2020 (1) TMI 1270 - Tri - Insolvency and Bankruptcy

Rejection of Resolution plan - Voluntary Insolvency invocation by the Corporate Debtor - main ground preferred by the unsuccessful Resolution Applicant for the rejection of the Resolution Plan of the successful Resolution Applicant is on the ground that the successful Resolution Applicant (Sify) would convert the business of the Debtor company from printing to Data Centre. This, as per the unsuccessful Resolution Applicant, would go against the IB Code as the IB Code says that the Resolution Plan should maintain the ongoing character of the business - HELD THAT - This contention of the unsuccessful Resolution Applicant emanates from improper understanding of the Code. The term ongoing business means that the business of the Corporate Debtor should remain functional. It never means that the line of business cannot be changed. In fact, the Corporate Debtor had filed Petition under the provisions of Section 10 of the Code. Therefore, it was a case of voluntary insolvency as the printing business of the Corporate Debtor was under distress and revenue generation was not sufficient to continue the printing business. It is very common in the life cycle of a Company to change its portfolio mix or even the line of business. It is for this reason that in many companies mergers and acquisition, restructuring, hiving off businesses are all part of the life cycle of a company. In this particular case, as the printing business of the Corporate Debtor Company has been unsuccessful, the prospective Resolution Applicant (Sify) intends to change the line of business from printing to Data Centre. The Sify in its Resolution Plan proposes to continue the services of majority of the workmen and employees who are currently on the rolls. It undertakes to provide training and upgradation of skills so that all the existing employees can be retained in the new line of business - This clearly indicates that there is always a possibility of change in business and it is not binding upon a successful Resolution Applicant to continue in the same business. In fact, the change in business and the portfolio mix, are all part of commercial decision of the CoC - thus, the commercial wisdom of the CoC is supreme and cannot be challenged. Resolution is to be approved - present application dismissed.

Summary

Issues:
- Rejection of Resolution Plan by CoC
- Feasibility and Viability of Resolution Plan
- Change in Business Line by Successful Resolution Applicant

Analysis:

Issue 1: Rejection of Resolution Plan by CoC
The Tribunal addressed the Application filed by the unsuccessful Resolution Applicant opposing the approval of the Resolution Plan by the Bench. The CoC rejected the Resolution Plan submitted by the unsuccessful Applicant and approved the Plan submitted by Sify Technologies Limited. The voting results and deliberations of the CoC meetings were detailed, with Sify scoring significantly higher than the unsuccessful Applicant. The Tribunal reviewed the voting process and the decisions made by the CoC regarding the approval of the Resolution Plan.

Issue 2: Feasibility and Viability of Resolution Plan
The unsuccessful Resolution Applicant raised concerns regarding the feasibility and viability of the Resolution Plan approved by the CoC. They argued that the Plan did not comply with the objectives of the Insolvency and Bankruptcy Code. The Applicant emphasized the importance of recording deliberations on the feasibility and viability of the Resolution Plan, which they claimed was lacking in this case. The Tribunal examined these contentions and evaluated the reasoning behind the CoC's decision to approve the Resolution Plan submitted by Sify Technologies Limited.

Issue 3: Change in Business Line by Successful Resolution Applicant
A significant point of contention was the proposed change in the business line by the successful Resolution Applicant, Sify Technologies Limited. The unsuccessful Applicant argued that the change from printing to Data Centre business would not align with the ongoing character of the Corporate Debtor's business. However, the Tribunal clarified that the Insolvency and Bankruptcy Code allows for such changes in business operations. It highlighted that the Code permits restructuring and changes in the portfolio of goods or services produced by the corporate debtor. The Tribunal emphasized that the commercial wisdom of the CoC in making decisions regarding business changes is paramount and cannot be challenged.

In conclusion, the Tribunal dismissed the Application filed by the unsuccessful Resolution Applicant, Next Orbit Ventures Fund, as it did not hold merit based on the legal provisions and commercial considerations discussed in the judgment. The Tribunal upheld the decision of the CoC to approve the Resolution Plan submitted by Sify Technologies Limited, emphasizing the flexibility allowed under the Insolvency and Bankruptcy Code for business restructuring and changes.