2021 (6) TMI 649 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan by Adjudicating Authority - One Time Settlement already approved - whether Section 29A of IBC will be applicable with retrospective effect in Section 10 proceedings which were initiated prior to Section 29A coming into force and to decide the issue and any other question of law? - HELD THAT - There is no doubt that at the time when Mr. Wig submitted the One Time Settlement to the Bank which was converted by Respondent No.2 with the help of Appellant as a Resolution Plan he could not have done so. The arguments of Respondent No.2 show that it had already approved the OTS of Mr. Wig on 27th March 2018. It also appears that Mr. Wig had already paid Rs. 103 Lakhs to the Bank. This can be seen from the Impugned Order where it has referred to the compliance with Regulation 38 of CIRP Regulations in Para 14.1 of the Impugned Order. Thus what appears is that the OTS was already approved by the Respondent No.2 Bank which was the only Financial Creditor and thus the actions taken on 5th April 2018 in third COC and 20th April 2018 were only completion of formalities. The subsequent introduction of Section 240A of IBC and subsequent taking of certificate of being MSME will not cure the ineligibility at the time of submitting OTS-cum-Resolution Plan which was not permissible. The said Resolution Plan submitted by Mr. Wig could not have been acted upon and the Appellant erred in presenting the same before COC - matter is remitted back to the Adjudicating Authority. The Adjudicating Authority is required to pass Orders of liquidation of the Corporate Debtor under Section 33 of the IBC - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Applicability of Section 29A of the Insolvency and Bankruptcy Code (IBC) with retrospective effect.
2. Eligibility of the Resolution Applicant under Section 29A.
3. Legitimacy of treating One Time Settlement (OTS) as a Resolution Plan.
4. Compliance with the Insolvency and Bankruptcy Code (IBC) and related regulations during the Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

1. Applicability of Section 29A of the Insolvency and Bankruptcy Code (IBC) with Retrospective Effect:
The primary legal issue revolves around whether Section 29A of IBC, which was introduced through an ordinance on 23rd November 2017 and later became an Act in 2018, applies retrospectively to proceedings initiated before its enactment. The Tribunal noted that the Adjudicating Authority was aware of this ordinance and the subsequent amendment but still proceeded to approve the Resolution Plan based on the rules existing at the time of the petition's admission. The Tribunal referenced judgments from the Supreme Court, including "Arcelormittal India (P) Ltd. v. Satish Kumar Gupta" and "Swiss Ribbons vs. Union of India," which clarified that ineligibility under Section 29A attaches at the time of submission of the Resolution Plan, not at the commencement of CIRP.

2. Eligibility of the Resolution Applicant under Section 29A:
The Tribunal examined whether Mr. Mahendra Wig, who proposed the Resolution Plan, was eligible under Section 29A. The Tribunal found that Mr. Wig, being a personal guarantor for the loan and a related party, was ineligible under Section 29A. The Tribunal emphasized that the ineligibility attaches at the time of submission of the Resolution Plan, as clarified by the Supreme Court in the "Arcelormittal" and "Swiss Ribbons" cases. Therefore, Mr. Wig was not eligible to submit a Resolution Plan.

3. Legitimacy of Treating One Time Settlement (OTS) as a Resolution Plan:
The Tribunal scrutinized the process of treating an OTS as a Resolution Plan. It was revealed that the Bank of Baroda had already approved the OTS proposed by Mr. Wig before it was presented as a Resolution Plan. The Tribunal noted that the scheme of IBC does not contemplate treating OTS offers as Resolution Plans. Thus, the OTS could not have been accepted as a Resolution Plan, and the process adopted by the Appellant was against the provisions of IBC and its regulations.

4. Compliance with the Insolvency and Bankruptcy Code (IBC) and Related Regulations during the Corporate Insolvency Resolution Process (CIRP):
The Tribunal highlighted several procedural lapses and non-compliance with IBC during the CIRP. The Resolution Professional (Appellant) erred in presenting the OTS as a Resolution Plan and failed to adhere to the statutory requirements under IBC and its regulations. The Tribunal found that the actions taken by the Appellant and the subsequent approval of the Resolution Plan by the Adjudicating Authority were flawed and required rectification.

Conclusion:
The Tribunal concluded that the Resolution Plan submitted by Mr. Mahendra Wig could not have been acted upon due to his ineligibility under Section 29A of IBC. The Tribunal set aside the Impugned Order approving the Resolution Plan and directed the Adjudicating Authority to pass orders for the liquidation of the Corporate Debtor under Section 33 of IBC. The Appeal was allowed, and the matter was remitted back to the Adjudicating Authority for further proceedings. No orders as to costs were made.