2025 (7) TMI 845 - AT - IBC

Seeking approval of the resolution plan - correctness in rejecting the plan when the CoC had already approved the plan with majority voting - NCLT rejected the plan - adverse observations made by the Adjudicating Authority that the RP had failed in steering the CIRP in a procedurally correct manner is tenable or not - - HELD THAT - It is well settled that it lies within the domain of the CoC as regards the manner in which the debt of the Corporate Debtor is to be dealt with. In the present factual matrix all the resolution plans were circulated to the CoC members for evaluation. The 13th 14th and 15th meetings of the CoC had discussed the plans submitted by all the PRAs in the presence of the PRAs for clear clarifications. The plan of the SRA having been approved by the 98.57% of the CoC and that too after considerable deliberations we find no good reason for substituting the wisdom of the CoC by that of the Adjudicating Authority and making it a ground for not approving the resolution plan. Conduct of IRP - HELD THAT - On looking at the material facts it is found that the details of such properties and related shortcomings were brought to the notice of the CoC by the RP at 8th CoC meeting and discussed in detail. As regards the Pinnacle Mall in Nashik only an advance payment had been made and RP was in possession of only an unstamped and unregistered purchase agreement. SBI as the lead member of CoC had advised valuers to exclude this property as it was in the name of a related company of the Corporate Debtor and separately mortgaged with SBI. Hence Pinnacle Mall was excluded from the assets of the Corporate Debtor. The shops in Raipur were in the possession of third party and no title documents were available to the RP except for purchase agreements. As regards Bhakti Sankul in Nashik the title was in the name of the Corporate Debtor but in possession of third party. Neither the lenders nor the erstwhile management had given valid title documents to the RP. Given this backdrop it is not persuaded to agree with the Adjudicating Authority that the RP had violated either Section 18 or 25 of the IBC particularly when the Adjudicating Authority has not rendered any conclusive finding on the rights title and interests of the Corporate Debtor qua these immoveable properties. Whether sufficient steps had been taken by the RP to safeguard these immovable properties or whether the RP had disregarded the asset maximisation objective of IBC? - HELD THAT - The Adjudicating Authority has clearly failed to take these aspects into account. We are also inclined to agree with the RP that valuation is not a question to be casually raised by the Adjudicating Authority after the commercial wisdom of the CoC has approved a plan in terms of the judgement of the Hon ble Apex Court in Ramkrishna Forgings Ltd. v. Ravindra Loonkar 2023 (11) TMI 910 - SUPREME COURT . Though the CoC has done due diligence and meticulously evaluated the matrix in approving the plan of SRA however the Adjudicating Authority has ended up reconsidering various financial aspects of the plan. The majority CoC has already approved the plan in their commercial wisdom as contemplated under the law. That being the case the Adjudicating Authority with the limited powers of judicial review available to it cannot deal with the merits of Resolution Plan or substitute its views with the commercial wisdom of the CoC in rejecting the resolution plan unless it is found it to be contrary to the express provisions of law and against the public interest. On the holding of the 18th CoC meeting we do not find any infirmity or irregularity on the part of the RP. The clarifications sought by the Adjudicating Authority on 17.12.2024 being germane to the decision-making process of the CoC in the appraisal and evaluation of the resolution plan the RP was duty bound to place these clarifications only after approval of the CoC. The submission of the RP that there is no bar under the IBC which prohibits the CoC from convening meetings after it has approved the resolution plan and the same is pending approval before the Adjudicating Authority is fully supported by the judgment of this Tribunal in Venus India Asset-Finance (P) Ltd. v. Suresh Kumar Jain 2023 (2) TMI 376 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI - The Adjudicating Authority ought to have considered the deliberation of the 18th CoC meeting to satisfy the queries raised by itself rather than outrightly ignore the same merely on an apprehension that the RP had held this meeting unauthorisedly to plug the loopholes in the plan. The impugned order is set aside with the direction to the Adjudicating Authority to remit the resolution plan of the SRA to the CoC for its consideration in the light of the queries raised by the Adjudicating Authority earlier on 17.12.2024 and 19.12.2024 - Appeal allowed.

Summary

Issues Presented and Considered:

The core legal questions considered by the Tribunal in these appeals arising under the Insolvency and Bankruptcy Code, 2016 (IBC) include:

• Whether the Adjudicating Authority was justified in rejecting the resolution plan approved by the Committee of Creditors (CoC) with an overwhelming majority, on grounds of alleged statutory violations and procedural irregularities;
• Whether the Adjudicating Authority exceeded its jurisdiction by substituting its own commercial wisdom for that of the CoC, which is entrusted with the evaluation and approval of resolution plans under the IBC;
• Whether the Resolution Professional (RP) complied with statutory duties under Sections 18 and 25 of the IBC, including proper collation, protection, and maximisation of the Corporate Debtor's assets;
• Whether the treatment of dissenting and abstaining financial creditors, and classification of operational creditors within the resolution plan, violated the provisions of the IBC and related regulations;
• Whether the Adjudicating Authority acted without due consideration of clarifications provided by the RP and failed to afford an opportunity for the Successful Resolution Applicant (SRA) to address concerns, thereby violating principles of natural justice;
• Whether inconsistencies in the plan values and alleged non-inclusion of certain claims and assets justified rejection of the resolution plan;
• Whether the conduct of the RP warranted reference to the Insolvency and Bankruptcy Board of India (IBBI) for investigation.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority vis-`a-vis Commercial Wisdom of the CoC

The IBC entrusts the CoC with the primary responsibility to evaluate and approve resolution plans, exercising commercial wisdom. The Adjudicating Authority's role under Sections 30 and 31 is limited to ensuring statutory compliance and does not extend to reappraising the commercial prudence or viability of the plan. The Tribunal relied heavily on Supreme Court precedents, including the authoritative ruling in Piramal Capital & Housing Finance Ltd. v. 63 Moons Technologies Ltd., which reaffirmed the primacy of the CoC's commercial wisdom and circumscribed the scope of judicial review by the Adjudicating Authority and Appellate Tribunal.

The Court found that the Adjudicating Authority had impermissibly substituted its own views for those of the CoC by scrutinizing the plan's financial details and valuation aspects, thereby overstepping its jurisdiction. The CoC had approved the resolution plan with 98.57% voting share after extensive deliberations, which the Adjudicating Authority failed to duly respect.

The Tribunal emphasized that unless a resolution plan contravenes explicit provisions of law or is against public interest, the Adjudicating Authority cannot reject it merely on grounds of perceived commercial imprudence.

2. Alleged Inconsistencies in Plan Values and Financial Details

The Adjudicating Authority highlighted discrepancies in the total plan value figures presented by the RP and SRA-Rs. 67.21 crore before the CoC, Rs. 27.50 crore in the IA before the Authority, and Rs. 20 crore in the resolution plan document. It concluded that these inconsistencies indicated misrepresentation and justified rejection of the plan.

The Tribunal, however, found that these figures represented different components of the plan: the maximum potential payout including contingent recoveries and debentures (Rs. 67.21 crore), the plan value excluding certain components (Rs. 27.50 crore), and the upfront cash and debenture payments (Rs. 20 crore). The RP had transparently disclosed these figures to the CoC with appropriate explanations, enabling an informed decision. The Tribunal held that the Adjudicating Authority erred in treating these variable figures as inconsistent or misleading, noting that the CoC had duly considered them.

3. Treatment of Operational Creditors and Dissenting Financial Creditors

The Adjudicating Authority criticized the plan for creating subclasses within operational creditors by proposing significantly different payment terms to the SRA's own operational creditor claims versus other operational creditors, and for allegedly failing to provide specific provisions for dissenting or abstaining financial creditors, in violation of Section 53 of the IBC and Regulation 38(1)(b) of the CIRP Regulations.

The Tribunal observed that the CoC had been fully apprised of the differential treatment and had approved it in its commercial wisdom. The plan proposed payment to the SRA's operational creditor claims in the form of optionally convertible debentures with a 0% coupon rate and a long tenure, discounted at 18% per annum, effectively resulting in a lower present value compared to upfront payments to other operational creditors. The CoC had rejected extending similar terms to other operational creditors. Further, the plan explicitly provided for payment to dissenting financial creditors at liquidation value priority, satisfying statutory requirements. The RP had clarified this in the additional affidavit, which the Adjudicating Authority had not considered adequately. The Tribunal held that such classification and treatment fall within the CoC's discretion and do not violate the IBC.

4. Exclusion of Certain Immovable Properties from the Resolution Plan

The Adjudicating Authority found that the RP had excluded three immovable properties-shops in Raipur, Pinnacle Mall, and Bhakti Sankul Hotel-from the asset pool without legally justifiable grounds, thereby compromising asset maximisation and violating Sections 18 and 25 of the IBC.

The Tribunal examined the facts and found that the titles to these properties were defective or disputed, with no valid legal ownership or possession by the Corporate Debtor. The RP had informed the CoC about these issues during the 8th CoC meeting and had taken steps to safeguard the assets, including filing police complaints and eviction applications. The properties were valued and considered in avoidance applications filed by the RP. The exclusion was based on sound legal advice and was not a breach of statutory duties. The Tribunal held that the Adjudicating Authority failed to appreciate these facts and lacked conclusive findings on ownership rights, thus its rejection on this ground was unsustainable.

5. Non-inclusion and Verification of Certain Claims

The Adjudicating Authority criticized the RP for not admitting claims of certain operational creditors (Mohini Buildwell Pvt. Ltd., Assistant Commissioner of State Tax, Mazgaon) and the Employees' Provident Fund Organisation (EPFO), and for not providing specific provisions for these claims in the resolution plan, rendering it violative of Sections 30(2)(e) and 53 of the IBC.

The Tribunal found that the claims of Mohini Buildwell were received after the last date for filing claims and were duly communicated as rejected; the failure to contemporaneously update the claim status was a technical oversight but not a statutory violation warranting plan rejection. The Assistant Commissioner of State Tax's claims were on hold pending appeals, with no challenge to their exclusion. The EPFO claim was initially Rs. 28 lakhs but was later revised to a negligible Rs. 4,520, which was adequately covered by contingency provisions in the plan. The Tribunal held these grounds insufficient to invalidate the plan.

6. Interest Clause on Delayed Implementation of the Plan

The Adjudicating Authority objected to a clause providing for payment of interest at the prevailing SBI base rate on delayed plan implementation, viewing it as prejudicial and violative of Regulation 38 of the CIRP Regulations.

The Tribunal held that this clause was within the commercial wisdom of the CoC and did not deprive creditors of remedies for default. The clause allowed secured financial creditors to initiate proceedings against the SRA for non-payment, preserving creditor rights. The Adjudicating Authority's rejection on this ground was found unjustified.

7. Feasibility and Viability of the Resolution Plan

The Adjudicating Authority found that the resolution plan did not expressly state its feasibility and viability, violating Regulation 38 of the CIRP Regulations.

The Tribunal noted that feasibility and viability were parameters embedded in the Request for Resolution Plan (RFRP) and were extensively considered by the CoC during multiple meetings. The resolution plan contained a declaration regarding feasibility and viability. The Tribunal reaffirmed that assessment of these parameters is within the CoC's domain and the Adjudicating Authority cannot substitute its own judgment.

8. Conduct of the Resolution Professional

The Adjudicating Authority had expressed serious concerns about the RP's conduct, including exclusion of assets, failure to provide for certain claims, convening the 18th CoC meeting after the matter was reserved for orders, and filing an additional affidavit which was rejected for procedural irregularities.

The Tribunal found no merit in these allegations. The RP had acted in accordance with statutory duties, convened meetings to clarify issues raised by the Adjudicating Authority, and provided detailed clarifications. The additional affidavit was a bona fide attempt to address concerns. The Tribunal held that the Adjudicating Authority erred in rejecting the affidavit without proper consideration and that the RP's conduct did not warrant referral to the IBBI.

9. Natural Justice and Procedural Fairness

The RP and SRA contended that the Adjudicating Authority failed to afford them an opportunity to address queries and clarifications before rejecting the plan, violating principles of natural justice.

The Tribunal agreed that the Adjudicating Authority ought to have considered the clarifications and allowed the RP and SRA to respond adequately rather than dismiss the plan summarily. It held that the Adjudicating Authority should have referred the plan back to the CoC for reconsideration in light of clarifications, consistent with Supreme Court precedent in Essar Steel India Ltd.

Significant Holdings:

"While this Tribunal accords due deference to the commercial wisdom of the Committee of Creditors, it must be emphasized that such wisdom cannot override statutory compliance and mandatory legal requirements."

"When the CoC has approved a Resolution Plan by requisite voting share after considering its feasibility and viability, such decision of CoC cannot be interfered in the exercise of judicial review either by the Adjudicating Authority or by this Tribunal in the exercise of its appellate powers."

"The Adjudicating Authority with the limited powers of judicial review available to it, cannot deal with the merits of Resolution Plan or substitute its views with the commercial wisdom of the CoC in rejecting the resolution plan unless it is found it to be contrary to the express provisions of law and against the public interest."

"The RP was duty bound to place clarifications before the CoC after its approval of the plan and there is no bar under the IBC for convening CoC meetings after approval pending Adjudicating Authority's sanction."

"The Adjudicating Authority ought to have considered the deliberation of the 18th CoC meeting to satisfy the queries raised by itself rather than outrightly ignore the same merely on an apprehension that the RP had held this meeting unauthorisedly to plug the loopholes in the plan."

The Tribunal ultimately set aside the impugned order and directed the Adjudicating Authority to remit the resolution plan to the CoC for reconsideration in light of the queries raised, extending the CIRP period by 90 days. The adverse observations against the RP were expunged, and no referral to IBBI was made.