2022 (1) TMI 213 - AT - Insolvency and Bankruptcy

Direction to COC to consider ineligibility of 3rd Respondent under Section 29A of I B Code - main grievance of the Appellant is that the COC has no power to consider the ineligibility of the 3rd Respondent under Section 29A - HELD THAT - From the Provisions of Law, it is clear that the Code (IBC, 2016) and the Regulations empowers the Committee of Creditors approving the Resolution Plan and also empowers that it shall not approve a Resolution Plan where the Resolution Applicant is ineligible under Section 29A. In this case, the Adjudicating Authority directed the COC to consider whether the 3rd Respondent is really ineligible under Section 29A(e) of the IBC and therefore directed the COC, which has the power to approve the Resolution Plan and also consider the Resolution Applicant s ineligibility under Section 29A. In accordance with the above Provisions of Law and the Regulations made thereunder, the COC has the power to consider the eligibility/ineligibility of the Resolution Applicant whether they are eligible/ineligible under Section 29A(e) of the Code. The stand of the 3rd Respondent is that the Resolution Professional did not afford any opportunity to cure the defect and Suo moto rejected on the ground of ineligibility which is mere technicality. However, this Tribunal is not inclined to delve into those issues. This Tribunal is considered only with respect to whether the Adjudicating Authority has passed the order directing the COC to consider the ineligibility of the 3rd Respondent is in accordance with law or not. This Tribunal is of the view that as per the above Provisions of Law, the COC has power to take a decision with regard to approval of the Resolution Plan. Further in accordance with the Regulations, the Committee has power to evaluate the Resolution Plans received by the Resolution Professional. As per Sub Regulation 4 of Regulation 39, the COC has power to approve the plan and after approving the Plan by the Committee the Resolution Professional shall submit to the Adjudicating Authority. Therefore, this Tribunal is of the view that the COC has power to decide and approve the Resolution Plan of the Resolution Applicants. Appeal dismissed.

Summary

Issues Involved:

1. Ineligibility of the 3rd Respondent under Section 29A of the Insolvency and Bankruptcy Code (IBC).
2. Authority of the Committee of Creditors (COC) to consider the ineligibility of the 3rd Respondent.
3. Validity of the Adjudicating Authority's direction to the COC to consider the ineligibility and revised resolution plan of the 3rd Respondent.

Detailed Analysis:

1. Ineligibility of the 3rd Respondent under Section 29A of the IBC:

The Appellant contended that the 3rd Respondent was disqualified under Section 29A of the IBC due to a prior judgment by the NCLT, Hyderabad Bench, dated 18.08.2020. This disqualification was based on the actions of the promoters of the 3rd Respondent, which were deemed illegal under Sections 397 and 398 of the Companies Act, 1956. The 3rd Respondent challenged this disqualification in IA/968/2020, and the Adjudicating Authority directed the COC to reassess the ineligibility under Section 29A(e) of the IBC. The 1st Respondent supported this view, stating that the 3rd Respondent, as an independent entity, was eligible, but its directors' actions led to disqualification under Section 29A. The 3rd Respondent argued that the Resolution Professional (RP) did not provide an opportunity to cure any defects and that the disqualification was not warranted under Section 29A.

2. Authority of the COC to Consider the Ineligibility of the 3rd Respondent:

The Appellant argued that the COC lacked the authority to consider the ineligibility of the 3rd Respondent and that the Adjudicating Authority should not have directed the COC to do so. However, the Tribunal referred to Section 30 of the IBC, which outlines the submission and approval process for resolution plans. It was clarified that the COC has the power to approve resolution plans and ensure that applicants are eligible under Section 29A. Regulation 39 of the IBC (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, further empowers the COC to evaluate and approve resolution plans, including assessing the eligibility of applicants.

3. Validity of the Adjudicating Authority's Direction to the COC:

The Adjudicating Authority directed the COC to consider the revised resolution plan submitted by the 3rd Respondent and assess its eligibility under Section 29A(e) of the IBC. This direction was challenged by the Appellant, who argued that the COC should not have been given this responsibility. The Tribunal, however, found that the Adjudicating Authority's decision was in line with the principles of natural justice, allowing the 3rd Respondent an opportunity to address any defects. The Tribunal emphasized that the COC has the authority to evaluate and approve resolution plans, including determining the eligibility of applicants under Section 29A.

Conclusion:

The Tribunal concluded that the order passed by the Adjudicating Authority was legally sound and did not contain any infirmity or illegality. The appeal was dismissed, affirming the COC's power to consider the eligibility of resolution applicants under Section 29A of the IBC and approve resolution plans accordingly. The Tribunal upheld the Adjudicating Authority's direction to the COC to reassess the eligibility of the 3rd Respondent and consider its revised resolution plan.