REJECTION OF REPAYMENT PLAN

[Mr. M. GOVINDARAJAN]

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for the conduct of Insolvency Resolution Process against the personal guarantors to the Corporate Debtor. The Financial creditor may file an application under Section 95(1) of the Code before the Adjudicating Authority, having jurisdiction, for the initiation of insolvency resolution process against the personal guarantor. If the Adjudicating Authority is satisfied on the application filed, shall admit the application and appoint Resolution Professional. The Resolution Professional has to submit a report to the Adjudicating Authority within 10 days from the date of order as to the admissibility of the application. The Resolution Professional shall submit his report within the time stipulated. A copy of the said report is to be forwarded to the personal guarantor and corporate debtor. Objections may be raised on the report by the concerned before the Adjudicating Authority. The Adjudicating Authority considering the objections filed may admit the application or reject the application.

If the application is admitted the Resolution Professional shall make a public announcement and stipulated last date for submission of claims from the creditors. On receipt of the claims the Resolution Professional shall verify the same and prepare a list of creditors with the claims made by them. The Resolution Professional on the basis of claims received and admitted by him may prepare a repayment plan in consultation with the debtor containing the details of amount that may be repaid and the time. If the Resolution Professional considers it that a meeting of the creditors is not required to be summoned, reasons for the same shall be provided. If he is of the opinion that a meeting of the creditors should be summoned he shall conduct the meeting of creditors. The Repayment plan has to be approved by the creditors. If the plan is approved then the Resolution Professional shall file the same with the Adjudicating Authority.

The Adjudicating Authority shall by an order approve or reject the repayment plan on the basis of the report of the meeting of the creditors submitted by the resolution professional.  Where a meeting of creditors is not summoned, the Adjudicating Authority shall pass an order on the basis of the report prepared by the resolution professional. Where the Adjudicating Authority is of the opinion that the repayment plan requires modification, it may direct the resolution professional to re-convene a meeting of the creditors for reconsidering the repayment plan. If the Adjudicating Authority is dissatisfied with the Repayment plan it may reject the Repayment plan.

In BANK OF BARODA VERSUS G. PRAVEEN KUMAR - 2024 (4) TMI 562 - NATIONAL COMPANY LAW TRIBUNAL HYDERABAD BENCH, Bank of Baroda, a Financial Creditor filed an application before the NCLT under section 95 of the Code against the personal guarantor G. Praveen Kumar, for initiating insolvency resolution process. The Adjudicating Authority admitted the application filed by Bank of Baroda on 31.01.2023. The Adjudicating Authority also appointed Resolution. The Resolution Professional submitted his report as to the admissibility of the application filed by Bank of Baroda under Section 99 of the Code on 14.02.2023. The said application was admitted by the Adjudicating Authority on 19.06.2023.

Since the application was admitted by the Adjudicating Authority, the Resolution Professional made a public announcement in Financial Express (English) and one in Mana Telangana, a Telegu daily, inviting claims from the stakeholders. The last date for the receipt of claims from the creditor has been fixed at 22.07.2023. The Resolution Professional received 7 claims from the creditors amounting to Rs.2592 crore. The Resolution Professional admitted the claim to the tune of Rs.2186 crore.

The Resolution Professional, in consultation with the Personal Guarantor prepared the repayment plan which proposed to repay Rs.20 lakhs to the creditors and Rs.5 lakhs to the Resolution Professional towards his fees in one installment in the month of February 2024.  The Resolution Professional filed the repayment plan before the Adjudicating Authority 09.08.2023. The same was taken record on 22.08.2023.

The Resolution Professional felt that the repayment plan does not have reasonable prospect of being approved he considered the necessity of convening the meeting of creditors. The first meeting of creditors was held on 24.08.2023. The second meeting was held on 31.08.2023. In the said meeting the meeting of creditors decided to appoint a private detective agency to trace the unencumbered assets, if any, in the name of the corporate debtor. On 10.10.2023 the detective agency submitted its report and the same were circulated amongst all creditors.

The third meeting was conducted on 12.10.2023. In that meeting it was decided by the creditors to seek vote on-

• The Repayment plan dated 05.08.2023 submitted by the debtor intending to make the repayment of Rs.20 lakhs to creditors and Rs.5lakhs towards Insolvency Resolution Process Costs, payable in one installment in the month of February, 2024.
• If the voting item on Repayment Plan is disapproved, to approve the Resolution Professional’s fee at Rs.50,000/- per month with effect from 06.02.2023 plus out of pocket expenses. The Resolution Professional’s fees and out of pocket expenses are estimated to be Rs. 6,75,000/- till completion of 180 days of insolvency commencement i.e. till 24.12.2023.

Among the creditors 11.08% did not vote for the said two items. For the first item i.e., to repay Rs.20 lakhs to the creditors no creditor has vote in favor of this item. 88.52% of the creditors disapprove the item No. 1. In respect of item No. 2, i.e., to pay the Resolution Professional to the tune of Rs.6.75 lakhs (Fee @ Rs.50000/- per month with effect from 06.02.2023 plus out of pocket expenses till the completion of 180 days of insolvency commencement date 24.12.2023).

After this the Resolution Professional filed an IA seeking the following reliefs-

• to condone the delay of 34 days in submission of report under Section 112(1);
• to pass necessary orders in view of the rejection of the repayment plan by the creditors;
• to pass necessary orders to the creditors for payment of Resolution Professional fee and expenses of Rs.6,75,000/- as already approved by the creditors.

The Resolution professional prayed the Adjudicating Authority to condone the delay of 34 days in submission of his report, since there was a delay in the approval of the repayment plan as the creditors of the company have requested the Resolution Professional to extend voting time as they were yet to obtain approvals from their respective competent authority. At the request of the creditors, the voting time was extended up to 27.10.2023 and further extended till 27.11.2023. Finally, the voting was concluded on 27.11.2023. This resulted with a delay of 34 days in filing the report with the Adjudicating Authority.

The Adjudicating Authority condoned the delay in view of the delay in approval of the repayment plan. The Adjudicating Authority observed that in the third meeting of creditors held on 12.10.2023 the repayment plan was rejected by 88.52% of the members and the remaining 11.48% did not vote. Since the creditors rejected the repayment plan the Adjudicating Authority rejected the Repayment plan and held that the creditors shall be entitled to file an application for Bankruptcy. The Adjudicating Authority directed to pay Rs.6.75 lakhs to the Resolution Professional as approved by the creditors.