2025 (5) TMI 940 - AT - IBC

Rejection of Resolution plan - liquidation of Corporate Debtor - non-consideration of addendums submitted by the appellant to improve the financial proposal - HELD THAT - The CoC under Section 33(2) of IBC has a power to take a decision with not less than 66% of the voting share to liquidate the CD. Of course the decision taken by the CoC to liquidate is amenable to judicial review but only on the limited ground that the decision of the CoC is arbitrary. Present is not a case where it can be said that the decision of the CoC to liquidate is arbitrary the CoC after considering all aspects of the matter has passed a resolution for liquidation of the CD in which we do not find any error warranting any interference. As far as the direction by the adjudicating authority to consider the addendum submitted by appellant in February 2024. The Central Bank has already filed an application stating that the said proposal cannot be accepted which application has also been allowed by the adjudicating authority which order has become final - The second proviso on which the liquidator relies is a provision where CoC while taking a resolution has recommended to explore a proposal for compromise or arrangement. It is for liquidator to file proposal within 30 days of the order of liquidation. The present is not a case where there is any recommendation under Regulation 39-BA of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016. The second proviso of Regulation cannot control the provision of Section 2B (1) which is a provision giving a opportunity for submitting a compromise or arrangement under Section 230 of the Companies Act 2013 - the appellant is fully entitled to submit a scheme compromise or arrangement under Regulation 2 B. Conclusion - The appellant is fully entitled to submit a scheme compromise or arrangement under Regulation 2 B. The appeals challenging the liquidation order dismissed but liberty granted to the appellant to submit a compromise or arrangement scheme under Regulation 2B by 20.05.2025.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Committee of Creditors (CoC) was justified in rejecting the Resolution Plan submitted by the appellant and deciding to liquidate the Corporate Debtor (CD) under Section 33(2) of the Insolvency and Bankruptcy Code (IBC).

- Whether the Adjudicating Authority erred in not considering the addendums submitted by the appellant to improve the financial proposal.

- Whether the appellant, being a Micro, Small and Medium Enterprise (MSME), is entitled to submit a scheme of compromise or arrangement under Regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, despite the liquidation order.

- The scope and extent of judicial review over the CoC's commercial wisdom in deciding liquidation versus approval of a resolution plan.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the CoC's decision to reject the appellant's Resolution Plan and order liquidation

Relevant legal framework and precedents: Section 33(2) of the IBC empowers the CoC to decide on liquidation of the Corporate Debtor if the resolution plans are not approved. The decision requires at least 66% voting share. Judicial review of CoC decisions is limited to checking arbitrariness or non-application of mind.

Court's interpretation and reasoning: The Tribunal noted that the CoC convened multiple meetings (17th and 19th) where the appellant's plan, including the addendum dated 08.12.2023, was discussed and put to vote. The total admitted claims were Rs. 137.60 Crore and liquidation value Rs. 105.35 Crore. After due deliberation, the CoC rejected the appellant's plan and voted for liquidation on 12.12.2023.

Key evidence and findings: The CoC's commercial wisdom was exercised after considering the financial proposals and addendums. The Adjudicating Authority recorded these deliberations and the voting outcome. There was no indication of arbitrariness or procedural irregularity.

Application of law to facts: The Tribunal emphasized that the CoC's decision to liquidate is amenable only to limited judicial review and found no error or arbitrariness in the CoC's resolution.

Treatment of competing arguments: The appellant contended that the plan was improved and addendums submitted, but the CoC rejected it. The liquidator and CBI argued that the CoC's decision was based on commercial wisdom and was rightly accepted by the Adjudicating Authority.

Conclusions: The Tribunal upheld the CoC's decision to liquidate, finding it neither arbitrary nor illegal.

Issue 2: Whether the Adjudicating Authority erred in not considering the appellant's addendums submitted after the liquidation decision

Relevant legal framework and precedents: The Insolvency and Bankruptcy Code and Regulations require that resolution plans and any addendums be considered by the Adjudicating Authority. However, once liquidation is ordered, the scope for reconsideration is limited.

Court's interpretation and reasoning: The Adjudicating Authority had directed consideration of the addendums. However, the Central Bank of India filed an application opposing acceptance of the addendum submitted in February 2024, which was allowed and became final.

Key evidence and findings: The appellant submitted addendums on 08.12.2023 and 16.02.2024. The CoC considered the first addendum but rejected the plan. The second addendum was not considered due to the Central Bank's successful application.

Application of law to facts: The Tribunal found no error in the Adjudicating Authority's refusal to consider the second addendum after the liquidation order and the final order on the Central Bank's application.

Treatment of competing arguments: The appellant argued for consideration of all addendums to revive the CD. The liquidator and CBI maintained that the process had concluded with the liquidation decision and rejection of the plan.

Conclusions: The Tribunal held that the Adjudicating Authority acted within its discretion and in accordance with law in not considering the second addendum post-liquidation order.

Issue 3: Entitlement of the appellant, as an MSME, to submit a scheme of compromise or arrangement under Regulation 2B of the Liquidation Process Regulations, 2016

Relevant legal framework and precedents: Regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, permits submission of a compromise or arrangement under Section 230 of the Companies Act, 2013, within 90 days of the liquidation order. The regulation includes provisos restricting eligibility and requiring recommendation by the CoC under Regulation 39-BA of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Court's interpretation and reasoning: The liquidator relied on the second proviso to Regulation 2B, which requires a CoC recommendation under Regulation 39-BA for the liquidator to file a compromise proposal within 30 days of liquidation commencement. The Tribunal observed that no such recommendation was made in this case.

However, the Tribunal held that the second proviso cannot override the primary provision in Regulation 2B(1), which allows submission of a scheme of compromise or arrangement under Section 230 of the Companies Act. Therefore, the appellant, as an MSME, remains entitled to submit such a scheme.

Key evidence and findings: The appellant's status as MSME and the absence of CoC recommendation under Regulation 39-BA were noted. The Tribunal found that the appellant should be given an opportunity to submit a scheme by 20.05.2025.

Application of law to facts: The Tribunal balanced the regulatory provisions and held that the appellant's right to submit a compromise or arrangement should be preserved despite the liquidation order and absence of CoC recommendation.

Treatment of competing arguments: The appellant urged entitlement under Regulation 2B. The liquidator contended the second proviso barred such submission without CoC recommendation. The Tribunal reconciled these views by distinguishing the proviso's scope.

Conclusions: The appellant is entitled to submit a scheme of compromise or arrangement under Regulation 2B within the stipulated timeframe, and the liquidator must act accordingly upon receipt.

Issue 4: Scope of judicial review over CoC's commercial wisdom

Relevant legal framework and precedents: The IBC and judicial precedents establish that CoC decisions on resolution plans and liquidation are primarily commercial decisions, subject only to limited judicial review for arbitrariness or non-application of mind.

Court's interpretation and reasoning: The Tribunal reiterated that the CoC's decision to liquidate was the exercise of commercial wisdom after due consideration of all aspects. No arbitrariness or procedural infirmity was found.

Key evidence and findings: The CoC meetings, voting records, and deliberations were duly recorded and reviewed.

Application of law to facts: The Tribunal applied the principle that courts should not interfere with CoC decisions unless there is manifest arbitrariness or illegality.

Treatment of competing arguments: The appellant challenged the CoC's rejection of the plan, but the Tribunal found no basis to disturb the CoC's decision.

Conclusions: The limited scope of judicial review was affirmed, and the CoC's decision was upheld.

3. SIGNIFICANT HOLDINGS

"The CoC under Section 33(2) of IBC has a power to take a decision with not less than 66% of the voting share to liquidate the CD. Of course the decision taken by the CoC to liquidate is amenable to judicial review but only on the limited ground that the decision of the CoC is arbitrary."

"Present is not a case where it can be said that the decision of the CoC to liquidate is arbitrary, the CoC after considering all aspects of the matter has passed a resolution for liquidation of the CD in which we do not find any error warranting any interference."

"We however are of the view that second proviso of Regulation cannot control the provision of Section 2B (1) which is a provision giving a opportunity for submitting a compromise or arrangement under Section 230 of the Companies Act, 2013."

"We thus are of the view that the appellant is fully entitled to submit a scheme compromise or arrangement under Regulation 2 B."

"The liquidator shall after receiving any compromise or arrangements take such further steps as required by law."

The Tribunal dismissed the appeals challenging the liquidation order but granted liberty to the appellant to submit a compromise or arrangement scheme under Regulation 2B by 20.05.2025.