2022 (3) TMI 996 - AT - Insolvency and Bankruptcy

Approval of the resolution plan - resolution plan approved by the CoC which was approved by the Adjudicating Authority - Whether the commercial wisdom of the CoC has taken into account the feasibility and viability of the proposed resolution plan which does not treat the operational and financial debts on parity? - Whether the process assessment of liquidation value is vitiated as the registered valuers were appointed beyond the stipulated time period stipulated in the CIRP regulations rendering the approval of resolution plan defective? - H ELD THAT - The operational creditors have been paid an amount in accordance with section 30(2)(b) of the IBC, when the liquidation value of the Corporate Debtor was assessed as ₹ 6.52 crores. Hence the successful resolution plan is in consonance with the provisions of IBC, wherein the payment to the operational and financial creditors and other stakeholders is according to the commercial wisdom of the CoC. The judgment of Hon ble Supreme Court in the matter of India Resurgence ARC Pvt. Ltd. 2021 (6) TMI 684 - SUPREME COURT , wherein in para 14 the Hon ble Supreme Court has held that business decision taken in exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment also provides strength and support to the contention of the Respondents. There is no other allegation against the valuation done by registered valuers who were appointed to determine the fair and liquidation value of the corporate debtor in accordance with regulation 35 which calls in question the assessment of liquidation value. The mere fact that the appointment was done two days after the 47th day from the insolvency commencement date, does not make the process vitiated because no other irregularity has been urged by the Appellant in the process of valuation of the corporate debtor s assets. Moreover Form-H (attached at pp. 56-64 of the reply affidavit filed on behalf of Respondent No. 2) in which the compliance certificate under Regulation 39(4) of the CIRP Regulations is given, and which is obligatory to be submitted before the Adjudicating Authority, the fair value is mentioned as ₹ 8.68 crores and liquidation value as ₹ 6.52 crores. The Appellant did not raise any objection regarding assessment of the liquidation value before the Adjudicating Authority - there is no organic error in the calculation of liquidation value of the corporate debtor and, therefore, the payment proposed in the successful resolution plan keeping the liquidation value so arrived at cannot be found fault with. Therefore, in accordance with section 238, when the resolution plan is proposed under the provisions of IBC during the currency of CIRP and considered by the CoC and subsequently approved by the Adjudicating Authority, all these actions taking place during the currency of CIRP, section 238 provides full protection to the actions taken under IBC against any other law or instrument, which may be inconsistent with the provisions of IBC. Therefore, the payments of operational debt as proposed in the successful resolution plan is completely legitimate and having the force of law. The Resolution Plan was approved by the CoC in its commercial wisdom and later by the Adjudicating Authority. The feasibility and viability of the resolution plan is established and the payments to operational creditors and financial creditors, particularly to the Appellant/Operational Creditor, is in accordance with the provisions of IBC - Appeal dismissed.

Summary

Issues Involved:
1. Feasibility and viability of the proposed resolution plan, particularly the treatment of operational and financial debts.
2. Validity of the liquidation value assessment process due to the late appointment of registered valuers.

Detailed Analysis:

1. Feasibility and Viability of the Proposed Resolution Plan:

The Appellant contended that the resolution plan approved by the Committee of Creditors (CoC) did not treat operational and financial creditors on parity. The Appellant cited the judgment in the matter of Binani Industries Ltd. and Ors vis. Bank of Baroda and Ors, emphasizing that the Insolvency and Bankruptcy Code (IBC) aims to balance the interests of all stakeholders, including operational creditors.

The Appellant further referred to the judgment of the Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited vs. Satish Gupta and Ors, which mandates that the CoC should examine the feasibility and viability of a resolution plan, including the manner of distribution of funds among various creditors.

The Respondent argued that the CoC approved the resolution plan by an 82.75% voting share, exercising its commercial wisdom. The liquidation value of the corporate debtor’s assets was assessed at ?6.52 crores, and the allocation to operational creditors in the resolution plan was in accordance with section 53 of the IBC. The Respondent relied on the judgment in the matter of Pratap Technocrats (P) Ltd. versus Reliance Infratel Ltd. (Monitoring Committee), asserting that the resolution plan complied with the requisite provisions of IBC.

The tribunal noted that the liquidation value of the corporate debtor was ?6.52 crores, and in the event of liquidation, the amount to be paid to operational creditors would be ‘NIL’ due to the admitted claim of financial creditors amounting to ?411.16 crores. The resolution plan provided ?0.14 crore for operational creditors, which was proportionally distributed among them.

The tribunal referred to the judgment of the Hon’ble Supreme Court in the matter of Ghanashyam Mishra & Sons Private Limited through the authorized signatory Vs Edelweiss Asset Reconstruction Company Ltd. through the Director and Ors, which emphasized the paramount status of the commercial wisdom of the CoC without judicial intervention. The tribunal also cited the judgment in the matter of India Resurgence ARC Pvt. Ltd., which held that business decisions taken in the exercise of the commercial wisdom of the CoC should not be interfered with unless creditors belonging to a class are denied fair and equitable treatment.

2. Validity of the Liquidation Value Assessment Process:

The Appellant argued that the appointment of registered valuers was not done within the stipulated time period as required by Regulation 27 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The valuers were appointed two days later than the prescribed time limit, which the Appellant claimed vitiated the entire valuation process.

The Respondent countered that the late appointment of valuers was a mere technical defect that did not cause substantial difference in the liquidation assessment process. There was no other allegation against the valuation done by the registered valuers.

The tribunal noted that the compliance certificate under Regulation 39(4) of the CIRP Regulations, which included the fair and liquidation values, was accepted by the Adjudicating Authority. The tribunal found no organic error in the calculation of the liquidation value and concluded that the payment proposed in the resolution plan was in accordance with the assessed liquidation value.

Conclusion:

The tribunal held that the resolution plan was approved by the CoC in its commercial wisdom and subsequently by the Adjudicating Authority. The feasibility and viability of the resolution plan were established, and the payments to operational and financial creditors were in accordance with the provisions of IBC. The appeal was dismissed, and the resolution plan was upheld as legitimate and having the force of law.