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2020 (9) TMI 795 - Tri - Insolvency and BankruptcyApproval of Resolution plan - IRP omitted the application (financial credit) as part of the Committee of Creditors ( COC) - failure on the part of IRP to classify the creditor - withdrawal of CIRP under Section 12A of IBC, 2016 - HELD THAT - A COC validly constituted by the IRP with a 90% voting share is required to approve the withdrawal of an application earlier admitted resulting in the initiation of CIRP of the Corporate Debtor by this Tribunal sitting as an Adjudicating Authority as named under IBC, 2016. Referring to the provisions in relation to the constitution of the COC under IBC, 2016, Section 21(1) of the Code provides upon determination of the financial position after collation of all claims received against the Corporate Debtor the IRP shall constitute the COC and in terms of Section 21(2) it shall comprise of all the financial creditors of the corporate debtor. As per the proviso to Section 21(2), in case the financial creditor happened to be a related party of the corporate debtor it shall not have any right of representation, participation or voting in a meeting of COC. In the absence of any financial creditor(s) in relation to a corporate debtor, proviso to Section 24(8) of the Code contemplates the COC to be constituted in such manner as may be specified. IBBI, being the Regulator has framed regulations to meet such an eventuality in terms of Regulation 16 of Insolvency and Bankruptcy Board of India(Insolvency Resolution Process of Corporate Persons) Regulations, 2016. With the above composition of members, the 1st COC seems to have been held as reflected from the minutes of the COC meeting held on 19.12.2019 which ultimately came to an end because of disturbance by the members based on the insistence of the IRP that the Section 12A withdrawal is to be considered as the Main Agenda which according to him is to get precedence in view of the order of this Tribunal passed on 11.12.2019 in a Miscellaneous Application filed in MA No. 1505 of 2019 even before the constitution of the COC cannot be made at the instance of the operational creditor who initiated the proceedings in the first place - The power of revision provided to the IRP/RP it must be noted is not only confined when the claim came to be admitted on best estimate as provided under Regulation 14(1), but is also available to claims admitted even other wise as well, as the term which has been used in Regulation 14(2) is to the effect that shall revise the amounts, including the estimates of claim made under sub-regulation(1) Thus from the above regulations it is seen that the IRP is having a power to re-constitute the COC based on his decisions, including by way of addition of claims as well as by revision of claims admitted previously based on additional information thereby connoting that he has the power to revise the claimant from one class to another class for e.g.) from a financial creditor as originally admitted to an Operational creditor or vice versa or even based on bona-fide additional information thereby resulting in complete exclusion of a claim previously admitted and the claim forming part of the COC, be it as a financial creditor or as an operational creditor. Thus, in relation to an yet to be admitted and as yet not being part of the COC, the applicant-claimant cannot seek to oppose the resolution of withdrawal as passed by the COC unanimously seeking for withdrawal under Section 12A of IBC, 2016. From the facts as disclosed in the application, it can be discerned that the IRP being not sure about the classification as required to be done under the provisions of IBC, 2016 read with attendant regulations, had been vacillating without understanding the provisions of IBC, 2016 with regard to classification of creditors as disclosed in the constitution of Committee of Creditors filed by the IRP itself allowing different types of creditors to be part of the CoC, as evident from the 1st CoC held on 19.12.2018 and the initial classification and subsequent change, which lead to the other applicants filing these applications before this Tribunal, challenging the action of the IRP and the decision made in the 2nd CoC held on 14.01.2020. In connection with the inefficient function of the IRP/RP/Liquidator, it is worthwhile to recollect the Report of the Bankruptcy Law Reforms Committee Volume I, Rational and Design, 2015 - The role of the IPs is thus vital to the efficient operation of the insolvency and bankruptcy resolution process. A well functioning system of resolution driven by the IPs enables the adjudicator to delegate more and more powers and duties to the professionals. This creates the positive externality of better utilization of judicial time. The worse the performance of IPs, the more the adjudicator may need to personally supervise the process, which in turn may cause inordinate delays. Consumers in a well functioning market for IPs are likely to have greater trust in the overall insolvency resolution system. On the other hand, poor quality, services and recurring instances of malpractice and fraud, erode consumer trust. Since Form FA has also been filed vide filing dated 28th January 2020 having Diary No. 624 of 2020 and as the fees and costs of the IRP has been fully provided for to his satisfaction, no specific order is necessary in this regard. In the circumstances the CIRP initiated by this Tribunal vide order dated 13.11.2019 stands withdrawn, the powers of the Board of Directors which stood suspended is restored and the management and affairs of the Corporate Debtor is directed to be handed over to them by the IRP including the possession and control of books and assets of the Corporate Debtor, if any taken during the CIRP period.
Issues Involved:
1. Validity of the 2nd Committee of Creditors (COC) meeting and its constitution. 2. Status of claims by M/s. Sree Sankeswara Foundations and Investments, Gurudev Foundations Pvt. Ltd., and Kanchanjanga Securities Company Pvt. Ltd. 3. Inclusion of home buyer Mr. P. Velmurugan in the COC. 4. Application for withdrawal under Section 12A of IBC, 2016. Detailed Analysis: 1. Validity of the 2nd Committee of Creditors (COC) Meeting and Its Constitution: The Tribunal examined whether the COC was validly constituted when the resolution for withdrawal under Section 12A of IBC was passed on 14.01.2020. The IRP had excluded certain creditors from the 2nd COC based on their status as related parties and other legal grounds. The Tribunal emphasized that a validly constituted COC with a 90% voting share is mandatory for approving a withdrawal under Section 12A, as per the Supreme Court's decision in Swiss Ribbons (P) Ltd. v. Union of India. The IRP's power to revise the COC based on additional information was upheld, ensuring compliance with the principles of natural justice. 2. Status of Claims by M/s. Sree Sankeswara Foundations and Investments, Gurudev Foundations Pvt. Ltd., and Kanchanjanga Securities Company Pvt. Ltd.: - M/s. Sree Sankeswara Foundations and Investments: Initially admitted as a financial creditor and allowed to participate in the 1st COC, the claim was later excluded based on a Tribunal decision that the debt was barred by limitation. The exclusion was upheld under Regulation 14 of IRCP Regulations, 2016. - Gurudev Foundations Pvt. Ltd.: Filed as an operational creditor but later directed to file as a financial creditor. The claim was excluded from the 2nd COC based on a decision by the Hon'ble NCLAT that joint venture agreements do not constitute operational debt. - Kanchanjanga Securities Company Pvt. Ltd.: Filed in Form F and initially included as a financial creditor but later excluded from the 2nd COC. The Tribunal did not dwell on this entity due to the absence of a formal application challenging the exclusion. All three entities were also considered related parties under Section 5(24) of IBC, 2016, and thus were not allowed to participate or vote in the COC meetings. 3. Inclusion of Home Buyer Mr. P. Velmurugan in the COC: The claim by Mr. P. Velmurugan, a home buyer, was pending admission by the IRP due to discrepancies and lack of disclosures in the submitted claim form. The Tribunal noted that the applicant-home buyer could not oppose the withdrawal of the CIRP based on an unadmitted claim. The Tribunal referenced the decision in Flat Buyers Association Winter Hills - 77, Gurgaon v. Umang Realtech Pvt. Ltd., emphasizing that claims related to specific projects should not affect the entire corporate debtor. 4. Application for Withdrawal under Section 12A of IBC, 2016: The Tribunal allowed the application for withdrawal under Section 12A, noting that the COC's unanimous decision met the required 90% voting threshold. The Tribunal emphasized a liberal approach to withdrawal applications, referencing the decision in Dhiraj Prabhu v. Rajeev Shetty & Anr. The CIRP initiated on 13.11.2019 was withdrawn, and the management and affairs of the corporate debtor were restored to its Board of Directors. Conclusion: The Tribunal upheld the IRP's actions in reconstituting the COC and excluding certain creditors based on legal grounds. The application for withdrawal under Section 12A was allowed, and the CIRP was withdrawn, restoring the corporate debtor's management to its Board of Directors. The Tribunal also highlighted the importance of the IRP acting in accordance with the law and maintaining the integrity of the insolvency process.
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