TMI Blog2021 (8) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 per cent of the voting shares of financial creditors after considering: (i) its feasibility and viability; (ii) the manner of distribution proposed having regard to the order of priority amongst creditors laid down in Section 53(1) of the IBC, including priority and value of the security interest of the secured creditors; and (iii) such other requirements as may be specified by the Insolvency and Bankruptcy Board of India. In other words, the decision to approve a resolution plan is entrusted to the CoC. The jurisdiction which has been conferred upon the Adjudicating Authority in regard to the approval of a resolution plan is statutorily structured by sub-Section (1) of Section 31. The jurisdiction is limited to determining whether the requirements which are specified in sub-Section (2) of Section 30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equated with a jurisdiction in equity, that operates independently of the provisions of the statute. The Adjudicating Authority as a body owing its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P issued a public announcement on 21 May 2018 inviting claims from the creditors of the Corporate Debtor. The order of the NCLT admitting the corporate debtor to the CIRP was challenged in appeal, and the order of admission was stayed on 30 May 2018. On 30 April 2019, the NCLAT vacated the stay on the CIRP. The appeal was withdrawn. 3 The CIRP resumed on 7 May 2019. A fresh public announcement was issued by the IRP on 7 May 2019 for inviting claims from creditors. The Committee of Creditors- CoC was constituted on 24 May 2019. On 30 May 2019, the CoC replaced the IRP with Mr. Anish Niranjan Nanavaty as the Resolution Professional- RP . This appointment was confirmed by the NCLT on 21 June 2019. 4 During the course of the process, the RP invited Expressions of Interest - EOI from prospective resolution applicants on 15 July 2019. Fifteen EOIs were received, and a provisional list was prepared and furnished to the CoC on 16 August 2019. A request for resolution plan- RFRP was then issued to the prospective resolution applicants on 21 August 2019, together with an information memorandum and evaluation matrix. With the consent of the CoC, the last date for submission of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of its order on the approval application. The financial terms envisaged in the resolution plan have been tabulated thus: The plan envisages the following payments for the insolvency resolution of the Corporate Debtor as a going concern: G. Overall payment under the Plan: Resolution Plan contemplates following payments for the insolvency resolution of the Corporate Debtor as a going concern: Sr No. Particulars Amount (INR) 1. Amount to be infused by Resolution Applicant(Infused Resolution Amount) 3720,00,00,000/- 2. Fund infusion from Effective Date to meet working capital, capital expenditure requirements and/or funding other operational improvements of the Corporate Debtor 450,00,00,000/- 3. Upfront equity infusion against allotment of equity shares of Corporate Debtor (Upfront Equity Infusion) 5,00,00,000/- 4. Payment to Financial Creditors from the value realised from the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the following directions: 14. In view of the discussions and the law thus settled, the instant Resolution Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38, 38(1A) and 39(4) of the Regulations. The Resolution Plan is not in contravention of any of the provisions of Section 29A of the Code and is in accordance with law. The same needs to be approved. 15. Doha Bank one of the Financial Creditors has filed IA No. 1960 of2019 inter alia, challenging the admission of claims of few other Creditors and IA No. 3055 of 2019 impugning the decision of the Resolution Professional recognising the Indirect Lenders of the Corporate Debtor as Financial Creditors. The Applications are pending consideration. We are of the considered opinion that pendency of these and other Applications would not come in the way of approval or otherwise of the Resolution Plan. More so, when the Resolution Plan has been unanimously approved by the CoC. The distribution of the payments to the Creditors, Financial or Operational, as the case may be, shall be subject to orders to be passed in the respective Interim Applications within the ambit of the Code. We are thus i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Order for information . D Challenge before Appellate Tribunal 9 The appellants challenged the decision of the NCLT approving the resolution plan in appeal before the NCLAT. The grounds of challenge of the appellants were: (i) The appellants were kept unaware of the CIRP and no details were provided by the RP as regards the disposal of the fund towards their claims; (ii) The claims of the appellants had not received a fair and equitable treatment; (iii) The fair market value and the liquidation value of the Corporate Debtor had not been taken into account and an amount of ₹ 800 crores, being the value of certain preference shares, did not form a part of the corpus of payments to the operational creditors; (iv) There were material irregularities in the accumulation and disbursal of funds that constituted the corpus of the corporate debtor; and (v) The appellants were made to suffer a reduction of 90 per cent of their total claims, while substantial claims of nearly ₹ 120 crores have been rejected. 10 The NCLAT by its judgment dated 4 January 2021 rejected the appeal. The NCLAT noted that there was no substance in the grievance that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties to file affidavits explaining the position. Affidavits have accordingly been exchanged between the parties, to which a reference would be made. It is in this backdrop that the appeal has been heard finally at this stage. 13 Mr Dushyant Dave, learned Senior Counsel has appeared on behalf of the appellants. Mr Neeraj Kishan Kaul, learned Senior Counsel addressed the submissions on behalf of the Monitoring Committee. 14 Mr Dushyant Dave, learned Senior Counsel, submitted on behalf of the appellants that: (i) The stated object and purpose of the IBC is to balance the interest of all stakeholders and to maximize the value of assets. The long title to the IBC elucidates that the legislation seeks to: consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India. (ii) The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary of the Corporate Debtor in Reliance Reality Limited. On the other hand, if Reliance Realty Limited is unable to sell such real estate assets for ₹ 800 crores or more, the Resolution Applicant would itself buy such assets for ₹ 800 crores and make such funds available for distribution to the specified financial creditors. In apportionment, a sale of ₹ 800 crores exclusively for the benefit of specified financial creditors is a violation of Section 30(2)(b) of the IBC; (vii) The NCLT on an application filed by Doha Bank, a financial creditor of the Corporate Debtor, by its order dated 2 March 2021, set aside the inclusion of these banks (State Bank of India, Bank of India, UCO Bank, Syndicate Bank, Oriental Bank of Commerce and Indian Overseas Bank) from the CoC. Similarly, on the same analogy, various indirect creditors of the Corporate Debtor have also been excluded. The basis of the inclusion of certain financial creditors (this being challenged in the Doha Bank proceedings) was that the Corporate Debtor had executed a deed of guarantee in favour of these banks for securing a rupee loan facility availed by Reliance Communications Limited, the holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIRP. The issues faced by operational creditors have also been recognized in the report of the Insolvency Committee Report of February 2020. 15 Opposing the above submissions, Mr Neeraj Kishan Kaul, learned Senior Counsel submits that: (i) In the provisions of the IBC, specific stipulations have been framed in respect of the operational creditors, namely: a. Under Section 30(2)(b), the payment of debts to the operational creditors in the resolution plan shall not be less than the amount to be paid in the event of a liquidation under Section 53; b. Priority in terms of the water fall mechanism contained in Section 53 is provided; and c. Representation of their views in the CoC is envisaged under Section 24(3)(c), through the operational creditors themselves or the representatives if they have aggregate dues which are not less than 10 per cent of the debt of the Corporate Debtor; (ii) If the proceedings were to take place strictly in accordance with the provisions of the IBC, the liquidation value would be zero. However, despite this, the resolution plan has provided for the operational creditors to receive 19.62 per cent of their dues as against 10.32 per cent f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulations, the RP appointed two registered valuers in accordance with Regulation 27 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016- CIRP Regulations to carry out the valuation of the Corporate Debtor and to determine the liquidation value and fair value in accordance with Regulation 35(1). These values were placed before the CoC, in accordance with Regulation 35(2) of the CIRP Regulations, upon receipt of the resolution plans. The submission of the appellants that the realisable value from these preference shares is excluded from the liquidation value of the Corporate Debtor has been rebutted by a specific clarification contained in the Monitoring Committee s affidavit, which was filed in these proceedings. As a matter of fact, the realisable value for the Corporate Debtor on account of any proceeds realised from the preference shares held by its subsidiary (Reliance Bhutan Limited), is included in the determination of the liquidation value of the Corporate Debtor. This statement in the affidavit is duly supported by relevant excerpts from the valuation reports dated 2 January 2020 and 6 December 2019, iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancials for the period ended 31 st March 2018 and in the provisional financial statements as on the valuation date, we Therefore, the submission that the value of preference shares has not been included in calculating the liquidation value of the Corporate Debtor is factually incorrect. (ii) Liquidation Value 19 The second aspect relates to the liquidation value. On this, it has been clarified that the liquidation value due to the unsecured operational creditors would remain nil in all scenarios, including if the corpus of ₹ 800 crores is separately considered. The liquidation value of the Corporate Debtor is ₹ 4339.58 crores. The amount being infused by the successful resolution applicant is ₹ 3720 crores. The amount of ₹ 800 crores is a value ascribed under the approved resolution plan to be realised by the Corporate Debtor, pursuant to the remittance of proceeds in respect of the preference shares. Hence, cumulatively, the value being distributed under the approved valuation plan is ₹ 4520 crores. It has been clarified that even if the liquidation value of the realisable value of the preference shares were to be considered in isolatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rements of Section 30(2). The NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC. There is no equity-based jurisdiction with the NCLT, under the provisions of the IBC. 23 Now, it is in this backdrop that it becomes necessary for this Court to revisit some of the provisions of the IBC and to take note of the interpretation which has been placed upon them in successive decisions of this Court. Section 30(1) envisages the submission of a resolution plan by a resolution applicant. On the submission of the resolution plan, the RP is required to examine it and to confirm, in terms of sub-Section (2) of Section 30, that the plan abides by the statutory requirements spelt out in clauses (a) to (f) 17 (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and viability; (ii) the manner of distribution proposed having regard to the order of priority amongst creditors laid down in Section 53(1) of the IBC, including priority and value of the security interest of the secured creditors; and (iii) such other requirements as may be specified by the Insolvency and Bankruptcy Board of India. In other words, the decision to approve a resolution plan is entrusted to the CoC. 25 The function of the Adjudicating Authority under Section 31 is to determine whether the resolution plan as approved by the CoC under Section 30(4) meets the requirements under Section 30(2). If the Adjudicating Authority is satisfied that the resolution plan, as approved, meets the requirements under sub-Section (2) of Section 30, it shall by order approve the resolution plan which shall then be binding on the Corporate Debtor and all stakeholders, including those specifically spelt out: 31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned, there are specific requirements which have been spelt out in sub-Section (2)(b) of Section 30. Section 30(2)(b) requires the RP to confirm upon examination that the resolution plan: 30 (2) .(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1. - For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as approved by the CoC under Section 30(4). Moreover, even within the scope of that enquiry, the grounds on which the Adjudicating Authority can reject the plan is with reference to the matters specified in sub-Section (2) of Section 30. Similarly, the Court notes that the jurisdiction of the Appellate Authority to entertain an appeal against an approved resolution plan is defined by sub-Section (3) of Section 61. Now, it is in this context, that the consistent principle of law which has been laid down is that neither the Adjudicating Authority nor the Appellate Authority can enter into the commercial wisdom underlying the approval granted by the CoC to the resolution plan. The commercial wisdom of the CoC in its collegial capacity is, hence, not justiciable. 32 In K Sashidhar (supra), Justice A M Khanwilkar, speaking for the two-Judge Bench, held: 57. On a bare reading of the provisions of the I B Code, it would appear that the remedy of appeal under Section 61(1) is against an order passed by the adjudicating authority (NCLT) , which we will assume may also pertain to recording of the fact that the proposed resolution plan has been rejected or not approved by a vote of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority (NCLT) nor the appellate authority (Nclat) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors ... (emphasis supplied) The Court, also held (in paragraph 62) that the legislative history of the IBC indicated that there is a contra indication that the commercial or business decisions of financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority . 33 The above principles have been re-emphasised and taken further by a three-Judge Bench in Essar Steel India Limited (supra). The Court, speaking through Justice R F Narminan, held: 73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked to review particular aspects of the plan in terms of their economic feasibility, unless the circumstances in which this power can be exercised are narrowly defined or the court has the competence and experience to exercise the necessary level of commercial and economic judgement. F.3 Exercise of jurisdiction 35 Mr Dushyant Dave, learned Senior Counsel, sought to place emphasis on the abovementioned observations in paragraph 73 of the decision in Essar Steel India Limited (supra) to submit that the decision of the CoC must reflect that it has taken into account the need to: (i) Maximize the value of assets of the CD; and (ii) Adequately balance the interest of all stakeholders, including of operational creditors. The submission of learned Counsel is that in the present case, there was a failure to maximise the value of the assets and to balance the interests of the stakeholders. 36 The submission that there has been a failure to maximise the value of the assets has not been substantiated by any concrete material before the Court, apart from the reference to the preference shares which has already been clarified earlier in this judgment. Whether the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, it noted: 88 Fair and equitable dealing of operational creditors' rights under the said regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors. The Court also noted that: 89...by vest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime, it appears that a conscious choice has been made by the legislature to not confer any independent equity based jurisdiction on the Adjudicating Authority other than the statutory requirements laid down under sub-Section (2) of Section 30 of the IBC. 41 An effort was made by Mr Dushyant Dave, learned Senior Counsel, to persuade this Court to read the guarantees of fair procedure and non-arbitrariness as emanating from the decision of this Court in Maneka Gandhi vs Union of India (1978) 1 SCC 248 into the provisions of the IBC. The IBC, in our view, is a complete code in itself. It defines what is fair and equitable treatment by constituting a comprehensive framework within which the actors partake in the insolvency process. The process envisaged by the IBC is a direct representation of certain economic goals of the Indian economy. It is enacted after due deliberation in Parliament and accords rights and obligations that are strictly regulated and coordinated by the statute and its regulations. To argue that a residuary jurisdiction must be exercised to alter the delicate economic coordination that is envisaged by the statute would do violence on its purpose and would be an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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