ADDENDUM TO RESOLUTION PLAN

[Mr. M. GOVINDARAJAN]

Approval of resolution plan

Section 30(2) of the Insolvency and Bankruptcy Code, 2016(‘Code’ for short) provides that the Resolution Professional shall examine each resolution plan received by him to confirm that each resolution plan has complied with the provisions of the Code.  The resolution professional shall present to the committee of creditors for its approval such resolution plans.    The committee of creditors may approve a resolution plan by a vote of not less than  66% of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board.

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.  Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements it may, by an order, reject the resolution plan.

Addendum

The decisions of the Committee of Creditors, taken in the commercial wisdom have not been interfered with by the Adjudicating Authorities/Appellate Authorities/Supreme Court.  The Adjudicating Authority is either to approve the resolution plan or reject the resolution plan if the same has not complied with the required provisions of the Code.  The Adjudicating Authority is having no power to modify the resolution plan as decided by the Committee of Creditors.  In such circumstances a question arises as to whether an addendum can be included in the resolution plan after its approval by the Committee of Creditors. 

There is no express provision in the Code.  The National Company Law Tribunal (‘NCLAT’ for short) has allowed such addendum to the resolution plan in OCEAN CAPITAL MARKET LTD. VERSUS UDAY NARAYAN MITRA, STATE BANK OF INDIA, PAYAL AGARWAL, PUNJAB NATIONAL BANK, BANK OF INDIA, KOTAK MAHINDRA BANK, ICICI BANK LIMITED, IDBI BANK LIMITED, EDELWEISS ASSET RECONSTRUCTION COMPANY - 2023 (8) TMI 548 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI

In the corporate insolvency resolution process initiated against the corporate debtor viz. ARSS Infrastructure Projects Limited the resolution plan.  The same was approved by the Committee of Creditors by 76.67% of vote.  The Resolution Professional filed an application before the Adjudicating Authority for the approval of the resolution plan by the Adjudicating Authority.

The three financial creditors, viz., Punjab National Bank, Bank of India and Kotak Mahindra Bank Limited filed applications before the Adjudicating Authority objecting the approval of resolution plan by the Committee of Creditors.  The Adjudicating Authority allowed the applications filed by the banks and rejected the resolution plan.  The Adjudicating Authority observed that the resolution plan provided for assignment of securities of dissenting financial creditors to the resolution applicant is contrary to the provisions of Section 128 of the Contract Act.  Hence the objections of the financial creditors are deserved to be allowed.  

Being aggrieved against the order of Adjudicating Authority the successful resolution applicant (appellant) filed the present appeal before the NCLAT.  The appellant submitted the following before the NCLAT-

• No objection was raised by the dissenting financial creditors to the relevant clause that provide for assignment of security interest in favor of the appellant.
• The resolution plan includes additional payment of Rs.40 crores for assignment of securities.
• The appellant has filed an undertaking on 22.02.2023 that securities of the dissenting financial creditors shall not be assigned and they shall be allowed to retain their securities.
• Therefore the objections of the dissenting financial creditors were fully satisfied and therefore there was no reason for allowing the objections raised by the dissenting financial creditor and reject the resolution plan.
• The appellant was ready and willing to submit an addendum incorporating the undertaking of the appellant by way of an addendum to the resolution plan that may be placed before the Committee of Creditors for its consideration.
• After approval of the Committee of Creditors fresh application may be filed before the Adjudicating Authority for the approval of the resolution plan.

The dissenting financial creditors submitted that the undertaking submitted by the appellant on 22.02.2023 was not sufficient to allay the objections of the dissenting financial creditors.  The resolution plan required modification.  Therefore the resolution plan ought to have sent back to the Committee of Creditors for consideration of revised plan. If by addendum the clause which requires assignment of securities of dissenting financial creditor to the resolution applicant is modified, the objection of the banks shall be satisfied.

The NCLAT observed that the objections raised by the dissenting financial creditors have been noticed by the Adjudicating Authority.  The Adjudicating Authority also noted the submission of the resolution applicant to modify the plan and not to demand release of the personal and corporate guarantees of dissenting and absenting financial creditors. The dissenting financial creditors argued that once the resolution plan is approved by the Committee of Creditors the Adjudicating Authority cannot alter or modify the plan for whatever reason instead he prayed to send back the plan to Committee of Creditors for considering the revised plan.  They also prayed for the liquidation of corporate debtor.

The Adjudicating Authority observed that the Adjudicating Authority has either to approve the plan or reject the plan.  There is no other alternative to approve the plan with modification.  The Adjudicating Authority found that clause 2(d) and (e) of the resolution plan requiring the financial creditors to assign the debts payable by the corporate debtor inclusive of the personal guarantee and other security interests, and surrender the original guarantee deed and all other relevant security documents including the title deeds, hypothecation deeds and pledge agreements to the resolution applicant which contravenes section 128 of the Contract Act and also in violation section 30(2)(e) of the Code.  The Adjudicating Authority held that the resolution plan is not in conformity with the requirements of section 31(1) of the Code and hence the resolution plan is rejected.

The NCLAT further observed that the appellant in the present appeal has submitted an undertaking that the personal and corporate guarantees of the dissenting financial creditors shall not be assigned and they will be allowed to retain their personal guarantees.  Therefore NCLAT was of the view that it is not necessary to consider whether the resolution plan violates Section 30(2)(e) of the Code since he himself is ready to modify the clauses.   The objectors were of the view that if the plan needs any modification the matter should be sent back to the Committee of Creditors for considering the revised plan.  The resolution once having approved by the Committee of Creditors with 76.67% for the purpose of this case, ends of justice be served in permitting the succession resolution applicant to place an addendum to the resolution plan before the Committee of Creditors incorporating the Committee of Creditors.

The NCLAT was of the view that the Adjudicating Authority can remit the plan for reconsideration of the amendment.  The appellant’s resolution plan value is Rs.432.90 crore where the liquidation value of the corporate debtor is only Rs.147.11 crores.   The successful resolution applicant has proposed an excess of Rs.285.79 crores over the liquidation value.  The Resolution Applicant having himself expressed not insist for assignment of personal and corporate guarantees and to be continued with the dissenting creditors, the Adjudicating Authority ought not to have rejected the resolution plan and accepting the request of the dissenting financial creditor ought to have remitted the plan to Committee of Creditors for reconsideration.

The NCLAT allowed the appeal and set aside the impugned order passed by the Adjudicating Authority. The NCLAT directed that-

• The successful applicant may submit an addendum to resolution plan incorporating the undertaking as given in the affidavit dated 20.02.2023 within a period of two weeks from the date of order.
• The Resolution Professional shall place the addendum for consideration of the Committee of Creditors, which proceeding be completed within period of four weeks.
• The Resolution Professional, two weeks thereafter, shall submit an appropriate application for approval, in case, the addendum is also approved with the sufficient majority, before the Adjudicating Authority for consideration.
• The Adjudicating Authority shall consider the said application filed by the Resolution Professional for approval of plan as we as addendum, expeditiously.