TMI Blog2023 (3) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... not commend us. The Board of Directors is fully competent to take all steps on behalf of Vistra ITCL (India) Ltd. including initiation of legal proceedings. When the Board has authorised filing of the appeal through authorised representative, the submission cannot be accepted that Appellant is not authorised by the shareholders. Interests of the shareholders are looked by the Board of Directors of the Vistra and Board having been authorized, the preliminary objection raised by Respondent No.1 cannot be accepted. The Appeal by financial creditor who is member of the Coc and as per learned senior counsel for the Appellant, holds 90% vote share in the CoC, there is sufficient locus with the Appellant to challenge the impugned order dated 02.02.2023. Appellant being Financial Creditor in the CoC which is admitted fact, there is no lack of jurisdiction in the Appellant to file this appeal. Whether Regulation 39(1A) contains an implied prohibition on the jurisdiction of the CoC to enter into any further negotiations with Resolution Applicant or to further ask a Resolution Applicant to increase its Resolution Plan value? - HELD THAT:- Regulation 39(1A) was inserted empowering Resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 39(1A) - It is opined that Adjudicating Authority committed error in allowing IA No.1/MB/C-I/2023 and IA No.99/MB/C-1/2023. 60. Thus, even after completion of Challenge Mechanism under Regulation 39(1A)(b), the CoC retain its jurisdiction to negotiate with one or other Resolution Applicants, or to annul the Resolution Process and embark on to re-issue RFRP - appeal allowed. - Company Appeal (AT) (Insolvency) No. 132, 133 & 134 of 2023 Company Appeal (AT) (Insolvency) No. 139 of 2023 - - - Dated:- 2-3-2023 - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant: Mr. Kapil Sibal, Sr. Advocate with Ms. Pooja Dhar, Mr. Piyush Mishra, Mr. Sanjeev Kumar, Mr. Anshul Sehgal, Ms. Anusha Nagrajan, Mr. Divyanshu Jain, Mr. Partul Pratap Singh, Advocates For the Respondents: Mr. Mukul Rohatgi, Mr. Ramji Srinivasan, Mr. Arun Kathpalia, Sr. Advocates with Mr. Anoop Rawat, Ms. Shally Bhasin, Mr. Vaijayant Paliwal, Mr. Rishabh Jaisani, Mr. Sagar Dhawan, Mr. Rishabh Jaiswani, Mr. Nikhil Mathur, Ms. Shruti Pandey, Mr. Harit Lakhani, Mr. Daksh Kadian, Mr. Ahkam Khan, Ms. Samidha Mathur, Mr. Udbhav Nanda, Mr. Sagar Dhawan, Advocate for R- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Interest. (iv) On 26.04.2022, Administrator issued the Request for Resolution Plan (RFRP) in terms of Regulation 36B of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as CIRP Regulations). In response to RFRP no satisfactory Resolution Plan were received. (v) RFRP was reissued on 22.10.2022, last date for submission of Resolution Plan was 28.11.2022. Four Resolution Applicants submitted their signed plans namely (i) Torrent Investments Pvt. Ltd. (ii) IndusInd International Holding Ltd. (iii) Cosmea Financial and Piramal Group; and (d) Oaktree Capital. (vi) In 26th CoC meeting, the members opined that the bid values that have been received are not acceptable. (vii) On 14.12.2022, Challenge Mechanism Process Note was issued by the Administrator. (viii) On 19.12.2022, steps for Challenge Mechanism Process Note was issued. (ix) On 21.12.2022, Challenge Mechanism Process was conducted in which two Resolution Applicants namely (i) Torrent Investments Pvt. Ltd. (for short Torrent ) (ii) IndusInd International Holding Ltd. (for short IIHL ) participated. IIHL participated unt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of upfront payment and deferred payment submitted by them in the Challenge Mechanism. (xvi) On 06.01.2023, the Administrator received email from IIHL and Torrent including draft resolution plan. Torrent gave draft resolution plan with revised offer offering entire amount of Rs.8640 Crores as upfront. IIHL gave its revised draft resolution plan including some additional payment. (xvii) On 06.01.2023, CoC held its 31st meeting where it opined that outcome of the Challenge Mechanism undertaken was sub optimal and not satisfactory. The CoC in its commercial wisdom proposed that an extended round of Challenge Mechanism with the existing bidders be conducted. (xviii) On 09.01.2023, Torrent filed I.A. No. 99/MB/C-I/2023 seeking impleadment of the CoC in the application and addition of certain additional prayers. (xix) On 10.01.2023, a resolution was passed by the CoC with 98% votes in favour of the extended Challenge Mechanism. (xx) On 10.01.2023, IIHL filed an application before the Adjudicating Authority for impleadment. (xxi) On 11.01.2023, Torrent filed an additional affidavit bringing on record subsequent events. (xxii) On 12.01.2023, the Adjudicating Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge mechanism in deviation with the process paper, challenge process note, and the CIRP Regulations which is in violation of the scheme of Regulation 39(1A) of MUMBAT BENCHA the CIRP Regulation. Further, under the provisions of the Code and the CIRP Regulations, there are specific triggers for the exercise of commercial wisdom (actions that specifically require either evaluation by or the approval of the CoC, e.g. actions under Section 28 of the Code, approval of resolution plans or evaluation of their feasibility and viability under Section 30 of the Code). The CoC, cannot exercise its commercial wisdom which is ultra vires the procedural framework provided under the Code read with the CIRP Regulations. This view is also upheld by the Hon'ble NCLAT in the case of Dwarkadhish Sakhar Karkhana Limited Vs. Pankaj Joshi, Company Appeal (AT) (Insolvency) No. 233 of 2021, upheld by the Hon'ble Supreme Court vide its order dated 12th July, 2021 in Civil Appeal No(s). 2317/2021). We are, thus, of the view that CoC cannot device an illegal mechanism to circumvent the scheme of Code to indirectly be able to negotiate further with the resolution applicants post conclusion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions enshrined in the code within stipulated period by adopting due process under Regulation 39 of the CIRP Regulations. 136. The Interlocutory Application bearing IA No. 1 of 2023, IA No. 99 of 2023 and IA No. 150 of 2023, are disposed of as allowed in the above terms. (xxviii) Aggrieved against the order dated 02.02.2023, as noted above, Company Appeal (AT) (Ins.) No. 132, 133 134 of 2023 has been filed by the Vistra ITCL (India) Ltd. whereas Company Appeal (AT) (Ins.) No.139 of 2023 has been filed by IndusInd International Holdings Ltd (IIHL). 2. We have heard Shri Kapil Sibal, learned senior counsel appearing for Vistra ITCL (India) Ltd., Shri Mukul Rohatgi and Shri Ramji Srinivasan, learned senior counsels appearing for Torrent Investments Pvt. Ltd. Dr. Abhishek Manu Singhvi, learned senior counsel has been heard for IndusInd International Holdings Ltd (IIHL). We have also heard Shri Gopal Jain, learned senior counsel appearing for the Administrator (Respondent No.2). 3. Shri Kapil Sibal, learned senior counsel appearing for the Appellant Vistra ITCL (India) Ltd. submits that the Adjudicating Authority committed serious error in interdicting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered additional payment totaling to Rs.9000 Crores. It is submitted that the Respondent No.1 has not correctly calculated NPV. The Torrent, who in the Challenge Mechanism has offered upfront payment of Rs.3750 Crores and balance as deferred amount has revised its offer offering to make entire Rs.8640 Crore as upfront payment. The facts and sequence of events clearly lead the CoC to resolve to take further steps to extend Challenge Mechanism to find out correct price discovery for maximizing the value of the Corporate Debtor. Shri Sibal further submitted that the Adjudicating Authority has no jurisdiction to entertain I.A. 1/MB/C-I/2023 which was filed at the stage when the plans submitted by the Resolution Applicants were under the process of verification and consideration. Neither both the Resolution Applicants have submitted their signed Resolution Plans nor Administrator has certified that both the Resolution Plans are compliant of the I B Code and its Regulations. At this premature stage, the Adjudicating Authority ought not to have entertained any application, which entertainment is not contemplated in the I B Code. It is submitted that the Regulation 39(1A) Sub-clause (b) doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding Committee on Finance dated 03.08.2021, Insolvency Law Committee Report, May, 2022 as well as IBBI Discussion Paper dated 27.08.2021 to highlight the purpose and object for which Regulation 39(1A) was inserted in the Regulation. It is submitted that CIRP is required to be conducted in a time bound manner. When the Challenge Mechanism was concluded on 21.12.2022, the CoC has to vote on the resolution plans received consequent to the Challenge Mechanism. There can be no dispute to the proposition that the CoC in its consideration can either approve the plan or reject the plan but the CoC cannot refuse to vote on the resolution plan received consequent to completion of Challenge Mechanism. The commercial wisdom of the CoC is not unlimited, it cannot be exercised arbitrarily and in derogation of the Code and the Regulations. The CoC and RFRP being creature of the Code and Regulations cannot circumvent the scheme laid down under the CIRP Regulations. The decision of the CoC to give a second extended round of the Challenge Mechanism is purely an attempt to give second chance to IIHL. The sub-optimal and unsatisfactory nature of the resolution plans were purely engineered to circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 Crores payable after 7 years 1 day to the Creditors. IIHL has remained committed to NPV submitted by bid in the Challenge Mechanism of Rs.8110 Crores (entire upfront). NPV is not the sole criteria in the RFRP and Challenge Mechanism to accept or reject the bid of the Resolution Applicant. It is submitted that the CoC ought to have adopted a transparent and on line bidding process to ensure maximization of value. 6. Shri Ramji Srinivasan, learned senor counsel appearing for Torrent also refuted the submissions of the Appellant. It is submitted that the process undertaken on 21.12.2022 was as per the announced steps. On 21.12.2022, the Challenge Mechanism stood completed, the NPV of Rs.8640 Crores was held to be highest NPV received in the 4th Round. IIHL did not continue in the 4th Round and it was Torrent only which participated in the 4th Round. It is submitted that on 17.12.2022, the Torrent has written to the Administrator asking whether after Challenge Mechanism any Resolution Applicant can change the financial proposal which was replied by the Administrator that no change in financial proposal can be allowed. As per Regulation 40A of the CIRP Regulations, within 30 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no reason for Torrent to feel aggrieved and file application before the Adjudicating Authority. Interim order dated 03.01.2023 effectively put prohibition on the Administrator s ability to consolidate the resolution plans. In the meeting held on 03.01.2023, Process Advisor to CoC pointed out that NPV calculated based on financial proposal of both Resolution Applicants are different from the NPVs submitted in the challenge mechanism. On 04.01.2023, Administrator issued emails to Torrent and IIHL to submit Revised Plans with highest bid amount submitted by them in Challenge Mechanism. On 06.01.2023, the Administrator has received emails from both Torrent and IIHL enclosing revised draft resolution plans. Torrent gave revised offer with entire Rs.8640 Crores as upfront payment. IIHL also gave revised draft resolution plan with revised offer. In the meeting held on 06.01.2023, the Administrator informed the CoC that revised draft resolution plans received from Torrent and IIHL are being reviewed. Administrator also informed the CoC that the plan received on 22.12.2022 had outstanding compliance issues which was addressed to both Resolution Applicants. 8. We have considered the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22, in which application initially only respondent impleaded was Nageswara Rao, Administrator of Reliance Capital Ltd., in which application interim order was passed on 03.01.2023 and by interim order dated 03.01.2023 following liberty was granted to the Applicant (Torrent): Liberty is granted in favour of the Applicant to add CoC as a party respondent to the Application if it deems fit. In the event CoC is arrayed as party respondent Application be served to the newly added respondent well in advance before the adjourned date. 12. In response to the liberty granted by the Adjudicating Authority, an I.A. No.99/MB/C-I/2023 was filed by the Torrent Investments Pvt. Ltd. on 09.01.2023. In the application, Vistra ITCL (India) Ltd. was proposed as Respondent No.2. In the application apart from Nageswara Rao, Administrator who was arrayed as Respondent No.1 following were proposed as Respondents: VISTRA ITCL (INDIA) LIMITED, having its office at IL. FS Financial Centre, Plot No. C 22. G-Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051 Proposed Respondent No.2 ASSET CARE AND RECONSTRUCTION ENTERPRISE LIMITED, having its office at 2nd Floor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appeal. We have looked into the records of both the Appeals Company Appeal (AT) (Ins.) No. 132, 133 134 of 2023 as well as Company Appeal (AT) (Ins.) No.139 of 2023. The Appeal by the Appellant has been filed through one Supratik Dasgupta, Assistant Vice President at Vistra ITCL (India) Ltd. Vistra ITCL (India) Ltd. has also filed appearance in Company Appeal (AT) (Ins.) No.139 of 2023 by Dy. No. 67069 dated 15.02.2023. Copy of the Board Resolution passed at the 57th meeting of Administrative Committee of Board of Directors of Vistra ITCL (India) Ltd. held on 24 August, 2021 has been annexed where Board of Directors has accorded for delegation of authority to the personnel named therein jointly and/or severally to represent in any legal proceedings. Mr. Supratik Dasgupta has been delegated authority to represent the Vistra ITCL (India) Ltd. and on the strength of resolution, the appeal has been filed through Mr. Supratik Dasgupta. When Board of Directors of the Appellant has authorised filing of the appeal by authorized person, we fail to see how the appeal filed by Vistra ITCL (India) Ltd. is incompetent. The submission of learned counsel for Respondent No.1 that Bondholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely CIRP Regulations, 2016 in exercise of power conferred under various Sections of the Code including Section 30 with Section 240 of the Code. Chapter X of the Regulations deals with Resolution Plan . Regulation 36A provides for Invitation for Expression for Interest . Regulation 36B provides for Request for Resolution Plan . Regulation 36B, which is relevant for the present case is as follows: 36B. Request for resolution plans. (1) The resolution professional shall issue the information memorandum, evaluation matrix and a request for resolution plans, within five days of the date of issue of the provisional list under sub-regulation (10) of regulation 36A to (a) every prospective resolution applicant in the provisional list; and (b) every prospective resolution applicant who has contested the decision of the resolution professional against its non-inclusion in the provisional list. (2) The request for resolution plans shall detail each step in the process, and the manner and purposes of interaction between the resolution professional and the prospective resolution applicant, along with corresponding timelines. (3) The request for resolution pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Approval of Resolution Plan . In Regulation 39, Regulation (1A) and Regulation (1B) were inserted by (Third Amendment) Regulations, 2021 w.e.f. 30.09.2021. Regulation 39 as amended w.e.f. 30.09.2021 is as follows: 39. Approval of resolution plan. 1[(1) A prospective resolution applicant in the final list may submit resolution plan or plans prepared in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with (a) an affidavit stating that it is eligible under section 29A to submit resolution plans; 2[***] (c) an undertaking by the prospective resolution applicant that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action under the Code. 3[(1A) The resolution professional may, if envisaged in the request for resolution plan- (a) allow modification of the resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ospective resolution applicant, along with corresponding timelines. In the present case request for Resolution Plan was issued by the Administrator on 26.04.2022. We need to notice certain clauses of RFRP dated 26.04.2022, which RFRP is also relevant for subsequent process undertaken. Clause 3.17.16 and 3.17.17 which are relevant are as follows: 3.17.17 The Resolution Plan(s) that are in compliance with the provisions of the IBC shall be considered by the CoC in accordance with Regulations 39(3), 39(3A) and 39(3B) of the CIRP Regulations. The Administrator and the CoC (along with any person authorised by the CoC in this regard) reserve the right to negotiate with the Resolution Applicant(s) and/or the Resolution Bidder(s) prior to such plan(s) being put to vote for approval by the CoC in order to achieve a successful resolution of RCAP with the objective of maximising the value of the Corporate Debtor for all stakeholders. 21. Learned counsel for the Appellant has also referred to various other clauses of the RFRP which clauses were also noticed by the Adjudicating Authority in its impugned order while noticing submission of Vistra ITCL (India) Ltd. Clause 4.2.4 provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withstanding anything contained hereinabove, the CoC reserves the right to engage in discussions with any Resolution Applicant(s) and/or the Resolution Bidder(s). (b) If the Administrator receives only a single Resolution Plan, then the Administrator on the instructions of the CoC or the CoC have the discretion to either discuss with the said Resolution Applicant to better terms of the said Resolution Plan, or annul the Submission Process. (c) The CoC may, in its sole discretion, request and require Resolution Applicants and/or the Resolution Bidders to submit the Resolution Plan(s) and/or the Resolution Bid(s), as the case may be in such form and manner that will ensure, inter alia: (i) insolvency resolution of the Corporate Debtor is achieved in accordance with the provisions of the IBC, the CIRP Regulations and the FSP Rules; and (ii) maximization of value of assets of the Corporate Debtor is achieved. 23. Clause 4.3.7 reserves right to the Administrator as well as the CoC to negotiate terms of the resolution plan with one or more Resolution Applicants. Clause 4.3.7 is as follows: 4.3.7 The Administrator and the CoC shall have the right to nego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y also separately declare benchmark price for submission of a Resolution Plan under Option 1 or Combined Resolution Plan under Option 2. (c) The CoC, the Administrator or any other professional advisor as appointed by the CoC or the Administrator reserve the right to conduct due diligence on the Resolution Applicant(s) and/or Resolution Bidder(s) with the assistance of external agencies at any stage of the Submission Process. The scope of the due diligence shall include but not be limited to the following parameters: (i) compliance with Applicable Laws; (ii) submission of documents for the requisite, know your customer checks to the satisfaction of CoC and/or the Administrator (who is acting on the instructions of the CoC); (iii) review of the financial and operational capability of the Resolution Applicant and/or the Resolution Bidder; (iv) any other matter, which the CoC and/or the Administrator (acting on the instructions of the CoC) may deem fit or necessary, and (v) the Resolution Applicant's and/or Resolution Bidder's ability and intent to run the Corporate Debtor under Option 1 or the relevant Cluster under Option 2 as the case m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fications were issued by the Administrator and the Committee of Creditors ( CoC ) from time to time including process paper dated 22nd October 2022 ( Process Paper ) in terms of the provisions of the Code including Regulation 36B(7) of the CIRP Regulations (collectively referred to as the RFRP ) to the prospective resolution applicants ( PRAs ). Accordingly, PRAs submitted their duly executed resolution plans in accordance with the terms of the RFRP on 29th August 2022. The Process Paper required the PRAs to submit duly executed resolution plans on 28th November 2022, which would be followed by a challenge mechanism to maximize the value of the resolution plans. Set forth below is the challenge mechanism ( Challenge Mechanism ) to be conducted amongst Resolution Applicants who have submitted Resolution Plans on 28th November 2022 ( Resolution Applicants or Bidders or RA ). The Challenge Mechanism shall be read along with the terms of the RFRP. II. Key Notes: 1. By participating in the Challenge Mechanism, each Resolution Applicant accepts that it has understood the Challenge Mechanism and confirms that the process is fair and reasonable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Report of the Insolvency Law Committee May, 2022. Paragraph 2.42 of the report provides: 2.42. Although deference to the wisdom of the CoC in commercial matters is an established norm, such commercial wisdom should be exercised as per the procedure laid down by the Code and the regulations. Where the regulations specify the procedure for conducting the CIRP, unless they are ultra vires to the Code, participants are required to comply with them. Non-compliance of the same undermines the certainty, predictability and transparency of the process thereby making it unfair for the participants and being detrimental to the development of a market for resolution plans. Since the regulations are framed in furtherance of the objectives of the Code and its provisions, a reliance on its objectives (value maximisation) for non-compliance of the procedure will go against the scheme of the Code. 29. Reliance has also been placed on the Report of the Standing Committee on Finance, Implementation of Insolvency and Bankruptcy Code Pitfalls and Solutions. On the heading performance review of the NCLT system, following observations have been made in the report Second, it should be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the process adds to the costs leads to further destruction of the value of the CD. Proposed Amendment 30. Considering the issues in RFRP and to provide for option for Swiss challenge to the CoC, it is proposed to amend the regulations to provide for: (i) The RP and CoC to place the RFRP with due consideration of the market conditions. (ii) The CoC shall decide on allowing for revision of the RFRP, number of such revisions and timelines for the same on exante basis. The number of revisions shall not exceed 2. (iii) CoC shall decide the timelines within which it will allow for negotiation and changes to the submitted resolution plans (iv) CoC and RP shall not entertain unsolicited revision to resolution plans. (v) The CoC shall decide whether it considers appropriate to opt for a swiss challenge method and if the same is decided by the CoC, then it should be provided in RFRP on ex-ante basis. (vi) The CoC to decide basis for evaluation, timelimit within which the challenge process shall be concluded and the minimum threshold for improvement over the resolution plan on ex-ante basis. Economic Analysis 31. The proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o improve their Plan. 33. The question which needs to be considered and answered is whether Regulation 39(1A) contains an implied prohibition on the jurisdiction of the CoC to enter into any further negotiations with Resolution Applicant or to further ask a Resolution Applicant to increase its Resolution Plan value. 34. Regulation 39(1A) is a provision incorporating a procedural mechanism for Resolution Professional for finalization of Resolution Plan submitted by Resolution Applicants. Now, we need to notice other relevant statutory Regulations, which throw light on the jurisdiction of CoC to proceed further when Resolution Plan is received from the Resolution Applicants and duly certified by the Resolution Professional. As noted above, the authority and jurisdiction to consider Resolution Plan for approval is vested with the CoC after considering its feasibility and viability under Section 30, sub-section (4) of the Code. 35. Regulation 36B, sub-regulation (7), empowers Resolution Professional with the approval of the CoC to re-issue request for Resolution Plans, if the Resolution Plans received in response to an earlier request are not satisfactory. Regulation 36B, sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion of Challenge Mechanism under Regulation 39(1A), the power of CoC is circumscribed and Coc is only obliged to vote on the Plans received consequent to Challenge Mechanism is clearly unsustainable, in view of the above explicit clauses of RFRP. Clause 4.2.9, further makes it clear that CoC is not obliged to continue the Submission Process with the Resolution Applicant, even if the best technical capabilities or highest financial plan received, the CoC reserves the right to engage in discussion with any Resolution Applicant. Clause 4.2.9, sub-clause (a), clearly indicate the said conclusion. 38. The submission of learned Counsel for Respondent No.1 that the aforesaid Clauses of RFRP are ultra vires to Regulation 39(1A) also needs to be answered. When we look into Regulation 39(1A), this was inserted empowering Resolution Professional to allow modification of the Resolution Plan, but not more than once or use a Challenge Mechanism to enable Resolution Applicants to improve their Plans. The Regulation 39(1A) cannot be read containing any fetter on the right of the CoC to take further action as per RFRP after receipt of the Resolution Plan consequent to Challenge Mechanism. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es did not exercise its power to cancel, modify, withdraw or abandon the process of challenge at any stage. Whereas in the RFRP of the present case, no such power is reserved to CoC. Clause 4.2.4 of the RFRP of the present case provides that Notwithstanding anything contained in the RFRP, the CoC reserve the absolute right and clause 4.2.4 (c) provides annul the Resolution Plan process and reject all Resolution Plans and/or Combined Resolution Plans and call for submission of new Resolution Plans from any Person . The above clause is wide enough to empower the CoC to annul the Resolution Process including the Challenge Process. Further Clauses of RFRP of the present case clearly reserve the power of CoC to call the Applicants for negotiations or improving their Resolution Bid. Hence, the CoC is not denuded of its power to take action under RFRP in the present case and the law laid down by this Tribunal in Jindal Stainless Ltd. (supra) that there can be no fetter on the power of CoC to cancel or modify any negotiation with the Resolution Applicant including a Challenge Process is fully attracted in the present case. The Adjudicating Authority itself in its judgment has noticed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o make additional payment of Rs.890/- crores, totaling Rs.9000/- + crores approx. All these facts have been noticed by the CoC in its meeting, which needs to be briefly referred. In the meeting of the CoC held on 23.12.2022, on the Agenda Item No.3 Update on the resolution process of the Corporate Debtor, the e-mail of IIHL was read, where it came to notice that IIHL included revised NPV of INR 9000+ crores, which was in deviation from the final bid submitted by it in Challenger mechanism process, i.e. INR 8110/- crores. The CoC also noticed in the meeting the deadline of January 31, 2023. It is useful to extract following part of the Agenda Item: After multiple deliberation it was decided that both the draft resolution plans received by the Administrator will be evaluated by the CoC advisors and a comparison of both the plans received will be presented to the CoC members and subsequently the COC members can deliberate on how to further engage with the bidders in relation to the resolution process. The view of the COC members was sought on the approach to be followed:- LIC, EPFO, Broadpeak, JC Flower, Yes Bank, SSG, Trust Group, Vistra, Franklin, CS agreed to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sm note issued on December 14, 2022 can be considered by the Administrator. The legal counsel of the Administrator further updated the CoC members that in the interest of time and efficacy a request was made to Torrent Investments Private Limited ( Torrent ) and IndusInd International Holdings Ltd ( IIHL ) vide email to submit the draft resolution plan incorporating the highest Bid Amount (along with details of Upfront Payment and Deferred Payment) submitted by them in the Challenge Mechanism process conducted on December 21, 2022 by January 06,2023. The plans were received from Torrent and IIHL and the same is under review by the Administrator and advisors to the Administrator and the CoC. The legal counsel of the Administrator apprised the CoC members that the highest NPV as per the last challenge mechanism was INR 8,640 crores. The CoC discussed at length the developments since the conclusion of its challenge mechanism. It was summarized as below. That the resolution plans were first received on November 28, 2022. Comments on plans were circulated to the bidders by the Administrator and CoC s process and legal advisors on December 12, 2022. Revised drafts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge mechanism shall stand valid and any increment by the bidder in the extended round of challenge mechanism shall be over and above the NPV bid submitted on December 21, 2022. The CoC discussed at length and specified that any payments to creditors will be included in the calculation of NPV being bid for as part of the Challenge Mechanism. It was proposed by the CoC that the challenge mechanism is conducted on January 16, 2022. The Legal counsel to the Administrator mentioned that there is a hearing before NCLT on January 12, 2023. In the event the above proposal of the CoC is approved by the CoC s vote, then the Administrator shall update the NCLT of the said development. The legal counsel to the CoC also mentioned that the CoC shall file necessary intervening application in the said matter along with the decision of the CoC to continue the bidding process. Necessary communication will be done to the PRAs in relation to the next steps. Further, details of the extended round of challenge mechanism shall be circulated to all the 4 Resolution Applicants who submitted under Option 1 as on November 28, 2022. Voting agenda 4(a): RESOLVED THAT the Challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess at any stage including during the challenge process, however, the CoC in the present case did not prescribe such wide powers to the CoC, and in fact the challenge process was successfully concluded and as per their own process note approved by the CoC, after the conclusion of the challenge mechanism, the compliant resolution plans finalized in the challenge mechanism were required to be voted upon. The extended challenge mechanism in the instant case, as it appears from the minutes of the meeting of CoC held on 23.12.2022 and 03.01.2023 06.01.2023, was in fact decided on the basis of a late bid submitted by IIHL. In our view a late bid is not allowed to be considered as per the challenge mechanism and the assurance given by the Administrator in its letter dated 22.12.2022, and therefore any decision on second challenge motivated by the late bid, besides running foul to the process set out in Regulation 39 (1A), suffers from the same infirmity as a late bid and any subsequent thought on sub-optimal or non-satisfactory apparently motivated on this basis should not be allowed. 44. It is relevant to notice that in the Minutes of the CoC Meeting, it was noticed that bid of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on process and it forecloses any negotiation by CoC with Resolution Applicant. To answer the above, we need to notice the statutory scheme of the Code and the CIRP Regulations. 48. Section 30, sub-section (4) of the Code envisages consideration of Resolution Plan presented by Resolution Professional to the CoC for approval. The Resolution Applicant may also attend the meeting of the CoC in which the Plan of Resolution Applicant is to be considered. Section 30, sub-section (4) and (5) are as follows: 30(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board: Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the CoC and thereafter, the deliberation by CoC begins in the presence of Resolution Applicants. The process of negotiations, thus, can commence only after Plan comes for consideration, when the Resolution Applicants are also present. The modification of Plan not more than once and improvement of Plan under Regulation 39(1A) completes before deliberation on the Plan. Thus, it can neither foreclose, nor prohibit negotiations. The Clauses in RFRP as noticed above reserve right to the CoC to negotiate and interact with one or all Resolution Applicants, which obviously is subsequent act, after Plan is received under Regulation 39(1A). Hence, Regulation 39(1A) cannot prohibit any negotiation or any further steps of the CoC. The view of the Adjudicating Authority that no negotiation or value maximizatioin exercise can be individually undertaken by the CoC dehors the mandate of Regulation 39(1A) is contrary to the Scheme delineated by the Code and CIRP Regulations. The very concept of negotiation envisages dialogue between two parties. The word Negotiate and Negotiation are defined in the Black s Law Dictionary to the following effect: Negotiate, vb. (16c) 1. To communica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for sale of stocks of damaged food grains, in which Respondent Kamdhenu Cattle Feed Industries submitted a tender, which was highest tender, but tender was not accepted by Food Corporation of India. A Writ Petition was filed by the Respondent, challenging the Appellants refusal to accept the highest tender, which Writ Petition was allowed by the High Court. It was contended before the High Court that Food Corporation of India having chosen to invite tenders, it could not thereafter dispose of the stocks of damaged food grains by subsequent negotiation rejecting the highest tenderer. Appeal filed in the Hon ble Supreme Court was allowed, setting aside the judgment of the High Court. The Hon ble Supreme Court also held in the above case that highest tenderer can claim no right to have his tender accepted. It was further observed that inadequacy of the price offered in the highest bid could be a cogent ground for negotiating with the tenderers giving them equal opportunity to revise their bids with a view to obtain the highest available price. In the above case, the action of the Food Corporation of India to negotiate with tenderers even after receiving of the bid of the Respondent, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Key Notes is as follows: 4. The CoC is not obliged to approve the resolution plan which has the highest NPV or scored the highest as per the Evaluation matrix and any resolution plan shall be approved solely on the basis of the commercial wisdom of the CoC. The CoC while approving a resolution plan will consider the feasibility and viability of each resolution plan and other factors. The Administrator/ CoC and their advisors reserve the right to evaluate compliance and the Resolution Applicants shall provide such modifications or clarifications as may be required by the CoC as per the requirements of the IBC Code. 5. This Challenge Mechanism does not confer any rights or any Resolution Applicant including the Resolution Applicant with the Highest NPV. 56. Judgment of Hon ble Supreme Court in Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta Ors, (2019) 2 SCC 1 also needs to be referred, where it was held that no right accrues to the highest bidder. In para 79 following has been laid down: 79. Given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made nonjusticiable. 59. The Adjudicating Authority in paragraph 129 has again concluded that no negotiation or value maximization exercise can be individually undertaken by the CoC in view of the provisions of Regulation 39(1A). We, thus, are of the considered opinion that Adjudicating Authority committed error in allowing IA No.1/MB/C-I/2023 and IA No.99/MB/C-1/2023. 60. In view of the foregoing discussions, we, thus conclude that even after completion of Challenge Mechanism under Regulation 39(1A)(b), the CoC retain its jurisdiction to negotiate with one or other Resolution Applicants, or to annul the Resolution Proces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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