2019 (1) TMI 1741 - Tri - Insolvency and Bankruptcy

Validity of Settlement Plan - the present CIRP against the corporate-debtor ought to have been terminated by the CoC and RP by accepting the offer of settlement - right of the borrower to settle the outstanding debt at any stage of the proceedings by redeeming the debt - HELD THAT - The provisions of the IB Code are made having an overriding effect under section 238 of the Code on any other law in force and, in the present IB Code, the mode of settlement of debt has been made permissible only by way of an application to be moved under section 12A of the Code and not otherwise. As per the above stated provision, it is made open to the applicants to move such application only through the RP and the CoC before this court provided 90 per cent. members of the CoC have approved such settlement offer. Before introducing such section 12A, it was not open to the Adjudicating Authority to settle the debts or accept settlement offer after admission of the petition under the IB Code. The post admission settlement was not permissible because it is a settled legal position that once the petition is admitted, it becomes remedy in rem not in personem under the scheme of the Code and it was not made open even for the applicant/financial creditor to seek withdrawal of the CIRP on the pretext of subsequent settlement arrived at in the matter. To consider and examine the scope of settlement within the purview of section 60(5) of the IB Code would not be proper when the specific provisions for settlement of debts under section 12A have already been incorporated in the Code and if such an application for settlement is considered under the provisions of section 60(5) of the IB Code, it may amount to deviation from the expressed statutory provisions because it is a settled legal position that if a particular thing is not allowed to do directly, it cannot be done indirectly. Application not found maintainable within the ambit and scope of section 12A and section 60(5) of the IB Code and, hence, it is rejected on this limited ground that it is not maintainable before this Adjudicating Authority - application dismissed.

Summary

Issues Involved:
1. Consideration of the settlement plan proposed by the applicants.
2. Right of shareholders to propose a settlement plan.
3. Applicability of Section 12A of the Insolvency and Bankruptcy Code (IB Code).
4. Overriding effect of the IB Code over other laws.
5. Jurisdiction of the Adjudicating Authority post Supreme Court's verdict.
6. Right of redemption under the Transfer of Property Act.
7. Constitutional validity of Section 12A of the IB Code.

Detailed Analysis:

1. Consideration of the Settlement Plan Proposed by the Applicants:
The applicants, majority shareholders of the corporate debtor, filed an application seeking directions for the resolution professional (RP) and the committee of creditors (CoC) to consider their settlement plan. The applicants proposed to repay the entire debt of ESIL and requested the withdrawal of the Corporate Insolvency Resolution Process (CIRP) against ESIL. The CoC, however, did not consider their settlement plan and approved the resolution plan of ArcelorMittal India P. Ltd. The applicants argued that their offer was superior and alleged that the CoC's decision was unfair and premature.

2. Right of Shareholders to Propose a Settlement Plan:
The applicants contended that shareholders should have the right to propose a settlement plan under the principle of redemption of debt. They argued that Section 12A of the IB Code should not exclude shareholders from making settlement offers. However, the tribunal noted that the Supreme Court had already defined the scope of the RP and CoC's jurisdiction, limiting their ability to consider subsequent applications post-verdict.

3. Applicability of Section 12A of the IB Code:
The tribunal emphasized that the IB Code, particularly Section 12A, provides the mechanism for settlement of debt post-admission of a CIRP application. This section allows withdrawal of the application only if 90% of the CoC members approve the settlement offer. The tribunal highlighted that the Supreme Court had exercised its extraordinary powers under Article 142 of the Constitution to allow settlement in specific circumstances, which does not extend to the Adjudicating Authority.

4. Overriding Effect of the IB Code Over Other Laws:
The tribunal stated that the IB Code has an overriding effect under Section 238, which supersedes other laws, including the Transfer of Property Act. Therefore, the mode of settlement of debt is governed exclusively by the provisions of the IB Code, specifically Section 12A.

5. Jurisdiction of the Adjudicating Authority Post Supreme Court's Verdict:
The tribunal noted that the Supreme Court had already dealt with the major issues in the case and provided clear directions. The Supreme Court had given the resolution applicants an opportunity to pay off the debts and submit their plans, with the condition that if no plan is accepted, the corporate debtor would go into liquidation. The tribunal concluded that it was bound by the Supreme Court's mandate and could not entertain subsequent applications that would dilute the apex court's order.

6. Right of Redemption Under the Transfer of Property Act:
The applicants invoked their right of redemption under Section 91 of the Transfer of Property Act. However, the tribunal held that the IB Code's provisions, which have an overriding effect, do not allow for settlement through redemption post-admission of a CIRP application. The tribunal reiterated that settlement can only occur through the mechanism provided in Section 12A of the IB Code.

7. Constitutional Validity of Section 12A of the IB Code:
The tribunal referenced the Supreme Court's decision in Swiss Ribbons P. Ltd. v. Union of India, which upheld the constitutional validity of Section 12A of the IB Code. The Supreme Court confirmed that the provision is not violative of Article 14 of the Constitution and emphasized the collective benefit of all creditors over individual settlements.

Conclusion:
The tribunal rejected the application filed by the shareholders, holding that it was not maintainable within the ambit and scope of Section 12A and Section 60(5) of the IB Code. The decision was based on the Supreme Court's mandate and the overriding provisions of the IB Code, which do not permit settlement offers by shareholders post-admission of a CIRP application. The tribunal also acknowledged the constitutional validity of Section 12A, reinforcing that settlement must be approved by 90% of the CoC members.