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2023 (9) TMI 1688 - AT - IBCFailure to elicit the most viable commercial plan preventing the CoC to bring about an effective resolution of the corporate debtor - material irregularity been committed by the RP and the CoC in rejecting the resolution plan of the CRP or by the Adjudicating Authority in approving the resolution plan of SRA-Vama - on account of the rejection by RP of the claims filed by the UTGST and AC-CGST the resolution plan of Vama as approved by the Adjudicating Authority meet the requirements under applicable law or not. Whether any material irregularity been committed by the RP and the CoC in rejecting the resolution plan of the CRP or by the Adjudicating Authority in approving the resolution plan of SRA-Vama? - HELD THAT - There are no doubt that the CRP did not submit their EOI on time either in the first or second round of Form G. However as and when it was received the RP had apprised the CoC. Besides being non-serious and casual about complying with timelines stipulated in the IBC even while submitting their EoI they had failed to adhere to mandatory requirements of RFRP. Even the EMD payment was made belatedly and that too for Rs. 2.25 crore as against requirement of Rs 2.5 crore. The CoC deliberated upon the matter and ultimately passed the resolution not to consider the non-compliant plan of CRP in the interests of the corporate debtor and this was communicated to CRP. There are no lapse or irregularity on the part of the RP or the CoC in not entertaining the belated and defective plan of CRP. Section 30 of the IBC which deals with submission of Resolution Plan and sub-section (6) states that the resolution professional shall submit the Resolution Plan as approved by the Committee of Creditors to the Adjudicating Authority . In the present case the RP after approval of the plan by the CoC filed an application before the Adjudicating Authority seeking approval of the Resolution Plan under Section 31 of the Code. Section 31 deals with approval of Resolution Plan - The Adjudicating Authority in turn on its part has clearly recorded in the first impugned order that on examination of the resolution plan of Vama it has found that no provision of law appears to have been contravened and that there is compliance to Regulations 38 and 39 of CIRP Regulations 2016. It has also noted that interests of all stakeholders have been taken care of. CRP has failed to point out the contravention of any provision by the CoC in approving the plan. The CoC has meticulously evaluated the matrix in approving the plan of Vama and the sole member of CoC having 100% voting share has already approved the plan in their commercial wisdom as contemplated under the law. That being the case the Adjudicating Authority cannot substitute its views with the commercial wisdom of the CoC nor deal with the merits of Resolution Plan unless it is found it to be contrary to the express provisions of law and against the public interest. There is neither any material regularity nor contravention of any provisions of law by the CoC and the plan has been rightly approved by the Adjudicating Authority. The IBC provides for an initiation of timely resolution of the corporate debtor and in the instant case the resolution plan having already been approved by the CoC and the Adjudicating Authority and implemented by the SRA it cannot now be open to interference on an appeal preferred by an unsuccessful resolution applicant. It is equally significant to note that following the rejection of the plan of CRP by the CoC CRP accepted the EMD refund and did not approach the Adjudicating Authority objecting to the resolution plan. It is therefore clear that CRP did not challenge the resolution plan before the Adjudicating Authority at the right point of time and raking up the matter belatedly. Thus no case has made by CRP to establish any procedural or material irregularity committed by the RP/CoC in rejecting their EoI and that the challenges raised by the CRP clearly fall within the domain of commercial wisdom of the CoC which is non-justiceable. Nor has CRP been able to establish any contravention of law by the Adjudicating Authority in approving the resolution plan of Vama. Whether on account of the rejection by RP of the claims filed by the UTGST and AC-CGST the resolution plan of Vama as approved by the Adjudicating Authority does not meet the requirements under applicable law? - HELD THAT - There has been no dereliction of duty on the part of the RP in rejecting the belated claims of UTGST and AC-CGST. It is not found that any error or irregularity on the part of RP to have rejected the belated claims of UTGST and AC-CGST. Furthermore the Adjudicating Authority in the first impugned order has taken note that the resolution plan submitted by the SRA Vama has taken into account the interest of government authorities and provided for appropriate treatment of admitted government dues. The Resolution Plan submitted by the Vama has dealt with the claims of Operational Creditors to the extent of Rs. 10 lakhs besides earmarking an additional sum of Rs. 25 lakhs for all the Government Department claims and undertaken to pay all the PF dues at actuals based on the outcome of an ongoing legal case at Delhi High Court with respect thereto. Thus the approval of resolution plan of SRA-Vama by Adjudicating Authority which was approved by the CoC with 100% vote share does not suffer from any material or procedural infirmities. Conclusion - i) No case has made by CRP to establish any procedural or material irregularity committed by the RP/CoC in rejecting their EoI and that the challenges raised by the CRP clearly fall within the domain of commercial wisdom of the CoC which is non-justiceable. ii) The approval of resolution plan of SRA-Vama by Adjudicating Authority which was approved by the CoC with 100% vote share does not suffer from any material or procedural infirmities. There are no illegality in either the first or second impugned order of the Adjudicating Authority which may warrant any interference in the exercise of our appellate jurisdiction - All appeals are dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are: (i) Whether there was any material irregularity committed by the Resolution Professional (RP) and the Committee of Creditors (CoC) in rejecting the resolution plan submitted by CRP Infrastructure Pvt Ltd (CRP) or by the Adjudicating Authority in approving the resolution plan submitted by VAMA Construction Company (Vama) as the Successful Resolution Applicant (SRA). (ii) Whether the rejection by the RP of the claims filed by the Deputy Commissioner, UTGST, Daman (UTGST) and the Assistant Commissioner CGST and Central Excise (AC-CGST), and the subsequent approval of the resolution plan of Vama without considering these claims, violates the requirements of the Insolvency and Bankruptcy Code, 2016 (IBC) and applicable law. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Alleged irregularity in rejection of CRP's resolution plan and approval of Vama's plan Legal framework and precedents: The Insolvency and Bankruptcy Code, 2016 governs the Corporate Insolvency Resolution Process (CIRP). Section 30 mandates submission of resolution plans by prospective resolution applicants (PRAs). Section 31 provides that the Adjudicating Authority shall approve a resolution plan if it meets the requirements of Section 30(2). The commercial wisdom of the CoC is supreme and not subject to judicial interference except on limited grounds (as per the Supreme Court judgment in K. Shashidhar v. Indian Overseas Bank). Court's interpretation and reasoning: The Tribunal examined the timeline of events: the CIRP commenced on 22.10.2020; the RP issued Form G inviting EoIs initially with a deadline of 21.02.2021, then published a fresh Form G on 22.08.2021 with a deadline of 06.09.2021. CRP submitted its EoI belatedly on 05.10.2021, which the RP initially refused to entertain. Upon CRP's challenge, the Adjudicating Authority allowed CRP to submit its resolution plan within seven days on 03.11.2021. However, CRP failed to submit the plan within this stipulated period and ultimately submitted a belated and defective plan on 13.11.2021, which lacked mandatory documents such as a duly signed net worth certificate, audited financial statements, and did not deposit the required Earnest Money Deposit (EMD) in full. The RP informed the CoC about these deficiencies, and the CoC resolved not to consider CRP's plan in the 11th and 13th meetings. CRP's failure to comply with timelines and mandatory requirements was held to justify rejection of its plan. The Tribunal found no procedural or material irregularity by the RP or CoC in this regard. Regarding the approval of Vama's plan, the Tribunal observed that the CoC, consisting of a sole member holding 100% voting share, had approved the plan after detailed deliberations. The Adjudicating Authority examined the plan under Section 30(2) and found no contravention of law or regulations. The Tribunal reiterated that the Adjudicating Authority cannot substitute its view for the commercial wisdom of the CoC unless the plan is contrary to law or public interest. Reliance was placed on the Supreme Court's ruling in Shashidhar emphasizing the non-justiciability of the CoC's commercial decisions. Key evidence and findings: The Tribunal relied on the minutes of CoC meetings, correspondence showing CRP's late and defective submissions, and the Adjudicating Authority's detailed order approving Vama's plan. Application of law to facts: The Tribunal applied the statutory provisions and case law to conclude that CRP's plan was rightly rejected for non-compliance with timelines and eligibility criteria, and that the approval of Vama's plan was lawful and within the commercial discretion of the CoC. Treatment of competing arguments: While CRP alleged arbitrariness and mala fide conduct by the RP, the Tribunal found no evidence of such conduct. The Tribunal also rejected CRP's contention that Vama and the Corporate Debtor were related parties under Section 5(24) of IBC, noting absence of any material to establish ineligibility under Section 29A. Conclusion: No material irregularity or legal infirmity was found in the rejection of CRP's plan or approval of Vama's plan. Issue (ii): Legality of rejection of claims by UTGST and AC-CGST and impact on resolution plan approval Legal framework and precedents: Regulation 12 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") prescribes timelines for submission of claims by creditors. Claims must be submitted on or before the last date mentioned in the public announcement or within 90 days of the insolvency commencement date. The RP's role is to receive, verify, and collate claims within these timelines. The Supreme Court judgment in State Tax Officer v. Rainbow Papers Ltd. clarified that statutory dues must be considered in resolution plans, but the timing and nature of claims are critical. The moratorium under Section 14 of IBC prohibits coercive actions during CIRP. Court's interpretation and reasoning: Both UTGST and AC-CGST filed their claims well after the last date for submission and the extended 90-day period prescribed under Regulation 12. UTGST's claim was filed on 09.11.2021 and AC-CGST's on 02.11.2021, whereas the last date for claims was 25.11.2020 and the extended period ended on 24.02.2021. The Tribunal noted that both authorities issued demand orders, assessment orders, and show cause notices only after the insolvency commencement date, meaning they did not have confirmed claims at the relevant cutoff. The RP had repeatedly requested UTGST to submit claims timely and rejected the belated claims in accordance with Regulation 12. The Tribunal held that the RP has no discretion to admit claims beyond the prescribed timelines, and the rejection was lawful. The Tribunal also emphasized the importance of adhering to the time-bound nature of CIRP to avoid jeopardizing the resolution process. Regarding the contention that the resolution plan must account for statutory dues, the Tribunal observed that the plan approved by the CoC and Adjudicating Authority had made provisions for admitted government dues, including operational creditor claims and earmarked sums for government departments. The Tribunal distinguished the present facts from Rainbow Papers Ltd., noting that in that case, claims existed before CIRP commenced, whereas here claims arose post-commencement. The Tribunal also relied on circulars issued by the Ministry of Finance clarifying that no coercive action can be taken for dues prior to insolvency commencement and that claims must be filed within prescribed timelines. The moratorium prohibits continuation of proceedings against the corporate debtor during CIRP. Key evidence and findings: Correspondence between RP and UTGST, show cause notices and penalty orders from AC-CGST, timelines of claim submissions, and the resolution plan provisions for government dues. Application of law to facts: The Tribunal applied Regulation 12 strictly, holding that late claims cannot be admitted. It recognized the statutory moratorium and the need to preserve the integrity and timeliness of the CIRP process. The resolution plan's provisions for government dues were found adequate to satisfy Section 30(2) requirements. Treatment of competing arguments: While UTGST and AC-CGST argued that the pandemic and ongoing assessment proceedings justified delay, the Tribunal held that these did not excuse non-compliance with timelines. The Tribunal rejected their reliance on Rainbow as prospective overruling and factually distinguishable. The Tribunal also rejected the contention that RP lacked authority to reject claims, affirming RP's role under CIRP Regulations. Conclusion: The rejection of UTGST and AC-CGST claims was lawful and did not invalidate the approval of the resolution plan. The plan adequately accounted for government dues and complied with statutory requirements. 3. SIGNIFICANT HOLDINGS "Be that as it may, it appears to us that CIRP is still on and CoC is considering one plan. Let there be competitive bidding in view of the object of IBC, 2016 for maximization of the value of assets of the Corporate Debtor. Hence, we direct the RP to consider the plan that would be submitted by the Applicant. We direct the Applicant to submit the plan within seven days without fail." (Direction of Adjudicating Authority allowing CRP to submit plan) "The Hon'ble Supreme Court in the case of Maharashtra Limited Seamless in Padmanabhan Venkatesh & Ors. held that no provision in the Code or Regulations was brought to their notice under which the bid of any Resolution Applicant should match liquidation value. The object behind prescribing such valuation process is to assist the CoC to take decision on a Resolution Plan properly. Once, a Resolution Plan is approved by the CoC, the statutory mandate on Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof." "Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the 'commercial wisdom' of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable." (Supreme Court in Shashidhar) "If at belated stage when the Resolution Applicants are already before the Committee of Creditors with their Resolution Plan(s) if new claims keep popping up and are entertained, the CIRP would be jeopardized and Resolution Process may become more difficult. Keeping in view the object of the 'I&B Code' which is Resolution of the Corporate Debtor in time bound manner to maximize value, if such requests of applicants like Appellant are accepted the purpose of 'I&B Code' would be defeated." (Tribunal's observation on belated claims) "The RP has certified that the Resolution Plan does not contravene any provisions of law for the time being in force. On examination of the Resolution Plan, we also find that the Resolution Plan does not contravene any provisions of law. We also hold that the Resolution Plan is in compliance with the provisions stated in Regulations 38 and 39 of the IBBI (CIRP of the Corporate Person) Regulations, 2016, and the interests of all stakeholders are taken care of. The term of the plan is also stated. Hence, we see no reason to reject this Resolution Plan on any grounds." (Adjudicating Authority's finding on Vama's plan) Core principles established include:
Final determinations:
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