regulation 35 of the CIRP Regulations contemplates sharing of only fair value and liquidation value figures on obtaining confidentiality undertaking from the members of the CoC was incorrect; (b) the compliance with statutory requirements in regulating a matter of practice and procedure was mandatory and observation of Adjudicating Authority that a statutory provision regulating a matter of practice or procedure would generally be regarded as directory and not mandatory was erroneous; (c) non-publication of notices of Form G, inviting EOI, was a material irregularity in exercise of the powers by resolution professional; (d) the resolution applicant was ineligible to submit the resolution plan; (e) the revised resolution plan was filed before the Adjudicating Authority without laying it before the CoC for approval violating Sections 30(2) and 30(3) of the Code and thereby, vitiating the entire CIRP and rendering the resolution plan as void ab initio ; and (f) the related party financial or operational creditor could not have The possibility of an impact on the decision of RP for the submission of the Resolution Plan before the Adjudicating Authority for approval, even without the approval of CoC, cannot be ruled out. The Adjudicating Authority’s observation that a statutory provision regulating a matter of practice or procedure will generally be read as a directory and not mandatory is erroneous. Non-publication of notices of Form G is a material irregularity in exercise of the powers by Resolution Professional during the Corporate Insolvency Resolution period. However, the IBC does not treat Related Party as a separate class for any other purpose. However, the IBC does not treat Related Party as a separate class for any other purpose. Based on the above discussion, it is clear that the approved Resolution Plan is in contravention of Section 30 (2) of the Insolvency and Bankruptcy Code 2016, which contravenes the provision of law.” Hence, the Appellate Authority set aside the resolution plan approved by the Adjudicating Authority; directed the resolution professional to proceed with the CIRP from publication stage of Form G for inviting EOI afresh as per the CIRP Regulations and further to put up the settlement proposal of the promoter for consideration before CoC; and ordained 59 the claim of related party financial/operational creditor be not discriminated from unrelated financial/operational creditors. During the hearing, counsel for the resolution applicant and counsel for contesting parties were heard but the arguments of counsel for the resolution professional remained inconclusive and the matter was posted to 11.03.2022 for further hearing. Further, learned counsel for the resolution professional also placed before this Court the minutes of eleventh CoC meeting held on 03.03.2022 which were ordered to be filed in the registry with appropriate affidavit. However, learned counsel for the resolution applicant filed an application for appropriate directions in this matter on 14.05.2022, seeking ad interim direction of staying the CIRP as initiated by the resolution professional by publishing Form G on 26.04.2022 pursuant to directions of the NCLAT in its judgment dated 17.02.2022; or to stay the operation of impugned judgment dated 17.02.2022 as regards disqualification of the 61 resolution applicant and to direct the resolution professional to consider his EOI in the fresh CIRP as initiated.
Having taken note of the averments of the application and having regard to the order as passed on 16.03.2022, making all the proceedings subject to final outcome of these appeals, this Court did not consider it necessary or expedient at that stage to pass any further order or direction as regards the averment therein. In the wake of the applications so moved, the matter was again taken on board by this Court on 17.11.2022 and after having heard learned counsel for the respective parties this Court requested the Adjudicating Authority to await the decision in these appeals while granting permission to learned counsel for the respective parties to file further submissions in relation to the said application by 21.11.2022. In compliance of the impugned order dated 17.02.2022 as passed by NCLAT, eleventh CoC meeting was held on 03.03.2022; and the resolution professional put the settlement proposal of the promoter to vote in the CoC, where the voting continued until 25.03.2022. In the thirteenth CoC meeting held on 23.05.2022, resolution professional informed the members of CoC that EOI was published on 26.04.2022 with last date of submission fixed as 15.05.2022 and 7 EOIs had been received. In the seventeenth CoC meeting held on 26.08.2022, discussing about the compliance of resolution plans as submitted by the prospective resolution applicants, a query was raised by one of the members of CoC 64 that despite being declared disqualified and ineligible by NCLAT, as to why the resolution plan of Mr. In the eighteenth CoC meeting held on 29.09.2022, after informing the members of CoC that 7 resolution plans have been received till date and their evaluation was under process, the Chairperson apprised the CoC that a revised settlement proposal has been submitted by the promoter – Dr.
(The above Resolution is being put to vote from 14/10/2022 12 PM till 21/10/2022 11.59 PM and based on the result of this voting, the post voting minutes will be updated and sent to the CoC.) Result of the Resolution,Post Voting ended on 31/10/2022 at 10 PM The above Resolution of the Promoter for settlement under Section 12 A of the IBC,2016, which was put to vote on 14.10/2022 to 31/10/2022 is approved with 100% of the Total voting powers of the CoC. Aryama Sundaram appearing for the resolution applicant; learned senior counsel Mr. Learned senior counsel for the resolution applicant, Dr. It has further been submitted that the letter of settlement dated 21.01.2021 was submitted without proof of funds and there was no commitment towards funding in the proposal indicated in the Deutsche Bank Indicative Term-Sheet dated 22.01.2021. Thus, while the trust may be disqualified, the trustee, being a separate entity, cannot be disqualified and the financial capability of the appellant was independent of the trust money. Learned senior counsel would submit that the appellant could not be held ineligible under Section 29-A(e) of the Code, as the registrar of companies had not disqualified him under Section 164(2)(b) of the Companies Act for the alleged non-refunded deposit in the other company International Aviation Academy Pvt.
Learned senior counsel would submit that members of CoC were provided with liquidation and fair value; registered valuers were appointed for valuation of core and non-core assets; and these valuers physically visited the properties for that purpose, in compliance of Regulation 35 of the CIRP Regulations. Moreover, in the tenth meeting, the CoC had granted a ‘deemed post facto approval’ to the revised plan and had not objected to any of its portions in the affidavit filed before NCLAT dated 09.09.2021. Coming to the application filed by SBI for impleadment, learned senior counsel would submit that SBI attended all meetings and voted in favour of the resolution plan, did not raise any objection before the NCLT or NCLAT and is receiving 100% of its dues under the resolution plan. 25 crore on 01.02.2021 in pursuance of approved resolution plan, the initial amount of Rs. 1682-1683 of 2022 filed by the promoter and erstwhile director of the corporate debtor – seeking permission to bring on record subsequent facts that during the pendency of these appeals his proposal of settlement under Section 12-A of the Code was passed by CoC in its nineteenth meeting held on 12.10.2022 by 100% voting power of members – learned counsel for resolution applicant has submitted that the very consideration of Section 12-A application of the promoter by CoC had been against the 71 explicit direction of the Appellate Tribunal in the order dated 17.02.2022, whereby only 15 days ’ time was allowed to the CoC to examine the pending or existing Section12-A proposal of the promoter; and such a proposal was indeed rejected by the CoC on 25.03.2022. Learned senior counsel would argue against the proposition that a related party could be part of the CoC when it is a 72 financial creditor. With respect to the physical valuation of assets, learned senior counsel emphasised on agenda item No 4 of the fourth CoC meeting, wherein it was clearly mentioned that the valuers visited the property of the corporate debtor.
Insofar as the issue of non-core assets not being valued is concerned, it was submitted on behalf of RP that although the value of non- core assets was fairly insignificant, in the seventh CoC meeting dated 29.12.2020, the RP informed that the second valuer Mr. Further, while dealing with the issue of not placing the revised resolution plan before the CoC, reliance has been placed on the ninth CoC meeting dated 22.01.2021 with the submissions that the resolution plan was approved with 87.39% of the total voting share and the resolution applicant was only required to provide for redistribution to ensure that the dissenting financial creditors were given their share in terms of Section 30(2)(b) of the Code.
On the issue of increase in the fee of RP which was not raised before the NCLT and was only raised before the NCLAT, it has been submitted that the request for revision of fee had indeed been made with reasons for said revision, much prior to the date on which the resolution plan was approved by the CoC. In closing, it has been argued by the learned senior counsel for the resolution professional that he has preferred applications against the 75 promoter-director of the corporate debtor under Section 43 of the Code seeking avoidance of certain transactions which are preferential in nature. It has been argued that the contesting 76 promoter has been putting forth sincere efforts to preserve the corporate debtor as a going concern but his genuine efforts were sought to be frustrated by hasty and illegally conducted CIRP and thereby, the approved resolution plan was essentially giving away the substantial assets of the corporate debtor at a highly undervalued price. It has also been vehemently argued that the resolution plan in question is contrary to law, as it clearly violates the underlying principles of Section 88 of the Trusts Act and Section 164(2)(b) of the Companies Act, 2013. It has also been submitted that the resolution applicant’s plan to convert Coimbatore property into Hospital would directly result in a conflict 77 of interest and breach of fiduciary duties owed by him as managing director of the company MGM Healthcare Private Limited. It has been argued that the resolution applicant has been the director of a company named ‘International Aviation Academy Private Limited’; and as per the audited financial statements of the said company for 2010-2011 to 2017-2018, there was evidence that Rs. Regulation 35(1) provides that two registered valuers must submit an estimate of the ‘fair value’ and ‘liquidation value’ of the corporate debtor after physical verification to the resolution professional, and Regulation 35(2) requires the resolution professional to provide the aforesaid valuation to every member of the CoC. It has also been submitted that the resolution professional under the pretext of maintaining the corporate 79 debtor as a going concern, has allowed approval of an illegal resolution plan that hands over assets of the Corporate Debtor at severe undervaluation. Dealing with the issue of non-publication of Form G on the website, it has been submitted that Regulation 36A(2)(iii) of the CIRP Regulations, which mandates the publication on the website of IBBI and the website of corporate debtor has been violated as it has been an admitted position that the same was not done by the resolution professional. Coming to the issue of not placing the final resolution plan before the CoC, it has been submitted, with reference to the minutes of the ninth CoC meeting dated 22.01.2021, that when the resolution plan was put to vote, there was a requirement for the resolution professional to send the plan back to the resolution applicant to comply with Section 30(2) IBC. 150 crore which has not been returned, learned counsel for the promoter has submitted that during the eleventh CoC meeting, on the question of the promoter, the resolution professional replied that the process was between him and the resolution applicant and some procedural issues were to be addressed whereafter, the deposited money would be returned. Learned senior counsel has further referred to the judgment in Essar Steel (supra) to emphasise on the point that the revised resolution plan was never placed before the CoC and hence, the entire process stands vitiated. While placing reliance on the judgment in Phoenix ARC (supra), it has been argued that this Court has laid down the reasons for treating related parties as a separate class, and held that related parties should be excluded from the CoC so that they do not interfere with the resolution process. Tushar Mehta, appearing for SBI, has submitted that this financial creditor has a voting share of about 26% in the CoC with an admitted claim of Rs. In regard to the fresh proceedings during the pendency of these appeals (as noticed above), it has been submitted on behalf of SBI that after being given further opportunity, the promoter re-submitted the settlement proposal under Section 12-A IBC with deposit of upfront amount of Rs.
The learned counsel has contended that merely for non- consideration of revised resolution plan, which was revised at the instance of CoC itself, the approval could not have been set aside overriding the commerc ial wisdom of CoC. Whether the valuation process of the assets of the corporate debtor had been in violation of the Regulations 27 and 35 of the CIRP Regulations and thereby, approval of the resolution plan had been in contravention of Sections 30(2) and 61(3) of the Code? Whether the resolution applicant is ineligible to submit a resolution plan in terms of Section 29-A(e) of the Code for being disqualified to act as a director under Section 164(2)(b) of the Companies Act? Whether the Appellate Tribunal has erred in holding that settlement offer of the promoter in terms of Section 12-A of the Code was not placed for consideration of CoC; and as to whether non-consideration of such a proposal has any bearing on the question of approval of the resolution plan in question? We may also take note of some of the other relevant statutory provisions of the IBC including Section 12-A which provides for withdrawal of application admitted under Sections 7, 9 or 10; Section 21 in regard to constitution and composition of the CoC; Section 24 which specifies about meetings of the CoC; Section 25 which lays down the duties of the resolution professional in respect to the corporate debtor; Section 29-A which provides that certain persons may be ineligible to be resolution applicants; Section 30 relating to submission of resolution plan; Section 31 which provides for approval of the resolution plan; Section 32 which provides for appeal from order approving resolution plan; Section 61 which 88 lays down the procedure and grounds of appeal before the Appellate Tribunal ; and Section 238 which states that the Code has an overriding power over other laws. (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Provided that a [financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor,] shall not have any right of representation, participation or voting in a meeting of the committee of creditors:
(4) Where any person is a financial creditor as well as an operational creditor, – (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; 89 (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. (6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility [***] provide for a single trustee or agent to act for all financial creditors, each financial creditor may- (a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extent of his voting share; (c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or (d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally. [(6A) Where a financial debt — (a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors; (b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors; (c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors, and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.
of voting share of the financial creditors: Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified.] (9) The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process. (3) The resolution professional shall give notice of each meeting of the committee of creditors to- (a) members of [committee of creditors, including the authorised representatives referred to in sub-sections (6) and (6A) of section 21 and sub-section (5)]; (b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be; (c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt. (5) [Subject to sub-sections (6), (6A) and (6B) of section 21, any creditor] who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of creditors: Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such creditor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: — (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi -judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with section 29; [(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.] (i) present all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in – A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person,- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); 92 (c) [at the time of submission of the resolution plan has an account,] or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) [or the guidelines of a financial sector regulator issued under any other law for the time being in force,] and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan:
II.-For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;] [(d) has been convicted for any offence punishable with imprisonment– (i) for two years or more under any Act specified under the Twelfth Schedule; or (ii) for seven years or more under any other law for the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment: Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I;] 93 (e) is disqualified to act as a director under the Companies Act, 2013 (18 of 2013): [Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I;] (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code: [Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;] (h) has executed [a guarantee] in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code [and such guarantee has been invoked by the creditor and remains unpaid in full or part]; (i) [is] subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i)
[Provided that nothing in clause (iii) of Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor: Pr ovided further that the expression “related party” shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party 94 of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares [or completion of such transactions as may be prescribed], prior to the insolvency commencement date;] II.–For the purposes of this section, “financial entity” shall mean the following entities which meet such criteria or conditions as the Central Government may, in consultation with the financial sector regulator, notify in this behalf, namely:– (a) a scheduled bank; (b) any entity regulated by a foreign central bank or a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding; (c) any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999 (42 of 1999); (d) an asset reconstruction company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered with the Securities and Exchange Board of India; (f) such categories of persons as may be (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan– (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the [payment] of other debts of the corporate debtor; [(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 95 (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. —
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For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor– (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;] (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board.
of voting share of the financial creditors, after considering its feasibility and viability, [the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of 96 section 53, including the priority and value of the security interest of a secured creditor] and such other requirements as may be specified by the Board: 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: 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 sub-section.] 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, (3) After the order of approval under sub-section (1),– (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.
[(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.] Section 32. (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely: (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; 98 (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. (5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order.] Section 238. (3) The interim resolution professional or the resolution professional, as the case may be, shall appoint a professional under this regulation on an arm’s length basis following an objective and transparent process: Provided that the following persons shall not be appointed, namely: – (a) a relative of the resolution professional; (b) a related party of the corporate debtor; (c) an auditor of the corporate debtor at any time during the period of five years preceding the insolvency commencement date; (d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director. (2) The application under sub-regulation (1) shall be made in Form-FA of the Schedule accompanied by a bank guarantee- (a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of sub-regulation (1); or (b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of sub-regulation (1).
(7) Where the application is approved under sub-regulation (6), the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of sub-regulation (2) till the date of approval by the Adjudicating Authority, as determined by the interim resolution professional or resolution professional, as the case may be, within three days of such approval, in the bank account of the corporate debtor, failing which the bank guarantee received under sub-regulation (2) shall be invoked, without prejudice to any other action permissible against the applicant under the Code.] (2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub- section (2) of section 29. (2) The resolution professional shall publish Form G- (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the resolution professional, the corporate debtor conducts material business operations; (ii) on the website, if any, of the corporate debtor; (iii) on the website, if any, designated by the Board for the purpose; and (iv) in any other manner as may be decided by the committee. (3) The Form G in the Schedule shall – (a) state where the detailed invitation for expression of interest can be downloaded or obtained from, as the case may be; and (b) provide the last date for submission of expression of interest which shall not be less than fifteen days from the date of issue of detailed invitation. 102 (7) An expression of interest shall be unconditional and be accompanied by- (a) an undertaking by the prospective resolution applicant that it meets the criteria specified by the committee under clause (h) of sub-section (2) of section 25; (b) relevant records in evidence of meeting the criteria under clause (a); (c) an undertaking by the prospective resolution applicant that it does not suffer from any ineligibility under section 29A to the extent applicable; (d) relevant information and records to enable an assessment of ineligibility under clause (c); (e) an undertaking by the prospective resolution applicant that it shall intimate the resolution professional forthwith if it becomes ineligible at any time during the corporate insolvency resolution process; (f) an undertaking by the prospective resolution applicant that every information and records provided in expression of interest is true and correct and discovery of any false information or record at any time will render the applicant ineligible to submit resolution plan, forfeit any refundable deposit, and attract penal action under the Code; and (g) an undertaking by the prospective resolution applicant to the effect that it shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with (10) The resolution professional shall issue a provisional list of eligible prospective resolution applicants within ten days of the last date for submission of expression of interest to the committee and to all prospective resolution applicants who submitted the expression of interest. Resolution Plan.- A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following: – (a) transfer of all or part of the assets of the corporate debtor to one or more persons; (b) sale of all or part of the assets whether subject to any security interest or not; [(ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger;] (c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons; [(ca) cancellation or delisting of any shares of the corporate debtor, if applicable;] (d) satisfaction or modification of any security interest; (e) curing or waiving of any breach of the terms of any debt due from the corporate debtor; (f) reduction in the amount payable to the creditors; (g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporate debtor; (i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; (j) change in portfolio of goods or services produced or rendered by the corporate debtor; (k) change in technology used by the corporate debtor; and (l) obtaining necessary approvals from the Central and State Governments and other authorities.] Mandatory contents of the resolution plan.- [(1) The amount payable under a resolution plan – (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub- section (2) of section 21 and did not vote in favour of the [(d) provides for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed: Provided that this clause shall not apply to any resolution plan that has been submitted to the Adjudicating Authority under sub- section (6) of section 30 on or before the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022.
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[(3) A resolution plan shall demonstrate that – (a) it addresses the cause of default; (b) it is feasible and viable; (c) it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline for the same; and (e) the resolution applicant has the capability to implement the resolution plan.] Approval of resolution plan.- [(1) A prospective resolution applicant in the final list may submit resolution plan or plans prepared in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with – (a) an affidavit stating that it is eligible under section 29A to submit resolution plans; 105 [***] (c) an undertaking by the prospective resolution applicant that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action under the Code. (1B)
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). (3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the highest votes, but not less than requisite votes, shall be considered as approved: Provided that where two or more resolution plans receive equal votes, but not less than requisite votes, the committee shall approve any one of them, as per the tie-breaker formula announced before voting: Provided further that where none of the resolution plans receives requisite votes, the committee shall again vote on the resolution plan that received the highest votes, subject to the timelines under the Code. *** *** ***]
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[(4) The resolution professional shall endeavour to submit the resolution plan approved by the committee to the Adjudicating Authority at least fifteen days before the maximum period for completion of corporate insolvency resolution process under section 12, along with a compliance certificate in [Form H of the [Schedule-I] and the evidence of receipt of performance security required under sub-regulation (4A) of regulation 36B].] (5) The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant. (8) A person in charge of the management or control of the business and operations of the corporate debtor after a resolution plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan.
— Where a trustee, executor, partner, agent, director of a company, legal advisor or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained. Moreover, in view of the submissions made, a reference to Section 166(4) of the Companies Act shall also be apposite. — *** *** *** (2) No person who is or has been a director of a company which — (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. In the case of Swiss Ribbons (supra), this Court traversed through the historical background and scheme of the Code in sufficient detail and while pointing out that the Code was a beneficial legislation to put the corporate debtor on its feet and not a mere recovery legislation for the creditors, said as under: – “ 27.
Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The detailed provisions that have been stated hereinabove make it clear that the resolution professional is a person who is not only to manage the affairs of the corporate debtor as a going concern from the stage of admission of an application under Sections 7, 9 or 10 of the Code till a resolution plan is approved by the Adjudicating Authority, but is also a key person who is to appoint and convene meetings of the Committee of Creditors, so that they may decide upon resolution plans that are submitted in accordance with the detailed information given to resolution applicants by the resolution professional. While in their representative roles, the resolution professional and the resolution applicant are duty-bound to ensure that the resolution plan is prepared in conformity with the requirements of the Code and the CIRP Regulations and is properly presented for consideration, the central role in taking the decision as to whether a resolution plan be adopted or not, in the same form as presented to it or in a modified form; and as to whether the attempt for revival of corporate debtor be made or not, ultimately rests with the pivotal body, comprising of the financial creditors of the corporate debtor and termed as “Committee of Creditors”. It is also relevant to point out that though the resolution professional is to run the business of the corporate debtor as a going concern during the corporate insolvency resolution process but, as per Section 28(3) of the Code, he cannot take certain decisions relating to the management of the corporate debtor 112 without prior approval of the Committee of Creditors by a vote of at least 66% of the voting shares.
The reasons and purpose for assigning such a unique and decisive role in corporate insolvency resolution to the Committee of Creditors and for that matter, to a substantial block of not less than 2/3rd of voting share of the financial creditors, were extensively delineated in the report of the Bankruptcy Law Reforms Committee of November 2015 while remarking on the essential theme that the “ appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it ”. As aforesaid, upon receipt of a “rejected” resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value.
In that context, 114 this Court again explained the primacy endowed on the commercial wisdom of the Committee of Creditors and reasons therefor, with a further detailed reference to the aforesaid report of the Bankruptcy Law Reforms Committee of November 2015. Creation of the creditors committee The creditors committee will have the power to decide the final solution by majority vote in the negotiations. Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting up of such Committee, and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion. Thus, it is clear that since corporate resolution is ultimately in the hands of the majority vote of the Committee of Creditors, nothing can be done qua the management of the corporate debtor by the resolution professional which impacts major decisions to be made in the interregnum between the taking over of management of the corporate debtor and corporate resolution by the acceptance of a resolution plan by the requisite majority of the Committee of Creditors. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. For what has been noticed hereinabove, it would not be an exaggeration in terms that, in corporate insolvency resolution process, the role of Committee of Creditors is akin to that of a protagonist, giving finality to the process (subject, of course, to approval by the adjudicating authority), who takes the key decisions in its commercial wisdom and also takes the consequences thereof.
As noticed, the process is aimed at bringing the corporate debtor back on its feet and it is acknowledged that appropriate disposition of a defaulting corporate debtor and the choice of solution, to keep the corporate debtor as a going concern or to liquidate it, is to be made by the financial creditors, who could assess the viability and may take decisions in modification of the terms of the existing liabilities. Particularly, the minutes of second, fourth, sixth and seventh CoC meetings stand testimony to the fact that the requirements of Regulation were scrupulously followed and complied with and there had not been any doubt in CoC as regards the process of valuation as also supplying of fair and liquidation value to the members of CoC. The findings of the Appellate Tribunal in regard to the question of valuation and thereby taking the resolution plan to be in contravention of 118 Sections 30(2) and 61(3) of the Code cannot be approved and are required to be set aside. A long deal of discussion of the Appellate Tribunal had been diverted towards purported non-compliance of Regulation 36-A(2)(iii) of the CIRP Regulations for want of publication of Form G on the designated website with the Appellate Tribunal assuming that want of compliance of mandatory requirements had been of material irregularity on the part of the resolution professional. In the relevant part of the said order dated 05.05.2021, the NCLAT even while dealing with the questions raised against time enlargement granted by NCLT, took note of various features related with the CIRP in question and in that regard, also observed that it was the commercial decision of CoC not to seek extension of time for submission of resolution plans and to issue directions to the resolution professional to expedite the process on the resolution plans already submitted. It was the CoC’s commercial decision that “no extension of time for submission of Resolution Plan should be done and RP was directed to expedite the valuation process and check the feasibility and viability of the Resolution Plan already submitted and present the eligible Resolution Plan before the CoC for consideration. It has been argued that the said company collected share application money pending allotment and did not refund the same; and consequently, in terms of Section 164(2)(b) of the Companies Act, this default would disqualify the resolution applicant from acting as a director and thereby, would render him ineligible to submit a resolution plan.
Unless a categorical finding was recorded in the competent forum as 121 regards any such default and unless specific order disqualifying the resolution applicant as director because of such default came into existence, it could not have been taken by way of any process of assumption that the appellant-resolution applicant was disqualified to act as a director and thereby, was ineligible to submit a resolution plan.
Case Title: M.K. RAJAGOPALAN Vs. DR. PERIASAMY PALANI GOUNDER (2023 INSC 486)
Case Number: C.A. No.-001682-001683 / 2022
