TMI Blog2021 (5) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... in the CIRP process, which is completely contrary and inconsistent with the spirit of the Code and will have the effect of derailing the CIR Process. Without prejudice to the aforesaid, it is pertinent to mention herein that the Applicant is the ex-promoter of DHFL against whom various proceedings, civil and/or criminal, have been filed, alleging cheating, fraud, siphoning of funds and such other serious offences. The Applicant is presently in judicial custody and most regulatory agencies like CBI, EOW, ED etc. are at present investigating against the Applicant. It is beyond any cavil that RBI has been unnecessarily impleaded as a party Respondent in the present Application and been dragged in such litigation. RBI cannot and ought not to intervene in the CIR Process and direct the Administrator to conduct himself in a manner which is contrary to the Code. Further, considering that the CIRP is at a very advanced stage, passing any ad-interim reliefs as sought for by the Applicant will completely derail the process and force DHFL into liquidation, which will be completely against the spirit of the Code. This being so, it is necessary in the interest of justice, equity and good co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant Mr. Kapil Wadhawan before COC for its consideration, decision, voting and inform the outcome of the same within 10 days from today and list the matter on 31.5.2021 - Petition disposed off. - IA 2431 of 2020 in CP (IB) 4258/MB/C-II/2019 - - - Dated:- 19-5-2021 - Harihar Prakash Chaturvedi, Member (J) And Ravikumar Duraisamy, Member (T) For the Appellant : Sudipto Sarkar, J.J. Bhatt, Ld. Senior Counsels, J.P. Sen, Rashmikant, Rohan Dakshini, Vishesh Malviya, Shweta Jaydev, Pooja Vasandani and Bhavin Shah, Advocates For the Respondents : Ravi Kadam, Ld. Senior Counsel, Rohan Rajadhyaksha, Advocate i/b Sonu Tondon, Advocate, Janak Dwarkadas, Ld. Senior Counsel, Animesh Bisht, Richa Roy, Saloni Kapadia, Pragya Dahiya i/b Cyril Amarchand Mangaldas, Ashish Kamat and Vivek Shetty, Advocates ORDER Ravikumar Duraisamy, Member (T) 1. This is an Application filed under section 60(5), 227 and 239(2) of the Insolvency and Bankruptcy code, 2016 (hereinafter referred to as IB Code ) for directions to Respondent No. 3 to place the settlement proposals of this Applicant before Respondent No. 2 through Respondent No. 1 and for seeking appropriate directions of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could ascertain from information available in the public domain, the proposals received from various Resolution Applicants did not even remotely reflect the true value of DHFL and its assets. In an attempt to maximise the value of the Corporate Debtor's assets, the Applicant, inter alia, addressed letters dated 11th November 2020 and 28th November, 2020 indicating what in its view is the true value of the company and the cash flow it was capable of generating. These letters were instrumental in an enhancement by the bidders of their bids which, however, remained abysmally low. From what the Applicant could ascertain, the offers assigned no real value to the wholesale portfolio of DFIFL. The offers would, if accepted, constitute a windfall for the bidders while compelling the creditors of DHFL including the public (who hold about approximately 60% of the secured debt) to take a steep haircut (nearly 60-70%) on their outstanding. The offers, as they stand, would also not require the bidders to bring any funds of their own, but to finance their proposals entirely from the internal accruals of the Corporate Debtor. 6. In these circumstances, by a letter dated 13th December 2020, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposal. All the Respondents have also argued that this Tribunal has no power or jurisdiction to direct any Applicant, and in this case the RBI, to place any Settlement Proposal for the consideration of the CoC. It was also sought to be urged that the Applicant, as one of the Promoters, was purportedly responsible for the present financial health of the Corporate Debtor and that no proposal ought to be entertained from such a Promoter In support of this submission, the Respondents also relied on the fact that criminal investigations are ongoing into the manner in which the Applicant had conducted the affairs of the Corporate Debtor. Further, it was argued that the present proposal was defective insofar as it did not comply with the requirements of an application under Section 12A of the IBC and Rule 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (IRPCP Regulations) including, inter alia, the provision of a Bank Guarantee to meet CIRP expenses. 10. It is submitted that the objections urged on behalf of the Respondents to the present application are misconceived. Section 60(5) of the IBC defines the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, while calling meeting of the 'Committee of Creditors', they should also be called for voting in accordance with the existing provisions of law. In that view of the matter, we direct the 'Resolution Professional' to place the proposal of Appellant/Promoters before the 'Committee of Creditors'. If necessary, the date of meeting of the 'Committee of Creditors' be fixed in the manner as prescribed under the Regulations and information be given to the 'Financial Creditors' including the allottees to take part. 13. Similarly, in Shaji Purushothaman Vs. Union Bank of India Ors., the Hon'ble NCLAT had the occasion to hold: 9. If an application u/s. 12A is filed by the Appellant, the 'Committee of Creditors' may decide as to whether the proposal given by the Appellant for settlement in terms of Section 12A is better than the 'Resolution Plan' as approved by it, and may pass appropriate order. However, as such decision is required to be taken by the 'Committee of Creditors', we are not expressing any opinion on the same. 14. Similar directions were also issued in Vishal Vijay Kalantri v. Dighi Port Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders and retail NCD holders all of whom are creditors of DHFL and are being kept in the dark in relation to the proposal made by the promoters. In fact, only two members of the CoC have appeared before this Tribunal in the present Application. The other constituents of the CoC are unrepresented. It is in the interest of all stakeholders including, inter alia, the members of the public who constitute the vast majority of the creditors of the Corporate Debtor that the 2nd Settlement Proposal at least be considered on merits. All that the Settlement Proposal seeks to do is to maximise the value of the company with a view to ensure an optimal return to its creditors and to prevent any bidders from making windfall gains by a gross undervaluation of the assets of DHFL. If the Respondents are indeed desirous of maximising the value of the Corporate Debtor as part of the CIRP, they can hardly object to a consideration of the 2nd Settlement Proposal. 17. The contention that no promoter of a company in CIRP, on account of his alleged culpability for the financial health or lack thereof of the Corporate Debtor, ought to be permitted to submit a Settlement Proposal is entirely misconceived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present affidavit in reply for the limited purpose of demonstrating that the Application is not maintainable and deserves to be dismissed in limine, for the reasons specifically set out below. The relief sought by the Applicant are untenable in law and devoid of merits. I crave leave to file a detailed affidavit in reply, if required. 21. By way of the present Application, the Applicant seeks the following reliefs from this Tribunal: a. directs the Respondent 3, the Reserve Bank of India ( RBI ), to place a settlement proposal by the Applicant before Respondent 2, the Committee of Creditors of the Corporate Debtor ( CoC ); b. The Applicant be provided an opportunity to address the CoC; and c. Interim relief in terms of staying consideration of any resolution plans received for the Corporate Debtor and an independent valuation of the Corporate Debtor's assets be conducted and the report shared with the CoC and the Applicant. 22. The contents of the Application are denied in entirety, except and to the extent specifically admitted below, and nothing is deemed to be admitted merely for want of specific traverse. It is submitted that the Application is misconce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, December 14, 2020, and then December 22, 2020. d. The CoC convened thereafter on December 24 and 25, 2020, to consider the resolution plans submitted. Voting on the plans has commenced and is scheduled to end on January 15, 2021. 30. It is in the context of these timelines that the Application needs to be considered. The Second Proposal was received on December 29, 2020, i.e., after the voting had commenced on the resolution plans received. The Second Proposal was not received in accordance with the timelines set out in the Code or the RFRP. In fact, despite advertisements inviting EOIs seeking resolution plans for the Corporate Debtor being widely published in accordance with the CIRP Regulations, the Applicant chose not to submit an EOI and is now attempting to submit a proposal belatedly at an advanced stage in the CIRP. Further, it is not clear if the Applicant is even eligible to submit a resolution plan for the Corporate Debtor under section 29A of the Code. 31. While the Applicant steadfastly refrained from submitting EOIs, it continued to address correspondence to the Administrator. The Applicant addressed letters (other than the ones specifically discussed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... averred the same). Similarly, the balance of convenience cannot also lie in favour of the CIRP of the Corporate Debtor being disrupted by the erstwhile management of the Corporate Debtor attempting to use the judicial process to further its aims. 39. Additionally, the Applicant has requested that an independent valuation be conducted of the Corporate Debtor's assets, and the report shared with the Applicant. Respondent 1 submits that this request has no basis in law. Respondent 1 has already ensured that assessment liquidation value and fair value of the Corporate Debtor has been conducted in accordance with the provisions of the Code and CIRP Regulations and been duly placed before the CoC. As per the provisions of the Code, such valuation reports are confidential in nature. Since the Applicant is not a member of the CoC, as per the decision of this Tribunal in Application 518/2020 in the subject Company Petition, these reports cannot be shared with the Applicant. The Applicant's attempt to use this Tribunal to evade the provisions of law ought not to be entertained. 40. Without prejudice to the generality of the above, Respondent 1 sets out in this section specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to agitate or this Tribunal to judge. 46. The contents of paragraph 18 are denied. As already set out above, the reference to interlocutory application 2709138/04498 of 2020 is irrelevant and misconceived. The application has become infructuous as the proposal formulated in September 2019 has since been replaced and superseded by the Second Proposal. 47. The contents of paragraph 19 are a matter of record, and all allegations contrary or inconsistent to the record are denied. 48. The contents of paragraph 20 are denied as being unsubstantiated and in any irrelevant. The contents of the letter of December 13, 2020 and December 19, 2020 are denied. In any event, as was made clear to counsel for the Applicant, the CoC, at its meeting on December 24 and 25, 2020, considered the letter of December 19, 2020, and decided not to accept the same. In any event, this has become irrelevant, as the settlement has been superseded by the Second Proposal. 49. The contents of paragraphs 21 to 28 are denied as irrelevant and unsubstantiated. The question of commercials is a question solely between members of the CoC, and does not lie for the Applicant to agitate or this Tribunal to judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Affidavit-in-Reply dated January 11, 2021 ( UBI Reply ) to the captioned Application No. 2431 of 2020 ( Application ) on behalf of the UBI Consortium (as set out in the UBI Reply) which holds approximately 35% voting share in the CoC of DHFL. UBI is filing the present written submissions in addition to the UBI Reply. The contents of the UBI Reply are not being reproduced for the sake of brevity, however, the entire contents of the UBI should be deemed to a part of the present submissions. 56. Withdrawal of an application admitted under the Insolvency and Bankruptcy Code, 2016 ( Code ) must be at the instance of the original applicant who had filed the application on the basis of which the corporate insolvency resolution was initiated ( Original Applicant ) (in this case RBI) and the provisions and procedure as specifically provided under Section 12A of the Code ( Section 12A ) and Regulation 30A ( Regulation 30A ) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ( CIRP Regulations ) are mandatory provisions which are required to be adhered to. Section 12A of the Code reads as under: 12A. Withdrawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, hence, the discretion ought not to be exercised in favour of the present Applicant who:- i. Was the CMD of DHFL. ii. The board of which he was a member was superseded at the instance of RBI for reasons set out in the Press Release and the RBI Reply. iii. There are serious allegations of siphoning of funds, cheating fraud etc, in respect of which proceedings have been filed by appropriate authorities. iv. The Applicant admittedly is in judicial custody. v. The Applicant has admittedly defaulted in honouring the personal guarantees. vi. Applications under Section 95 of the Code have already been filed against inter alia the Applicant and an interim moratorium operates in terms of Section 96 of the Code. 62. This is not an ordinary CIRP and this Tribunal must merit the wisdom of the RBI. 63. The intention of the Applicant to prolong the CIRP and delay the approval of the resolution plans is apparent from the manner in which the Applicant has filed this present Application. The invitation for expression of interest in this matter was issued on January 28, 2020; since then neither has the Applicant filed an application under Section 12A no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the following reasons: a) In the Shaji order the Appellant had approached the Original Applicant i.e. Union Bank of India for settlement and settled the matter (para 3 of Shaji). It is an admitted position that in the present case the Applicant has not approached the Original Applicant i.e. RBI with any settlement proposal. b) The Hon'ble NCLAT by its order dated July 29, 2019 observed that order of admission cannot be set aside unless an application is filed under Section 12A by UBI with approval of 90% of the CoC. It is submitted that the process under Section 12A was duly initiated in the matter. c) The Hon'ble NCLAT refused to issue any specific direction giving liberty to move an Application under 12A (para 8 of Shaji). d) In the Shaji order the Hon'ble NCLAT merely observed that if an application under Section 12A is filed by the Appellant, the CoC may decide on the same. e) It is humbly submitted that once again the process under Section 12A has not been discussed in the Shaji order and the same is clearly distinguishable on facts and hence, the same has no applicability in the present Application. iii. Decision of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted above, it is only RBI that can initiate CIRP against an FSP such as DHFL. It is regulatory decision taken on several grounds which involve public interest and interest of all stakeholders. v. Hence, the stark and absolutely critical difference in the initiation of the CRIP in case of FSP providers from that of general corporate debtors would render all of the above cases in relation to a withdrawal or settlement of a regular CIRP process completely inapplicable to a withdrawal of a CIRP of an FSP provider such as DHFL. That being the case none of the orders cited by the Applicant have any applicability to the present matter and ought not to be considered by this Tribunal. 65. It is further submitted that the letters received from the Applicant inter alia letters dated October 17, 2020, November 11, 2020 and November 28, 2020 have been duly replied to by the Administrator after discussions with the CoC and the alleged concerns and proposals of the Applicant have been duly dealt with. It is noteworthy that in all its responses, the Administrator has time and again stated that the Applicant's letters and proposals are replete with falsehoods, inaccuracies and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighted various reasons as to why the letter cannot be treated as resolution plan. 67. Hence, it is clear that in the CoC meetings all the letters and the First Proposal of the Applicant were discussed and were found to be filed with unsubstantiated statements, misrepresentations and false statements. The CoC has in essence considered all the letters and has not accepted the same including on the ground that it was always open to the Applicant to make payment under the personal guarantee given by the Applicant which has been invoked by UBI and no payments have been made thereunder. The minutes of the said meeting were finalised and uploaded in the next few days. However, before any response could be sent by the CoC the Application got served on the CoC on December 31, 2020. Hence, since the matter was sub judice the CoC did not correspond with the Applicant any further. 68. Hence, no directions can be passed by this Tribunal for considering same proposal, while the Administrator and the CoC have already found all the contentions of the Applicant in the past unreliable, misrepresentative and false. 69. Catalyst Trusteeship Limited ( Catalyst ), the debenture trustee for ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s financial position, also due to serious governance concerns and defaults by DHFL in meetings its payment obligations. A copy of the press release dated November 20, 2019 is hereto annexed as Annexure A. 73. Subsequently on November 22, 2019, in exercise of powers conferred under section 45 IE 5(a) of the Reserve Bank of India Act 1934, RBI constituted a three-member Advisory Committee to assist the Administrator in discharge of his duties. A copy of the press release dated November 22, 2019 appointing the Advisory Committee is hereto annexed as Annexure B. 74. Thereafter, under Section 227 read with clause (zk) of sub-section (2) of Section 239 of the Insolvency and Bankruptcy Code (IBC), 2016 read with Rules 5 and 6 of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudication Authority) Rules, 2019 ( FSP Insolvency Rules ), RBI on November 29, 2019, initiated insolvency proceedings against DHFL by filing a Company Petition No. 4258 of 2019 before this Tribunal. This Tribunal by its order dated December 3, 2019 admitted the aforesaid petition and confirmed appointment of Mr. R Subramaniakumar as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 30, the Administrator shall seek 'no objection' of the appropriate regulator to the effect that it has no objection to the persons, who would be in control or management of the financial service provider after approval of the resolution plan under section 31; (iii) the appropriate regulator shall without prejudice to the provisions contained in section 29A, issue 'no objection' on the basis of the 'fit and proper' criteria applicable to the business of the financial service provider; (iv) where an appropriate regulator does not refuse 'no objection' on an application made under clause (ii) within forty-five working days of receipt of such application, it shall be deemed that 'no objection' has been granted... 78. The aforesaid provision makes it clear that once the CoC (Respondent No. 2) has approved the Resolution Plan, the Administrator of the DHFL, has to obtain no-objection from RBI in accordance with Rule 5(d) of the FSP Insolvency Rules. Apart from the same, neither the Code nor the FSP Insolvency Rules, casts any other obligation on RBI vis- -vis the CIRP process, which is left to be run by the resolution pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistrator, COC, RBI and judgments cited by the Counsels. From the records it is noted that Mr. Kapil Wadhawan one of the main promoters of the Corporate Debtor had addressed various letters to the Administrator, COC and also submitted a Settlement Proposal dated 13 December 2020 (1st Settlement Proposal) but did not receive any reply therefore, submitted the Second Settlement Proposal dated 29 December 2020 (2nd Settlement Proposal). The main prayer of the Applicant Mr. Kapil Wadhawan, was CoC be directed to consider the 2nd Settlement Proposal submitted by the Applicant, to vote upon the same and to take a decision thereupon. 82. The submission of R1 that CoC has considered and chosen to not accept the Applicant's proposal is not supported by any record, evidence therefore is not accepted. 83. It was also sought to be urged by the Respondents that the Applicant, as one of the Promoters, was purportedly responsible for the present financial health of the Corporate Debtor and that no proposal ought to be entertained from such a Promoter, if we accept this contentions of the respondent, settlement proposal, One Time Settlement proposal cannot be offered by the Promoters an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er negotiation. We have not made any comments, expressed our opinion on the feasibility, viability of the settlement proposal of the applicant Mr. Kapil Wadhwan. 85. Though the letters, Settlement Proposals were addressed to the Administrator, COC it is seen from the records that AZB Partners the legal team of the DHFL have written/replied to him and apparently the same is communicated without the knowledge, approval of the Administrator, the members of COC therefore, the same cannot be treated as a reply from the Administrator, COC, appropriate authority. 86. The submissions by the Administrator, COC that his settlement proposal has been placed on the website, Virtual Data Room (VDR) is not akin to placing for consideration, voting of COC rather its just an information and treated casually. The resolution plans submitted by three other entities were discussed, negotiations were held then voted upon. 87. Further the applicant also mentioned that the proposal is not made available to FD, NCD holders who constitute more than 65% of vote share of members of COC, apparently the same is not disputed by the respondents like the Administrator, COC. If the 2nd Settlement Proposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n plan because he is disqualified under section 29 A read with regulation 30A of CIRP Regulations. Therefore, such contention of the respondents that he has not submitted a resolution plan for the consideration of the COC is not legally tenable because the applicant has submitted an offer/proposal for settlement akin to One Time Settlement (OTS) and there is no express legal bar under the provision of IBC to a promoter (applicant) for making a proposal for settlement. In case if this settlement proposal is accepted by the COC with its requisite majority then a withdrawal application can be filed under section 12A of the Code by the applicant in main IB Petition (herein the RBI through Administrator). Therefore, the present application and settlement proposal is the precursor for the same as contended by the counsels for the applicant. In case the settlement proposal is duly accepted by the CoC then a withdrawal application is to be moved through the petitioner, Reserve Bank of India and/or as per the provisions of IBC and Regulations. 91. That apart Hon'ble Supreme Court in its decision in the matter of Swiss Ribbon Vs. Union of India, has pleased to held that Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lan but factually that is not case as discussed supra. 94. Additionally, the Applicant has requested that an independent valuation be conducted of the Corporate Debtor's assets, and the report shared with the Applicant for which Respondent 1 submits that this request has no basis in law. We accept the stand of R1 and the prayer is not acceptable since valuation exercise had already been completed in the CIR Process, therefore this prayer is rejected. 95. While observing so, we are conscious about our jurisdiction that this Adjudicating Authority cannot substitute its view of over the Commercial Wisdom that may be exercised by the CoC in respect of the present Applicant, however there appears to be some procedural irregularity by not considering a settlement proposal which is around 150% higher value of the Resolution Plan approved. Hence it needs due consideration and cannot be kept aside nor contention of the applicant in the present IA can be brush aside that an Ex-promoter cannot move a proposal of settlement in the light of the above referred decision of Hon'ble NCLAT and by following by above referred decision of Hon'ble Supreme Court. Hence following order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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