2018 (6) TMI 905 - AT - Insolvency and Bankruptcy

Corporate insolvency process - Whether the Resolution Professional is required to notice the comments of one or other Resolution Applicant(s) to decide the eligibility? - Held that - As the resolution plans are opened and placed before the Committee of Creditors, as per Section 30(5), the Resolution Applicant(s) are entitled to be present. At this stage they may point out whether one or other person (Resolution Applicant) is ineligible in terms of Section 29A or not. If one or other objection is overruled, reasons should be recorded by the Committee of Creditors. After decision of the Committee of Creditors, the Resolution Professional is required to place the decision before the Adjudicating Authority under Section 31. The Adjudicating Authority who is required to take decision as per Section 31 of the I&B Code, can go through the reasoning to accept or reject one or other objection or suggestion and may express its own opinion/decision. Thus while we direct the Resolution Professional not to take any comment from one or other Resolution Applicant(s), if such step has been taken be ignored. Resolution Professional and the Committee of Creditors will proceed in accordance with law taking into consideration the observations as made above and decision, if any, taken by the Adjudicating Authority shall be subject to decision of this appeal

Summary

Issues Involved:
1. Eligibility of Resolution Applicants.
2. Procedure for approval of resolution plans by the Committee of Creditors (CoC).

Detailed Analysis:

Issue 1: Eligibility of Resolution Applicants

The first issue addresses whether the Resolution Professional (RP) is required to notice the comments of one or other Resolution Applicant(s) to decide their eligibility. The judgment clarifies that the RP's role, as per Section 30(2) of the Insolvency and Bankruptcy Code (I&B Code), 2016, is to examine each resolution plan to ensure it complies with the law, including the payment of insolvency resolution process costs, repayment of debts, management of the corporate debtor's affairs, and other requirements specified by the Insolvency and Bankruptcy Board of India (IBBI). However, the RP does not have the authority to determine the eligibility of Resolution Applicants under Section 29A of the I&B Code. This responsibility lies with the Committee of Creditors (CoC) during their meetings, where they can consider objections regarding eligibility.

Issue 2: Procedure for Approval of Resolution Plans by the Committee of Creditors (CoC)

The second issue pertains to the procedure that the CoC must follow when approving a resolution plan. The judgment details the following procedural steps:

1. Information Memorandum Preparation: Under Section 29, the RP must prepare an Information Memorandum for formulating a resolution plan and provide relevant information to the Resolution Applicants, ensuring compliance with confidentiality and insider trading laws.

2. Examination of Resolution Plans: According to Section 30(2), the RP must examine each resolution plan to confirm compliance with legal provisions, but cannot disclose these plans to other Resolution Applicants or seek their comments.

3. CoC Meetings: Section 24 outlines the conduct of CoC meetings, which the RP must notify to CoC members, suspended Board of Directors, partners, and Operational Creditors (if their dues exceed ten percent of the debt). These meetings must be transparent, allowing attendees to express their views, although only CoC members have voting rights.

4. Approval of Resolution Plans: As per Section 30(4), the CoC may approve a resolution plan with a vote of at least seventy-five percent of the financial creditors' voting share. The CoC must record reasons for approving or rejecting a plan, considering the views of all attendees, including the suspended Board of Directors, partners, Operational Creditors, and Resolution Applicants.

5. Submission to Adjudicating Authority: After CoC approval, the RP submits the resolution plan to the Adjudicating Authority under Section 31. The Adjudicating Authority reviews the CoC's reasoning and can accept or reject objections or suggestions.

Conclusion:

The judgment emphasizes that the RP cannot decide on the eligibility of Resolution Applicants under Section 29A, a task reserved for the CoC during their meetings. The CoC must follow a transparent procedure, recording reasons for their decisions and considering the views of all relevant parties. The RP must not seek comments from Resolution Applicants regarding the eligibility of others. The decision of the CoC, once submitted to the Adjudicating Authority, is subject to further scrutiny and approval.