2021 (4) TMI 689 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - Jurisdiction - validity of conclusion that the requirement of the prior written consent of the mortgagee of the Ace Complex Limited as provided in the Resolution Plan has been rendered infructuous - provisions for effective implementation in resolution present or not - curtain has been drawn on the endeavours of Appellant to seek withdrawal of its offer by declining the same - HELD THAT - CIRP against Corporate Debtor/AAL was initiated by Corporation Bank now known as Union Bank of India by filing Application under Section 7 of I B Code. AA admitted the Application on 24th July, 2017. Thus, CIRP qua CD/AAL was commenced. IRP was appointed and public announcement was made. COC was constituted on 17th August, 2017. IRP was confirmed as RP in the first meeting of COC. CIRP period was extended by 90 days - It emerges from the impugned order that this IA, filed by COC, sought approval of Resolution Plan on account of special process having been undertaken under the inherent powers of Hon ble Apex Court and since the issuance of LOI and the underlying purpose thereto in terms of RFRP became nugatory, such process was not required to be followed prior to filing of Application for approval of Resolution Plan. Thereafter, Application being IA No.225/2020 came to be filed by the Resolution Professional for approval of Resolution Plan of Appellant, which was allowed in terms of the impugned order. Appellant assails the impugned order primarily on the ground that declaration of critical parts of the Resolution Plan affecting its feasibility and viability as being infructuous or redundant was beyond the scope of jurisdiction of the AA. The ground of challenge is that the Resolution Plan is contingent on the execution of a long term lease for the Ace Complex Land on acceptable terms defined in the Resolution Plan, i.e. with the prior written consent of Vistra, the mortgagee of Ace Complex Land - the approval of the Resolution Plan is said to be without complying with the requirement of obtaining prior written consent of Vistra in respect of execution of the lease of Ace Complex Land and without obtaining approval of CCI. It is contended on behalf of Appellant that the AA failed to satisfy itself whether the Resolution Plan was compliant as regards vital conditions and whether it had provisions for its effective implementation. Vistra is a mortgagee with Ace Complex Land mortgaged in its favour by Gateway. The Adjudicating Authority has taken note of the 2020 lease and approved the Resolution Plan submitted by Appellant which protects the legitimate interests of Vistra. Since the present appeal lacks merit, Vistra cannot be permitted to introduce a case beyond the scope of examination of legality of the Resolution Plan of Appellant under the garb of seeking impleadment. Same is true in respect of intervention sought by Kotak Mahindra Bank. The execution of long term lease for the Ace Complex Land with Acceptable Terms was not a condition precedent in regard to approval of Resolution Plan but only in regard to effective date. The impugned order does not travel beyond the scope of enquiry under Section 31 of I B Code - appeal not only lacks merit but also is frivolous - Appeal dismissed with costs to the tune of ₹ 1/- Lakh imposed on the Appellant which shall be deposited in this Appellate Tribunal within 15 days.

Summary

Issues Involved:
1. Jurisdiction of the Adjudicating Authority (AA) in modifying the Resolution Plan.
2. Condition precedent of execution of a long-term lease for Ace Complex Land.
3. Requirement of prior written consent from the mortgagee (Vistra).
4. Submission of Performance Bank Guarantee (PBG) and issuance of Letter of Intent (LOI).
5. Implementation of the Resolution Plan and obligations of the Appellant.
6. Involvement and rights of Vistra and Kotak Mahindra Bank.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority (AA) in modifying the Resolution Plan:
The appellant contended that the AA exceeded its jurisdiction by declaring certain conditions of the Resolution Plan as infructuous or redundant, which affected the feasibility and viability of the plan. The appellant argued that the AA could either accept or reject the Resolution Plan in whole but could not modify it. The AA's scope of inquiry under Section 31 of the Insolvency and Bankruptcy Code (I&B Code) is limited and does not extend to altering the terms of the Resolution Plan.

2. Condition precedent of execution of a long-term lease for Ace Complex Land:
The appellant argued that the execution of a long-term lease (20 years) for Ace Complex Land with acceptable terms, including the prior written consent of Vistra, was a condition precedent for the implementation of the Resolution Plan. The AA, however, concluded that this requirement was not a condition precedent for the approval of the Resolution Plan but only for its effective date. The AA's decision was based on the understanding that the necessary steps for implementation, including the execution of the lease, were to be taken after the approval of the Resolution Plan and not before.

3. Requirement of prior written consent from the mortgagee (Vistra):
The appellant emphasized that the prior written consent of Vistra, the mortgagee of Ace Complex Land, was crucial for the execution of the lease. The AA noted that the 2020 lease had been executed without obtaining Vistra's consent. However, the AA determined that the issue of the validity of the lease deed and the rights of the third party could be left open, and the implementation of the Resolution Plan could proceed. The AA directed the appellant to negotiate with Vistra to obtain their no objection.

4. Submission of Performance Bank Guarantee (PBG) and issuance of Letter of Intent (LOI):
The appellant argued that the AA erred in directing the appellant to furnish a PBG of ?150 crores despite the I&B Code mandating the issuance of LOI and PBG as pre-conditions for filing an application for approval of the Resolution Plan. The AA concluded that the requirement of LOI was not a condition precedent for filing the application for approval of the Resolution Plan and was subject to the directions of the Hon'ble Supreme Court. The AA found that the appellant had breached the Resolution Plan by not submitting the balance PBG and had failed to nominate a representative to the Interim Monitoring Committee (IMC).

5. Implementation of the Resolution Plan and obligations of the Appellant:
The AA noted that the appellant, as the Successful Resolution Applicant, was bound to take necessary steps for the implementation of all provisions of the Resolution Plan. The appellant had failed to comply with the requirement of submitting the balance PBG, initiating the process for seeking approval of the Competition Commission of India (CCI), and nominating a representative to the IMC. The AA concluded that the appellant's non-compliance justified the invocation of the PBG by the Committee of Creditors (COC).

6. Involvement and rights of Vistra and Kotak Mahindra Bank:
Vistra sought impleadment as a necessary party, arguing that any modification of the impugned order concerning the subject land could affect its legal rights as a mortgagee. The AA found that Vistra was not a party to the proceedings arising out of the application for approval of the Resolution Plan and had not filed an appeal against the impugned order. The AA concluded that Vistra could not seek impleadment in the appeal proceedings. Similarly, the intervention sought by Kotak Mahindra Bank was not permitted as it was beyond the scope of examining the legality of the Resolution Plan.

Conclusion:
The AA concluded that the execution of the long-term lease for Ace Complex Land with acceptable terms was not a condition precedent for the approval of the Resolution Plan but only for its effective date. The AA found that the appellant's attempts to challenge the approved Resolution Plan were unwarranted and an effort to withdraw from its obligations. The appeal was dismissed, and costs of ?1 lakh were imposed on the appellant.