9911796707
Advanced Search 
TMI Blog2022 (1) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... a Mishra, Mr Vishal Hablani and Mr Avishkar Singhvi, Mr Ashish Bhan, Mrs Chitra Rentala, Mr Aayush Mitruka, Ms Samriddhi Shukla, Mr Ramji Srinivasan, Sr Advocate with Ms Madhavi Khanna, Ms Rajshree Chaudhary, Ms Saloni Kapadia, Mr Animesh Bisht, Mr Raunak Dhillon and Mr Shubhankar Jain, Advocates JUDGMENT Per; V. P. Singh, Member (T) 1. These three Appeals emanate from the Common Order dated 07.06.2021 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Mumbai in IA No 623 of 2021 in IA 449 of 2021 Company Petition (IB) No. 4258/MB/2019, whereby the Adjudicating Authority has rejected IA No. 623/2021 under Section 60 (5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code') filed for rejecting IA No. 449/2021 Applied for approval of Resolution Plan. The Parties are represented by their original status in the Company Petition for the sake of convenience. 2. Factual Background 2.1 Owing to the governance of concerns and defaults by DHFL in meeting various payment obligations, the RBI has, by notification dated 20 November 2019, superseded the Board of Directors of DHFL and appointed this administrator to manage the affairs of DH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code. The Application is in relation to the undervalued and fraudulent nature of certain agreements entered into by the Company at the time the Company sold its stake in Pramercia Life Insurance Limited to DHFL Investments Limited and certain ICDs given by the DHFL to ICD entities. The amount involved therein is Rs.2,150.84 crores. IV. 4th, 5th and 6th Applications filed in December 2020 - The Applications are about: a. Disbursement to specific entities in the form of loans against property and utilisation of the same towards premature redemption of certain NCDs, undertaken by DHFL in the past under Sections 43, 45 and 66 of the Code - as Application "A". b. Diversion of excess funds from the account of DHFL for purchase of NAPHA Building under Section 66 of the Code as Application "B". c. Fraudulent and undervalued advancement of ICDs by DHFL to certain entities in the past and the subsequent creation of a pledge over the non-convertible debentures issued by DHFL under Sections 45 and 66 of the Code - as Application "C". A copy of the letter dated December 13, 2020, issued by Respondent No. I to Stock Exchange summarising the said transaction is annexed with Appeal Paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding any modification. (i) Order and declare that any term in Respondent No. 2's Resolution Plan including any modification thereto either expressly or impliedly providing that the benefit of any orders passed in the avoidance application filed or to be filed by Respondent No. 1 under sections 43 to 51 or under section 66 of the Code or any one or more of these provisions, including appeal proceedings arising therefrom, and the recoveries/ contributions made consequent thereto shall in any manner whatsoever be for the benefit of Respondent No.2 including its nominee/assignee/any person claiming through or under it, and not for the benefit of the creditors of DHFL, is contrary to law, void ab initio, non-est, and bad in law. (ii) Declare, order and direct that any recoveries/contributions made or the benefit of any orders passed in the avoidance applications filed or to be filed by Respondent No. 1 under sections 43 to 51 or under section 66 of the Code or any one or more of these provisions, including appeal proceedings arising therefrom, shall be for the sole benefit of the creditors of DHFL c. In the event this Hon'ble Tribunal is inclined to approve the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions. Therefore, we as Adjudicating Authority reluctant to substitute our wisdom at this stage as against their Commercial Wisdom of the CoC. Further by following the judicial precedents, discipline and various Judgements of the Hon'ble Supreme Court we restrain ourselves from interfering with the commercial decision of the CoC. 4. Ld. Sr. Counsel appearing from the side of the applicant argued that the matter be sent back to CoC for its reconsideration. However Ld. Senior Counsel appearing for the CoC vehemently argued that there is no case for sending back to CoC as they have already exercised their Commercial Wisdom and already taken a conscious decision after analysing various facts and considerations including Net Present Value (NPV) concept, as per general saying that a bird in hand is better than few in bush, risk of recovery is transferred to the Successful Resolution Applicant etc and ascribed an amount of Rs.1 for this Section 66 Fraudulent Transactions. 5. Ld. Sr. Counsel for the Applicant relied upon the Judgment of Hon'ble Delhi High Court dated 26.11.2020 in the matter of Venus Recruiters Private Limited Vs. Union of India & Ors (W.P. No. 8705 of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was decided that the prospective Resolution Applicants may ascribe a value "as best as the Resolution Applicant's could" to the transactions under Section 66 of the Code and purpose the manner of the dealing with recoveries therefrom. 4.5 Following this decision of the COC, an RFRP dated September 16, 2020, was issued requiring the Resolution Applicant's inter alia ascribed a realistic value to the Section 66 transactions. 4.6 However, the Resolution Plan of the Successful Resolution Applicant viz. Respondent No. 2 values the recoveries from Section 66 transactions, in respect of which applications for recovery of more than Rs.45,000 crores have been filed by Respondent No. 1, at Rupees one notional value and seeks to appropriate the future recoveries from these transactions. In other words, by valuing the Section 66 transactions at an unrealistic and arbitrary value of Rs.1, Respondent No. 2 has attempted to appropriate massive recoveries that are likely to result from the avoidance applications filed by Respondent No. 1. 4.7 The Appellant contends that as a matter of law and its correct interpretation-recoveries from avoidance transaction to enure the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that judgement in the matter of Venus is misplaced." 4.12 The learned NCLT misread and misapplied the ratio of the order dated March 15, 2021, passed by this Hon'ble Tribunal in the case of Interrups Inc (supra) and wrongly held that this Hon'ble Tribunal in the case held that judgement in the case of Venus Recruiters Private Limited (supra) was misplaced. What has been held by this Hon'ble Tribunal in para 9 of its order dated 15th March 2021 is that the reliance of the Appellant's, in that case, on the judgement of Hon'ble Delhi High Court in the case of Venus Recruiters Pvt Ltd was misplaced. Thus the Hon'ble Delhi High Court found on facts that the ratio laid down by Hon'ble Delhi High Court in the case of Venus Recruiters Private Limited (supra) was inapplicable to the case of Interrups Inc (supra). The ratio laid down by the Hon'ble Delhi High Court is that of the constitutional court and directly answering the issues before the NCLT was binding on the NCLT. 4.13 Appellant alleges that the impugned order is ex-facie an unreasonable and a non-speaking order. The learned NCLT has failed to consider the submissions and arguments of the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in dismissing IA 623 of 2021 filed by the Appellant. However, it must be remembered that this was not the first Application filed by the Appellant. Even before IA 623 of 2021 was filed on March 5, 2021, Appellant had filed IA 2352 of 2020 before the Adjudicating Authority on or around December 28, 2020 (Reply filed by Respondent No. 2 in Appeal 455 of 2021, p. 10), on the same basis as IA 623 of 2021. At the hearing of IA 2352 of 2020, the Respondents had pointed out that the Application was premature, as it had been filed even before Resolution Plans had been voted on. Accordingly, the Appellant sought and was granted leave on January 21, 2021, to withdraw IA 2352 of 2021. This was granted with the limited leave to "agitate the entire issues/ grievances at the appropriate stage, i.e. when the application is moved for approval of Resolution Plan under Section 31 (1) of Insolvency and Bankruptcy Code, 2016". 6.2 In the interim, the Resolution Plan submitted by Respondent No. 3 was put to the vote on December 29, 2020. The voting window remained open from December 29, 2020, to January 14, 2021. An overwhelming majority approved the Resolution Plan submitted by Respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts rights to accept and approve a departure from the RFRP, a contractual document, which is a conscious and aware commercial decision. 6.6 The Appellant has failed to point out any provision of the Code in support of its contention that the Resolution Plan is illegal and contrary to law'. The Appellant's only argument in this regard hinges on the Delhi High Court in Venus Recruiters Pvt. Ltd v Union of India & Ors. [WP(C) 8705/2019 & CM APPL 36026/2019] ("Venus"). However, the decision in Venus is inapplicable and distinguishable from the present case: (i) The primary question in Venus was whether Avoidance Applications could survive the CIRP process and continue to be adjudicated upon after approval of the Resolution Plan. (ii) The decision in Venus does not deal with the issue of entitlement to recoveries of avoidance applications in the event the Resolution Plan provides for a mechanism to deal with the same. (iii) In Venus, neither the RFRP nor the Resolution Plan provided the treatment of proceeds arising from avoidable transactions. On the contrary, in the present case, as set out above, both the RFRP and the Resolution Plan set out requirements and provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen ascertaining fair value and liquidation value, value assets. They do not value transactions or avoidance applications. The registered valuers, in the present case, undertook the valuation in compliance with Regulation 35 of the CIRP Regulations, and any value ascribed to any specific assets is based on several factors, including the availability and quality of security. It is incorrect to say that any avoidance applications were valued at all, or in fact, ascribed nil value. It is settled law that valuation is a technical and complex exercise that is best left to the wisdom of experts. [G.L. Sultania & Anr. v. Securities and Exchange Board of India & Ors. (2007) 5 SCC 133)] 7. IInd Respondent's Submission [Piramal Capital & Housing Finance Ltd, (SRA)] 7.1 Respondent No. 2 submits that the Appellant is a Financial Creditor of DHFL holding NCD, Non Convertible Debentures worth Rs.200 crores (0.2% on COC) and is a part of the class of NCD holders. In Section 21 (6A) of the Code, the Appellant was represented on the CoC by its debenture trustee, 'Catalyst Trusteeship Limited'. Admittedly and knowing well the provisions of the Resolution Plan, the Appellant voted in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deal with the debtor's assets in the present or that may come to the debtor in the future in its commercial wisdom. b) The assets which are the subject matter of the avoidance applications are a subset of the total assets of DHFL and are largely in relation to the NPA. From the aforesaid, it is amply clear that the avoidance applications filed with regard to the assets of DHFL. The prospective Resolution Applicants have bid for the entire assets of DHFL, including assets that are the subject matter of avoidance transactions. c) Under Section 66 of the Code, the Adjudicating Authority may direct any director or partner of the Corporate Debtor to contribute to the Corporate Debtor's assets as it is deemed fit. Thus, recoveries from avoidance applications are to be returned to the Corporate Debtor as it is the Corporate Debtor's assets. d) Further, This Hon'ble Appellate Tribunal has held that the treatment of proceeds of avoidance applications is within the commercial wisdom of the COC and stated that such commercial understanding should be given effect without any modification. (JSW Steel Ltd v Mahender Kumar Khandelwal, CA/AT/INS 957 of 2019.) e) Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the CoC may evaluate. The said Resolution was voted upon by and passed by the requisite majority of the COC, the 98.8% of the 63 Moons Class. Accordingly, the Appellant is bound by such a vote cannot raise any objection on this ground. j) In the 18th meeting of the COC held on December 24 2020, and December 25, 2020, the CoC and the Administrator have acknowledged that in the Resolution Plan submitted by the PRAs, there may be some deviation from the RFRP. The list of such deviations was placed before the CoC. In addition, by way of abundant caution, we have ascribed rupees one value of avoidance application under Section 66 of the Code was also included as a deviation. k) Further, it is a well-recognised principle of law that a notional value of rupees one can be ascribed when it is difficult to assess the actual amount and arriving at an estimate would be a "wild guess" (Essar Steel India Limited Committee of Creditors versus Satish Kumar Gupta, (2020) 8 SCC 531, para 155). l) Further, the Appellant's contention about two separate resolutions, one seeking a vote on the Resolution Plan and the other seeking a vote on the deviations in the Resolution Plan from RFRP, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d written submissions. However, without dealing with the oral & written submissions of any party and without recording reasons, the Ld. NCLT simply stated that it was "reluctant to substitute" its wisdom with the commercial wisdom of the CoC and the Ld. Therefore, NCLT "restrained from making any comments". Impugned Order is a Non-Speaking Order- 9.3 The Appellant submits that the impugned order is unreasoned and non-speaking and runs afoul of the Hon'ble Supreme Court Judgement ratio in the case of Asstt. Commissioner. Commercial Tax Department v. Shukla & Bros. (2010) 4 SCC 785, wherein the Hon'ble Supreme Court goes on to observe that; "10. The increasing institution of cases in all courts in India and its resultant burden upon the courts has invited attention of all concerned in the justice administration system. Despite heavy quantum of cases in courts, in our view, it would neither be permissible nor possible to state as a principle of law, that while exercising power of judicial review on administrative action and more particularly judgment of courts in appeal before the higher court, providing of reasons can never be dispensed with. The doctrine of audi alteram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellate/higher court. Absence of reasons thus would lead to frustrate the very object stated hereinabove." (emphasis in bold supplied) Reasons stated for assigning benefit of Avoidance Transaction to the SRA 9.4 It is necessary to go through some of the details leading to the decision of CoC to ensure the benefit of avoidance applications to the Successful Resolution Applicant. 9.5 After issuing a request for Resolution Plan on March 20 2020 (the "March RFRP") (Page 283 of the Appeal Vol-II), which invited prospective Resolution Applicants to submit Resolution Plans while adhering to the stipulation that benefit of recoveries from avoidance applications filed under Sections 43, 45, 47, 49,50 or 66 of the Code shall enure to the benefit of the creditors of the Corporate Debtor and shall be a pass-through amount to them, on the insistence of the prospective Resolution Applicants, on September 10, 2020, it was decided that the' March RFRP' should be modified given the "mutual interest of the CoC members and the Resolution Applicant". In addition, a perusal of the minutes of the CoC meeting held on 10h September 2020 makes it clear that the prospective Resolution Applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority, in terms of Section 31 read with Section 30(2) of the Code, to ensure that a Resolution Plan which is placed before it for approval is compliant with the provisions of law. Despite the limited scope of enquiry in an application for approval of a Resolution Plan, the jurisdiction of the Adjudicating Authority to go into the aspects of illegality in Resolution Plans and the Resolution Plans to be compliant with the provisions of law has been well recognised & accepted by Hon'ble Supreme Court of India in a number of judgements including in a recent judgement in the case of Kalpraj Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr. (2021 SCC Online SC 204, Para 148). 9.10 The Respondents have opposed the present Application inter alia on the following grounds: i. The Appellant is estopped from challenging the resolution plan because it has voted in favour of Respondent No. 2's Resolution Plan, and the class of creditors to which the Appellant belongs has also voted in favour of Respondent No. 2's Resolution Plan; ii. The decision regarding treatment of recoveries from avoidance applications is within the commercial wisdom' of the CoC, and the CoC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng been approved. This is however subject to any clause in the Resolution Plan to the contrary, permitting the RP to function for any specific purpose beyond the approval of the Resolution Plan. In the present case, no such clause has been shown to exist." 9.13 However, learned Senior Counsel for the Appellant had based its case on the observation of the Hon'ble High Court in paragraph 73, quoted below, of the same judgement. "73. An avoidance application for any preferential transaction is meant to give some benefit to the creditors of the Corporate Debtor. The benefit is not meant for the Corporate Debtor in its new avatar, after the approval of the Resolution Plan. This is clear from a perusal of Section 44 of the IBC, which sets out the kind of orders which can be passed by the NCLT in case of preferential transactions. The benefit of these orders would be for the Corporate Debtor, prior to approval of the Resolution Plan. Any property transferred or sum acquired in an order passed in respect of a preferential transaction would have to form part of the final Resolution Plan. The Resolution Plan would have to take into consideration such amounts and benefits which can be give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed. The Resolution Professional shall conduct and pursue the litigation for reversal of such transactions till their final disposal (including any appeals). The costs of such litigation for the Resolution Professional shall be borne by the Resolution Professional. The decision on CA 613/2019 is not a pre-requisite for approval of resolution plan. Therefore, the Delhi High Court Judgment is inapplicable to the present case V. CIRP has come to an end.--" (verbatim copy) 9.15 The learned Senior Counsel representing the respondents vehemently argued that the appellant's reliance on the decision of Hon'ble High Court of Delhi in Venus Recruiters (supra) case is misplaced in the present case because the factual matrics are significantly different in Venus Recruiters, where the central question for consideration was whether an avoidance application under Section 43 could survive after the approval of Resolution Plan and not the treatment of proceeds of avoidance applications. 9.16 The observations of the Hon'ble Delhi High Court in Venus Recruiters that the benefits of avoidance transaction should be given to the creditors were when the relevant Resolution Plan did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication did not challenge the order of the impleadment. It was only the petitioner who challenged the said order of impleadment. Therefore, insofar as the petitioner was concerned, the suspect transaction was allegedly a preferential transaction is assailable under Section 43 of the Code. It is in this background that the petitioner filed a writ petition seeking a declaration that the proceeding against it was void and non-est., paragraphs 64&65 of the Venus judgement 9.21 Before the Court, the arguments that were advanced on behalf of the petitioner were not restricted to the preferential transaction only under Section 43 of the code but extended to any transactions that was "preferential, undervalued, fraudulent or extortionate.", paragraph 16 of the Venus judgement The expression "avoidance applications" used during the course of submissions was used in a general sense to cover applications impugning suspect transactions of all kinds and not merely the ones that are preferential in nature., Paragraphs 21 &24 of the Venus judgement Even on behalf of the respondents, the submissions were not restricted to preferential transactions alone but covered other kinds of suspect transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enus judgement does not lay down any proposition that if a resolution plan provides that the resolution applicant can take the benefit of the recoveries from avoidance transactions, the same is permissible, let alone legal. 9.27 We are fully convinced with the argument advanced by the Appellants Counsel that the ratio of the 'Venus Recruiters' case applies to the facts of this case. Further, the ratio laid down by the Hon'ble Delhi High Court is that of the constitutional court directly answering the issues before the NCLT was binding on the AA/ NCLT. Whether CoC gives up the proceeds of avoidance transactions to the Resolution Applicant in exchange for a higher upfront amount or not. 9.28 We have to analyse from the facts whether CoC gives up the proceeds of avoidance transactions to the Resolution Applicant in exchange for a higher upfront amount or not. 9.29 In the instant case, the Administrator under his statutory duties, in March 2020, issued a Request for Resolution Plan ("RFRP") under Regulation 36B of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (the "CIRP Regulations"). It has provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the eventuality transaction is avoided/set aside by the Adjudicating Authority in terms of the provisions of the Code, any amount received by the Administrator or the Resolution Applicant/Corporate Debtor (as the case may be) in accordance with such decisions of the Adjudicating Authority shall be for the benefit of the creditors and shall be a pass-through amount to the creditors. However, the PRA's have stated that given the significant part of the asset pool located under group B and C of options 2nd might fall under the filing of avoidance transactions being done by the Administrator, clarity is required on ascribing value to the same. The Administrator, after deliberations with both the legal counsels and process adviser and based on inputs provided by them, stated that the following options could be evaluated by the COC or any other options as they may deem fit since it is COC's prerogative to fix terms of the RFRP, to resolve the issue raised by the PRA's. * The PRAs may be asked to ascribe value to all the transactions that are being filed u/s 66 as best as they can and once the Resolution Plans are received, the CoC thereafter negotiates basis the values ascribed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company pursuant to section 9.1.3 of part A (financial proposal), the resolution applicant attributes NIL value to the transactions. Accordingly, any amount received by the company as a result of such orders shall be distributed to the financial creditors pro rata to the extent of the financial debt for financial creditors. Provided that, the COC may in its discretion adopt a different manner of distribution (which may take into account the order of priority amongst financial creditors as laid down in section 53 (1) of the IBC and such decision of the COC shall be accepted by the resolution applicant, such to there being no change in the total resolution amount." 9.36 Further, in the Piramal resolution plan-options 2nd group A dated 9 November 2020 (Page 300 of Appeal paperbook) "2.14.2 Given that these transactions primarily pertain to group B and group C, which are to be carved out of the company pursuant to section 9.1.3 of part A (financial proposal), the resolution applicant attributes NIL value to the transactions. Accordingly, any amount received by the company as a result of such orders shall be distributed to the financial creditors pro rata to the extent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may in its discretion adopted different manner of distribution (which may take into account the order of priority amongst financial creditors as laid down in section 53 (1) of the IBC and such action of the COC shall be accepted by the resolution applicant, subject to there being no change in the total resolution amount. 9.38 Piramal Resolution Plan-option 1st dated 14 December 2020 (page 302 of Appeal Paper book) 2.14 Treatment of preferential transactions, undervalued transactions, extortionate transactions and fraudulent trading. 2.14.2 with respect to the avoidance transactions, the resolution applicant intends to pursue the application filed by the administrator before the NCLT in respect of these avoidance transactions (of identity litigation). The resolution applicant intends to take all necessary steps on the best efforts basis in order to ensure maximum recovery from the avoidance litigation. Any positive recovery as a result of the reversal of such transactions provided or set aside by the NCLT would accrue to the benefit of the resolution applicant. All the court is and expenses incurred or to be incurred towards such avoidance litigation prior to the implementation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicating Authority in terms of Section 43, 45, 47, 49, 50 of the IBC, and any amount is received by the Administrator or the Resolution Applicant/Corporate Debtor (as the case may be) in accordance with such decision of the Adjudicating Authority such sums shall be for the benefit of the CoC and shall be pass-through amount to the creditors, subject to sub-clause (x) below: ... (x) In respect of any transaction is avoided / set aside by the Adjudicating Authority in terms of Section 66 of the IBC, the Resolution Applicant shall ascribe a value under the Resolution Plan to any recoveries that are likely to be made in respect of such transactions and shall propose the manner of continuing and dealing with any legal action initiated and the proposed manner of treatment of any proceeds arising therefrom which the CoC may evaluate as per its discretion." 9.41 In the 10th CoC meeting held on November 6, 2020, and after the receipt of the letter dated November 30, 2020, addressed by the Appellant/Applicant, in the 17th meeting of the CoC held on 18th and 19th December 2020, Respondent No. 1 pointed out to each of the Resolution Applicants that the stipulation in the Resolution Plans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paper book) is given below for ready reference; "7(vii) the COC legal counsel highlighted the treatment of avoidance recoveries is mentioned in the plan and is stated that the same is not in accordance with the terms of RFRD. Further, attention was also drawn to the recent High Court judgement on the same. The Adani representative agreed to the revisit and revert on the same." 9.44 It was the COC Suo moto decided to bargain with the resolution applicant's further and increase the resolution amount in view of parting with recoveries under Section 66 of the Code is also incorrect as it was the resolution applicant's that requested the administrator/ COC that the RFRP should be suitably amended to provide how the recovery from avoidance transaction should be dealt with. This is evident from the COC meeting minutes dated 10 September 2020. 9.45 Except for a bald assertion by learned senior counsel for the Respondent that the Successful Resolution Applicant enhanced resolution amount to factor in the avoidance transactions, there is nothing on record to suggest that this was done. The correlation between when the resolution plan amount was increased to Rs.37,500 crores and how many ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd, Respondent No. 1 put the Resolution Plans to vote of the CoC. The voting window was open from 29th December 2020 to 14th January 2021. Instead of the resolution seeking a vote regarding the Resolution Plan only, Respondent No. 1 sought votes on the deviations to the RFRP being waived by the same resolution. 9.51 Appellant further submits that though it had challenged the action of Respondent No. 1 of putting to vote the Resolution Plans which provided for the treatment of recoveries from avoidance applications not in accordance with the law, in the IA No. 2352 of 2020 filed before NCLT , during the course of the hearing of this Interlocutory Application, the Applicant was informed by the Tribunal that the Applicant might vote on the Resolution Plans and such vote will be without prejudice to the rights and contentions of the Applicant inter alia that the stipulation in the Resolution Plans that the benefit of the recoveries/ contributions made or the benefit of any orders passed in the avoidance applications under Sections 43 to 51 or under Section 66 of the Code will enure to the benefit of the resolution applicant, is bad in law. The NCLT passed oral directions permitting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d associations and individual homebuyers seek to contend that the resolution plan is lacking in various requisite arrangements; is violative of the CIRP Regulations; and is also violative of the provisions of RERA and therefore, it could not have been approved. One block of such objectors is rather differently dissatisfied for the reason that according to them, the housing projects which have been completed or are nearing completion ought to be kept out of the purview of this plan of resolution. In counter, it is contended on behalf of the resolution applicant that these dissatisfied homebuyers or associations have no right to maintain any objection as if being the dissenting financial creditors because the homebuyers have voted as a class in favour of the resolution plan and are bound as a class with 'drag along' provisions in the Code. The objections have been refuted on merits too. These rival submissions have led to the formulation of four different questions in this point for determination. 388. The associations and the individual homebuyers who are dissatisfied with the resolution plan and the process of its approval have made various overlapping and repeat submissions; we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Creditors, their vote would be that of a class. 426. Having regard to the scheme of IBC and the law declared by this Court, it is more than clear that once a decision is taken, either to reject or to approve a particular plan, by a vote of more than 50% of the voting share of the financial creditors within a class, the minority of those who vote, as also all others within that class, are bound by that decision. There is absolutely no scope for any particular person standing within that class to suggest any dissention as regards the vote over the resolution plan. It is obvious that if this finality and binding force is not provided to the vote cast by the authorised representative over the resolution plan in accordance with the majority decision of the class he is authorised to represent, a plan of resolution involving large number of parties (like an excessively large number of homebuyers herein) may never fructify and the only result would be liquidation, which is not the prime target of the Code. In the larger benefit and for common good, the democratic principles of the determinative role of the opinion of majority have been duly incorporated in the scheme of the Code, par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing majority. That is the purport and effect of 'drag along' or 'sail along' provisions in the scheme of the Code. 430. For what has been discussed hereinabove, the suggestions that there was no cent percent approval of the resolution plan, or that there was no consensus amongst homebuyers, or that the plan of Suraksha Realty was considered better, are required to be rejected. It is not the case that the AR of homebuyers has not voted in accordance with the decision taken by a vote of more than 50% of the voting share of homebuyers who did cast their vote. In the given set of facts, we have no hesitation in thoroughly disapproving the unnecessary imputations made by one set of homebuyers against the AR that he made any incorrect statement before the CoC. That being the position, and the authorised representative having voted in accordance with the instructions given to him from the class of financial creditors i.e., homebuyers, every individual falling in this class remains bound by his vote and any association or homebuyer of JIL cannot be acceded the locus to stand differently and to project its/his own viewpoint or grievance by way of objections or by way of appeal. All such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or such a plan. Hence, the manner in which a member of the CoC votes cannot cure illegality in a Resolution Plan. ii. As a result, no person, howsoever minimal his voting share is in the CoC and irrespective of how he has voted, can be estopped from challenging illegality or unlawful terms in a Resolution Plan; iii. This Hon'ble Tribunal is under a legal & statutory duty to enquire whether a resolution plan suffers from any illegality or otherwise contains unlawful terms. The said duty is not eclipsed by the manner of voting by a particular creditor or a class of creditors. In fact, even in the absence of any person pointing out any illegality in a resolution plan, this Hon'ble Tribunal is expected to exercise its powers to enquire whether the requirements of Section 30(2) of the Code have been met to perform the said duty. iv. The plea of the Respondents, if accepted, would amount to disregarding the well-settled and universally applicable legal principle that there cannot be any estoppels against the law. 9.56 It is argued on behalf of the Appellant that A Resolution Plan, which is otherwise illegal or contains terms contrary to law, cannot be countenanced based me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the adjudicating authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an adjudicating authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the adjudicating authority in limited judicial review has been laid down in Essar Steel [Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531] , the relevant passage (para 54) of which we have reproduced in earlier part of this judgment. The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the appellate authority ought to have interfered with the order of the adjudicating authority in directing the successful resolution applicant to enhance their fund inflow upfront." 9.61 The learned Senior Counsel for Respondent submits that treatment of proceeds arising out of Avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t further places reliance on the following judgements of Hon'ble Supreme Court with specific paras as mentioned below; a) K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150: (2019) 4 SCC (Civ) 222. In this case, Hon'ble Supreme Court has held that; "52. As aforesaid, upon receipt of a "rejected" resolution plan, the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality. The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the I&B Code." (emphasis supplied) b) Ebix Singapore (P) Ltd. v. Committee of Creditors, reported in 2021 SCC OnLine SC 707 wherein it is held that; "145. The absence of any specific provision in the IBC or the regulations referring to a CoC-approved Resolution Plan as a contract and the lack of clarity in the BL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entirety of its debts, statutory liabilities and avoiding certain transactions with third parties. These benefits are a function of the coercive mechanisms of the IBC which enable a third party to acquire the assets of a Corporate Debtor without its liabilities, for a negotiated amount of the debt that is owed by the Corporate Debtor. Typically, resolution amounts envisage payment of a fraction of debt that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 the over-riding principles of the IBC." (emphasis supplied) 9.65 Hon'ble Supreme Court in case of Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel and Others ..., reported in 2021 SCC OnLine SC 569 in paragraphs 29-51, while dealing with the issue of the scope of interference by the Adjudicating Authority and the powers of the NCLT and NCLAT regarding approval of the Resolution Plan r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds, namely:- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board." 36. The nature of the jurisdiction which is exercised by the Adjudicating Authority, while approving a resolution plan under Section 31, has been interpreted in the judgment of a two-Judge Bench in K Sashidhar v. India Overseas Bank ("K Sashidhar"). The decision emphasizes that the Adjudicating Authority is circumscribed by Section 31 to scrutinizing the resolution plan "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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by CoC in exercise of its business decision. 58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters "other than" enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers. 59. In our view, neither the adjudicating authority (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the resolution plan, other things being equal." 40. The precedents laid down by this Court are in tandem with recommendations made in the UNCITRAL's Legislative Guide on Insolvency Law, which states that it is desirable that a court does not interfere with the commercial wisdom of the decisions taken by the creditors. The relevant extract is reproduced below: "63. The more complex the decisions the court is asked to make in terms of approval or confirmation, the more relevant knowledge and expertise is required of the judges and the greater the potential for judges to interfere in what are essentially commercial decisions of creditors to approve or reject a plan. In particular, it is highly desirable that the law not require or permit the court to review the economic and commercial basis of the decision of creditors (including issues of fairness that do not relate to the approval procedure, but rather to the substance of what has been agreed) nor that it be asked 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors 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." 46. The Court also noted that: "89...by vesting the Committee of Creditors with the discretion of accepting resolution plans only with financial creditors, operational creditors having no vote, the Code itself differentiates between the two types of creditors." 47. These decisions have laid down that the jurisdiction of the Adjudicating Authority and the Appellate Authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the Adjudicating Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable." 9.68 Hon'ble Supreme Court in case of India Resurgence ARC Private Limited v. M/s. Amit Metaliks Limited, 2021 SCC OnLine SC 409 has observed that; "12. As regards the process of consideration and approval of resolution plan, it is now beyond a shadow of doubt that the matter is essentially that of the commercial wisdom of Committee of Creditors and the scope of judicial review remains limited within the four-corners of Section 30(2) of the Code for the Adjudicating Authority; and Section 30(2) read with Section 61(3) for the Appellate Authority. In the case of Jaypee Kensington (supra), this Court, after taking note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew are that the Adjudicating Authority would see if CoC has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors have been taken care of. And, if the Adjudicating Authority would find on a given set of facts that the requisite parameters have not been kept in view, it may send the resolution plan back to the Committee of Creditors for re-submission after satisfying the parameters. Then, as observed in Maharashtra Seamless Ltd. (supra), there is no scope for the Adjudicating Authority or the Appellate Authority to proceed on any equitable perception or to assess the resolution plan on the basis of quantitative analysis. Thus, the treatment of any debt or asset is essentially required to be left to the collective commercial wisdom of the financial creditors." 13. It needs hardly any elaboration that financial proposal in the resolution plan forms the core of the business decision of Committee of Creditors. Once it is found that all the mandatory requirements have been duly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per voting shares, is the collective business decision and that the decision of the CoC's 'commercial wisdom' is non-justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of the IBC. This position of law has been consistently reiterated in a catena of judgments of this Court, including: (i) K. Sashidhar v. Indian Overseas Bank (ii) Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta, (iii) Maharashtra Seamless Limited v. Padmanabhan Venkatesh, (iv) Kalpraj Dharamshi v. Kotak Investment Advisors Limited. (v) Ghanashyam Mishra and Sons Private Limited Through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director 32. No doubt that, under Section 61(3)(ii) of the IBC, an appeal would be tenable if there has been material irregularity in exercise of the powers by the RP during the corporate insolvency resolution period. However, as discussed hereinabove, we do not find any material irregularity. 33. We may gainfully refer to the following observations of this Court in the case of Keshardeo Chamria v. Radha Kissen Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the contention in that regard is also without substance. It is further to be noted that, as has been consistently held by this Court in catena of judgments, referred to hereinabove, the dominant purpose of the IBC is revival of the Corporate Debtor and making it an on-going concern. In the present case, the said purpose is already achieved, inasmuch as all the dues of the financial creditors, i.e., the Allahabad Bank and the Corporation bank, have already been paid, and the Corporate Debtor, in respect of which CIRP was initiated, is now an on-going concern. 9.70 Based on the different judgements of the Hon'ble Supreme Court, it is undisputed that NCLT/NCLT has to adopt a hands-off approach and should not undertake a judicial review of the COC's commercial wisdom exercised. However, the question arises as to what can be considered commercial wisdom. Commercial wisdom is not defined anywhere. What would be treated under commercial wisdom can be inferred from the powers given to COC under the code. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his procedure produces substantive rights and obligations. For instance, the composition of the CoC, the method and percentage of its voting, the timelines for CIRP, the obligation on the RP to file specific forms after every stage of the process and the obligation to explain to the Adjudicating Authority reasons for any deviations from the timeline while submitting a Resolution Plan, and other such procedural requirements create a mechanism which tightly structures the conduct of all participants in the insolvency process. This process invariably impacts the conduct of the Resolution Applicant who participates in the process and consents to be bound by the RFRP and the broader insolvency framework. An analysis of the statute and regulations framework provides insight into the dynamic and comprehensive nature of the statute. Upholding the procedural design and sanctity of the process is critical to its functioning. The interpretative task of the Adjudicating Authority, Appellate Authority, must be cognizant of, and allied with that objective. Any claim seeking an exercise of the Adjudicating Authority's residuary powers under Section 60(5)(c) of the IBC, the NCLT's inherent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and friends or pay certain creditors to the exclusion of others. There may also be opportunities for creditors to initiate strategic action to place themselves in an advantageous position. The result of such activities, in terms of the eventual insolvency proceedings, generally disadvantages ordinary unsecured creditors who were not party to such actions and do not have the protection of a security interest. 152. Avoidance provisions can be important to an insolvency law not only because the policy upon which they are based is sound, but also because they may result in recovery of assets or their value for the benefit of creditors generally and because provisions of this nature help to create a code of fair commercial conduct that is part of appropriate standards for the governance of commercial entities. It should be noted that, in the cross-border context, jurisdictions with insolvency laws that not provide for avoidance of certain types of transaction, may encounter difficulties with recognition of proceedings and cooperation with courts and insolvency officials of jurisdictions where those transactions are subject to avoidance." 9.80 Principles of International Insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e more easily dissipated,eg a sale of the factory or a mortgage over a factory for cash or a sale of an entire business." 9.81 Avoidance and Recapture Recapture "17-132 The basic principle of the recapture is to put the parties in the position they would have been in if the transaction had not occurred and tends to follow the broadly traditional pattern of avoidance procedures in other contexts.eg the restoration of a party induced into a contract by misrepresentation or in the case of a contract collapsing by frustration or force majeure. In view of the complexity of the circumstances, some jurisdictions, including England and the US give the count broad discretions as to manner of recovery (though, in the case of England, the statute sets out a range of specific options without prejudice to the generality of the discretion-see IA 1986 s 241), while others, like Norway, attempt some specific rules: see the Debt Recovery Act 1984, ss 5-11, 5-12. Broadly one may expect that the recapture will involve the repayment of cash payments, the return of gifts or other property or cash in lieu (especially if it would be overburdensome to require the re-transfer of goods, securities or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the IRP (referred to as the "look-back period") should be scrutinised for any evidence of such transactions by the relevant Insolvency Professional. The relevant period will be specified in regulations. At any time within the resolution period (or during the Liquidation period if the entity is liquidated) the relevant Insolvency Professional is responsible for verifying that reported transactions are valid and central to the running of the business. There should be stricter scrutiny for transactions of fraudulent preference or transfer to related parties, for which the "look back period" should be specified in regulations to be longer. The Code will give the Liquidator the power to file cases for recovery. Some jurisdictions set such recoveries aside for payment to the secured creditors. Given the extent of equity financing in India, all recoveries from such transactions will become the property of the trust, and will be distributed as described within the waterfall of liabilities." 9.83 Report of the Insolvency Law Committee dated February, 2020 CHAPTER 3: RECOMMENDATIONS REGARDING ACTIONS AGAINST AVOIDABLE TRANSACTIONS AND IMPROPER TRADING IN THE CORPORATE INSOLVENCY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quo prior to the occurrence of such transaction or trading. Therefore, provision under the Code allow the Adjudicating Authority to restore the position prior to such transaction or trading by inter alia vesting the recoveries with the Corporate Debtor. It was brought to the Committee that when the Adjudicating Authority passes an order to vest recoveries with the Corporate Debtor, it is not clear whether these recoveries are enjoyed by the successful Resolution Applicant or distributed amongst creditors. 3.2. The Committee discussed that the Resolution Applicant has usually not factored in these recoveries in her proposed Resolution Plan. Further, the key aim of avoiding certain transactions is to avoid unjust enrichment of some parties in insolvency at the cost of all creditors (see paragraph 1.4 above). Thus, in most cases it may be better suited to distribute recoveries amongst the creditors of the Corporate Debtor. While the Committee agreed on this principle, it noted that factual factors such as - the kind of transaction being avoided, party funding the action, assignment of claims (if any), creditors affected by the transaction or trading, etc. - may need to be taken int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sole benefit of the creditors of the Corporate Debtor. Moreover, none of the reports addressed a scenario when the COC has consciously taken the commercial decision to give up the proceeds of the avoidance transactions in favour of the resolution applicant for a higher total resolution amount. 9.86 It is important to mention that Hon'ble Supreme Court, in case of Ebix Singapore (P) Ltd (supra) (para 145) has observed that "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". 9.87 Chapter 3 of the Insolvency Law Committee Report February 2020 deals with the recommendations regarding actions against avoidance transactions and improper trading in the corporate insolvency resolution and liquidation process. It is specifically provided that the purpose of providing transactions and penalising improper trading actions are primarily aimed at swelling the asset pool available for distribution to credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of the application filed by the appellant. 9.91 Adjudicating authority has further failed to consider the judgement of Hon'ble Delhi High Court, which happens to be the jurisdictional High Court, and its judgement was an authoritative and binding pronouncement. Hon'ble Delhi High Court in case of Venus Recruiters in clear terms held that "outcome of avoidance applications were meant to give benefit to the creditors of the Corporate Debtor, not for the Corporate Debtor in its new avatar." 9.92 Therefore, it is apparent that the Adjudicating Authority/NCLT has not taken any decision as was required in view of recommendations of the Insolvency Law Committee and rejected the appellant's application simply on the basis of COC's commercial wisdom. However, Adjudicating Authority failed to pass a reasoned order despite that the appellant had filed a detailed written submission and raised every issue. 9.93 Hon'ble Supreme Court in the case of Asst Commissioner commercial tax department (supra) has clearly held that recording of reasons is an essential feature of the dispensation of justice. The requirement of recording reasons is applicable with greater rigour to judicial proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating Authority may by order direct that the whole or any part of the debt owed by the Corporate Debtor to that person and any interest thereon shall be ranked in order of priority of payment under Section 53 after all other debts owed by the Corporate Debtor. 9.96 Section 66 and 67 of the I&B Code,2016 is given below for ready reference; 66. Fraudulent trading or wrongful trading.- (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the Corporate Debtor has been carried on with intent to defraud creditors of the Corporate Debtor or for any fraudulent purpose, the Adjudicating Authority may on the Application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the Corporate Debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the Corporate Debtor, as the case may be, shall be liable to make such contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority has passed an order under sub-section (1) or sub-section (2) of Section 66, as the case may be, in relation to a person who is a creditor of the Corporate Debtor, it may, by an order, direct that the whole or any part of any debt owed by the Corporate Debtor to that person and any interest thereon shall rank in the order of priority of payment under Section 53 after all other debts owed by the Corporate Debtor. 9.97 The phrase "in relation to a person who is a creditor of the Corporate Debtor" and the other expression "shall rank in the order of priority of payment under Section 53" used in Sub-section 2 of Section 67 of the Insolvency and Bankruptcy Code indicate that recoveries from avoidance transaction should be distributed among the creditors in order of priority given under Section 53 of the Code. Therefore, it cannot be the discretion of the Committee of Creditors to negotiate the terms against the statutory provision of the Code. However, language erred in Section 67 indicates that recoveries made under Section 66 could go only to the creditors of the Corporate Debtor. 9.98 The learned Senior Counsel for the respondent also referred to the judgement "In re YAGER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors amongst whom they had to distribute the assets of the company. The application fails and must be dismissed." 9.99 Apart from the judgement of the Delhi High Court in the case of Venus Recruiters (supra), the bankruptcy laws of the countries like the US also advocate creditors benefit, either directly or indirectly. For example, while dealing with Section 550 of the US bankruptcy code stating such recoveries from avoidable transactions to pay for the "benefit of the estate", the court of appeals in In re Centennial Industries, Inc. vs NCR Corporation, 12 B. R.12. 99 (1981) has observed this phrase to articulate the creditors as beneficiary and the act that they must be "meaningfully and measurably benefited", In re Greenberg, 266 B.R.. 45, 51 (Bankr.E.D.N.Y..2001); In re Vogel Van Storge, Inc.,210 B.R..27, 33-34(N.D.N.Y. 1997). The court further permitted the debtor to pursue avoidance actions concerning improper transfers even post completion of the resolution, stating that any such recovery will be additional security for the plan's fulfilment and increase the likelihood of the creditors receiving their future payments. 9.100 FROM TIME TO TIME, the US courts have obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has held that: "1. In our opinion, it is not correct for the Tribunal to have stated that they are not prepared to accept the judgment of the Orissa High Court in Kunja Behari Rath v. State of Orissa [ O.J.C. No. 668 of 1969] . We make it clear that the Tribunal in this case is nonetheless a Tribunal and it is bound by the decision of the High Court of the State. It is incorrect to side-track or bypass the decision of the High Court." (emphasis supplied) 9.106 We are not convinced with the respondent's argument that Venus recruiters only provide that property or sum recovered under avoidance applications should form part of the Resolution Plan and that the Resolution Plan considers such amounts and benefits. It does not deal with how these assets are to be dealt with, which is provided only in the Resolution Plan. 9.107 In the case of Venus Recruiters, Hon'ble Delhi High Court has further held that certainty and timelines being the hallmark of the Code coupled with the legislative intent in Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) regulations, 2016 implies that the prescribed timelines therein have a specific purpose. Therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be estopped from challenging illegality or unlawful terms in a Resolution Plan; 9.111 This Tribunal is under a legal & statutory duty to enquire whether a Resolution Plan suffers from any illegality or otherwise contains unlawful terms. The said duty is not eclipsed by the manner of voting by a particular creditor or a class of creditors. Even in the absence of any person pointing out any illegality in a resolution plan, this Hon'ble Tribunal is expected to exercise its powers to enquire whether the requirements of Section 30(2) of the Code have been met to perform the said duty. The plea of the Respondents, if accepted, would amount to disregarding the well-settled and universally applicable legal principle that there cannot be any estoppels against the law. 9.112 The Appellant relies on the following judgments in support of this proposition: a) In the case of S. B. Noronah v. Prem Kumari Khanna (1980) I SCC 52 Hon'ble Supreme Court has held that: "19. The doctrine of estoppel cannot be invoked to render valid a proceeding which the legislature has, on grounds of public policy, subjected to mandatory conditions which are shown to be absent: "Where a statute, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisite ground for Section 61 (3) of the Code. 9.114 Providing the benefit of the outcome of avoidance applications to the Resolution Applicant results in unjust enrichment of Respondent No. 2/RA at the expense of all the creditors of the Corporate Debtor. Moreover, the same is vitiated by illegalities and material irregularities, and the same could not have been cured on the pretext of the commercial wisdom of COC. 9.115 The reliance of the Respondents on the Jaypee Kensington Judgement is also entirely misplaced since, in the said judgement, Hon'ble Supreme Court held that once a class of creditors votes in favour of a Resolution Plan, the individual creditors of that class cannot challenge the commercial aspects of the Resolution Plan or its commercial wisdom. A meaningful reading of the said judgement shows that in the said case, certain financial creditors belonging to the class of homebuyers were challenging the commercial aspects the commercial wisdom in accepting the plan and not any illegality therein, which is clear from the following paragraphs of the judgement: a) Para 10.1/ pg. 14: Wish Town Home Buyers Welfare Society sought "implementation of the projects but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a position to establish, that KIAL had given up/surrendered its rights to take recourse to the legal remedies. In any case, the appellants had also not been in a position to establish, that on account of any such waiver or acquiescence any of the appellants had altered their position to their detriment." 9.117 In fact, the argument based on estoppel, acquiescence and the waiver was rejected by the Hon'ble Supreme Court in the above-mentioned case. In this case, the Hon'ble Supreme Court observed that if the party had no choice but to act in a particular manner in order to avoid the risk of being out of the fray, it cannot on the basis of that action be estopped from challenging the process unless it can be shown that he has surrendered his rights to take recourse to legal remedies. 9.118 To answer the "ambush" argument of learned Senior Counsel for the respondent, the appellant has drawn our attention towards a chart showing the detailed instances under which it was forced to withdraw its earlier application IA 2352 of 2021. Date Particulars Page Nos. 18 December 2020 RP Congress to all resolution applicant's that they need to align Resolution Plans with the Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2021 but on 15th January 2021. Since the voting was to conclude on 14th January 2021 and the matter was listed on 15 January 2021, the Applicant sought leave of this Hon'ble Tribunal to vote on the resolution plans without prejudice to its rights and contentions. This request was made in the presence of the Senior Counsel for Respondent Nos. 1 & 3. Respondent No. 2 was not a party to the I.A. This Hon'ble Tribunal was pleased to grant liberty to the Applicant to vote on the resolution plans without prejudice to its rights and contentions. 8. 14.01.2021 Pursuant to the liberty granted by this Hon'ble Tribunal, the Applicant voted on the resolution plans. The voting window closed. 9. 15.01.2021 The IA was listed and called out for hearing. However, due to the technical issues in connectivity, the hearing could not conclude, and the IA was adjourned to 21st January 2021. 10. 16.01.2021 The voting on the resolution plans was announced, and Respondent No. 2 was declared as a successful resolution applicant. 11. 21.01.2021 Since the voting had ended and Respondent No. 2 was declared a successful resolution applicant, the Applicant sought leave of this Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the notional value of INR 1 by the Resolution Professional to claims of Operational Creditors in respect of which there were pending disputes with various authorities. The case had nothing to do with avoidance applications and ascribing of' value to recoveries. Therefore, the assignment of the notional value of INR 1 to the claims of operational creditors in the Essar Steel Judgement case was in an entirely different factual background which is inapplicable to the facts of the present case. 9.126 It is pertinent to mention that company appeal (AT) (insolvency) 546 of 2021 is filed by the Air Force Group Insurance Society, Company Appeal AT/INS/759 and 760 is filed by U P State Power Sector Employees Trust, CA /AT/INS 760 of 2021 is filed by Uttar Pradesh State Power Corporation Contributory Provident Fund Trust on being aggrieved by the resolution plan. Many other Fixed Deposit Holders and Public Deposit Holders had filed their appeal against the same resolution plan. None of them is satisfied with the amount awarded under the resolution plan. Provident fund holders and Employees Provident fund trust had invested in fixed deposits of the financial service provider, i.e. cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement, in fact, after 18th/19th December 2020, Respondent No. 2 modified its resolution plan to provide those recoveries from avoidance transactions under Sections 43 to 51 of the Code to benefit DHFL's creditors. iv) However, the issue about the applicability of the Venus judgement in the facts of the case was an adjudicatory issue that required adjudication. The law does not permit COC to exercise judicial function. There is a vast difference between the exercise of Commercial Wisdom during CIRP and the exercise of adjudicatory powers by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. Law is well settled that Adjudicating Authority cannot interfere with the commercial wisdom of the COC provided approved by the required majority. Similarly, in the instant case, COC was not authorised to decide the applicability of Venus judgement on the facts of the case. 11. Admittedly in the instant case, the Administrator under statutory duties under Regulation 36B of the CIRP Regulations requested for Resolution Plan (RFRP). It was provided in the RFRP that any transaction is avoided or set aside in terms of Sections 43, 45, 47, 49, 50 or 66 of the Code, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken any decision about the applicability of the Venus judgement on the issue of providing the outcome of avoidance transaction to the resolution applicant. The Adjudicating Authority has stated that "as far as the claims of avoidance transactions, COC has consciously decided that the money realised through these avoidance transactions would accrue to the members of the CoC. At the same time, they have also consciously decided after a lot of deliberations negotiations that money realised if any under Section 66 of the IBC, i.e. fraud and fraudulent transactions, CoC has ascribed the value of Rs.one and if any positive money recovery the same would go to the Resolution Applicant of the Corporate Debtor." Therefore, it cannot be considered the findings of the Adjudicating Authority. The COC was not empowered to exercise such Adjudicatory power and decide. Insolvency Law Committee Report, 2020, specifically provides that the key aim of providing certain transactions is to avoid unjust enrichment of some parties in the insolvency at the cost of all creditors. The underlying policy of such a proceeding is to prevent unjust enrichment of one party at the expense of other creditors. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
