Insolvency and Bankruptcy Code, 2016 (Code) aims to find a resolution for the debt laden corporate person through a very detailed and cumbersome process named as “Corporate Insolvency Resolution Process” or “CIRP”. The process of resolution commences from the date of admission of the application filed under section 7, 9 or 10 under the Code by the Adjudicating Authority and reaches its culmination on getting the approval of the Adjudicating Authority for Resolution Plan submitted by the Resolution Professional. In short, the CIRP is a journey which commences from the date of admission and ends on the date of approval of the plan by the Adjudicating Authority. As per section 31 of the Code, if the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan, which shall be binding of all the stakeholders and creditors. The term ‘satisfaction’ used on the Section 31 is a confusing term and the same can be interpreted in multiple ways. Whether, the Adjudicating Authority, as part of satisfying itself, look into the commercial part of the Resolution Plan or direct the Resolution Applicant to revise the quoted price or direct the Resolution Applicant to pay more money to a particular sect of creditors, while approving the plan? It is interesting to evaluate the power of Adjudicating authority, that can be exercised it while approving a plan, in the light of provisions of Section 30 and 31 of the code and on the basis of some recent judgments.
Approval of Resolution Plan – A Pathway of hurdles and sharp thorns.
The Code specifies, without any ambiguity, the manner in which a resolution plan may be submitted by a resolution applicant. Subsection (26) of Section 3 of the Insolvency and Bankruptcy Code, 2016 defined “resolution plan” means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II. A Resolution plan can submitted by anyone including the promoters of the Corporate Debtor, who is not disqualified under section 29A of the Code. If the plan confirms to the conditions mentioned under Section 30(2) of the Code, the Resolution Professional shall present the said plan(s) before the Committee of Creditors(CoC) for its consideration and approval. Following are the criteria stipulated Section 30(2) of the Code
The plan should contain a clause in it stating that the Insolvency Resolution Process Cost shall be paid in priority to other debts of the corporate debtor
The Plan provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-
the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or
the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53,
whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan.
The plan also should provide for the management of the affairs of the Corporate debtor after approval of the resolution plan and contain specific clauses for the implementation and supervision of the resolution plan. The Resolution Professional should ensure that the Plan does not contravene any of the provisions of the law for the time being in force and it confirms to such other requirements as may be specified by the Board. The Resolution Professional shall submit each resolution plan, which conforms to the criteria stipulated in Clause 30(2) to the Committee of Creditors who shall approve a plan by a 66% majority of voting shares. Once a resolution plan is approved by the Committee of Creditors, the same shall be presented before the Adjudicating Authority for its approval.
If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan. As the section 31 states that the Adjudicating Authority have to its satisfaction ensure that the Resolution Plan conforms to the requirements of Section 30 of the Code. The question here is, whether the AA can order for revising the plan consideration and direct the Resolution Applicant to pay more amount than the amount mentioned in the Plan which is approved by the requisite majority of the members of the Committee of Creditors.
In the matter of Kalinga Allied Industries India Pvt. Ltd. Vs Hindustan Coils Ltd & Others, NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 518 of 2020, the said queries are properly addressed
Brief facts of this case
Pursuant to the expression of interest issued by RP on 24.08.2018, the Appellant submitted a Resolution Plan in time. After several rounds of deliberations by the COC revised Resolution Plan was submitted by the Appellant on 19.12.2018. The same was approved by the COC by requisite majority in the 13th meeting on 28.12.2018. Thereafter, the RP filed an Application under Section 30(6) of the Insolvency & Bankruptcy Code (In short I&B Code) for approval of Resolution Plan in the month of January, 2019. Thereafter, various objections were filed before the Adjudicating Authority which were heard and disposed of. Sometime in the month of February 2020, the Respondent No. 1 filed an application I.A. No. 1513 (PB) of 2020 seeking direction for consideration of its Resolution Plan which is 12% more than the offer of the successful Resolution Applicant.
Learned Adjudicating Authority after hearing the parties held that the Respondent No.1 offers to pay Rs. 50.01 Crore which is Rs. 4.9 Crore more than offered by the successful resolution applicant (Appellant). It is also held that the object of the I&B code encourages maximization of the value of assets of the corporate debtor, which is also advantageous to all the stakeholders. Therefore, it is directed that the proposed plan of the Respondent No. 1 be placed before the COC for consideration. Being aggrieved with this order, the Appellant has filed this Appeal.
Following are the issues raised before the Appellate Tribunal
a) Whether the Adjudicating Authority have jurisdiction to entertain any Application from a person who has not participated in Corporate Insolvency Resolution Process (In short CIRP), by submitting the Expression of Interest, for consideration of a purported better plan or a plan with a better value ignoring the statutory time lines under Section 12 of the I&B Code?
b) Can the Adjudicating authority suo motu direct the COC to consider new resolution plan and reconsider already approved resolution plan?
c) Though the Respondent was well aware about the whole process and the negotiations happened during the process can approach the adjudicating authority under the disguise of ‘maximisation of realisation’?
d) Does the Adjudicating Authority have the power to interfere with the commercial wisdom of the COC and overturn the business decisions of the COC?
Following are the decisions of the Appellate Tribunal
What are the powers of the Adjudicating Authority under Section 31 of the I&B Code?
The Hon’ble Supreme Court in the matter of Maharashtra Seamless Limited vs Padmanabhan Venkatesh & Ors. Civil Appeal No. 4242 of 2019 held that once the Resolution Plan is approved by the COC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the I&B Code is just to test the Resolution Plan with reference to provisions of Section 30 (2). This Appellate Tribunal in the Case of Sharvan Kumar Agarwal Consortium (Supra) held that once the Plan is approved by the COC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the I&B Code is to ascertain that the Resolution Plan meets the requirement of sub-Section (2) & (4) of Section 30 thereof. The Adjudicating Authority has a very limited power to judicial scrutiny and statutory provision does not permit the Adjudicating Authority to interfere with the commercial wisdom of the COC. Even for maximization of value of assets of the Corporate Debtor. The Adjudicating Authority is not entitled to overturn business decision of the COC.
The Hon’ble the Adjudicating Authority had observed that the Adjudicating Authority have only very limited power of judicial scrutiny under Section 31 of the I&B Code and the statutory provision does not permit the Adjudicating Authority to interfere with the commercial wisdom of the COC. Even for maximization of value of assets of the Corporate Debtor. It is also observed that it is NOT the duty of the Adjudicating Authority to satisfy itself that the price offer is reasonable and adequate and there is no requirement for the Adjudicating Authority to indulge in quantitative analysis which is not permissible under Section 31 of the I&B Code
Whether the Adjudicating Authority can direct the COC to consider the Resolution Plan of a person who was not part of CIRP?
There is no provision in the code or regulation which provides that while exercising the power under Section 31 of the I&B Code the Adjudicating Authority can direct the COC to consider the Resolution Plan of such person who has not been part of CIRP. Otherwise also if such procedure is adopted then the CIRP will be frustrated. Once the Resolution Plan has been opened and fundamentals and financials of the Plan and offer made therein were disclosed to all the participants including RP. Then anyone can enhance its offer before the Adjudicating Authority in the guise of maximization of realisation. Therefore, no further fresh bid or offer could have been accepted or considered as held by this Appellate Tribunal in the case of Kotak Investment Advisors Ltd. (Supra) (See Para 23).
Chhatisgarh Distilleries Ltd. Vs. Dushyant Dave & Ors. Company Appeal (AT) (Ins) No. 461 of 2019 in the light of the pronouncement of Hon’ble Supreme Court in the case of Committee of Creditors Essar Steel India Ltd. Vs. Satish Gupta & Ors. 2019 SCC Online SC1478 held that the Adjudicating Authority cannot direct the CoC to consider the second Resolution plan submitted before the Authority although the second Resolution Applicant is ready to invest more amount in comparison to first Resolution Applicant. Learned Adjudicating Authority has rightly held that Adjudicating Authority cannot suomotu direct the CoC to consider new resolution plan and reconsider already approved Resolution plan. The Hon’ble Supreme Court in the above referred judgment held that under Section 30(2) of I&B Code, decision of Committee of Creditor is purely Commercial and cannot be adjudicated by the Adjudicating Authority.
Whether the conduct of the Appellant during the pendency of the CIRP can be considered in this Appeal?
Learned Senior Counsel for the Respondent No. 1 has raised the objection that the Appellant mis-represented in the Appeal and mis-guided this Appellate Tribunal. Admittedly, a new Application C.A. No. 1545/PB/2019 was filed by Kalinga Enterprises Ltd. (In short ‘KEL’) as a third party and seeking direction from the Adjudicating Authority to direct the COC to Consider its Resolution Plan. KEL is a related party to the Appellant. The Adjudicating Authority vide order dated 22.10.2019 directed the RP to place Resolution Plan of the Applicant KEL before the COC. KEL and the Appellant have a common Director and part of same consortium. The Learned Counsel for the Appellant submitted that the objection raised by the Respondent No. 1 has no force on following grounds:
a. The I&B Code defines under Section 5(24) (d) related party with reference to a Corporate Debtor and not with reference to Resolution Applicant.