2025 (5) TMI 268 - SC - IBC

CIRP proceedings - Resolution Plan of the JSW in the matter of Bhushan Power and Steel Limited- Maintainability of appeals filed by erstwhile promoters operational creditors and government authorities under Section 62 of the Insolvency and Bankruptcy Code 2016 - persons aggrieved or not - Mandatory requirement u/s 29A - Non-compliance of mandatory provisions and on EBITDA. Maintainability of appeals - aggrieved persons - HELD THAT - The use of the phrase any person aggrieved indicates that there is no rigid locus requirement to institute an Appeal challenging the order of NCLT before the NCLAT or an order of NCLAT before this Court. Any person who is aggrieved by the order may institute an Appeal. Once the Corporate Insolvency Resolution Process is initiated the proceedings are no longer restricted to any individual Applicant Creditor or to the Corporate Debtor but rather they become collective proceedings in rem where all the creditors and the Ex- Directors would be necessary stakeholders. Therefore the Appellants who are the operational creditors and the erstwhile Promoters being important stakeholders and whose Company Appeals have been dismissed by the NCLAT vide the impugned judgment would certainly be the persons aggrieved entitled to file Appeals before this Court under Section 62 of the IBC. Moreover they have also raised number of questions of law in the instant appeals which although will be considered in the later part of this judgment nonetheless they being the persons aggrieved the Appeals at their instance are certainly maintainable. In the instant case indubitably the NCLT vide the order dated 05.09.2019 had allowed the Application of the Resolution Professional seeking approval of the Resolution Plan of JSW as approved by the CoC. Hence JSW as such could not be said to be the person aggrieved by the order of NCLT approving the Resolution Plan of JSW itself. It seems that JSW was aggrieved by some of the conditions imposed by the NCLT while approving its plan however for filing such an Appeal under Section 61 the grounds specified in sub-section (3) thereof must exist. Mandatory requirement u/s 29A - HELD THAT - Since the eligibility/ineligibility of the Resolution Applicant to submit the Resolution Plan goes to the root of the matter it was incumbent on the part of the Resolution Professional to verify and certify that the contents of the mandatory affidavit filed by the Resolution Applicant-JSW in respect of Section 29A were in order. The same having not been stated in the Application filed by the Resolution Applicant before the NCLT it has raised serious doubt in the mind of the Court with regard to the very eligibility of the JSW to submit the Resolution Plan - the doubt is further fortified by the observations made and justification given by the NCLAT for the non-disclosure and suppression made in the Resolution Plan by JSW with regard to the Joint Venture Agreement dated 05.03.2008 entered into by and between the JSW BPSL and Jai Balaji. Power of NCLAT to review the decision of statutory authority under PMLA - HELD THAT - In view of the settled proposition of law when the NCLT could not exercise the powers of judicial review falling outside the purview of the IBC or falling within the purview of public law the NCLAT also being an Appellate Authority under Section 61 over the orders passed by the NCLT could not exercise any power or jurisdiction beyond Section 61 of IBC - a person aggrieved by an order of the Adjudicating Authority can prefer an Appeal to the NCLAT under Section 61(1) and that an Appeal against the order approving a Resolution Plan under Section 31 could be filed only on the grounds mentioned in clauses (i) to (v) of sub-section (3) of Section 61. Hence for filing an Appeal under Section 61 there has to be an order passed by the NCLT so far as sub-section (1) is concerned and if the Appeal is filed against the order of NCLT approving the Resolution Plan under Section 31 it could be filed only on the grounds mentioned in sub-section (3) of Section 61. In the instant case after the approval of Resolution Plan of JSW by the NCLT on 05.09.2019 subject to the conditions mentioned therein the PAO came to be passed by the ED on 10.10.2019 under Section 5 of the PMLA - The PMLA being a Public Law the NCLAT did not have any power or jurisdiction to review the decision of the Statutory Authority under the PMLA. Apart from the fact that the said issue was pending before this Court in respect of the same PAO dated 10.10.2019 and therefore the NCLAT should not have decided the said issue it was beyond the jurisdiction of the NCLAT to decide the said issue in the Company Appeal filed by JSW under Section 61 of IBC. The observations made and the findings recorded by the NCLAT in the impugned judgment with regard to the PAO dated 10.10.2019 passed by the Directorate of Enforcement under the PMLA being without any authority of law and without jurisdiction were coram non judice. Non-compliance of mandatory provisions and on EBITDA - HELD THAT - There is nothing on record to show as to how when and by whom the Effective date as contemplated in the Resolution Plan was extended. If the Effective date was surreptitiously extended by some lenders claiming to be part of CoC which had become functus officio and which had no authority to do so any payment made or Equity infused by JSW under the garb of such decision cannot be vindicated by the Court. When the SRA-JSW CoC and Resolution Professional are being represented by very eminent Advocates non-production of such relevant material with regard to infusion of Equity and extension of Effective date to substantiate their submissions cannot be without any purpose. It therefore raises serious doubts about the legality of such actions and genuineness of the so-called compliance of Resolution Plan pending these Appeals. It has been reiterated time and again by this Court that one of the main objects for enacting the IBC is to complete the entire CIR Proceedings in a time bound manner and that is the reason a time-line is set out in the Code and its Resolutions for every stage of the proceedings. As well settled time is a crucial factor of the scheme under IBC. To allow the proceedings to lapse into indefinite delay will frustrate the very object of the Code. The provision contained in Section 12(1) is mandatory in nature as the expression shall be completed is used. Sub-section (3) further makes it clear that the duration of 180 days may be extended further but not exceeding 90 days meaning thereby a maximum of 270 days time limit is statutorily laid down. The proviso to Section 12 also further clarifies that the extension of period of CIRP under the said Section shall not be granted more than once. Therefore there remains no shadow of doubt that prior to insertion of two provisos by way of amendment in Section 12 which came into force w.e.f 16.08.2018 the entire CIRP proceedings had to be completed within maximum period of 270 days from the date of admission of the Application to initiate such process. The CIRP Regulations 2016 have been made by the Insolvency and Bankruptcy Board of India in exercise of the powers conferred under Section 5 7 9 14 15 17 18 21 24 25 29 30 196 and 208 read with Section 240 of the IPC. The said Regulations being subordinate legislation having statutory force have the same binding effect as the Code itself. Therefore the mandates given in the said Regulations to carry out the provisions of the Code have to be strictly complied with by all the stakeholders as well as by the Authorities under the Code. However in the instant case the Resolution Applicant - JSW had submitted the Resolution Plan in complete contravention of the mandates given in the Code as well as in the Regulations. There are much substance in the submissions of the learned Senior Advocate for the Ex-Promoters that apart from the fact that there was gross non- compliance of the mandatory provisions of the IBC and the Regulations there was a dishonest and fraudulent attempt made by JSW misusing the process of the Court by not making the upfront payments as committed by it for about two and a half years and thereby enriching itself unjustly and thereafter considering the rising prices of steel in the market JSW sought to comply with the terms of Resolution Plan at a very belated stage in collusion with the CoC and the Resolution Professional. The changing stance of CoC in the present proceedings also smacks of its bona fides and raises serious doubts about the exercise of its so- called commercial wisdom. Though the commercial wisdom of the CoC should have been given the primacy in any adjudicatory proceedings the changing stance of CoC from time to time during the course of proceedings right from the holding of meetings for approving the Resolution Plan of JSW till the final hearing of the present Appeals has led this Court to believe that the CoC also has played a very dubious role in the entire CIRP. It was stated by the CoC on affidavit before this Court that because of the delaying tactics adopted by JSW and deferring the implementation of the Resolution Plan the CoC was entitled to the compensation and interest on the said amount of Rs.19, 350 Crores for causing loss of crores of rupees per day. It is very pertinent to note that the upfront payments and commitment with regard to infusion of Equity into the company was one of the main criteria on which JSW had scored the highest in the evaluation matrix determined by the CoC. Thus after obtaining the approval of its Resolution Plan from CoC by presenting a rosy picture misguiding the CoC and defeating the rights of other Resolution Applicants JSW did not respect and honor the said commitments and on the contrary tried its level best to delay the implementation of the Resolution Plan without any cogent reason or justification. This is nothing but a misuse of process of law and a fraud committed by JSW with the CoC and other stakeholders. Thus it is quite clear that merely because the Code is silent with regard to the phase of implementation of the Resolution Plan by the Successful Resolution Applicant neither the Tribunal nor the Courts should give excessive leeway to the Successful Resolution Applicant to act in flagrant violation of the terms of the Resolution Plan or in a lackadaisical manner. In the instant case SRA/JSW did not implement the Resolution Plan for about two years since its approval by the NCLAT though there was no legal impediment in implementing the same. Such flagrant violation of the terms of the Resolution Plan has frustrated the very object and purpose of the Code. Conclusion - i) The Resolution Professional had utterly failed to discharge his statutory duties contemplated under the IBC and the CIRP Regulations during the course of entire CIR proceedings of the Corporate Debtor- BPSL. ii) The CoC had failed to exercise its commercial wisdom while approving the Resolution Plan of the JSW which was in absolute contravention of the mandatory provisions of IBC and CIRP Regulations. The CoC also had failed to protect the interest of the Creditors by taking contradictory stands before this Court and accepting the payments from JSW without any demurer and supporting JSW to implement its ill-motivated plan against the interest of the creditors. iii) The SRA-JSW after securing the highest score in the Evaluation matrix in the 18th meeting of CoC submitted the revised consolidated Resolution Plan with addendum under the garb of complying with the amendments made in the CIRP Regulations 2016 and got the same approved from the CoC. However JSW even after the approval of its Plan by the NCLAT willfully contravened and not complied with the terms of the said approved Resolution Plan for a period of about two years which had frustrated the very object and purpose of the IBC and consequently had vitiated the CIR proceedings of the Corporate Debtor-BPSL. iv) The Resolution Plan of JSW as approved by the CoC did not confirm the requirements referred to in sub- section (2) of Section 30 the same being in flagrant violation and contravention of the expressed provisions of the IBC and the CIRP Regulations. The said Resolution Plan therefore was liable to be rejected by the NCLT under sub-section (2) of Section 31 at the very first instance. v) The impugned judgment passed by the NCLAT in allowing the Company Appeal of JSW and issuing the directions without any authority of law and without jurisdiction is perverse coram non judice and liable to be set aside. The judgments and orders dated 05.09.2019 and 17.02.2020 passed by the NCLT and NCLAT respectively are quashed and set aside - appeal allowed.

Summary

The core legal questions considered in this judgment include:

(i) Whether the appeals filed by erstwhile promoters, operational creditors, and government authorities under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) were maintainable as "persons aggrieved" by the National Company Law Appellate Tribunal (NCLAT) order;

(ii) The legality and compliance of the Resolution Plan submitted by the successful resolution applicant (SRA) with mandatory provisions of the IBC, including Section 29A eligibility criteria, Section 30(2) requirements, and the CIRP Regulations, 2016;

(iii) Whether the National Company Law Tribunal (NCLT) and NCLAT had jurisdiction and powers to review and interfere with the Provisional Attachment Order (PAO) passed by the Directorate of Enforcement (ED) under the Prevention of Money Laundering Act, 2002 (PMLA), especially in light of Section 32A of the IBC;

(iv) Whether the Corporate Insolvency Resolution Process (CIRP) was conducted within the mandatory timelines prescribed under Section 12 of the IBC;

(v) The validity of the conditions imposed by NCLT and their modification by NCLAT in approving the Resolution Plan;

(vi) Issues relating to the implementation of the Resolution Plan, including payment priority between financial and operational creditors and the treatment of Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) generated during CIRP;

(vii) The role and conduct of the Resolution Professional and Committee of Creditors (CoC) in the CIRP and approval of the Resolution Plan;

(viii) The effect of non-compliance of mandatory provisions and alleged misuse of the process of law by the SRA and CoC on the validity of the Resolution Plan.

Issue-wise Detailed Analysis:

1. Maintainability of Appeals under Section 62 of IBC

The Court examined the term "person aggrieved" under Section 62, relying on a recent three-judge bench decision which clarified that the locus to file an appeal before NCLAT or Supreme Court is not rigidly confined to the applicant creditor or corporate debtor alone. Once CIRP commences, proceedings become collective and all creditors and stakeholders, including erstwhile promoters and operational creditors, are necessary stakeholders. Therefore, the appellants, being operational creditors, ex-promoters, and government authorities who were dismissed by NCLAT, were rightly considered persons aggrieved and entitled to file appeals. The Court rejected arguments that some appellants had accepted payments and thus lost locus, emphasizing the position at the time of filing the appeals.

2. Maintainability of JSW's Appeal under Section 61

JSW filed an appeal under Section 61 challenging certain conditions imposed by NCLT while approving its Resolution Plan. The Court analyzed Section 61(3), which restricts grounds for appeal against approval of resolution plans to specific issues such as contravention of law, material irregularity by resolution professional, non-provision for operational creditors' debts, insolvency resolution costs, or non-compliance with Board criteria. JSW's appeal did not raise any of these grounds. The Court held that JSW was not a "person aggrieved" for filing the appeal and that the appeal was not maintainable. The NCLAT's entertaining and allowing JSW's appeal was thus erroneous.

3. Compliance with Section 29A and Mandatory Certification

Section 29A disqualifies certain persons from submitting resolution plans. The Resolution Applicant must submit an affidavit of eligibility, and the Resolution Professional must verify and certify compliance in Form H. The Court found that the Resolution Professional failed to submit the prescribed compliance certificate and did not verify the affidavit's contents. The annexure relied upon merely disclosed identities, not eligibility. This raised serious doubts about JSW's eligibility. NCLAT's justification of non-disclosure and suppression of material facts regarding a Joint Venture Agreement was criticized. The Court underscored the mandatory nature of these disclosures and certifications as foundational to the CIRP process.

4. Powers of NCLT/NCLAT to Review ED's Provisional Attachment Order under PMLA

The ED had provisionally attached the assets of the Corporate Debtor post NCLT's approval of the Resolution Plan. JSW challenged this before NCLAT, which stayed the attachment and held that the attachment was illegal under Section 32A of IBC. The Court noted that NCLT and NCLAT are constituted under the Companies Act and have circumscribed powers under IBC. They lack jurisdiction to exercise judicial review over public law decisions by statutory authorities such as ED. The Court held that the NCLAT's interference with ED's attachment order was without jurisdiction and coram non judice. The Court disposed of related appeals with directions for handover of control of attached properties to JSW, without expressing opinions on the merits of the PMLA issues.

5. Compliance with Mandatory Timelines under Section 12 of IBC

Section 12 mandates completion of CIRP within 180 days, extendable once by 90 days, totaling a maximum of 270 days (prior to amendments effective 16.08.2019). The CIRP against the Corporate Debtor commenced on 26.07.2017; however, the Resolution Plan was filed for approval only on 14.02.2019, well beyond the statutory limit. The Resolution Professional neither filed an application for extension nor explained the delay. The Court held this a grave violation of mandatory timelines, rendering the approval of the Resolution Plan by NCLT erroneous. Even considering the exclusion period during pendency of a related appeal, the delay was unjustified.

6. Non-Compliance with Section 30(2) and CIRP Regulations 2016

Section 30(2) requires that resolution plans provide for payment of insolvency costs, debts of operational creditors in priority, and not contravene any law. Regulation 38 mandates that operational creditors' dues be paid in priority over financial creditors. The Court found that the Resolution Plan gave priority to financial creditors over operational creditors, violating these provisions. The Resolution Professional failed to verify compliance, and the CoC approved the plan without due diligence on feasibility, viability, and capability of the Resolution Applicant. The Court held these as fatal non-compliances that vitiated the CIRP.

7. Conduct of CoC and Resolution Professional

The Court observed that the CoC's conduct was contradictory and dubious. Though it raised grievances against JSW's delay in implementation and non-payment of upfront amounts, it later accepted payments without demur and supported JSW's implementation. The Resolution Professional failed in statutory duties, including timely filing, certification of eligibility, and seeking avoidance of fraudulent transactions. The CoC's approval of the plan despite known non-compliances was not an exercise of genuine commercial wisdom but a flawed process.

8. Implementation of the Resolution Plan and Delay

JSW delayed payment of upfront amounts to financial creditors by approximately 540 days and to operational creditors by around 900 days, despite the plan's unconditional terms requiring implementation within 30 days of NCLT approval. JSW also failed to infuse the full equity commitment upfront as per the plan. The Court held that the plan's implementation phase is not explicitly regulated by the Code, but the successful resolution applicant has a fiduciary duty to implement the plan diligently and in good faith. The delay and partial implementation amounted to misuse of the process and frustrated the Code's objectives.

9. Treatment of EBITDA Generated During CIRP

Though raised, the Court refrained from deciding on the issue of EBITDA distribution, as the Resolution Plan itself was rejected. The question remains open for future adjudication.

10. Legality of Conditions Imposed by NCLT and Modified by NCLAT

The Court reviewed the conditions imposed by NCLT and their modifications by NCLAT, noting that certain conditions were set aside by NCLAT without jurisdiction or contrary to the agreed resolution plan terms. The directions by NCLAT regarding declassification of the Corporate Debtor as promoter and other ancillary matters were beyond the scope of the appeal filed by JSW and thus unwarranted.

Conclusions:

The Court concluded that the entire CIRP proceedings were vitiated by gross non-compliance of mandatory provisions of the IBC and CIRP Regulations by the Resolution Professional, CoC, and JSW. The Resolution Plan of JSW did not meet the requirements of Section 30(2) and was filed beyond the prescribed timeline under Section 12. The NCLT erred in approving the plan, and the NCLAT exceeded its jurisdiction in entertaining and allowing JSW's appeal and interfering with ED's attachment order. The conduct of JSW and CoC in delaying implementation and accepting payments belatedly was held to be mala fide and a misuse of the process of law.

Significant Holdings:

"The use of the phrase 'any person aggrieved' indicates that there is no rigid locus requirement to institute an appeal challenging an order of the National Company Law Tribunal before the National Company Law Appellate Tribunal or an order of the National Company Law Appellate Tribunal before this Court. Any person who is aggrieved by the order may institute an appeal... Once the corporate insolvency resolution process is initiated, the proceedings are no longer restricted to the individual applicant creditor and the corporate debtor but rather become collective proceedings (in rem), where all creditors... are necessary stakeholders."

"The Resolution Professional had utterly failed to discharge his statutory duties contemplated under the IBC and the CIRP Regulations during the course of entire CIR proceedings of the Corporate Debtor... The CoC had failed to exercise its commercial wisdom while approving the Resolution Plan... The Resolution Plan of JSW as approved by the CoC did not confirm the requirements referred to in sub-section (2) of Section 30... The impugned judgment passed by the NCLAT... is perverse, coram non judice and liable to be set aside."

"Section 12(1) is mandatory in nature... the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days... extendable once by a period not exceeding ninety days... The Resolution Professional neither filed an application for extension nor submitted the Resolution Plan within the prescribed time... The approval of the Resolution Plan by the NCLT was therefore erroneous."

"The National Company Law Tribunal and National Company Law Appellate Tribunal... do not have powers of judicial review over decisions taken by Government or statutory authorities in the realm of public law... The NCLAT's interference with the Provisional Attachment Order passed by the Directorate of Enforcement under the PMLA was without jurisdiction and coram non judice."

"The successful resolution applicant undertakes a profound responsibility to implement the plan in both letter and spirit... The successful resolution applicant cannot treat its obligations as optional or conditional, nor can it abdicate its responsibility in the face of unforeseen obstacles... The courts and Tribunals have consistently underscored that the successful resolution applicant's role transcends commercial interest and embodies a commitment to the larger purpose of corporate revival."

Final Determinations:

(i) The appeals filed by operational creditors, erstwhile promoters, and government authorities under Section 62 of IBC were maintainable as persons aggrieved.

(ii) The appeal filed by JSW under Section 61 was not maintainable and was erroneously entertained and allowed by NCLAT.

(iii) The Resolution Plan of JSW was not in compliance with mandatory provisions of the IBC and CIRP Regulations, particularly Section 29A, Section 30(2), and Regulation 38.

(iv) The CIRP was not conducted within the mandatory timelines prescribed under Section 12 of IBC.

(v) NCLT erred in approving the Resolution Plan; NCLAT erred in modifying conditions and interfering with ED's attachment order beyond its jurisdiction.

(vi) The Resolution Plan of JSW was rejected and the matter was remitted to NCLT to initiate liquidation proceedings under Chapter III of IBC.

(vii) Payments made and equity infused under the plan pending outcome of appeals shall be dealt with as per the statement recorded in the Court's order dated 06.03.2020.

(viii) The question regarding EBITDA distribution remains open for future consideration.