2020 (8) TMI 297 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - Corporate Debtor is MSME - CIRP process - time limitation - HELD THAT - The Appellant and Respondent No.3 are claiming that the Plan was received on 9th February, 2019 itself and directly placed before COC. On earlier date of 30.01.2019, SRA was still only a prospective Applicant (See Annexure A-30 Page 217). The RP has not put up material to show that the RP had examined the Plan as required under Section 30(2) of the IBC. There is substance in the claim of the Appellant and Respondent No.3 that the Plan was received on 9th February, 2019 and the same being the only Plan, was rushed through the COC meeting and in two three hours, it was approved without duly examining the Resolution Plan by the Resolution Professional and without the COC being satisfied as required under Section 30(4) of IBC that the Plan is feasible and viable. We are not interfering with the commercial wisdom of the COC but what appears to us from the record is that the COC did not consider feasibility and viability of the Resolution Plan in case the plant and machinery are taken away by the Respondent No.3. The Respondent No.3 is still insisting on taking away the plant and machinery and there is already judicial Order in view of Respondent No.3 in this regard - Apparently the Corporate Debtor cannot function without the Ethanol plant machinery. Thus, there was compromise of confidentiality regarding liquidation value which appears to have been known to the Respondent No.2 before submitting the Resolution Plan. Apart from this the plant and machinery were not owned by the Corporate Debtor, and the Resolution Plan submitted on the hypothesis that the plant and machinery would be available for business and explanation is clearly a Plan which is not feasible and viable. Thus, the CIRP suffered from material irregularities and the Resolution Plan approved suffers from feasibility and viability. For such reasons, the Resolution Plan as approved deserves to be set aside - matter remitted back to the Adjudicating Authority with a direction to send back the Resolution Plan to the Committee of Creditors to resubmit the Plan - appeal allowed by way of remand.

Summary

Issues Involved:
1. Viability and feasibility of the Resolution Plan.
2. Alleged material irregularities in the Corporate Insolvency Resolution Process (CIRP).
3. Confidentiality breach of liquidation value.
4. Non-publication of Notice inviting Expression of Interest (EOI).

Detailed Analysis:

1. Viability and Feasibility of the Resolution Plan:
The Appellant contended that the Resolution Plan approved by the Committee of Creditors (COC) was not feasible and viable. The ethanol plant, crucial for the Corporate Debtor's operations, was owned by a third party (Respondent No.3) and not the Corporate Debtor. The Resolution Plan assumed the plant and machinery belonged to the Corporate Debtor, which was incorrect. The COC did not consider the impact of the plant's removal on the viability of the Resolution Plan. The Tribunal noted that the plan's feasibility was compromised as it did not account for the potential removal of the ethanol plant machinery, making the plan unworkable.

2. Alleged Material Irregularities in the CIRP:
The Appellant argued that the CIRP conducted by the Resolution Professional (RP) had several material irregularities. The RP issued a public notice for the outright sale of the Corporate Debtor as a going concern instead of inviting Resolution Plans. The Resolution Plan was hurriedly approved by the COC without proper examination. The Tribunal found that the RP did not adequately examine the Resolution Plan as required under Section 30(2) of the Insolvency and Bankruptcy Code (IBC). The COC's approval process was rushed, and the plan was not thoroughly evaluated for feasibility and viability.

3. Confidentiality Breach of Liquidation Value:
The Appellant claimed that the Respondent No.2 (Successful Resolution Applicant - SRA) knew the exact liquidation value before submitting the Resolution Plan, which indicated a breach of confidentiality. The Tribunal found it difficult to accept the RP’s argument that the exact liquidation value mentioned by the SRA was a mere coincidence. The SRA did not provide any material evidence for its independent valuation. The Tribunal concluded that there was a breach of confidentiality regarding the liquidation value.

4. Non-publication of Notice Inviting Expression of Interest (EOI):
The Appellant asserted that there was no publication inviting EOI, which was a requirement under Regulation 36A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The RP admitted that the notice published was for the outright sale of the company, not for inviting Resolution Plans. The Tribunal found that this irregularity diverted potential Resolution Applicants and disadvantaged the Corporate Debtor.

Order:
The Tribunal allowed the appeal, setting aside the Impugned Order and remitting the matter back to the Adjudicating Authority. The Adjudicating Authority was directed to send back the Resolution Plan to the COC for resubmission, considering the Tribunal's observations and ensuring compliance with the parameters laid down by the Supreme Court in the "Essar Steel" judgment and the IBC. The Adjudicating Authority was instructed to specify a time period for the RP to place the matter before the COC for resubmission of the Resolution Plan. The appeal was disposed of with no costs.