TMI Blog2023 (6) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... ) contains an implied prohibition on the jurisdiction of the CoC to enter into any further negotiation with the Resolution Applicant or to further ask the Resolution Applicant to increase its Resolution plan value, where it was held that The Adjudicating Authority further fell into error in coming to a conclusion that there is no power with the CoC to enter into negotiations with the Resolution Applicant, after the Challenge Mechanism and the exercise of the commercial wisdom is circumscribed by the framework for value maximization provided under the Code read with the Regulations. In the instant Case, keeping in view the facts of the matter that the decision to conduct the Swiss challenge was approved by the CoC by majority of 99.18% during the 43rd Meeting held on 29/12/2022 that the decision of CoC to conduct the Challenge Process is supported by Causes 1.17, 1.18 and 7.2 of the RFRP that the voting window commenced on 06/01/2023 vest the Challenge Process conducted on 04/01/2023 and such voting window remained open upto 16/01/2023 and only after closing the voting lines, the CoC has approved the Resolution Plan of Respondent No. 3 by majority of 94.96%, does not find any v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P on 06/03/2021 i.e. before the completion of the CIRP period which was 08/03/2021. As per Form G which was reissued; the successful Resolution Plan was to be submitted before the Adjudicating Authority for Approval. While so, on 12/03/2021, the RP requested the Appellant to provide certain additional documents and sought some clarifications which was clarified by the Appellant, vide email dated 25/03/2021. This Tribunal on 24/03/2021 directed the Adjudicating Authority to take up IA 120/2021 and dispose of the same on merits and pass a reasoned Order and dismiss the Appeal as withdrawn. 3. It is submitted by the Learned Senior Counsel for the Appellant that on 15/04/2021, the Appellant had submitted a revised offer and intimated the same to the RP. on 24/06/2021, aggrieved by the fact that the RP had extended the timelines / deadlines for all prospective Resolution Applicants to submit improvised plan, the Appellant preferred IA No. 244/2021 which was allowed by the Adjudicating Authority , directing the RP to consider only the plans given prior to 08/03/2021 in Appeals Company Appeal (AT) (CH) (Ins) No. 166/2021 and Company Appeal (AT) (CH) (Ins) No. 174/2021, preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Professional can either allow revision / modification of the Resolution Plans not more than once or can employ a Challenge Mechanism . It is contended that the language implied in the aforesaid Regulation is crystal clear that the RP can only allow one avenue of improvement in the financial proposal to the Resolution Applicants either by way of modification or by employing a challenge mechanism. The rule contended in the Regulation is couched in a negative language and is therefore mandatory in nature and cannot be deviated from by the RP or by the 2nd Respondent. Allowing more than one modification in a Resolution plan either by way of revision or the challenge mechanism is contrary to what is prescribed in Regulation 39(1A) and the RP ought to have rejected any process which is not in compliance of the provisions of the Code and the CIRP Regulations. The Learned Senior Counsel vehemently argued that if the word or contained in Regulation 39(1A) is read as and , then it would allow the Resolution Applicants to revise and modify their plans several times which would be contrary to the plain language and express legislative intent of the Code. It is submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention to Regulation 39(1A) as discussed in the report of the Insolvency Law Committee, dated 20/05/2022, which is reproduced as herein for ready reference. (iv) Curbing submission of unsolicited resolution plans and revisions of resolution plans: It has been observed that there are divergent practices regarding the timeline and manner of submission of resolution plans. Although there are stage-wise timelines provided in the regulations, resolution plans are received by the resolution professional after the stipulated deadlines. In some cases, revisions are made to submitted resolution plans in an attempt to outbid other potential resolution applicants. Such practices lead to divergent practices leading to inconsistencies, delays and lack of procedural sanctity. Therefore, the Committee has recommended that a mechanism for reviewing late submissions of plans and unsolicited revisions to plans should be laid down in the regulations. Pursuant to the recommendations of the Committee in this regard, some amendments have already been carried out in the CIRP Regulations. 8. It is recommended that the Committee agreed that the CIRP Regulations may allow the CoC to opt for a S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. Uttam Singh Duggal Co. Ltd. v. United Bank of India, [(2000) 7SCC 120] iv. Guru Nanak Dev University v. Sanjay Kumar Katwal,[(2009) 1 SCC 610] v. M.K. Rajagopalan v. Dr. Periasamy Palani Gounder, [(2023) SCC OnLine SC 574] vi. Kalinga Allied Industries India Limited v. Committee of Creditors, Company Appeal (AT) (Insolvency) No. 689 of 2021 11. The Learned Senior Counsel appearing for the Respondent No. 1 / RP of the Corporate Debtor Company submitted that the Order dated 25/10/2021, passed by this Tribunal has no bearing in the present Appeal as the NCLAT Order was passed in the factual background that the RP and CoC had accepted the Resolution Plan submitted by Respondent No.3 , after the expiry of 330 days period and therefore had directed the Resolution Plan to consider the Resolution Plans submitted prior to the expiry of 330 days period. The Adjudicating Authority , vide Order dated 29/11/2022 in IA No. 1351 1375/2022 has extended the CIRP to 23/01/2023 and hence it is evident that the Resolution Plan submitted by R3 ( Jindal ) could also be considered. It is submitted that the CoC on 08/07/2022, voted upon the Resolution Plan submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(2023) SCC OnLine NCLAT 110] in Para Nos. 33, 38, 44, 47, 49 53 and 60, it is observed that there can be no fetters on the power of committee of creditors to cancel or modify ay negotiation with the resolution applicant including a challenge process, but it is the wisdom of the committee of creditors to take a decision in this regard; in view of Section 30(4) of the Code, which requires the committee of creditors to vote on a plan after considering its feasibility and viability implies that after receipt of the plan, subsequent to the challenge mechanism, the committee of creditors is not obliged to put the plan to vote and Regulation 39(1A) of the CIRP Regulations does not prohibit committee of creditors from negotiating with resolution applicants or asking resolution applicants to further increase the plan value; and that even after completion of challenge mechanism under Regulation 39(1A)(b) of the CIRP Regulations, the committee of creditors retains its jurisdiction to negotiate with one or other resolution applicants, or to annul the resolution process and embark on to re-issue RFRP . 15. It is submitted that the only Caveator to the aforenoted principle is that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Minerals which holds only 20% majority control of the Consortium, requested for withdrawal of the Challenge Process. The Appellant was also given an opportunity to make suitable modifications vide email dated 21/12/2022. A prospective Resolution Applicant has no vested interest and no role envisaged under the Code to dictate how the CIRP should be running. It is submitted that Regulation 39(1A) is directory and not mandatory as regarding the Order of this Bench on 25/10/2021. The Learned Senior Counsel submitted that the observations of this Tribunal in Order dated 25/10/2021 was only regarding plans being considered after the expiry of CIRP, which is not the present case. The Learned Senior Counsel placed reliance on the Judgments of the Hon ble Apex Court in the matter of J.Jayalalitha Vs. Union of India Anr. reported in [(1999) 5 SCC 138]in which it is held as under: 9. .The dictionary meaning of the word 'or' is a particle used to connect words, phrases, or classes representing alternatives . The word 'or', which is a conjunction, is normally used for the purpose of joining alternatives and also to join rephrasing of the same thing but at times to mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate, for maximization of value to the stakeholders in a time bound manner (including, without limitation, open auction, swiss challenge etc.) and therefore, the submission of the Appellant that CoC did not have the power to conduct the Challenge mechanism is not only contrary to objects of Insolvency and Bankruptcy Code, 2016 ( IBC ) and the CIRP Regulations but is also contrary to the express provisions contained in the RFRP. 21. It is submitted that the Appellant has sought to mislead this Hon ble Appellate Tribunal by arguing that the decision to conduct challenge process was taken during the time when CoC was voting upon the resolution plans and, therefore, such process is bad in law. In this regard, it is submitted that CoC is well within its powers under the RFRP and IBC to conduct swiss challenge mechanism even at a stage when the resolution plans are placed for voting and that it is evident from the 44th Meeting of the CoC held on 04/01/2023, the relevant portion of which is extracted at page 12-14 of the Reply filed by the Resolution Professional, that the voting window commenced on 06/01/2023 i.e. post the challenge process conducted on 04/01/2023 and such vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne but there is no cap on the number of revisions that may be allowed in a resolution plan. These have the effect of delaying resolution. There are also cases where the resolution applicants revise the resolution plans multiple times, with or without the consent of the CoC, leading to delays in completing the process. 21. The CoC, at many times keeps on entertaining these plans for value maximization. It, however, creates uncertainty about the process and rather places an incentive on the PRAs to offer lesser at the initial stages. If sufficient competition is not achieved in the process, such practice may even lead to less than optimum value for the corporate debtor. Invariably, the delay 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 ex-ante basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Challenge Mechanism. Clause 3.17.17 for ready reference is extracted below: 3.17.17 The Resolution Plan(s) that are in compliance with the provisions of the !BC shall be considered by the Coe 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. 37. The above clause will indicate that after a Resolution Plans are received in accordance with Regulation 39(1A), the right of the CoC to negotiate with Resolution Applicants, after receipt of the Plan and/ or before the Plan is put to vote, is clearly reserved. Clause 4.2.4 again reserves the right of CoC to annul the Resolution Plan process and call for submission of new Resolution Plan from any person/ Resolution Applicantto make modification to the Plan and to submit a revised Resolution Plan or revised Reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CoC that it was only after the running of the Challenge Process that the CoC was offered with a Resolution Plan where the NPV was more than the Liquidation value. It is pertinent to mention that Respondent No. 3 had issued addendum dated 27/12/2022 but the CoC in its commercial wisdom had decided to allow all Resolution Applicants to submit revised plans through the Challenge Process when the Appellant had an opportunity to participate in the Challenge Process without prejudice and when there was an extension also granted, the Appellant had chosen to stay out of the Challenge Process. It is also relevant to note that Clause 2 of the Challenge Process as well as the email dated 01/01/2023 clearly mentions that for those who do not participate in the Challenge Process, the CoC will consider their last submitted Resolution Plan . It is not in dispute that the Appellant did not participate in the Challenge Process, but the CoC had considered the last Resolution Plan submitted by the Appellant on 28/10/2022. Clause 1.17 of the RFRP vest in the CoC, the right to negotiate the terms of the Resolution Plan with the Resolution Applicants after receipt of the plan on or before the plan is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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