The New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT) ruled that a settlement proposal under Section 12A of the Insolvency Bankruptcy Code ( IBC ), 2016 cannot be put before the CoC after approval of resolution plan. The tribunal observed that with the approval of the resolution plan by the CoC, the plan becomes inter se binding between the CoC and the SRA.
The Appellant , Pratham Expofab Private Limited filed appeal against the Order passed by the Adjudicating Authority ( National Company Law Tribunal, New Delhi Bench-II ). By the impugned order, the Adjudicating Authority has dismissed IA No. 188 of 2024 filed by the Appellant seeking to place a settlement proposal under Section 12A of IBC before the Committee of Creditors ( CoC ) and to permit withdrawal and suspension of the Corporate Insolvency Resolution Process ( CIRP ) of the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant who is the suspended director of the Corporate Debtor.
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The appellant submitted that Section 12A of IBC read with CIRP Regulation 30A provides scope for submission of multiple settlement proposals particularly when the resolution plan of the SRA has not attained finality.
In Shaji Purushothaman Vs Union Bank of India & Ors.(2019) , it was held by this Tribunal that the settlement proposal given by the suspended director under Section 12A of IBC can be examined by the CoC to find whether the settlement proposal is better than resolution plan. That the Adjudicating Authority failed to appreciate that the commercial wisdom of the CoC is supreme and therefore the CoC can accept a settlement proposal even after approval of resolution plan by the CoC. There is no cap on the number of times a settlement proposal can be placed or at what stage a CIRP proposal can be submitted.
It was argued that the RP has one-sidedly permitted the SRA to revise its plan several times even after its approval by the CoC which is impermissible in law. On the other hand, the Appellant was not afforded opportunity to submit their settlement proposal. Per contra, the respondents submitted that the RP had issued EOIs thrice in Form-G. The resolution plan of the SRA had been approved by the CoC on 06.02.2020 with majority vote share.
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That upon approval of resolution plan by the CoC, it could not have considered a settlement proposal in view of the decision of this Tribunal in Hem Singh Bharana Vs Pawan Doot Estate Pvt. Ltd. in CA(AT)(Ins) No. 1481 of 2022 ( Hem Singh Bharana ) which decision has been subsequently upheld by the Hon’ble Supreme Court in Civil Appeal No. 443 of 2023.
At the outset, the tribunal referred to its own judgment in Hem Singh Bharana wherein the effect of the substituted notification of 2019 on regulation 30A was discussed.In that case, the tribunal held that the intendment of the proviso is that there has to be special reason for making Application under section 30A(1)(b), when it is filed after publication of invitation for Expression of Interest. The Regulation clearly indicate that when Expression of Interest’ is issued inviting Resolution Plan, there has to be sufficient reason justifying withdrawal.
The tribunal rejected the argument of the appellant that regulation 30A was directory as held by the Supreme Court in Brilliant Alloys Pvt. Ltd. Vs S. Rajagopal and Ors. (2022) and observed that the decision of this Tribunal in Hem Singh Bharana judgement has been subsequently upheld by the Supreme Court in Civil Appeal No. 443 of 2023.
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The bench comprising Justices Ashok Bhushan and Barun Mitra observed that the CoC in its deliberations in the 8th and 9th CoC meetings had already put their stamp of approval on the resolution plan. Such opinion expressed by the CoC after due deliberations in the meetings through voting represents collective business decision and constitutes an expression of the CoC’s commercial wisdom. And it is here that primacy of the commercial wisdom of the CoC comes into play.
The tribunal concluded that when a resolution plan has already been received by the CoC and the CoC in the exercise of its commercial wisdom has decided to only consider this plan and has also rejected with majority voting the settlement plan given by the Appellant, no error has been committed by the Adjudicating Authority in disallowing further opportunity to the Appellant to submit a Section 12A proposal.
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