2025 (5) TMI 656 - Tri - IBC

Locus to challenge the approval of the Resolution Plan of Respondent No. 3 by the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code 2016 - violation of principles of natural justice in the process of approval of the Resolution Plan - value maximization contending that its revised financial offer submitted post approval of Respondent No. 3 s plan by CoC is superior - eligible person in terms of Section 29A of the IB Code. HELD THAT - Though the Applicant being an unsuccessful Resolution Applicant does not have locus to intervene the approved Resolution Plan the Counsel for the Applicant raised the issue of the eligibility of the Successful Resolution Applicant in terms of section 29A of the IB Code apart from other issues. Since this Tribunal is duty bound to examine that the Resolution Plan placed before it for approval in terms of Section 31 of the IB Code is in compliance with the provisions of Code this Tribunal considered it appropriate to grant opportunity to the Applicant to advance its arguments so that this Tribunal can consider eligibility of Successful Resolution Applicant in terms of Section 29A after taking into account the information and facts placed by the Applicant. It is not in dispute that the financial bids placed by each of Resolution Applicant were evaluated in terms of approved evaluation matrix and the financial bid of the Applicant was not superior to the bid of Respondent No. 3. The Applicant cannot be allowed to counter the bid of Respondent No. 3 after the closure of timelines in the garb of value maximisation. Undisputedly the applicant had placed a revised bid which is claimed to be superior after the prescribed time lines and there was no request pending for extension of time. Nonetheless the CoC in its commercial wisdom is not barred from accepting a lower financial bid if it decides to do so after taking into consideration all aspects of a Resolution Plan. Accordingly there are no merit in the contention of the Applicant in so far as it relates to nonadherence of natural justice and non-consideration of its superior financial bid submitted after the prescribed time-lines. In terms of Section 5(24)(d) a related party in relation to a corporate debtor means a private company in which a director partner or manager of the corporate debtor is a director and holds along with his relatives more than two per cent. of its share capital . There are twin conditions and both have to be satisfied. There is no evidence on record that a director of Respondent No. 3 is also a director in IPPL. In the absence of this IPPL can not be said a related party of IPPL or EVSL or EML - it can be said that IPPL is not a connected person of Respondent No. 3 accordingly disqualification in terms of Section 29A(j) is not applicable in the present case. The Hon ble Supreme Court in its judgment in the matter of K. Sashidhar 2019 (2) TMI 1043 - SUPREME COURT has also observed that the decision of approval or rejection of resolution plan by the CoC is non-justiciable. In a plethora of judgements it has been observed that the commercial wisdom of the CoC is not be interfered with by the Tribunal hence the methodology of calculation of NPV or conduct of the Negotiation process which lies within the ambit of the financial wisdom of the CoC is not commented upon by this Tribunal in the present application. Conclusion - i) The Applicant had no locus to challenge the plan approval except on eligibility grounds. ii) Respondent No. 3 is eligible under Section 29A of the Code as the NPA classification period had not elapsed and IPPL is not a connected person. iii) The CoC s commercial wisdom and negotiation process are non-justiciable. iv) No violation of natural justice or procedural irregularity was established. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

(a) Whether the Applicant, as an unsuccessful Resolution Applicant, has locus to challenge the approval of the Resolution Plan of Respondent No. 3 by the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 ("Code").

(b) Whether the principles of natural justice were violated in the process of approval of the Resolution Plan, particularly regarding the Applicant's claim that ongoing discussions indicated that resolution plans would not be put to vote.

(c) Whether the revised financial proposal submitted by the Applicant after the approval of Respondent No. 3's Resolution Plan should be considered by the CoC in the interest of value maximization of the Corporate Debtor.

(d) Whether Respondent No. 3 is an eligible Resolution Applicant under Section 29A of the Code, specifically concerning:

(i) The classification of Indrajit Power Private Limited (IPPL) as a Non-Performing Asset (NPA) and its relationship with Respondent No. 3;

(ii) The applicability of Explanation II to Section 29A(c) granting immunity;

(iii) The interpretation of "connected person" under Section 29A(j) and whether IPPL qualifies as such;

(iv) The implications of shareholding, control, and management relationships between Respondent No. 3, its subsidiaries, and IPPL;

(e) Whether the Committee of Creditors' commercial wisdom, including the methodology of bid evaluation and negotiation process, is subject to judicial review.

(f) Whether any delay or failure in implementation of other resolution plans connected to Respondent No. 3 impacts its eligibility under Regulation 38(1B) of the CIRP Regulations, 2016.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Locus of the Applicant to challenge the Resolution Plan approval

Relevant legal framework includes the non-justiciability principle of CoC's commercial wisdom as established in the Supreme Court judgment in K. Sashidhar v. Indian Overseas Bank. The Court emphasized that the decision of the CoC to approve or reject a resolution plan is not ordinarily subject to judicial interference.

The Tribunal acknowledged the Applicant's lack of locus as an unsuccessful bidder but allowed the Applicant to raise the eligibility issue of the successful Resolution Applicant under Section 29A, which is a matter the Tribunal is duty-bound to examine under Section 31 of the Code.

The Applicant's challenge to the process and value maximization was rejected on grounds that the Applicant had ample opportunity to participate and improve its bid within stipulated timelines and did not request extension beyond the permitted period.

The Tribunal found no violation of natural justice or discrimination against the Applicant during the negotiation and bidding process. The Applicant's attempt to submit a superior financial offer post-closure of bidding was held impermissible.

(b) Alleged violation of natural justice and process fairness

The Applicant contended that ongoing discussions gave rise to a belief that resolution plans would not be put to vote and that its revised financial proposal was not considered.

The Tribunal reviewed the negotiation rounds, noting that the Applicant was granted extensions due to personal reasons and was given fair opportunity to improve bids. The Applicant failed to meet the minimum bid requirements in the final rounds and was disqualified accordingly.

The Tribunal held that the CIRP is a time-bound process and cannot be extended indefinitely under the guise of value maximization. The commercial wisdom of the CoC in conducting negotiations and bid evaluation is non-justiciable.

(c) Consideration of revised financial proposal by the Applicant post-approval

The Applicant submitted a revised financial proposal after the CoC had approved Respondent No. 3's plan and sought its consideration to maximize value for stakeholders.

The Tribunal rejected this plea on the basis that the Applicant did not seek extension or permission to submit revised bids within the prescribed timelines, and the CoC is not obligated to consider bids submitted after closure of the process. The Applicant's claim was held to be an attempt to delay the CIRP.

(d) Eligibility of Respondent No. 3 under Section 29A of the Code

The Tribunal undertook a detailed examination of the eligibility criteria under Section 29A, focusing on subsections (c) and (j) and the related Explanation II.

(i) NPA classification and timing

Section 29A(c) disqualifies a person if an account under their control has been classified as NPA for over one year prior to the insolvency commencement date. IPPL was classified as NPA on 12.01.2022, and the CIRP for the Corporate Debtor commenced on 12.08.2022, less than one year later.

The Tribunal relied on precedent where similar facts led to the conclusion that the one-year disqualification period had not elapsed, thus Respondent No. 3 was eligible on the date of resolution plan submission.

Explanation II grants immunity to a resolution applicant who acquired the account through an approved resolution plan within the last three years, which further supports Respondent No. 3's eligibility.

(ii) Connected person and associate company analysis

The Applicant argued that IPPL is a connected person of Respondent No. 3 due to shareholding by its subsidiaries (EML and EVSL) and common beneficial ownership.

The Tribunal examined the definitions under Section 29A(j), Explanation I, and the Companies Act, 2013, including the concepts of "associate company," "control," and "related party."

It was noted that:

• IPPL is not a holding, subsidiary, associate company, or related party of Respondent No. 3 as per statutory definitions.
• Respondent No. 3 is a foreign company not incorporated under the Companies Act, but the Tribunal rejected the argument that this excludes it from being considered a company for associate company purposes.
• EML and EVSL hold shares in IPPL but do not exercise control or management over IPPL as required to establish association or related party status.
• There is no evidence that any director or promoter of Respondent No. 3 is a director or exercises control over IPPL.
• Control under Section 2(27) of the Companies Act requires de facto or de jure control over management or policy decisions, which was not demonstrated.

Accordingly, IPPL does not qualify as a connected person under Section 29A(j), and Respondent No. 3 is not disqualified on this ground.

(iii) Alleged delay in implementation of other resolution plans

The Applicant alleged that NCRAL delayed implementation of a resolution plan for Crest Steel and Power Private Limited, which could impact Respondent No. 3's eligibility under Regulation 38(1B) of the CIRP Regulations.

The Tribunal found no evidence of failure in implementation; delay alone does not trigger disqualification. Thus, Regulation 38(1B) was not applicable.

(e) Commercial wisdom of the Committee of Creditors

The Tribunal reaffirmed the settled legal position that the CoC's commercial wisdom, including evaluation methodology and negotiation process, is not subject to judicial interference unless there is a violation of law or procedure.

The Applicant's challenge to the CoC's evaluation matrix and decision was dismissed as the Applicant had actively participated without objection during the process and raised issues only post facto.

3. SIGNIFICANT HOLDINGS

On the locus of unsuccessful Resolution Applicants:

"Though, the Applicant, being an unsuccessful Resolution Applicant, does not have locus to intervene the approved Resolution Plan, the Counsel for the Applicant raised the issue of the eligibility of the Successful Resolution Applicant in terms of section 29A of the IB Code, apart from other issues. Since this Tribunal is duty bound to examine that the Resolution Plan placed before it for approval in terms of Section 31 of the IB Code is in compliance with the provisions of Code, this Tribunal considered it appropriate to grant opportunity to the Applicant to advance its arguments."

On time-bound nature of CIRP and bid submission:

"The CIRP is a time bound process and it has to be concluded at certain point of time. In the garb of value maximisation, the process could not be carried for an infinite time. It is not in dispute that the financial bids placed by each of Resolution Applicant were evaluated in terms of approved evaluation matrix and the financial bid of the Applicant was not superior to the bid of Respondent No. 3. The Applicant cannot be allowed to counter the bid of Respondent No. 3 after the closure of timelines in the garb of value maximisation."

On eligibility under Section 29A(c):

"Applying the ratio of decision in case of Avantha Holdings Ltd., the period of one year from the date of classification of account of IPPL as NPA i.e. 12.01.2022 has not elapsed on the commencement of CIRP in case of Corporate Debtor i.e. 12.08.2022, accordingly, it cannot be said that Respondent No. 3... was not qualified in terms of Section 29A(c). Further, Explanation II to Section 29A(c) only makes the provisions contained in clause (c) inapplicable if the conditions specified therein are satisfied."

On definition of connected person and associate company:

"The word 'Control' is defined in Section 2(27) of Companies Act, 2013 as... 'control' shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert... The expression 'control', in Section 29A(c), denotes only positive control... mere power to block special resolutions of a company cannot amount to control."

"IPPL is not a connected person of Respondent No. 3, accordingly, disqualification in terms of Section 29A(j) is not applicable in the present case."

On non-interference with CoC's commercial wisdom:

"The commercial wisdom of the CoC is not to be interfered with by the Tribunal... the methodology of calculation of NPV or conduct of the Negotiation process which lies within the ambit of the financial wisdom of the CoC is not commented upon by this Tribunal in the present application."

Final determination:

The Tribunal dismissed the application challenging the approval of the Resolution Plan of Respondent No. 3, holding that:

• The Applicant had no locus to challenge the plan approval except on eligibility grounds;
• The Applicant was given fair opportunity and failed to submit a superior bid within timelines;
• The revised financial proposal submitted post-approval could not be considered;
• Respondent No. 3 is eligible under Section 29A of the Code, as the NPA classification period had not elapsed and IPPL is not a connected person;
• The CoC's commercial wisdom and negotiation process are non-justiciable;
• No violation of natural justice or procedural irregularity was established.