2018 (1) TMI 1501 - Tri - Companies Law

Initiation of Corporate Insolvency Resolution Process - Liquidation Value - matching with the outstanding Debts or not - HELD THAT - An 'objective satisfaction' revolves around the object of enactment of the Code as enshrined in the Preamble of the I B Code i.e. to revive the financially stressed corporate body. And the 'subjective satisfaction' depends upon logical analysis of the Financial Data supplied so as to match with the business model of the Corporate Debtor. A methodical scrutiny of Financial Statement is expected before concurring with approval of the COC. Per contra, absence of recording of subjeftive satisfaction may lead to situation that being sanctioned without judicial analysis thus may not be sustainable in the eyes of law, There are no two views, and must not be, that this I B Code provides greater accountability both on the Insolvency Professional as also on COC, mainly comprise of lender Banks. Their approval of a Resolution Plan ought to be judged with due diligence. To sum up, in our humble interpretation the recording of an analytical 'satisfaction' is a condition precedent before granting of approval. In this Plan there is inconsistency that under the Heading Assumption as per Clause it is noted that, quote New Promoters Deposit to the extent ofe2 crores to be allowed to be convened into Equity Shares by Financial Year 2022-23. However, under the Head Conclusion as per Clause V under the Head Promoters' Loan it is proposed, quote the fresh Unsecured Loans of ₹ 350 lakhs to be infused by the Promoters under the Resolution Plan shall be repayable during 2021-23 - Considering the financially stressed position Of the Debtor Company the fresh Unsecured Loans infused by the Promoters is required to be converted into Equity so that the burden of repayment must be deferred instead dividend can be distributed. The Resolution Plan submitted by the Promoters is to be accepted because a Certificate is on record that the Promoters are not wilful defaulter hence their proposal is acceptable as per the latest Amendment The I B Code (Amendment) Act, 2017 (No. 8 of 2018)) dated 18th January, 2018 wherein S, 29-A is inserted and prescribed that, a person shall not be eligible to submit a Resolution Plan if such person is a wilful defaulter In this regard an Affidavit-cum-Declaration submitted by the Resolution Applicant declaring therein that the Declarant had not been identified as a wilful defaulter . As a consequence, the provisions of S. 29-A are not applicable in this Case. The Resolution Plan is approved subject to the modifications suggested hereinabove which is binding on the Corporate Debtor and other stakeholders involved in this Resolution Plan so that revival of the Debtor Company shall come into force with immediate effect.

Summary

Issues involved:
1. Approval of Resolution Plan by Committee of Creditors
2. Examination of Resolution Plan by Adjudicating Authority
3. Incorporation of suggestions in an approved Resolution Plan

Issue 1: Approval of Resolution Plan by Committee of Creditors

The judgment details the initiation of Corporate Insolvency Resolution Process (CIRP) upon receiving a petition under section 10 of The Code. The Corporate Debtor moved the petition to address debts owed to financial institutions and creditors. The Interim Resolution Professional (IRP) followed the prescribed procedure, including making public announcements, inviting resolution plans, and constituting the Committee of Creditors (COC). Only one resolution plan was received from M/S. Tarini Steel, approved by the COC with a voting share of 96.54%. The plan involved restructuring unsecured term debt and infusion of fresh funds by existing promoters. The Resolution Professional certified the plan's compliance with The Code and sought approval from the Adjudicating Authority under section 31(1) of The Code.

Issue 2: Examination of Resolution Plan by Adjudicating Authority

The judgment discusses the legal aspects related to the approval of a resolution plan by the Adjudicating Authority. It highlights the requirement for the AA to be satisfied that the plan meets the criteria specified in section 30(2) of The Code before approving it. The AA's satisfaction is a crucial step, necessitating a thorough examination of the plan's terms, both objectively and subjectively. The judgment emphasizes the need for a conscious decision based on a detailed study of the plan before granting approval. It underscores the accountability of the Insolvency Professional and the COC in proposing and approving a resolution plan, emphasizing the importance of a methodical scrutiny of financial statements and a balanced consideration of advantages and disadvantages.

Issue 3: Incorporation of suggestions in an approved Resolution Plan

The judgment addresses the question of whether the Adjudicating Authority has the authority to incorporate suggestions in a resolution plan already approved by the COC. It examines the language of section 31 of The Code, emphasizing the AA's role in approving a resolution plan based on the COC's approval and compliance with statutory requirements. The judgment underscores the need for the AA to record its satisfaction in writing after a thorough evaluation of the plan's contents. It discusses inconsistencies in the resolution plan, particularly regarding the promoters' proposed contributions and contingency liabilities, suggesting modifications for clarity and consistency. The judgment ultimately approves the resolution plan subject to the suggested modifications, ensuring compliance with legal provisions and stakeholder interests for the revival of the Debtor Company.

This detailed analysis of the judgment provides insights into the approval process of a resolution plan by the Committee of Creditors, the examination of the plan by the Adjudicating Authority, and the incorporation of necessary modifications to ensure compliance and stakeholder interests in the insolvency resolution process.