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2022 (1) TMI 1415 - AT - Insolvency and BankruptcyReconsideration of approved Resolution Plan - the Assenting Financial Creditors (AFC) constituting 94.98%, who have approved the Resolution Plan submitted by the SRA has filed an affidavit stating that they feel duty bound to reconsider their decision in larger public interest resulting from unprecedent haircut of 95% observations of the Adjudicating Authority as also this Appellate Tribunal. HELD THAT - Power to reconsider any decision is within the domain of CoC and even Hon ble Apex Court in Catena of judgment held that the commercial wisdom of the CoCs is non justifiable and hence, it is in the domain of CoC, particularly, if at a later stage, it finds in public interest and the amount of loss which the public exchequer is to bear with such unprecedented haircut in such a large fund employment, it is in the fitness of thing that the proposal can be remanded back to the CoC, particularly, in view of their own affidavit to review their decision. The CoC is not functus officio on the approval of the Resolution plan and accordingly, the judicial precedents clearly established that the Adjudicating Authority and this Tribunal is competent to send back the Resolution plan to the CoC for reconsideration. The Hon ble Supreme Court decision in Committee of Creditors of Essar Steel India Ltd, Through authorized signatory Vs. Satish Kumar Gupta Ors. 2019 (11) TMI 731 - SUPREME COURT had referred and affirmed this power to remand back. In the present case, the resolution plan is not complying with Section 30(2)(b) of the Code r/w Section 31 of the Code. Hence, it can be remanded back to the CoC. Vide para 4 of the Resolution Plan on overview of the implementing entity / resolution applicant, it reveals that the resolution applicants group turnover is Rs. 84,447 crore in the year 2019-2020 (para 4.2.2 of the Resolution Plan- page 253 of CA(AT) (Ins) No. 503 of 2021). Vide para 7.1.2 of the Resolution Plan, the Resolution Applicant has accepted the requirement of approval / permission of CCI in accordance with the Code prior to the approval of CoC. In the 19th CoC meeting held on 11.11.2020, the CoC were apprised of acknowledgment copy of the applications filed with the CCI seeking CCI approval of the resolution under the present case. It is very much clear that prior approval of the CCI has not been obtained as per proviso to section 31(4) of the Code. This reflects that the approved Resolution Plan requires review and reconsideration for the legal compliances. Statutory compliances does not fall under the commercial wisdom of the CoC. Hence, the statutory compliances as mandated by proviso to Section 31 (4), have to be ensured before the Resolution Plan is approved by CoC. Section 30 (2)(b) of the Code has not been complied with and hence, the approval of the Resolution Plan is not in accordance with Section 31 of the Code. Accordingly, the approval of Resolution Plan by the CoC as well as Adjudicating Authority is set aside and the matter is remitted back to CoC for completion of the process relating to CIRP in accordance with the provisions of the Code. Appeal dismissed.
Issues Involved:
1. Non-inclusion of foreign oil and gas assets in the Information Memorandum. 2. Allegations of material irregularity and negligence by the Resolution Professional (RP). 3. Discrepancies in the distribution mechanism and liquidation value. 4. Compliance with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC). 5. Validity of the termination of the Trademark License Agreement (TLA). 6. Compliance with statutory requirements, including approval from the Competition Commission of India (CCI). Detailed Analysis: 1. Non-inclusion of Foreign Oil and Gas Assets: The Appellant argued that the foreign oil and gas assets were not included in the Information Memorandum, which led to a lower valuation and significant haircut for creditors. The RP justified this by citing Explanation (b) to Section 18 of the IBC, which excludes the assets of any Indian or foreign subsidiary of the Corporate Debtor (CD) from the scope of the term 'assets.' The CoC and RP maintained that the foreign oil and gas assets were not part of the consolidated CIRP due to a stay order from the Appellate Tribunal. 2. Allegations of Material Irregularity and Negligence by RP: The Appellant accused the RP of focusing only on drawing remuneration without discharging duties, leading to erosion of the CD's value. The RP defended its actions, stating that it acted within the ambit of its duties under the IBC and CIRP Regulations. The RP also highlighted that the Adjudicating Authority had stayed the consolidation order, preventing the inclusion of foreign assets. 3. Discrepancies in Distribution Mechanism and Liquidation Value: The Dissenting Financial Creditors (DFCs) raised concerns about discrepancies between the liquidation value mentioned in Form-H and the distribution mechanism provided by SBI Caps. The RP and SRA argued that the figures provided by SBI Caps were not binding and that the final amounts would be determined at the time of payout. The Adjudicating Authority's direction to pay DFCs in cash instead of Non-Convertible Debentures (NCDs) was seen as a modification of the Resolution Plan, which falls within the CoC's domain. 4. Compliance with Section 30(2)(b) of IBC: The Resolution Plan did not comply with Section 30(2)(b) of the IBC, as it proposed payment to DFCs through NCDs, which is impermissible. The Adjudicating Authority's suggestion to pay DFCs in cash was not within its jurisdiction. The CoC, comprising mainly public sector banks, acknowledged the need to reconsider the Resolution Plan in light of significant haircuts and observations made by the Adjudicating Authority. 5. Validity of Termination of Trademark License Agreement (TLA): The Appellant terminated the TLA upon initiation of CIRP, arguing that the Dhoot family no longer controlled the CD. The Adjudicating Authority allowed the agreement to continue for a year as a transitional arrangement, which was challenged. The Supreme Court's decision in Tata Consultancy Services Limited Vs. Vishal Ghisulal Jain clarified that the NCLT does not have residuary jurisdiction to entertain contractual disputes, making the Adjudicating Authority's decision to extend the TLA invalid. 6. Compliance with Statutory Requirements, Including CCI Approval: The Resolution Plan required approval from the CCI as per Section 31(4) of the IBC, which was not obtained before the CoC's approval. This non-compliance necessitated a review and reconsideration of the Resolution Plan. Conclusion: The Resolution Plan did not meet the requirements of Section 30(2)(b) and Section 31 of the IBC. The approval by the CoC and Adjudicating Authority was set aside, and the matter was remitted back to the CoC for reconsideration and compliance with the provisions of the IBC. The appeal by Venugopal Dhoot (CA(AT) (Ins) No. 650 of 2021) was dismissed, while the appeals by Dissenting Financial Creditors and Electrolux Home Products INC. (CA(AT) (Ins) No. 503, 505, 529, & 545 of 2021) were allowed.
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