The New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) upheld the resolution plan in absence of irregularity in the conduct of Corporate Insolvency Resolution Proceedings ( CIRP ) proceedings.
Yashdeep Sharma, the appellant filed the appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’) by the Appellant arises out of the Order dated 13.08.2024 (‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Jaipur Bench). By the impugned order, the adjudicating authority has approved the resolution plan of Trufalir Buildwell LLP-the Successful Resolution Applicant (“SRA”) as placed by the Resolution Professional (“RP”) before it while rejecting the objections raised thereto by the Appellant. Aggrieved by the impugned order, this appeal has been preferred by the Appellant-suspended management of the corporate debtor.
Counsel for the Appellant submitted that the RP had failed to conduct the CIRP proceedings of the corporate debtor with due diligence. To substantiate their contention, it was stated that resolution plans of the corporate debtor as submitted by the prospective resolution applicants (“PRAs”) were considered by the Committee of Creditors (“CoC”) in a manner marred by irregularities.
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There were clear violations of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). Stressing the serious discrepancies and non-transparency in the procedure adopted by the RP/CoC in the process of approving the resolution plan of the SRA, it was pointed out that the RP had failed to supply in advance a copy of final and revised resolution plan both to the CoC and the suspended management.
It was therefore contended that the CoC had approved the resolution plan without the resolution plan in its final form being available before it and hence impermissible as held by the Supreme Court in the M.K Rajagopalan Vs Dr. Perisamy Palani Gounder (2024). It was further contended that the financial proposal in respect of the final revised resolution plan of the SRA was in the form of an unsigned word document, which was therefore not a valid resolution plan submission. Moreover, since the financial proposal was only screenshared by the RP in the CoC meeting, no real and meaningful discussion could have been held on the viability and feasibility of the resolution plan.
The suspended management had also not been supplied a copy of the resolution plan and valuation reports. This was clearly in contravention of the well settled law laid down by the Supreme Court in Vijay Kumar Jain Vs Standard Charted Bank and Ors. (2019) that the suspended management is entitled to have a copy of the resolution plan of the PRAs to effectively participate in the CoC meetings.
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Pointing out some of the other irregularities, it has also been submitted that the CoC had wrongfully adopted the Swiss Challenge Method. Moreover, the scoring of quantitative parameters as per the evaluation matrix was carried out by the RP and not by the CoC. Submission was pressed that that when the resolution plans received from PRAs were put up for voting in the 54th CoC meeting, RP had hastily conducted the voting on the resolution plan. It was also submitted that the liquidation value of the Corporate Debtor by the erstwhile RP was Rs 42 Cr. while the present RP showed the liquidation value as only Rs 4.8 Cr.
Despite the significant difference between the estimates of the two valuers, the RP had failed to do so thereby jeopardising the mandatory process of valuation of the corporate debtor. Hence, the CoC was compelled to accept a resolution plan for the corporate debtor entailing huge haircut suffered by the secured financial creditor and nil payment for other creditors. It is also submitted that the resolution plan is conditional because prior consent of Rajasthan State Industrial Development and Investment Corporation Ltd. (“RIICO”) had not been taken for renewal of the lease in favour of the corporate debtor before the approval of the resolution plan.
It was pointed out that the Supreme Court in the case of Greater Noida Industrial Development Authority Vs Prabhjit Singh Soni held that though feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the CoC, but when a plan envisages use of land not owned by the Corporate Debtor but by a third party, there has to be a closer examination of the plan’s feasibility. It has also been added that the RP has failed to do due diligence in respect of the source of funds to be infused by the SRA. It is also contended that the CoC had rejected the settlement proposal of the promoters which settlement proposal aimed at maximizing the value of the Corporate Debtor and exceeded the plan value of the SRA.
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The failure of the CoC to consider the offer of settlement of the promoters is arbitrary. It was further added that though the Appellant had filed IA before the Adjudicating Authority raising objections to the approval of the resolution plan filed by the RP, the Adjudicating Authority did not give any findings on the grounds raised by the Appellant in their challenge to the approval of the resolution plan.
Refuting the contentions of the Appellant, Shri Krishnendu Datta, Counsel for the SRA-Respondent No.3 submitted that the Appellant is disgruntled and dissatisfied as its resolution plan failed to pass muster. The Appellant had submitted his resolution plan on 26.04.2024 which plan was under consideration of the CoC until 22.05.2024 when it was rejected. Having subjected themselves to the process of submission of resolution plans and having participated as a competing party with other PRAs, it does not behove of the Appellant to assail the resolution plan of other competing parties.
It was asserted that the RP had been fair and transparent in the conduct of the CIRP and made complete disclosure of all relevant information to all the relevant stakeholders on the resolution plans of all PRAs for proper conduct of voting process. On the contrary, the Appellant had wilfully violated the CIRP Regulations while submitting their resolution plan by not depositing EMD and for not having filed any Expression of Interest which led to rejection of their resolution plan.
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They have no right to point fingers at the RP/CoC on the manner of conduct of CIRP. It was vehemently contended that the Appellant was only trying to derail and drag the CIRP process by raising technical pleas. The CIRP process for approval of resolution plan and the voting was run in a fair and transparent manner which had led to substantially revised offer from the anchor bidder.
It was fervently contended that the appellant, being the suspended management, who had been competing with other PRAs by submitting their resolution plan, their approach and thinking in respect of CIRP of the corporate debtor were impacted by a conflict of interest. Thus, raising questions on the bonafide of the appellant, it was asserted that their objections to the resolution plan of the SRA were rightly overruled by the adjudicating authority as the suspended management could not be allowed to substitute the wisdom of the CoC in deciding on the merits of a resolution plan.
It was also contended that the issue of valuation of the corporate debtor was not raised before the adjudicating authority and cannot therefore be agitated before the appellate tribunal. It was added that in any case this contention is misconceived as CIRP Regulation 35(1)(b) is applicable in case of variance in the estimates of registered valuers appointed by the same RP while in this case the valuation report was submitted during the tenure of the erstwhile RP.
Further, on the contention of the Appellant that the resolution plan of the SRA was contingent upon resumption of lease by RICCO, it was pointed out that this issue has been looked into by the adjudicating authority at para 37 of the impugned order and found that the obligation under the resolution plan of the SRA is not contingent or conditional upon continuation of occupation of the said land or resumption of lease by the RICCO. On the issue of failure of the CoC to consider the offer of settlement of the promoters, it was contended that this matter not having been raised before the adjudicating authority cannot be therefore be raised at this appellate stage.
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The broad questions before us which require to be answered is whether there was any evidence of irregularity in the conduct of CIRP proceedings by the RP and whether the appellant, in their capacity as suspended management was prevented from effectively participating in the CoC deliberations and whether the adjudicating authority had erred in approving the resolution plan of the SRA. All the above issues are closely interlinked and will be dealt together.
It is the case of the appellant that in their capacity as suspended management of the corporate debtor, they had a right to participate in the CoC proceedings and were entitled to have a copy of the resolution plan of all the PRAs. However, their participation was stymied by the RP as they were denied access to a copy of the resolution plan of SRA. Buttressing their argument, the appellant stated that they had sent an e-mail to the RP demanding the resolution plan of the SRA. However, the RP did not share the plan prior to the commencement of voting which displays a clear intention on their part to prevent the suspended management from effectively participating in the discussion on the resolution plan.
The email containing the final revised resolution plan of SRA-Respondent No. 3 was received by RP on the evening of 22.05.2024 by e-mail in the form of a word document sent as an attachment. Clauses 11(i) and 11(ii) of the RFRP required the SRA to sign each page of the submitted resolution plan which has not been done. As this document was unsigned, it was not even a valid resolution plan submission. It was also mentioned that even the CoC was not supplied copy of the plan of the PRA and that it was merely screen-shared during the CoC meeting. Further, how the resolution plan was approved in the 54th CoC meeting casts a serious doubt on the bonafide of the RP in the conduct of the CIRP.
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Since, the financial proposal of the plan was screen shared by the RP at the time of CoC meeting, no real discussion could be held on the feasibility and viability of the resolution plan as no member of the CoC had a copy of the final revised resolution plan. It is pointed out that while the final revised resolution plan was received at around 5 pm, the 54th CoC meeting concluded by around 6 pm which shows that the resolution plan was hastily passed by the CoC.
From material placed on record, it is apparent that in the 52nd CoC meeting dated 09.05.2024, the CoC in exercise of its commercial wisdom decided to adopt the Swiss Challenge method for approval of the resolution plan wherein the consideration offered by the anchor bidder/highest bidder was to be shared with the other resolution applicants to give them a fair opportunity to tender their best possible offer. Thereafter, the anchor bidder was to be given a final opportunity to improve upon its offer over other highest bids received, if any during such process. This approach adopted by the CoC cannot be faulted as it is in consonance with the intent and objective of IBC to further the value maximization of the corporate debtor.
The resolution plans received from PRAs other than the anchor bidder were opened up during the first session of the 54th meeting and was displayed through shared screen during the said meeting. Thereafter the resolution plan submitted by the anchor bidder for approval of CoC was also shared on screen by the RP and then the same was thoroughly evaluated by COC. When the CoC, inspite of being the stakeholder whose interests were most critically affected, had evinced no complaints about the fairness and transparency of the process which had been followed by the RP.
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The appellant had not volunteered information on his own that he was also one of the resolution applicants. This was vociferously contended by the SRA and asserted that the appellant could not have claimed access to the resolution plans of other PRAs as it would tantamount to breach of the confidentiality and commercial sensitivity of the plans submitted by the other PRAs. On a pointed query made by this Bench, the appellant admitted that it had also wanted to submit a plan but their request was rejected.
A closer look at the minutes of the 53rd CoC meeting shows that a password protected resolution plan was submitted belatedly by the appellant, which was not considered as they had failed to submit EOI within the prescribed timeline in Form G and also failed to submit earnest money. Thus, when the appellant had themselves submitted password protected resolution plan without any protestation, they cannot now contend that this procedure suffered from irregularities. Furthermore, when the appellant was callous, negligent and failed to adhere to the CIRP Regulations in the submission of their own resolution plan, it does not lie in their mouth to nit-pick on imaginary irregularities committed by the RP.
A two member bench of Justice Ashok Bhushan, Chairperson and Barun Mitra, Member (Technical) viewed that there is no patent irregularity found in the conduct of CIRP proceedings by the RP nor any facts and circumstances placed on record which substantiate that the appellant, in their capacity as suspended management was prevented by the RP/CoC from effectively participating in the CoC deliberations.
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It has been held that the opinion expressed by the CoC after due deliberations in the meetings through voting, as per voting shares, is the collective business decision and that the decision of the CoC’s commercial wisdom is non-justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of IBC.
The tribunal held that the adjudicating authority did not erred in approving the resolution plan of the SRA.
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