2023 (6) TMI 101 - AT - Insolvency and Bankruptcy

CIRP - Objection to the Resolution Plan approved by the Committee of Creditor - rigged parameters used to fraudulently declare H2 bidder as H1 bidder - Appellant submitted that the CoC approved Swiss Challenge Method to get the best value out of the Resolution Plan and finally the proposal of M/s Serveall Land Developers Pvt. Ltd. (alleged second highest bidder) was approved - whether the approval of Resolution Plan and distribution of funds amongst the Creditors was legal and correct in accordance with law or otherwise? - HELD THAT - The Appellant has taken shelter of the judgment of MK Rajagopalan 2023 (5) TMI 344 - SUPREME COURT , where it has been held that the irregularity of not placing of the Revised Plan before the CoC and directing placing before the Adjudicating Authority cannot be ignored as mere technicalities and every aspect relating to the Resolution Plan particularly its financial layout, has to be considered by the CoC before could be considered by the Adjudicating Authority. This Appellate Tribunal notes that the total amount as provided by M/s Serveall Land Developers Pvt. Ltd. (SRA) was Rs. 50.40 Crores in his original Resolution Plan dated 22.08.2022 and after the Swiss Challenge Method dated 09.09.2022, the Resolution Plan amount was substantially enhanced to Rs. 61.70 Crores (approx.) which was recommended by the CoC and finally approved by the Adjudicating Authority vide impugned order dated 09.03.2023 - after Swiss Challenge Method, it was proposed to distribute Rs. 61,21,03,175/- to Sole Secured Financial Creditor and Rs. 48,96,826/- to two Unsecured Financial Creditors. Initially, there were two Unsecured Financial Creditors, namely, Damont Developers Pvt. Ltd. whose claim of Rs. 9,25,00,000/- was admitted and it was proposed to distribute Rs. 34,15,316/- to him and the other Unsecured Financial Creditors, namely, M/s Sikka Hotels Resorts Pvt. Ltd., whose claim of Rs. 4,01,25,000/- was admitted and Rs. 14,81,509/- was proposed to be distributed to him. The distribution between the Secured Financial Creditors and Unsecured Financial Creditors is in the same ratio as provided in the original Plan dated 22.08.2022 to Secured Financial Creditor (Bank of Baroda) and to Unsecured Financial Creditors. It is only due to judicial orders of the Adjudicating Authority which resulted into exclusion of M/s Damont Developers Pvt. Ltd. and inclusion of the Appellant in the list of Unsecured Financial Creditors and this obviously required some arithmetical changes in distribution between these two Unsecured Financial Creditors keeping the overall kitty as available to Unsecured Financial Creditors intact. Regulation 12(3) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 prescribes that decisions taken by the CoC are not invalidated by a subsequent change in the composition of the COC. Therefore, even though the Appellant was not in the COC when the Final Plan was approved, the approval of the Final Plan by the COC is not vitiated by the subsequent inclusion of the Appellant - the Resolution Plan is already under implementation and the hotels of the Corporate Debtor have already been handed over to the SRA and SRA has already paid Rs. 17,25,00,000/- to various Creditors, along with payment of the CIRP expenses of Rs. 4,68,00,000/-. There are no error in both the challenged impugned orders - appeal dismissed.

Issues Involved:
1. Approval of the Resolution Plan by the Committee of Creditors (CoC).
2. Alleged manipulation of the Swiss Challenge Method.
3. Admission and treatment of claims by the Resolution Professional.
4. Distribution of funds among creditors.
5. Compliance with procedural requirements and legal precedents.

Summary:

1. Approval of the Resolution Plan by the Committee of Creditors (CoC):
The Appellant challenged the approval of the Resolution Plan by the CoC, alleging that the plan was approved in contravention of the law. The CoC approved the plan using the Swiss Challenge Method, selecting M/s Serveall Land Developers Pvt. Ltd. as the Successful Resolution Applicant (SRA). The Appellant argued that the plan was vague and lacked specific funding sources, making it uncertain and unviable.

2. Alleged manipulation of the Swiss Challenge Method:
The Appellant alleged that the Swiss Challenge Method was manipulated by the Resolution Professional in connivance with the sole secured Financial Creditor, Bank of Baroda. The Appellant claimed that the Evaluation Matrix was rigged to favor the second highest bidder (H2), M/s Serveall Land Developers Pvt. Ltd., by allocating 90% marks on qualitative parameters and only 10% on quantitative parameters.

3. Admission and treatment of claims by the Resolution Professional:
The Appellant's claim of Rs. 1.90 Crores was initially not acted upon by the Resolution Professional, compelling the Appellant to file an application before the Adjudicating Authority. The Authority directed the Resolution Professional to admit the Appellant's claim as an Unsecured Financial Creditor. The Appellant argued that the Resolution Plan was shared with them only after their claim was admitted.

4. Distribution of funds among creditors:
The Appellant contended that the distribution of funds was skewed in favor of the secured Financial Creditor, Bank of Baroda, while the Unsecured Financial Creditors received a meager distribution. The Appellant also argued that the distribution was changed without following due process, violating the Supreme Court judgment in MK Rajagopalan.

5. Compliance with procedural requirements and legal precedents:
The Appellant relied on the Supreme Court judgment in MK Rajagopalan, arguing that non-compliance with procedural requirements had a significant bearing and could not be ignored as mere technicalities. The Appellant sought to set aside the impugned orders and the approved Resolution Plan, requesting permission to submit a new plan.

Tribunal's Findings:
The Tribunal found that the majority of the Appellant's averments fell within the domain of the CoC's commercial wisdom, which is paramount and non-justiciable. The Tribunal noted that the distribution of funds among creditors was in accordance with the CoC's decisions and the law. The Tribunal also observed that the inclusion of the Appellant in the CoC did not invalidate prior decisions. The Tribunal dismissed the appeals, finding no error in the impugned orders, and noted that the Resolution Plan was already under implementation.

Conclusion:
The appeals were dismissed as devoid of merit, with no costs awarded. The Tribunal upheld the commercial wisdom of the CoC and found no procedural irregularities or legal violations in the approval and implementation of the Resolution Plan.

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