2024 (8) TMI 1153 - AT - Insolvency and Bankruptcy

Rejection of the settlement proposal under Section 12A of IBC - whether the decision of the CoC, not to accept the settlement proposal submitted by the Appellant, can be said to be an arbitrary decision? - HELD THAT - The settlement proposal submitted by the Appellant was with the condition that on approval of the same, liability of CD, Promoter and Guarantors shall stand extinguished, meaning thereby that the Bank has to release the personal guarantees of Promoter and Guarantors, which part of the proposal was duly considered in the 14th CoC meeting and relevant extract from 14th CoC meeting has already been extracted above, which indicates that the settlement proposal in which the Bank has to release the guarantees held with the Bank is not in compete with the Resolution Plan received. It is, thus, noted by the CoC that when the Resolution Plan of the SRA is approved, the personal guarantees be still with the Bank and it is submitted by the learned Counsel for the Bank that total amount due is Rs.238 crores, hence, CoC after due deliberations decided not to accept the settlement proposal and approved the Resolution Plan. The decision of the CoC, which was taken through e-voting declared on 08.01.2023, was well considered and deliberated decision, in which Appellant was given full opportunity. The decision, which was taken with 100% vote share on 08.01.2023 to reject the settlement proposal of the Appellant, can in no manner be held to be arbitrary. The Hon ble Supreme Court in Arun Kumar Jagatramka vs. Jindal Steel and Power Limited and Anr. 2021 (3) TMI 611 - SUPREME COURT has held that a withdrawal under Section 12-A is distinguishable both from a Resolution Plan, which is approved under Section 31 and a scheme which is sanctioned under Section 230 of the Companies Act, 2013. The Adjudicating Authority did not commit any error in rejecting IA No.2594 of 2023 filed by the Appellant. There is no error in the judgment of the Adjudicating Authority, the Appeal being devoid of merit is dismissed.

Issues Involved:
1. Rejection of the settlement proposal under Section 12-A.
2. Approval of the Resolution Plan by the Committee of Creditors (CoC).
3. Allegations of arbitrariness in the decision-making process of the CoC.
4. Legal standing and implications of the commercial wisdom of the CoC.
5. Rights of the Promoter and Shareholder in the insolvency resolution process.
6. Legal precedents and their application to the case.

Issue-Wise Detailed Analysis:

1. Rejection of the settlement proposal under Section 12-A:
The Appellant, a Promoter and Shareholder of the Corporate Debtor, submitted a settlement proposal under Section 12-A, which was considered by the CoC. The proposal offered Rs.100 crores initially and later increased to Rs.118.25 crores. The CoC, after deliberation, rejected the settlement proposal and approved the Resolution Plan submitted by the Successful Resolution Applicant (SRA) with a value of Rs.120.01 crores. The Appellant's proposal was deemed insufficient as it required the release of personal guarantees held by the Bank, which was not required under the Resolution Plan.

2. Approval of the Resolution Plan by the Committee of Creditors (CoC):
The CoC, comprising Indian Bank as the sole member, considered both the settlement proposal and the Resolution Plan. After detailed deliberations in the 13th and 14th CoC meetings, the CoC decided to put both proposals to e-voting. The Resolution Plan submitted by the SRA was approved with 100% vote share, while the settlement proposal was rejected with 100% vote share. The decision was based on the higher value of the Resolution Plan and the retention of personal guarantees.

3. Allegations of arbitrariness in the decision-making process of the CoC:
The Appellant alleged that the CoC acted arbitrarily in rejecting the settlement proposal, arguing that the decision did not reflect any consideration. The Tribunal examined the CoC's deliberations and found that the decision was well-considered and based on commercial wisdom. The CoC's decision to reject the settlement proposal was not arbitrary, as it was made after thorough deliberation and comparison with the Resolution Plan.

4. Legal standing and implications of the commercial wisdom of the CoC:
The Tribunal emphasized that the CoC's decision, based on commercial wisdom, is generally not subject to judicial review unless it is arbitrary. The CoC's decision to reject the settlement proposal and approve the Resolution Plan was upheld as it was made after due deliberation and in accordance with the objectives of maximizing asset value and ensuring recovery of financial dues.

5. Rights of the Promoter and Shareholder in the insolvency resolution process:
The Appellant, as a Promoter and Shareholder, participated in the CoC meetings and was given opportunities to revise the settlement proposal. Despite repeated offers, the CoC found the settlement proposal inadequate compared to the Resolution Plan. The Tribunal noted that the Appellant's rights were duly considered, and the CoC's decision was made in the best interest of the stakeholders.

6. Legal precedents and their application to the case:
The Tribunal referred to several legal precedents, including the Supreme Court's judgments in Swiss Ribbons Pvt. Ltd. vs. Union of India and Ors. and Vallal RCK vs. Siva Industries and Holdings Ltd. and Ors. These judgments establish that the CoC's decision can be challenged if it is arbitrary. However, in this case, the Tribunal found that the CoC's decision was not arbitrary and was made after due consideration of all relevant factors.

Conclusion:
The Tribunal dismissed the Appeal, upholding the CoC's decision to reject the settlement proposal and approve the Resolution Plan. The decision was based on the commercial wisdom of the CoC, which was found to be well-considered and not arbitrary. The Tribunal emphasized the importance of the CoC's role in the insolvency resolution process and the limited scope of judicial review of its decisions.

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