TMI Blog2023 (11) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assets of ACIL. Ordering revaluation of the assets, by the OL, Ministry of Corporate Affairs, Government of India, in-charge of the particular area, cannot be justified. As explained in M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK ANR. [ 2017 (9) TMI 58 - SUPREME COURT] and SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [ 2019 (1) TMI 1508 - SUPREME COURT] , the Code was specifically introduced by Parliament for ensuring quick and time-bound resolution of insolvency of corporate entities in financial trouble, by first attempting to revive the Corporate Debtor, failure whereof would entail liquidation of the Corporate Debtor s assets, and no unnecessary impediment should be created to delay or derail the CIRP. In the present case, both the NCLT and NCLAT erred to fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated. Thus, the minimum mandatory component in the Resolution Plan was only a reflection of the actual money, including upfront payment, which would go towards the FC(s). As discussed previously, the final Resolution Plan provided for the monetization proceeds of the land as also the av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ) is directed against the Judgment dated 19.01.2022 (hereinafter referred to as the Impugned Judgment ) passed by the National Company Law Appellate Tribunal (hereinafter referred to as the NCLAT ) in Company Appeal (AT)(Ins) No.845 of 2021 which has upheld the order passed by the Adjudicating Authority (National Company Law Tribunal 3 ) [hereinafter referred to as the Adjudicating Authority-NCLT or Adjudicating Authority or NCLT ], Principal Bench dated 01.09.2021 by which the application seeking approval of a Resolution Plan for ACIL Limited (hereinafter referred to as either ACIL or the Corporate Debtor ) being I.A. No.1636 of 2019 in CP(IB) No.170(PB)/2018 (hereinafter referred to as the Approval Application ) was kept in abeyance while directing the Official Liquidator (hereinafter referred to as the OL ) to carry out a re-valuation of the assets of the Corporate Debtor and to provide exact figures/value of the assets and exact valuation details. BRIEF FACTS: 3. ACIL is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of carrying forward its losses in terms of Section 79 6 of the Income Tax Act, 1961. 6. This ultimately resulted in the order dated 01.09.2021, by which the approval of the Resolution Plan was kept in abeyance and the OL was directed to provide exact figures/value of assets. The same was carried in appeal under Section 61 7 of the Code by the present appellant before the NCLAT which passed the Impugned Judgment on 19.01.2022, dismissing the appeal, thereby upholding the order of the NCLT, which is impugned herein. SUBMISSIONS ON BEHALF OF THE APPELLANT: 7. Mr. Shyam Divan, learned senior counsel for the appellant submitted that the Resolution Plan initially submitted by the appellant was negotiated further on various dates and, ultimately the final outcome was the Resolution Plan submitted on 05.08.2019. This was finally approved by the CoC through a majority of 88.56% votes on 14.08.2019, after extensive consideration. It was submitted that there were 11 revisions in respect of the Resolution Plan made by the appellant before the final version was approved by the CoC. It was indicated that the final Resolution Plan was approximately 48% higher as compared to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutorily structured by Sub-Section 1(1) of Section 31 of the Code and such jurisdiction is limited to determine whether the requirements which are specified in Sub-Section (2) of Section 30 of the Code have been fulfilled. Further, it has been explained that such jurisdiction which is statutorily defined, recognised and conferred, cannot be equated with the jurisdiction in equity that operates independently of the provisions of the statute for the reason that the Adjudicating Authority-NCLT, which is a body owing its existence to the Code, must abide by the nature and extent of its jurisdiction as defined therein. Regarding the appointment of the OL for getting valuation of the assets, the stand of Mr. Divan was that it was not in line with the Code and the Regulations made thereunder. 9. It was further canvassed by learned senior counsel that the Code provides for a mechanism for carrying out valuation of the assets of a Corporate Debtor in form of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the CIRP Regulations ), particularly Regulations 27 8 and 35 9 thereof, inasmuch as R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 168 and 169, holding that when the CoC was fully satisfied with the valuation conducted in respect of the Corporate Debtor and had endorsed the same, then it was unnecessary and unjustifiable on the part of the NCLAT to presume irregularities in the Resolution Plan and interfere therewith. 13. It was submitted that the RP in statutory form had certified that the Resolution Plan received from the appellant complied with all the provisions of the Code and the Regulations and did not contravene any provisions of law. 14. It was contended that the finding of the NCLAT that an avoidance transaction of approximately Rupees one thousand crores had come to light and the present case justifies its interference since figures of crores are involved, could not have been an issue as it has no bearing in the instant case and ought not to have been considered by the NCLAT. It was submitted that safeguard against avoidance transaction and its impact upon a Corporate Debtor s CIRP has been provided in the Code and the Regulations as also expounded in judicial precedents. In this regard, attention was drawn to Section 26 10 of the Code which provides that filing of avoidance application(s) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reject the Resolution Plan but cannot compel the CoC to negotiate further with a successful Resolution Applicant and also that the Adjudicating Authority is duty bound to ensure the completion of CIRP within the prescribed timeline of 330 days under the Code. 16. As far as the reference in the Impugned Judgment by the NCLAT, that interference was justified since figures of crores are involved, learned senior counsel submitted that it has no basis in the Code or law, as it does not provide for differential treatment to a Resolution Plan, based on the quantum of the figure involved in the Corporate Debtor s insolvency. 17. With regard to the OL being given the chance of coming up with re-valuation, the stand taken by learned senior counsel was that the OL is created by the Companies Act, 2013 and is not contemplated under the Code which provides a specific mechanism for valuation to be conducted in respect of the assets of a Corporate Debtor under the CIRP Regulations, specifically Regulations 27 and 35, as noted hereinabove. 18. Learned senior counsel submitted that even if for the sake of argument, it may be accepted that the NCLT can exercise discretion in rare cases an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of Sections 31(1) 60(5) of the Code would lead to the result that the residual jurisdiction of the NCLT under Section 60(5)(c) of the Code cannot, in any manner, whittle down Section 31(1) of the Code, by the investment of some discretionary or equity jurisdiction in the Adjudicating Authority-NCLT outside Section 30(2) of the Code, when it comes to a Resolution Plan pending adjudication. 25. However, it was also pointed out that in cases which warrant interference, to contend that the Adjudicating Authority-NCLT has no jurisdiction to decide any dispute with respect to valuation and take remedial steps to correct an erroneous valuation exercise would not be the correct proposition in view of the powers conferred under Section 60(5) of the Code. 26. With regard to the impact of pendency of avoidance applications on the approval of the Resolution Plan, the stand was that it has no bearing on the approval by the NCLT of the Resolution Plan approved by the CoC as it has been provided in the Resolution Plan that proceeds of avoidance transactions, if any, will go to the FC(s) and thus, on this score, the Resolution Applicant (appellant) will not be benefitted as it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. In Kalpraj Dharamshi v Kotak Investment Advisors Limited, (2021) 10 SCC 401, the Court concluded that in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of commercial wisdom , NCLAT was not correct in law in interfering with the commercial decision taken by CoC by a thumping majority of 84.36%. 28. In Pratap Technocrats Private Limited (supra), the Court, after considering the relevant case-laws, pointed out that the Indian Legislature had departed from foreign insolvency regimes, as under: 44. 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 authority or the appellate authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of IBC and the Regulations under the enactment. 45. Certain foreign jurisdictions allow resolution/reorganisation plans to be challenged on grounds of fairness and equity. One of the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trepreneurial class) and achieving the desired balance between the specific objectives identified above. Insolvency laws achieve that balance by reapportioning the risks of insolvency in a way that suits a State's economic, social and political goals. As such, an insolvency law can have widespread effects in the broader economy. 47. Hence, once the requirements of IBC have been fulfilled, the adjudicating authority and the appellate authority are duty-bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the adjudicating authority nor the appellate authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework. (emphasis supplied) 29. In the case at hand, we find that there was no occasion before the Adjudicating Authority- NCLT to be swayed only on the per se ground that the hair-cut would be about 94.25% and that it was not convinced that the fair value of the assets have been projected in proper manner as the bid of the appellant was very close to the fair value of the assets of ACIL. Ordering revaluation of the assets, by the OL, Ministry of Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erging stage-wise, then there is no harm to look at the Expert opinion , which the Adjudicating Authority-NCLT in this case has asked for. 31. It is worthwhile to note that the Adjudicating Authority has jurisdiction only under Section 31(2) of the Code, which gives power not to approve only when the Resolution Plan does not meet the requirement laid down under Section 31(1) of the Code, for which a reasoned order is required to be passed. We may state that the NCLT s jurisdiction and powers as the Adjudicating Authority under the Code, flow only from the Code and the Regulations thereunder. It has been held in Jaypee Kensington Boulevard Apartments Welfare Association v NBCC (India) Limited, (2022) 1 SCC 401: 273.1. The adjudicating authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the Committee of Creditors. If, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication, being I.A. No.1636 of 2019 in CP(IB) No.170(PB)/2018, within three weeks from the date of production of a copy of this judgment. Pending avoidance application(s) on the file of the NCLT in connection herewith shall proceed on their own merits, but with expedition. No order as to costs. 35. Insofar as the pending Interlocutory Applications herein are concerned, they are dealt with below: a. I.A. No.25463/2022: Does not survive in view of the decision in the appeal; disposed of. b. I.A. No.25464/2022: Does not survive in view of the decision in the appeal; disposed of. c. I.A. No.185233/2022: Wrongly shown as pending in the ordersheet; already disposed of vide order dated 17.04.2023. 36. Insofar as Mr. Singh s submissions that this Court may not exclude from the NCLT s ambit any power to direct re-valuation, we have given our anxious thought to the same. Our view is that while certainty in law and legal principles is the obvious aim, the law is to be applied in the context of the facts. If a matter where the facts are stark comes to light, the same would have to necessarily be dealt with by the NCLT within the four corners of the Code itself, having due rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of approval under sub-section (1), (a) the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors. 6 79. Carry forward and set off of losses in case of certain companies. (1) Notwit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) the Tribunal, on an application moved by the Central Government under Section 241 of the Companies Act, 2013 (18 of 2013), has suspended the Board of Directors of such company and has appointed new directors nominated by the Central Government, under Section 242 of the said Act; and (ii) a change in shareholding of such company, and its subsidiary and the subsidiary of such subsidiary, has taken place in a previous year pursuant to a resolution plan approved by the Tribunal under Section 242 of the Companies Act, 2013 (18 of 2013) after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner. Explanation. For the purposes of this section, (i) a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company; (i-a) erstwhile public sector company shall have the same meaning as assigned to it in clause (ii) of the Explanation to clause (d) of sub-section (1) of Section 72-A; (i-b) strategic disinvestment shall have the same meaning as assigned to it in clause (iii) of the Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 4) An appeal against a liquidation order passed under Section 33, or sub-section (4) of Section 54-L, or sub-section (4) of Section 54-N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order. (5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of Section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order. 9. It was further canvassed by learned senior counsel that the Code provides for a mechanism for carrying out valuation of the assets of a Corporate Debtor in form of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the CIRP Regulations ), particularly Regulations 27 8 and 8 27. Appointment of Professionals. (1) The resolution professional shall, within seven days of his appointment but not later than forty-seventh day from the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t class means the definition provided under the Companies (Registered Valuers and Valuation) Rules, 2017; (ii) significantly different means a difference of twenty-five per cent in liquidation value under an asset class and the same shall be calculated as (L1-L2)/L1, where, L1= higher valuation of liquidation value L2= lower valuation of liquidation value. (c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may be. (2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Section 29. (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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