TMI Blog2022 (1) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority vide the Impugned Order had directed the COC to consider the 'IInd Settlement Offer of Ist Respondent when the Resolution Plan after Approval from CoC was pending adjudication u/s 31 of the Code - the CoC contends that the settlement offer was neither submitted in compliance with the RFRP nor with Section 12 A of the I B Code and related Regulations. Such a direction of the Adjudicating Authority was passed despite that the CoC of the corporate debtor had by an overwhelming majority approved the Resolution Plan of DHFL. The Administrator had already filed the plan approval application, and that application was heard and reserved for orders by the learned Adjudicating Authority. It is pertinent to mention that the Hon'ble Supreme Court in the case of Ebix Singapore Private Limited versus Committee of Creditors of Educomp Solutions Ltd, [ 2021 (9) TMI 672 - SUPREME COURT ], has very recently dealt with the same issue which has arisen in this appeal where it was held that In this case, if Resolution Applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a Resolution Plan to the Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Appellant : Mr Tushar Mehta, SGI with Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Ms Isha Malik and Ms Fatema Kachwalla Advocates. For the Respondent : Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital Housing Finance Ltd., SRA). Ms Liz Mathew, Ms Sonali Jain, Mr Rohan Rajadhyaksha, Mr Naveen Rath, Advocates for Administrator. Mr Ashish S Kamat and Mr M.F. Philip, Advocates for R-3/RBI. JUDGMENT ( Virtual Mode ) [Per; V. P. Singh, Member (T)] 1. These Appeals CA (AT) (Ins) 370 of 2021, C.A. (AT) (Ins) 376-377 of 2021, C.A. (AT) (Ins) 393 of 2021 emanate from a common impugned order dated May 19, 2021, passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench II, in I.A. No. 2431 of 2020 in Company Petition (I.B.) No. 4258/MB/C-II/2019, whereby the Adjudicating Authority has inter alia directed the Administrator of DHFL to place the letter dated December 29, 2020 ( Second Settlement Proposal ) sent by Mr Kapil Wadhawan before the CoC for its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 of 2021, made the following observation which is necessary to mention here: 81. We have carefully examined the application, reply of the Respondent's viz. Administrator, 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 December 13 2020 (1st Settlement Proposal) but did not receive any reply; therefore, submitted the Second Settlement Proposal dated December 29 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers then the proposal can be rejected. He also submitted that this proposal is submitted based on the limited information available currently and he can increase the offer after 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 ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 I.A. 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. (verbatim copy) 5. After passing of the first impugned Order, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under Rule 11 of the National Company Law Tribunal Rules, 2017 ( NCLT Rules ) and Section 60(5) of the Code. 6.2 Further, Respondent No. 1/Mr Kapil Wadhawan, throughout the CIRP of the Corporate Debtor, has been sending various letters and proposals, including the First Offer, all of which have been placed before the CoC, and the CoC was also of the view that such proposals cannot be considered. The Second Offer is nothing but the First Offer in a different form. Such an order compelling the CoC to consider every offer by the promoter, who was once in control of the corporate debtor, would greatly and gravely hamper the CIRP and cause inordinate delays, and materially as well as adversely impact the sanctity of the process in which the CIRP of the Corporate Debtor has been conducted since its inception. 6.3 Appellant contends that Adjudicating Authority vide the Impugned Orders has asked the CoC to consider the Second Offer, which has neither been submitted in compliance with the RFRP nor compliance with Section 12A of the Code (and related regulations) and such a direction of the Hon'ble Adjudicating Authority passed after: a) the CoC of the Corporate Debtor has, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in the broadest possible terms. Further, the Adjudicating Authority has the inherent power to make such Order as may be necessary for the ends of justice or to prevent the abuse of the Tribunal's process. 7.3 Respondent No. 1 further argued that the objection by the Appellant that the impugned Order will interfere with the Commercial Wisdom of the CoC is incorrect as the Adjudicating Authority had merely directed consideration of the Settlement proposal and not interfere with the commercial wisdom of CoC as it is not a case wherein the CoC rejected the Settlement Proposal. But, rather a case, wherein the offer mentioned above was never even considered and hence does not fall within the ambit of Commercial Wisdom , and there is no question of interference with the same. 7.4 Respondent No. 1 further argued that the Resolution Plan of Piramal is not in the interest of creditors, and therefore the 'second settlement proposal' must be considered. Piramal offers a far low amount than can be recovered even if DHFL was run by an Administrator appointed by Respondent No. 3. 8. IIIrd Respondents /Reserve Bank of India's Submission 1. INITIATION OF CIRP O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the petition above and confirmed the appointment of Shri R. Subramaniakumar as the Administrator of DHFL ( Administrator ) under the FSP Rules and initiated CIRP against DHFL. g) Appellant contends that these urgent and extraordinary steps were taken because DHFL had huge debts and loans of approximately ₹ 87,247 crores. To protect and preserve the assets of DHFL and ensure that the Company is managed as a going concern, RBI appointed the Administrator and CIRP was initiated against DHFL. As such, the steps taken by RBI to initiate CIRP was not only on being legally authorised and competent only but also in the public interest. RBI takes the same in exercising statutory powers and is within its domain. The same does not commend any judicial review. RBI'S LIMITED ROLE DURING CIRP Corporate Insolvency Resolution Process h) Under the provisions of IBC, the Administrator of DHFL held meetings of CoC from time to time. The CIRP process is enunciated under the provisions of IBC and Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016 ( CIRP Regulations ). The Administrator of DHFL, along with the CoC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction about fit and proper criteria of a new entity having control ownership/ management and does not relate to merits or commercial terms of such a resolution plan or distribution mechanism provided under it, since it is left to the prudence/ commercial judgement of CoC under the IBC, as upheld by the Hon'ble Supreme Court in the case of K. Sashidhar vs Indian Overseas Bank Ors. (2019) 12 SCC 150, which is not to be interfered within the light of the legislative scheme, as interpreted by various decisions of the Supreme Court. o) The alleged settlement proposals of Kapil Wadhawan were addressed to CoC and the Administrator. This being so, the direction sought by Kapil Wadhawan against RBI to direct the Administrator to place such purported settlement proposal before CoC is against the provisions of the 'FSP Rules' and legally unsustainable as it is beyond the scope of the role of the Financial Sector Regulator who has applied for initiation of CIRP. Further, the reliefs sought are rendered infructuous. Therefore, the Order dated May 19, 2021, passed by NCLT Mumbai, ought to be rejected. 9. ANALYSIS 9.1 We have heard the argument of the learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , who would make suitable revisions and re-submit their Resolution Plans. The scope of a commercial bargain with the Resolution Applicants evinces a sense of a negotiated agreement that is arrived between the parties, which resembles an exercise of contractual freedom by the CoC and the Resolution Applicant. 127. If this court were to hold that CoC-approved Resolution Plans are indeed contracts, their provisions would still have to conform to the statutory provisions of the IBC. However, such an interpretation would entail that CoC-approved Resolution Plans are at the intersection of the IBC and the Contract Act. This would mean that certain principles of contract law, for example those relating to discharge, penalties, remedies and damages would become applicable to CoC-approved Resolution Plans. For instance, in the United States, plans confirmed by courts have been characterised as contracts, whose breach can even give rise to contractual remedies. In In re Hoffinger Indus, Inc, a bankruptcy court in Arkansas has held that a confirmed plan should be enforceable and amenable to damages between contractually bound parties. Indeed, it has been argued before us that Resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Approval and are bound by the decision of the majority of the CoC. The dissenting creditors are bound as a result of the statutory provision and not because they have actually consented to be parties to such an arrangement. Other elements governing the Resolution Plan indicate that the entire process from initiation and leading up to its acceptance by the CoC takes place within the framework of the IBC. In addition, the IBC provides penalties for non-compliance with the Resolution Plan after its Approval under Section 31 and forfeiture of the PBG for failing to implement the Resolution Plan or contributing to the failure of its implementation. The violation of the terms of the Resolution Plan does not give rise to a claim of damages, rather it leads to prosecution and imposition of punishment under Section 74 of the IBC. On the contrary, a CoC's withdrawal of the CIRP under Section 12A is coupled with a requirement of payment of CIRP costs, but no damages are statutorily payable to the Resolution Applicant, irrespective of the stage of the withdrawal. 130. The CoC even with the requisite majority, while approving the Resolution Plan must consider the feasibility and vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain, this Court while discussing the nature of compromise or arrangements entered between a company and its creditors or members observed that such a compromise or arrangement once sanctioned by the court is not merely an agreement between parties because it binds even dissenting creditors or members through statutory force. This Court made the following observations: 12. The scheme when sanctioned does not merely operate as an agreement between the parties but has statutory force and is binding not only on the Company but even dissenting creditors or members, as the case may be. The effect of the sanctioned scheme is to supply by recourse to the procedure thereby prescribed the absence of that individual agreement by every member of the class to be bound by the scheme which would otherwise be necessary to give it validity [see J.K. (Bombay) Pvt. Ltd. v. New Kaiser-i-Hind Spg. Wvg. Co. Ltd. [AIR 1970 SC 1041 : (1969) 2 SCR 866, 891: (1970) 40 Comp Cas 689]].. (emphasis supplied) 132. While the above observations were made in the context of a scheme that has been sanctioned by the Court, the Resolution Plan even prior to the Approval of the Adjudicating Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in the formation of a contract. Echoes of the process involved in the formation of a contract resonate in the steps antecedent to the Approval of a Resolution Plan such as: (i) the issuance of an RFRP may be equated to an invitation to offer; (ii) a Resolution Plan can be considered as a proposal or offer; and (iii) the Approval by the CoC may be similar to an acceptance of offer. The terms of the Resolution Plan contain a commercial bargain between the CoC and Resolution Applicant. There is also an intention to create legal relations with binding effect. However, it is the structure of the IBC which confers legal force on the CoC-approved Resolution Plan. The validity of the Resolution Plan is not premised upon the agreement or consent of those bound (although as a procedural step the IBC requires sixty-six percent votes of creditors), but upon its compliance with the procedure stipulated under the IBC. ******* 144. The lack of an apparent international consensus on the issue of whether instruments like CoC-approved Resolution Plans are contracts, prior to the Court's sanction, is also attributable to the peculiarity of the insolvency regime in each jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common law remedies of withdrawal or modification on account of frustration or force majeure are not applicable to CoC-approved Resolution Plans owing to the nature of the IBC. Similarly, the whole host of remedies such as liquidated and unliquidated damages, restitution, novation and frustration, unless specifically provided by the IBC, are not available to a successful Resolution Applicant whose Plan has been approved by the CoC and is awaiting the Approval of the Adjudicating Authority. The Insolvency Law Committee Report of February 2020 has recommended the CIRP process to mandate Resolution Plans to provide for the apportionment of the profit or loss accrued by the Corporate Debtor during the CIRP. These reports are periodically commissioned by the parliament to review the functioning of the Code and suggest amendments. However, if the intention was to view a CoC-approved Resolution Plan as a contract, the principles of unjust enrichment would have been sufficient to address the issue and an amendment may not be considered necessary. A Resolution Applicant, as a third party partaking in the insolvency regime, seeks to acquire the business of the Corporate Debtor without the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 12A, Regulation 30A provides for only payment of insolvency costs and not compensation or damages to Resolution Applicant for investing time and money in the process. The parties may resort to invoking principles of frustration or force majeure to evade implementation of the Resolution Plan leading to unnecessary litigation. This Court in Amtek Auto (supra), had curbed a similar attempt by a successful Resolution Applicant who had relied on a force majeure clause in its Resolution Plan to seek a direction compelling the CoC to negotiate a modification to its Resolution Plan. The Court held that there was no scope for negotiations between the parties once the Resolution Plan has been approved by the CoC. Thus, contractual principles and common law remedies, which do not find a tether in the wording or the intent of the IBC, cannot be imported in the intervening period between the acceptance of the CoC and the Approval by the Adjudicating Authority. Principles of contractual construction and interpretation may serve as interpretive aids, in the event of ambiguity over the terms of a Resolution Plan. However, remedies that are specific to the Contract Act cannot be applied, de hors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion envisaged between the parties, cannot be read into the statute through judicial interpretation. While parties have the freedom to negotiate certain commercial terms of the Resolution Plan to gain wide support, their ability to negotiate is circumscribed by the governing statute. A court cannot interpret the negotiated arrangements that are represented in the Resolution Plan in a manner that hampers the objectives of the IBC which is a speedy, predictable and timely resolution. The Resolution Applicant is deemed to be aware of the IBC and its mechanisms before it steps into the fray and consents to be bound by its underlying objectives. A Resolution Applicant, after obtaining the financial information of the Corporate Debtor through the informational utilities and perusing the I.M., is assumed to have analysed the risks in the business of the Corporate Debtor and submitted a considered proposal. It cannot demand vesting of certain powers and rights which have been conspicuously omitted by the legislature under the statute, in furtherance of the policy objectives of the IBC. A court may not be able to lay down such detailed guidance on how a mechanism for withdrawal, if any, may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature and the judiciary. Judicial restraint must be exercised in such cases as a matter of prudence, since the court neither has the necessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy. A court may be inept in laying down a detailed procedure for exercise of the power of withdrawal or modification by a successful Resolution Applicant without impacting the other procedural steps and the timelines under the IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as the IBC. In this case, if Resolution Applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a Resolution Plan to the Adjudicating Authority as a matter of law, it would dictate the commercial wisdom and bargaining strategies of all prospective Resolution Applicants who are seeking to participate in the process and the successful Resolution Applicants who may wish to negotiate a better deal, owing to myriad factors that are peculiar to their own case. The broader legitimacy of this cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abide by the discipline of the statutory provisions. It needs no emphasis that neither the adjudicating Authority nor the appellate Authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework. 9.6 Based on the law laid down by Hon'ble Supreme Court in the cases mentioned above, it is clear that ; a) Once the Resolution Plan is approved by a 100 per cent voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. b) Once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty-bound to abide by the discipline of the statutory provisions. Neither the Adjudicating Authority nor the Appellate Authority has an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework. c) The jurisdiction of the Adjudicating Authority is confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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