TMI Blog2021 (1) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Karnataka High Court only permitted the Appellant to submit its resolution plan to the RP. However, it did not in any way takes away the right of COC to reject the resolution plan on the ground that it is in contravention of the various provisions of law. It can be concluded that a limited judicial review is available in respect of an approved resolution plan. The grounds under Section 30(2) or 61(3) of the IBC are regarding testing the validity of the approved resolution plan by COC and not for approving the resolution plan which has been disapproved by the COC in exercise of its business decision. The Appellant cannot take plea that he was not given the statutory time period of 30 days to place his resolution plan as he had submitted his resolution plan well within time as agreed in the COC meeting i.e. on or before 16th September, 2019. The contention of the Appellant that COC abruptly decided not to seek extension of time for CIRP process from the Adjudicating Authority is invalid as it is the commercial wisdom of the COC whether they want to seek extension of time or not after considering the feasibility and viability of the submitted resolution plan. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Corporate Debtor was in the business of Civil Construction. The Corporate Debtor had availed the working capital credit facility from a Consortium of Banks in the year 2007. On default in payment, the Corporate Debtor and the Appellant were declared as willful defaulters by SBI, Oriental bank of Commerce and State Bank of Travancore (now SBI). The Consortium of Banks initiated recovery proceedings before the Debt Recovery Tribunal (DRT), Bangalore by filling O.A. No. 862 of 2010. A Compromise Petition was filed thereafter. However, there was default in payment under the compromise and a recovery certificate was issued against the Corporate Debtor on 23rd March, 2016. 4. Thereafter, Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor by Oriental Bank of Commerce (OBC) (hereinafter referred as Respondent No. 1) under section 7 of I B Code. By an order dated 29th March, 2019 passed in C.P. (IB) NO. 17/BB/2019, the Adjudicating Authority declared moratorium and admitted the Corporate Debtor under CIRP. Mr. Velayudham Jayavel (hereinafter referred as Respondent No. 2) was appointed as IRP and later confirmed as Resolution Professional ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor. 8. Having being aggrieved by the impugned order, the Appellant therefore, preferred the instant Appeal before this Appellate Tribunal. 9. The State Bank of India filed an impleadment application through I.A. 622 of 2020 for impleadment in the present Appeal. SBI is the lead bank of the consortium, one of the Financial Creditor of the Corporate Debtor. The Applicant was a party before the Adjudicating Authority. However, the applicant has not been made a party to the present appeal. This Tribunal allowed the Impleadment application through its order dated 19th August 2020 and directed the learned counsel for the Appellant to amend the Memo of parties in the present Company Appeal. The I.A. No. 622 of 2020 is disposed of accordingly. Submissions on behalf of Appellant/Erstwhile promoter of Corporate Debtor 10. The Learned Counsel for the Appellant submitted that the consortium members including the Respondent bank without declaring the account of the Corporate Debtor as a Non Performing Assets took steps to classify the Appellant as a willful defaulter by passing a resolution in consortium meeting held on 23rd July, 2010. 11. The Learned Counsel for the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended in order to give complete 30 days period to the Appellant to submit his resolution plan as the 30th days period was ending on 30th September, 2019 which was as such, beyond the expiry of CIRP period which was completing on 25th September, 2019. However, in the 8th meeting of COC held on 23rd September, 2019, the COC voted against applying for extension of CIRP process of the Corporate Debtor and further after deliberation and discussion of the resolution plan rejected the resolution plan of the Appellant. 16. The learned counsel for the appellant contended that the Adjudicating Authority have erred in not taking into consideration that the Hon ble High Court of Karnataka vide its order dated 23rd August, 2019 allowed the Appellant to submit his resolution plan to RP. However, even if COC agreed to allow the Appellant to submit his resolution plan but the Appellant was not given the statutory time period of 30 days to place his resolution plan and the COC abruptly decided not to seek extension of time for CIRP process from the Adjudicating Authority. 17. It is further contended by the learned counsel for the Appellant that the Appellant was declared a willful defaulter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing approved RFRP documents, evaluation matrix and compliance of provisions of IBC. The Appellant like any other resolution applicant is bound to follow and comply the provisions of IBC and submit necessary documents which he failed to comply/file despite having agreed to do so in the COC meetings. 22. It is also stated on behalf of the Respondent No. 1 that the proposal was duly considered by the RP/COC and it was found that the said proposal did not conform to the requirements of I B Code. The grounds of rejection of the proposal of the Appellant are admitted as correct, viz, the proposal of the Appellant not in compliance of I B Code, affidavit regarding eligibility of the Appellant as resolution applicant under section 29A of I B Code not filed, the undertaking under regulation 38 of I B Code for payment of operational creditors and that the information provided by Appellant are true and accurate not filed with proposal/resolution plan. Therefore, the proposal of the Appellant could not be termed as resolution plan. 23. It is argued by the learned counsel for Respondent No. 1 that the Appellant should not agitate that he was not given 30 days period to submit his resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29A(c) and 29A(h). 26. It is further submitted on behalf of the Respondent No. 2 that the Appellant s contention that there was a violation of Regulation 36B is baseless, as he was invited to submit EOI on 16th June, 2019 i.e. more than 30 days before the expiry of CIRP process. The Appellant submitted EOI on 28th June, 2019 which was rejected under section 29A. Pursuant to the High Court s order dated 23rd August, 2019, the Appellant was permitted to submit a plan, and he had 30 days before the expiry of CIRP on 25th September, 2019. Hence the submission of the Appellant is without merit. 27. The learned counsel for the Respondent No. 2 further contended that as recorded in the impugned order, there is no dispute that the Appellant was a willful defaulter, and continues to be classified as such. As such, the resolution plan submitted by him was correctly rejected by the COC. The Appellant had challenged the willful defaulter declaration before the High Court of Karnataka in Writ Petition No. 64053/2016, in which limited interim order was granted for a period of 3 weeks for non-publication of name and other details by SBI only. The Appellant again purported to challenge the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 respectively. The Appellant being the promoter is not eligible to submit a resolution plan without making payment of all overdue amounts with interest/charges, relating to NPA accounts. In the present case, the Resolution Applicant has not made the payment of overdue accounts. Hence is ineligible u/s 29A(c) and 30(4). 32. The learned counsel for the Respondent No. 3 has put his reliance on the leading case of Chitra Sharma v. Union of India, (2018) 18 SCC 575. The extract of the case is reproduced as below: 38. Parliament has introduced Section 29 A into the IBC with a specific purpose. The provisions of Section 29 A are intended to ensure that among others, persons responsible for insolvency of the corporate debtor do not participate in the resolution process . 39. ......the Court must bear in mind that Section 29 A has been enacted in the larger public interest and to facilitate effective corporate governance. Parliament rectified a loophole in the Act which allowed a back-door entry to erstwhile managements in the CIRP. Section 30 of the IBC, as amended, also clarifies that a resolution plan of a person who is ineligible under Section 29 A will not be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made nonjusticiable. 35. From the abovement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctness or incorrectness of declaration as willful defaulter and can only rely on the present status of the resolution applicant. 39. The appellant in its EOI claimed the advantage of section 240A of the code claiming exemptions from applicability of section 29A(c) and 29A(h) in terms of eligibility to be a resolution applicant as a medium level enterprise under MSME Development Act, 2006. On reading the provisions under section 29A along with section 240A of I B Code. It can be concluded that the exemption is only in respect of clause (c) and (h) of Section 29A of the I B Code. However, in this case the Appellant is declared ineligible under clause (b) of Section 29A where no exemption has been given to MSME. Also, the date of registration of the Corporate Debtor as MSME as on record was 5th June, 2019, i.e. after CIRP admission order dated 29th March, 2019. The application for registration of MSME by the Appellant was without authorization, being subsequent to initiation of CIRP and hence was invalid. Therefore, the Appellant is ineligible to take the benefits of section 240A under I B Code. 40. The Appellant cannot take plea that he was not given the statutory time pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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