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TMI Blog2022 (9) TMI 1582X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant for consideration. Brief Facts: Appellant's Submissions: 2. The Learned Senior Counsel for the Appellant submitted that the Appellant is aggrieved by the common order dated 28.05.2021 passed in I.A. No. 227 of 2020 in C.P. (IB) No.51/BB/2018. 3. It is submitted that the CIR Process was initiated against M/s Associate Décor Limited, the Corporate Debtor vide order dated 26.10.2018 by the 'Adjudicating Authority' ('National Company Law Tribunal', Bengaluru Bench). In compliance of the I&B Code, 2016 and Regulations thereof, the 'RP' initiated the process namely issuance of 'Form-G' inviting 'Expression of Interest' (in short 'EoI') etc. In response thereto, the Respondents No. 1 to 3 herein as consortium submitted their 'EoI' on 06.09.2019 as consortium members and reconfirmed their interest vide emails dated 14.09.2019, 03.10.2019 and 12.10.2019. Accordingly, the consortium was a part of the provisional list of Resolution Applicants and the 'RP' provided the copies of 'Information Memorandum' (in short 'IM'), evaluation matrix and Request For Resolution Plan (in short 'RFRP') in accordance with Section 25(2)(h) of the I&B Code, 2016 on 09.10.2019 in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voting was conducted from 13.02.2020 to 06.03.2020 and the plan submitted by the 5th Respondent was approved by all the members of ''CoC pursuant to the voting process. After approval of the plan by the 'CoC', the 'RP' filed an application bearing I.A. No.161 of 2020 in CP No. 51 of 2018 under Sections 30(6) of the I&B Code, 2016 before the 'Adjudicating Authority' for its approval. 7. It is submitted that after completion of CIR Process, the consortium (Respondents No.1 to 3) submitted its resolution plan to the RP vide e-mail dated 27.05.2020 and the RP responded to the said mail on 18.06.2020 stating that 'CIRP' period was already expired on 16.03.2020. Against the said reply of the 'RP', the Respondents No.1 to 3 filed an application before the 'Adjudicating Authority' bearing I.A. No. 227 of 2020 seeking direction against the RP for placing its plan for consideration before the CoC. The 'RP' contested the I.A. by filing its counter. The 'Adjudicating Authority' passed the impugned order in I.A. No. 227 of 2020 directing 'RP' to place before the 'CoC' / Appellant the Respondents No.1 to 3 (consortium) plans along with Resolution Plan submitted by 5th Respondent for its conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortium during the entire 'CIRP' of 'Corporate Debtor' has estopped the consortium from seeking consideration of its Resolution Plan at the belated stage. 13. In view of the reasons as stated above the Learned Senior Counsel prayed this Bench to allow the Appeal and set aside the impugned order passed in I.A. No. 227 of 2020. Respondent's Submissions: 14. The Learned Senior Counsel for the Respondents No. 1 to 3 submitted that it is an admitted fact that they have filed I.A. No. 227 of 2020 before the 'Adjudicating Authority' challenging the rejection letter / reply of the RP dated 18.06.2020. The Respondents are one of the biggest building material constructions and real estate companies with more than 30 years of experience in the field and has undertaken all efforts with utmost diligence in order to participate in the 'CIRP'. However, due to the onslaught of the pandemic and nationwide lockdown it took some time to for collation of data and preparation of a viable and effective plan and the same was filed on 27.05.2020. Since no reply was forthcoming, the Respondents vide e-mail dated 16.06.2020 sent a reminder to the 'RP' to place the plan before the 'CoC'. However, the RP v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation in the CIRP process. 19. In view of the reasons as stated above the Learned Counsel prayed this bench to dismiss the appeal. Analysis / Appraisal: 20. Heard the Learned Senior Counsel for the respective parties, perused the pleadings, documents and relevant citations. After analysing the pleadings, the issue fell for consideration is whether the Appellant has made out any case warranting interference by this 'Tribunal' in the order passed by the 'Adjudicating Authority' (impugned order). 21. The 'Adjudicating Authority' entertained/considered the Application filed by the Respondents No.1 to 3 herein i.e. I.A. No. 227 of 2020 and passed the following directions at Page 118 of Appeal Paper Book as under: "V. (1). (2) I.A. No. 227 of 2020 CP(IB) No.51/BB/2018 is disposed of with the directions that the resolution plan submitted by Swamitva Landmark, Shankeshwar Landmarks LLP and Shankeshwar Landmarks, shall be placed before the CoC along with the Resolution Plan filed by METL and submitted for our approval in I.A. 161, for the CoCs evaluation and approval, strictly keeping in mind the objects of the Code, and superior commercial viability. The Resolution Plan a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um submitted their 'EoI' on 29.08.2019. The Respondent No.5 also submitted its 'EoI' on 04.10.2019. The Respondents No.1 to 3 vide their e-mails dated 06.09.2019, 24.09.2019 and 03.10.2019 confirmed their intention with regard to submission of 'EoI'. The RP prepared final list of PRAs in which the name of the consortium is reflected. 25. While so, the Respondents No.1 to 3 vide their e-mail dated 06.11.2019 (Annexure-A7 at page 159 of Vol.-I) stated as under: "Dear Sir/Madam, With reference to the above cited subject and further to your telephonic discussion, after going through the available Company Appeal (AT) (CH) (Ins.) No. 159 of 2021 12 of 40 documents in virtual data room and non availability of Audited Financials of Corporate Debtor M/s Associate Decor Limited and on further preliminary due-diligence from our end, have decided not to participate in submission of resolution plan of the Corporate Debtor M/s Associate Decor Limited which is due on 11.11.2019. The above is forever information With best regards, Mahavir Shankarlal Mehta, Partner Svamitva Landmark" 26. The RP vide e-mail dated 02.12.2019 addressed to all the 'PRAs' informing them that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office. Kindly refrain from sending any documents to my residence as the same will not be accepted. Thanking you Alok Saksena" 28. Aggrieved by this reply of the RP, the Respondents No.1 to 3 has filed the I.A. No. 227 of 2020 and the Adjudicating Authority after hearing the parties passed the aforesaid impugned order. 29. The moot point for consideration is whether the Respondents No.1 to 3 after expressing their inability to submit the Resolution Plan vide their email dated 06.11.2019 can again submit the Resolution Plan after lapse of more than 5 months and that to after approval of the Resolution Plan by the CoC in accordance with law. Before answering the issue this Tribunal intend to deal with the events subsequently happened. It is an admitted fact that the 'CIRP' is completely a time bound process as per the mandate of the I&B Code. 30. The contention of the Respondents No.1 to 3 in I.A. No. 227 of 2020 is that the Respondents submitted their 'EoI' vide their letter dated 29.08.2019 and sought balance sheets and Profit and Loss accounts and other financial information about the Corporate Debtor' from the Resolution Professional in order to prepare resolution plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Corporate Debtor' has audited accounts only for Financial Year 2014-15 which was updated with the Ministry of Corporate Affairs. The unaudited and the provisional balance sheet for Financial Year 2015-16 to 2018-19 were provided. From the information provided, all the Resolution Applicants have access to the said documents. The Respondents No.1 to 3 vide their e-mail dated 05.11.2019 requested for site visit, however, on the next day i.e. 06.11.2019 the Respondents No.1 to 3 vide their e-mail expressed their inability to participate in submission of resolution plan. The 'Adjudicating Authority' without going into the facts observed that the RP has not followed the correct procedure as per the Code. Further, the 'Adjudicating Authority' without any basis hold that the Respondents cannot be held responsible for delay in submission of its plan on 27.05.2020 and observed that the RP should have condoned such delay of 72 days and placed the plan before the 'CoC' for its consideration and the 'Adjudicating Authority' condoned the delay, in our view is completely misinterpreting and misjudging the facts. Further, the 'Adjudicating Authority' misread the judgment of the Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Regulation 40C of the 'CIRP' Regulation specifically excluded the 'CIRP' period which could not be done due to the lockdown imposed. The said stand of the Respondent is against the dictum of the Hon'ble Supreme Court held in Ebix Singapore Pvt. Ltd. Vs. Committee of Creditors of Educom Solutions Ltd. & Anr. Reported in (2021) SCC Online SC 707, Para 148 as under: "148. The evolution of the IBC framework, through an interplay of legislative amendments, regulations and judicial interpretation, consistently emphasizes the predictability and timelines of the IBC. The legislature and the IBBI have been proactive to introduce amendments to the procedural framework, that respond to changes in the economy. For instance, Regulation 40(c), which came into effect on 20 April 2020, was inserted in the CIRP Regulations to take into account the delay that may be caused to the CIRP on account of the lockdown being imposed by the Central Government due to the COVID-19 PANDEMIC. Regulation 40(c) provides that the delay in completing any activity related to the CIRP because of imposition of lockdown will not be counted for the purposes of the timeline that has been stipulated under the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides the following; "(a), (b), (c), (d), (e), (f)" The procedure laid down in the 'CIRP' Regulation with regard to Information Memorandum is Regulation 36, invitation for 'Expression of Interest' is in Regulation 36A, request for resolution plans Regulation is 36B. The Regulation 39 deal with approval of resolution plan. Subregulation (1) thereof, a Prospective Resolution Applicant in the final list may submit resolution plans or plans prepared in accordance with the Code and the Regulations. Sub-regulation (1B) empowers the Committee shall not consider any resolution plan (a) received after the time as specified by the Committee under Regulation 36B or (b) received from a person who does not appear in the final list of 'Prospective Resolution Applicants', or (c) does not comply with the provisions of sub-section (2) of Section 30 and subregulation (1). Sub-regulation (3) thereof empowers the Committee ('CoC') shall (a) evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix; (b) record its deliberations on the feasibility and viability of each resolution plan and (c) vote on all such resolution plans simultaneously. 35. From the above provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal force and content is regulated by the procedure laid down under the IBC, and not the Contract Act. The voting by the CoC also occurs only after the R.P. has verified the contents of the Resolution Plan and confirmed that it meets the conditions of the IBC and the regulations therein. The amended Regulation 39(3) further regulates the conduct of the CoC on voting on Resolution Plans and has introduced the requirement of simultaneous voting. The IBBI's Discussion Paper issued on August 27 2021 has invited comments on regulating the process on revisions that can be made to resolution plans submitted to the CoC. These developments bolster the conclusion that the mechanism prior to submission of a CoC-approved resolution plan is subject to continuous procedural scrutiny by the IBC and cannot be considered as a simple contractual negotiation between two parties." (Emphasis Supplied) 36. In the instant case, the Respondents have failed to submit the resolution plan within the time, therefore there is no immunity to the respondents to file beyond the time prescribed. The RP rightly rejected the request of the Respondents. 37. The Respondents failed to establish that the 'RP' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t date of submission of plans, sought a direction to the RP to place its / their plan before the CoC. Therefore, the Respondents are not at all to be considered as PRAs since they have backed out from submission of the plan and intend to make an entry in to the CIRP belatedly even beyond the period of CIRP. 41. The Learned Counsel for the Respondents also relied upon the judgment of this Tribunal in the matter of Dr. Periasamy Palani Gounder Vs. Mr. Radhakrishnan Dharamarajan & Ors. in CA(AT) (CH) (Ins) No. 164, 176, 218 & 219 of 2021 dated 17.02.2022 and this Tribunal hold that the submission of the resolution plan before the Adjudicating Authority violates the statutory provision of Section 30(2) & (3) of the Code and has vitiated the entire CIRP and made the resolution plan void ab initio. The said judgment is in respect of the violation of statutory requirement in approving the plan. Therefore, the said judgment is not applicable to the facts of the present case. 42. The Learned Counsel for the Appellant relied upon judgment of the Hon'ble Supreme Court in Ebix Singapore in para 169 holding that judicial restraint must be exercised while intervening in a law governing substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor may fetch better value that what has been offered by the Resolution Applicants. In this case, even though the Resolution Plan M/s. KALS Group has been approved with 100% voting in favour of it by the Committee of Creditor in view of the very meagre difference between both the resolution plan, we are of the view that there is scope for further improvement of the Resolution amount to be payable by the Resolution Applicants' and the direction issued to the Committee of Creditors to take fresh bids from the existing two Resolution Applicants to submit a Resolution Plan for its consideration within a period one month" are clearly unsustainable in view of the recent judgment of the Hon'ble Supreme Court in Kalpraj Dharamshi & Anr. V. Kotak Investment Advisors Ltd. & Anr dated 10.03.2021, which squarely applies to the facts of the present case. Viewed in that perspective, this Tribunal interferes with the impugned order dated 24.02.2021 passed by the Adjudication Authority (National Company Law Tribunal, Hyderabad Bench, Hyderabad) In IA No. 1094/2020 in CP No (IB) No. 153/7/HDB/2019 and sets aside the same, in Company Appeal (AT) (CH) (Ins.) No. 159 of 2021 27 of 40 furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was heard and reserved for orders by the learned Adjudicating Authority. 9.4 It is pertinent to mention that the Hon'ble Supreme Court in the case of Ebix Singapore Private Limited versus Committee of Creditors of Educomp Solutions Ltd, reported in 2021 SCC online SC 707, has very recently dealt with the same issue which has arisen in this appeal. In this case, Hon'ble Supreme Court had observed that; "126. Since the interpretation of the IBBI (CIRP)(Fourth Amendment) Regulations 2020 and the impact on the Resolution Applicants and the CoC to negotiate the terms of the Resolution Plan is not before this Court and the present appeal essentially seeks to determine the nature of the Resolution Plan after its Approval by the CoC and prior to its Approval by the Adjudicating Authority, this Court will proceed to determine of the nature of such a Plan, on the assumption of the law as Company Appeal (AT) (CH) (Ins.) No. 159 of 2021 29 of 40 it stood then, i.e., Regulation 39(3) which directed that "[t]he committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of submission to and Approval by the Adjudicating Authority, are pure contracts. As noted previously, by specifications such as eligibility for resolution applicants, the contents of the I.M. and duties of the R.P. to prospective Resolution Applicants and statutory procedures on timelines and voting, strictly govern the insolvency process even prior to the submission of the Plan to the Adjudicating Authority. The CoC, who the appellants allege is in the nature of a free contracting party, is governed by the binding principles of the statute with regard to the contents and nature of the statutory plan that it approves under Section 30(4) and even its own composition. 129. Section 30(4) provides that the consent of all the members of the CoC, though a unanimous vote is not Company Appeal (AT) (CH) (Ins.) No. 159 of 2021 31 of 40 required and a sixty-six per cent vote is sufficient for Approval of a resolution plan. The constitution of the CoC is based on specific scenarios envisaged in the statute and accounts for varying compositions, based on factors such as the nature and quantum of debt owed. For example, if it comprises of operational creditors alone, the percentage of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a traditional contract, specifically in its ability to bind those who have not consented to it. In the pure contractual realm, an agreement binds parties who are privy to the contract. In the context of a resolution Plan governed by the IBC, the element of privity becomes inapplicable once the Adjudicating Authority confirms the Resolution Plan under Section 31(1) and declares it to be binding on all stakeholders, who are not a part of the negotiation stage or parties to the Resolution Plan. In fact, a commentator has noted that the purpose of bankruptcy law is to actually solve a specific 'contracting failure' that accompanies financial distress. Such a contracting failure arises because "financial distress involves too many parties with strategic bargaining incentives and too many contingencies for the firm and its creditors to define a set of rules of every scenario." Thus, insolvency law recognises that parties can take benefit of such 'incomplete contract' to hold each other up for their individual gain. In an attempt to solve the issue of incompleteness and the hold-up threat, the insolvency law provides procedural protections i.e., "the law puts in place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is not a typical contract. 9.5 Further, the Hon'ble Supreme Court in case of Pratap Technocrats(P) Ltd v Monitoring Committee of Reliance Infratel Ltd reported in 2021 SCC Online SC 569 has held that; "Jurisdiction to approve a Resolution Plan 26. The resolution plan was approved by the CoC, in compliance with the provisions of the IBC. Company Appeal (AT) (CH) (Ins.) No. 159 of 2021 35 of 40 The jurisdiction of the Adjudicating Authority under Section 31(1) is to determine whether the resolution plan, as approved by the CoC, complies with the requirements of Section 30(2). The NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC. There is no equity-based jurisdiction with the NCLT, under the provisions of the IBC. 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to resubmit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal." 50. The ratio of the Judgement as observed in Paragraph 47 quoted below, in case of Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd. (Monitoring Committee), (2021) 10 SCC 623 4 is fully applicable in this case. "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the intervening period between the acceptance of the CoC Approved Resolution Plan and the Approval by the Adjudicating Authority." 9.9 The said exercise was beyond the jurisdiction of the Adjudicating Authority hence unsustainable and liable to be set aside. Consequently, the impugned Orders passed in I.A. No. 2431 of 2020 in Company Petition (I.B.) No. 4258/MB/C-II/2019 under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code') is set-aside. Conclusion: 48. In view of the decisions of the Hon'ble Supreme Court in Ebix Singapore, 'Committee of Creditors' of Essar Steel India and this Tribunal judgment in re-M/s Renganayaki and in re-Union Bank of India, this 'Tribunal' comes to an irresistible and inescapable conclusion that the 'Appellant' has made out a 'prima-facie' case to be interfered with the order passed by the 'Adjudicating Authority' in I.A. No. 227 of 2020, whereby the 'Adjudicating Authority' exceeded its jurisdiction in directing the 'Resolution Professional', to place the 'Resolution Plan' of the 'Respondent Nos.1 to 3', before the 'Committee of Creditors', amounts to interfering with the 'Commercial Wisdom' exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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