2023 (5) TMI 532 - SC - Insolvency and Bankruptcy

Adoption of reverse CIRP by the Appellate Tribunal - limiting the CIRP and constitution of CoC to only one project of corporate debtor, i.e., Eco Village-II - It has been contended on behalf of the appellants that the Appellate Tribunal does not have power under IBC to allow project-wise CIRP and does not have power to accept a resolution plan presented by the promoter without giving opportunity to the CoC to study the commercial viability of the plan - HELD THAT - The element of balance of convenience shall have its own significance. On one hand is the position that the Appellate Tribunal has adopted a particular course (which it had adopted in another matter too) while observing that the project-wise resolution may be started as a test to find out the success of such resolution. The result of the directions of the impugned order dated 10.06.2022 is that except Eco Village-II project, all other projects of the corporate debtor are to be kept as ongoing projects and the construction of all other projects is to be continued under the supervision of the IRP with the ex-management, its employees and workmen. Infusion of funds by the promoter in different projects is to be treated as interim finance, regarding which total account is to be maintained by IRP. If at the present stage, on the submissions of the appellants, CoC is ordered to be constituted for the corporate debtor as a whole in displacement of the directions of the Appellate Tribunal, it is likely to affect those ongoing projects and thereby cause immense hardship to the home buyers while throwing every project into a state of uncertainty. The other projects are being continued by the IRP and efforts are being made for infusion of funds with the active assistance of the ex-management but without creating any additional right in the ex-management. In our view, greater inconvenience is likely to be caused by passing any interim order of constitution of CoC in relation to the corporate debtor as a whole; and may cause irreparable injury to the home buyers. In this view of the matter, we are not inclined to alter the directions in the order impugned as regards the projects other than Eco Village-II. In relation to Eco Village-II project, since CoC was ordered to be constituted by the Appellate Tribunal in the impugned order dated 10.06.2022, we are not interfering with those directions too but, in our view, any process beyond voting on the resolution plan should not be undertaken without specific orders of this Court - these appeals may be listed for final hearing at the admission stage in the second week of July, 2023.

Summary

Issues Involved:
1. Legality of project-wise insolvency resolution process.
2. Constitution of Committee of Creditors (CoC) for the entire corporate debtor versus a single project.
3. Involvement of ex-management in the Corporate Insolvency Resolution Process (CIRP).
4. Interim relief and interim arrangement during the pendency of appeals.

Summary:

1. Legality of Project-Wise Insolvency Resolution Process:
The appeals challenge the NCLAT's order converting the CIRP into a "project-wise insolvency resolution process," specifically for the "Eco Village-II" project of the corporate debtor, Supertech Ltd. The appellants argue that the IBC does not envisage project-wise resolution and that the NCLAT lacks the authority to adopt such a process.

2. Constitution of CoC for Entire Corporate Debtor vs. Single Project:
The NCLAT directed the constitution of a CoC only for the Eco Village-II project, while other projects were to continue as ongoing projects under the supervision of the IRP. The appellants contend that the CoC should be constituted for the entire corporate debtor, as the credit facilities were extended to the corporate entity as a whole.

3. Involvement of Ex-Management in CIRP:
The appellants argue against the involvement of the ex-management in the CIRP, citing violations of Section 29-A of the IBC and previous judgments. They assert that allowing the ex-management to participate would defeat the purpose of the Code. The NCLAT had directed that the ex-management assist in the completion of the Eco Village-II project.

4. Interim Relief and Interim Arrangement:
The Supreme Court considered various submissions regarding interim relief. The appellants sought to prevent the NCLAT's interim directions from being implemented, arguing that it would cause greater inconvenience and irreparable injury to home buyers if all projects were thrown into a state of uncertainty. The Court decided not to alter the NCLAT's directions for projects other than Eco Village-II, but restricted any process beyond voting on the resolution plan for Eco Village-II without its specific orders.

Conclusion:
The Supreme Court allowed the NCLAT's interim order to operate subject to final orders in the appeals, with a modification for the Eco Village-II project. The NCLAT may deal with received offers but the entire process remains subject to the Supreme Court's orders. The appeals are to be listed for final hearing in the second week of July 2023. No interim relief was granted for Civil Appeal No. 1975 of 2023, and its maintainability will be examined later. Other pending interlocutory applications are left open for examination at an appropriate stage.