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2024 (1) TMI 529 - AT - Insolvency and BankruptcyRequest for closer of CIRP - 88% shareholders ready to provide funds and repay the debts - Rejection of the proposal of the shareholders / corporate debtors - - whether decision of CoC, in which UVARCL has 98.84% voting share, to reject the proposal under Section 12A dated 11.08.2023 as revised on 04.10.2023 is arbitrary and unsustainable? - HELD THAT - The statutory scheme which has been brought by insertion of Section 12A in the I B Code by Act 26 of 2018 w.e.f. 06.06.2018. It is to be noted that prior to insertion of Section 12A there was no provision in the Code for withdrawal of CIRP except Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - Consequential amendments were also made in Insolvency and Bankruptcy Board of India. (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 by inserting Regulation 30A by notification dated 25.07.2019. The Hon ble Supreme Court had occasion to consider Section 12A in Swiss Ribbons Pvt Ltd. Anr. vs. Union of India, 2019 (1) TMI 1508 - SUPREME COURT in which various provisions of I B Code including 12A were under challenge - it was held in the said case that If the Committee of Creditors arbitrarily rejects a just settlement and/or withdrawal claim, NCLT, and thereafter, NCLAT can always set aside such decision under Section 60 of the Code. Section 12A provides for withdrawal of the application admitted under Section 7 or 9, on an application made by the applicant with the approval of 90% voting share of the Committee of Creditors. Application has to be filed as per procedure provided under Regulation 30A. The objective of Section 12A and Section 29A are totally different. Section 29A is a provision which debars certain categories of applicants from submitting Resolution Plan whereas Section 12A is entirely different provision where CIRP can be withdrawn after admission. The proposal is submitted by Applicant before the CoC and if the proposal is approved by 90% CoC, Regulation 30A provides for procedure for withdrawal. If the CoC approval is granted with 90% vote share, an application has to be filed by the IRP/RP in Form FA. The question of ineligibility of Promoters to submit the proposal does not arise under Section 12A. The submission of Shri Maninder Singh, Advocate for UV ARCL that by proposal under Section 12A the Appellants are trying to circumvent Section 29A cannot be accepted. The CoC having decided to refund the EMD of one of the Prospective Resolution Applicant, there cannot be any difficulty in refunding EMD of all of the Prospective Resolution Applicants in event the Proposal under 12A is ultimately found to be acceptable - the CoC cannot be directed to evaluate the Resolution Plan which it has received. The said course cannot be allowed to be directed since the Proposal under 12A has to be finally determined as to whether it deserves to be accepted and the decision of the CoC to refuse to accept Proposal is arbitrary and unsustainable. The decision of the CoC is arbitrary in not approving 12A Proposal which Proposal offered to pay entire debt of Financial Creditors as well as all other creditors. From the minutes of 14th and 15th CoC, it is clear that CoC has expressed its willingness to accept the proposal if entire amount is deposited, however, opportunity was not granted by the CoC and within three days from 10.10.2023 meeting i.e. on 13.10.2023 they dissented the proposal although they initially granted six weeks time to deposit the amount. When in pursuance of order dated 17.10.2023, the entire amount has been deposited, the UVARCL refused to accept the amount which shows its malafide intent. Thus, the facts and circumstances and sequence of events clearly proves that decision of the CoC not accepting the proposal for payment of 100% dues is arbitrary and unsustainable. Appeal allowed.
Issues Involved:
1. Admission of Section 7 application by the Adjudicating Authority. 2. Substitution of JM Financial Asset Reconstruction Company Ltd. in place of Yes Bank. 3. Rejection of impleadment application by Asian Hotels (East) Ltd. 4. Consideration and rejection of Section 12A proposal by the Committee of Creditors (CoC). Summary: Issue 1: Admission of Section 7 application by the Adjudicating Authority The Suspended Directors and shareholders of the Corporate Debtor challenged the order dated 16.09.2022 by the Adjudicating Authority (NCLT), New Delhi Bench IV, admitting the Section 7 application filed by the Financial Creditor. The Corporate Debtor had defaulted on its financial obligations due to the COVID-19 pandemic, leading to the filing of the Section 7 application by Yes Bank, claiming a default amount of Rs.264,07,35,129/- as on 13.08.2021. The Tribunal upheld the admission of the application, noting that the Corporate Debtor had committed defaults and the application was not an abuse of process. Issue 2: Substitution of JM Financial Asset Reconstruction Company Ltd. in place of Yes Bank The order dated 16.09.2022 also permitted JM Financial Asset Reconstruction Company Ltd. to be substituted in place of Yes Bank, the original Financial Creditor. The substitution was challenged but upheld by the Tribunal, noting that the substitution was in accordance with the law and the debt assignment was valid. Issue 3: Rejection of impleadment application by Asian Hotels (East) Ltd. Asian Hotels (East) Ltd. and shareholders of the Corporate Debtor challenged the order dated 05.08.2022, which rejected their impleadment application in the Section 7 proceedings. The Tribunal found no merit in the challenge, upholding the rejection of the impleadment application. Issue 4: Consideration and rejection of Section 12A proposal by the CoC The Suspended Directors and shareholders submitted a proposal under Section 12A to withdraw the Section 7 application by offering to pay the entire dues of all creditors without any haircut. The CoC initially indicated willingness to consider the proposal if the entire amount was deposited upfront. However, despite the Appellants depositing the entire amount, the CoC rejected the proposal, leading to the Tribunal's intervention. The Tribunal found the CoC's decision to reject the Section 12A proposal arbitrary and unsustainable. It noted that the proposal offered to pay 100% of the dues to all creditors, including Financial Creditors, Operational Creditors, Employees, Workmen, and Government dues. The Tribunal directed the closure of the CIRP, set aside the order admitting the Section 7 application, and ordered the remittance of the deposited amount to the Resolution Professional for distribution to the creditors. The Tribunal emphasized that the CoC's refusal to accept the proposal was not in good faith and aimed at a hostile takeover of the Corporate Debtor's assets. Conclusion: The Tribunal allowed the appeals, accepting the Section 12A proposal, closing the CIRP, and setting aside the order admitting the Section 7 application. The amount deposited by the Appellants was directed to be distributed to the creditors, ensuring the liquidation of the Corporate Debtor's debt.
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