2025 (5) TMI 582 - AT - IBC

Approval of Resolution Plan - primary objection of the Appellant on the conduct of the RP was that the claims admitted in respect of the two Financial Creditors were not in conformity with their respective financial records and that the RP had manipulatively allowed them to artificially balloon their claims - HELD THAT - It was only reasonable on the part of the Adjudicating Authority to infer that the apprehensions of the TDB in respect of the claim filed by ISARC stood allayed. We are also inclined to agree with the RP that when there were only two Financial Creditors in the CoC and they had settled their doubts and ambiguities about each other s claim and there was no inter se dispute between them on the quantum of claim they had actually opted and chosen to put a quietus to the matter. That being the ground situation the suspended management of the Corporate Debtor has no locus to raise unfounded allegations about the quantum of claims claimed by the Financial Creditors and admitted by the RP. When TDB was fully satisfied about the fairness and reasonableness of the claim filed by the other Financial Creditor there are no reasons to disagree with the findings returned by the Adjudicating Authority that merely because the Appellant was the personal guarantor of the ex-management they cannot be seen to unduly persist with their allegations that the claims of the Financial Creditor were inflated and exaggerated to the detriment of the Corporate Debtor. RP failed to effectively discharge his statutory responsibilities under the IBC in not having disclosed crucial material information in the RFRP document with regard to the land on which the hospital of the erstwhile Corporate Debtor was running in that it was a leased property the lease having been granted by the Government of Odisha on 02.11.2000 - HELD THAT - Perusal of the contents of the communication does not in any manner manifest that the RP had committed any breach of the Lease Deed. All that the Government of Odisha had communicated in the said letter to the RP was to take adequate safeguards and precaution that the terms and conditions of Lease Deed were not deviated from or get overrun in any manner. Material placed on record also show that the RP had sent a reply on 29.08.2022 and 18.11.2022 to the Government of Odisha that all the points contained in their letter of 03.09.2022 had been taken cognisance of. There are no material on record which substantiates that the Lessor-Government of Odisha had raised any such objection that the land lease deed has been violated. No permission was either necessary from Government of Odisha since there was no change in the purpose of the use of the land. Neither was the land being put for sale. The business activity of the SRA pursuant to approval of resolution plan was for the same purpose for which Lease Deed had been granted to the suspended management. Furthermore as to whether the terms of conditions of the Lease Deed had been breached or not is an issue to be examined and determined by the Government of Odisha the latter being the Lessor - there are no infirmity in the finding returned by the Adjudicating Authority that no breach of the lease deed had been pointed out by the Government of Odisha and that the RP had scrupulously complied to the suggestions and directions of the Government of Odisha which was the Lessor. The approval of the valuation of Corporate Debtor is an exercise which falls under the purview of commercial wisdom undertaken by the CoC. The scope of interference by the Adjudicating Authority in the commercial wisdom exercised by the CoC is minimal. Since the Appellant had no right to vote in the meeting of the CoC they cannot be said to have suffered from any prejudice for not being provided with the valuation report. Whether the detailed valuation report was placed before the Appellant or not is immaterial and irrelevant since it is only the members of the CoC who were required to exercise the commercial wisdom on the valuation reports placed before them and not the Appellant who did not have the right to exercise their vote. Non-sharing of the valuation reports as per the CIRP regulations - HELD THAT - The confidential nature of the fair value and liquidation value of the Corporate Debtor is highlighted in Regulation 35(2) of the CIRP Regulations and the RP is not obligated to share these reports with anyone but for the members of the CoC. The RP had not violated the statutory construct of the IBC in not acceding to the request of the Appellant to provide them with the valuation report. There are no merit in the contention of the Appellant that by not getting access to the valuation reports they were denied their due - It is settled law that the collective business decision of the CoC cannot be interfered with either by the RP or the Adjudicating Authority. Hence the complaint of the Appellant that their settlement offer did not receive deserve due regard is misplaced and cannot be sustained. The resolution plan was approved with 100% vote share in the 9th CoC meeting on 06.06.2022. The plan having been approved by full majority the Adjudicating Authority did not commit any error while approving the resolution plan after noting its satisfaction about the plan being compliant to the provisions of the IBC in terms of Section 30(2) of the IBC. Law is now well settled that the jurisdiction of the Adjudicating and Appellate Authorities to interfere with approval of the resolution plan is limited. The scope of judicial review is confined to the provisions contained in Section 30(2) of the IBC for the Adjudicating Authority and Section 61(3) for the Appellate Authority. There is only limited review which can be exercised by the Adjudicating Authority or the Appellate Authority. Conclusion - As long as the statutory provisions of the IBC and the CIRP Regulations framed thereunder are complied with it is the commercial wisdom of the requisite majority of the CoC which is to negotiate and accept a resolution plan. Once all the mandatory requirements have been duly complied with and taken care of the Adjudicating Authority cannot 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 irregularity nor contravention of any provision of law by the CoC which has been justifiably substantiated by the Appellant. In the present case when no valid grounds have been made out to challenge the approval of the resolution plan the legislative fiat of the IBC that the Adjudicating Authority cannot trespass upon the business decision of the CoC holds ground. The plan has been rightly approved by the Adjudicating Authority on having successfully passed the muster of commercial wisdom of CoC - Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Resolution Professional (RP) conducted the Corporate Insolvency Resolution Process (CIRP) in a fair and transparent manner, particularly regarding the admission of claims by the Secured Financial Creditors and whether such claims were artificially inflated to the detriment of the Corporate Debtor.

- Whether the Resolution Plan approved by the Adjudicating Authority was compliant with the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), especially in light of alleged inflated claims and whether the plan was beneficial to the Corporate Debtor.

- Whether the RP failed to disclose material information in the Request for Resolution Plan (RFRP), specifically concerning the leasehold land on which the Corporate Debtor's hospital operated, including the terms and conditions of the Lease Deed granted by the Government of Odisha.

- Whether the Resolution Plan suffered from deficiencies due to non-compliance with lease conditions, absence of Government of Odisha's consent, and related issues, potentially rendering the plan liable to fail.

- Whether the valuation exercise conducted by the RP was proper and in accordance with statutory requirements, and whether the valuation report should have been shared with the suspended management.

- Whether the Appellant's settlement offer under Section 12A of the IBC was duly considered by the RP and Committee of Creditors (CoC).

- The scope of judicial interference by the Adjudicating Authority and Appellate Tribunal in the commercial wisdom exercised by the CoC in approving the Resolution Plan.

2. ISSUE-WISE DETAILED ANALYSIS

Admission and Quantum of Claims by Secured Financial Creditors

The Appellant contended that the RP admitted inflated claims of the Financial Creditors-Technology Development Board (TDB) and India SME Assets Reconstruction Company Limited (ISARC)-which did not align with their financial records. The Appellant argued that payments made by the Corporate Debtor to these creditors were not accounted for, resulting in artificial inflation of claims. The Adjudicating Authority had dismissed these objections on the ground that there was no inter se dispute between the Financial Creditors regarding their claims.

The RP rebutted by asserting that the Appellant selectively relied on documents, ignoring the Arbitration Award in favor of TDB which justified the admitted claim amount. The RP also explained that interest accrued between the default date and CIRP initiation justified the higher claim amount of ISARC. The RP emphasized that TDB and ISARC, both public bodies with reputations at stake, could not have colluded to inflate claims.

The Adjudicating Authority's reasoning, as noted by the Tribunal, was that TDB had initially raised objections to ISARC's claim but, after receiving detailed particulars (Form-C), did not pursue the matter further, indicating acceptance. Given that the CoC comprised only these two creditors who had resolved their differences, the suspended management (Appellant) lacked locus to challenge the claims. The Tribunal upheld this view, emphasizing that the Appellant's status as a personal guarantor did not entitle them to persist with unsubstantiated allegations.

The Resolution Plan's payment structure corroborated this reasoning: TDB received 47% and ISARC 48% of their admitted claims, with Operational Creditors receiving 100%. No complaints were recorded from creditors regarding arbitrary haircuts, indicating substantive fairness.

Disclosure of Leasehold Land Details in RFRP and Compliance with Lease Conditions

The Appellant argued that the RP failed to disclose critical information about the leasehold land on which the Corporate Debtor's hospital operated. The land was leased by the Government of Odisha for a specific purpose, with strict conditions including termination clauses upon breach. The Appellant contended that the RFRP and Resolution Plan were silent on these conditions, and the CoC was informed about the lease only after the plan's approval. They further alleged that the plan lacked Government consent and was thus defective.

The RP and Respondent countered that no evidence existed of any breach of lease conditions. The lease was for running a hospital, and the SRA intended to continue the same business, albeit on an expanded scale. The Government of Odisha had issued a letter dated 03.09.2022 advising the RP to ensure compliance with lease terms and forest clearance requirements but did not allege any violation. The RP had kept the Government informed and sought extensions for forest clearance applications. The Appellant, as suspended management, had no locus to determine or challenge compliance with lease terms, which was the Government's prerogative.

The Tribunal analyzed the Government's letter, noting it merely cautioned the RP to adhere to lease terms to avoid future litigation. No objection or termination notice had been issued. The Tribunal distinguished the present case from a precedent where non-compliance with lease terms and unpaid enhanced land costs led to rejection of the plan. Here, the land use remained consistent with the lease purpose, and no breach was established. The Tribunal upheld the Adjudicating Authority's finding that the RP had taken appropriate steps to keep the Government apprised and comply with lease conditions.

Valuation Exercise and Sharing of Valuation Report

The Appellant claimed the RP's valuation was artificially inflated to benefit Financial Creditors and that the valuation report was withheld despite requests.

The Tribunal observed that under Section 25 of the IBC and CIRP Regulations, the RP's duty is limited to appointing registered valuers and submitting their report to the CoC. Approval of valuation is a matter of commercial wisdom of the CoC, not the RP. The Appellant, not being a CoC member, had no right to receive the valuation report. Regulation 35(2) of the CIRP Regulations mandates confidentiality, restricting disclosure to CoC members upon confidentiality undertaking.

The Adjudicating Authority rightly held that the RP did not violate statutory provisions by refusing to share the valuation report with the suspended management. The Tribunal affirmed that the Appellant suffered no prejudice in this regard.

Consideration of Settlement Offer under Section 12A

The Appellant contended that their settlement offer under Section 12A was ignored by the RP and CoC.

The Tribunal clarified that the RP's role is to present any settlement offer to the CoC, and acceptance lies within the commercial wisdom of the CoC. The settlement offer was discussed in the 6th CoC meeting; ISARC agreed to review it but did not respond further. TDB emphasized that any repayment plan must consider its interests as well. The CoC's rejection or non-response to the offer was a valid exercise of commercial wisdom, immune from judicial interference. The Tribunal found no fault with the RP or CoC on this ground.

Scope of Judicial Review of Resolution Plan Approval

The Respondent emphasized that appeals against approval of resolution plans must be confined to grounds enumerated under Section 61(3) of the IBC. The Appellant failed to demonstrate any such grounds.

The Tribunal reiterated settled law that the commercial wisdom of the CoC is paramount and not subject to judicial review except on limited grounds specified in Sections 30(2) and 61(3) of the IBC. The Tribunal relied on authoritative Supreme Court precedents affirming that the Adjudicating Authority and Appellate Tribunal cannot interfere with the CoC's collective business decision unless the plan is contrary to law or public interest.

The Resolution Plan had been approved with 100% voting share in the 9th CoC meeting. The Tribunal found no material irregularity or contravention of law warranting interference. The Adjudicating Authority rightly approved the plan after ensuring compliance with statutory provisions.

3. SIGNIFICANT HOLDINGS

"It is trite law that 'commercial wisdom' of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the processes within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or the Appellate Authority (the NCLAT) to take into consideration any other factor other than the one specified in Section 30(2) or Section 61(3) of the IBC."

"When there were only two Financial Creditors in the CoC and they had settled their doubts and ambiguities about each other's claim and there was no inter se dispute between them on the quantum of claim, they had actually opted and chosen to put a quietus to the matter. That being the ground situation, the suspended management of the Corporate Debtor has no locus to raise unfounded allegations about the quantum of claims claimed by the Financial Creditors and admitted by the RP."

"Perusal of the contents of [the Government of Odisha's] communication does not in any manner manifest that the RP had committed any breach of the Lease Deed. All that the Government of Odisha had communicated was to take adequate safeguards and precaution that the terms and conditions of Lease Deed were not deviated from or get overrun in any manner."

"The RP is not obligated to share valuation reports with anyone but for the members of the CoC. The confidential nature of the fair value and liquidation value of the Corporate Debtor is highlighted in Regulation 35(2) of the CIRP Regulations."

"The collective business decision of the CoC's 'commercial wisdom' is non justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of the IBC."

The Tribunal concluded that the Adjudicating Authority did not err in approving the Resolution Plan, having found it compliant with the IBC and free from material irregularities. The Appellant's appeal was dismissed for lack of merit.