2020 (8) TMI 387 - AT - Insolvency and Bankruptcy

Rejection of Resolution Plan - Section 31 of the Insolvency and Bankruptcy Code, 2016 - it is claimed that the Resolution Applicant was not disqualified under Section 29 of the I B Code to submit a Resolution Plan and the and the Committee of Creditors had approved the Resolution Plan with an overwhelming majority of 96.39% - HELD THAT - It is the settled law of land that the approval of the Resolution Plan depending upon various factors including feasibility, viability, financial matrix and distribution mechanism rests upon the business decision taken by the Committee of Creditors in its commercial wisdom which are not to be interfered with by the Adjudicating Authority or even by this Appellate Tribunal. But at the same time the Adjudicating Authority has to ensure that the Successful Resolution Applicant(s) are not ineligible to submit Resolution Plan within the ambit of Section 29A and that the approved Resolution Plan complies with the mandate of Section 30(2) of the I B Code . While considering whether the Resolution Plan approved by the Committee of Creditors does not emanate from any ineligible person, does not contravene any of the provisions of the law in force and provides for management of affairs of the Corporate Debtor after approval of the Resolution Plan, the Adjudicating Authority has to keep in view the object of the legislation. Section 29A inserted by amending Act No.8 of 2018 declares certain persons ineligible to be Resolution Applicants. It cannot be disputed that the person who is promoter or in the management or in control of the Resolution Applicant or is promoter or in management or in control of the business of the Corporate Debtor during the implementation of the Resolution Plan falls within the expression connected person . Persons who contributed to default of company with their misconduct have to be excluded from submitting a Resolution Plan or acquiring the assets of the Corporate Debtor when pushed into liquidation. The Adjudicating Authority has rightly declined to approve the Resolution Plan of Mr. Madhusudhan who was only used as a ploy to gain control of the Corporate Debtor by the very person who had pushed the Corporate Debtor into insolvency. The Committee of Creditors has overlooked the settlement offer and ignored the withdrawal plea without assigning any reason. This in itself raises eyebrows. This is further compounded by approval of the Restructuring Plan camouflaged as Resolution Plan emanating from an ineligible person which renders the role of the Committee of Creditors questionable. Such circumstances justify raising of inference of complicity. The impugned order is well reasoned and in consonance with the object of the Code - Appeal dismissed.

Summary

Issues:
1. Rejection of Resolution Plan by Adjudicating Authority
2. Consideration of Restructuring Plan as Resolution Plan
3. Eligibility of Resolution Applicant under Section 29A of I&B Code
4. Committee of Creditors' decision-making process
5. Adjudicating Authority's role in approving Resolution Plan

1. Rejection of Resolution Plan by Adjudicating Authority:
The appellant was aggrieved by the rejection of the Resolution Plan submitted by Mr. Madhusudhan Raju Chintalapati, as the Adjudicating Authority declined to approve it primarily on the grounds that the Resolution Applicant was not disqualified under Section 29 of the I&B Code and the Committee of Creditors had approved the plan with an overwhelming majority. The Authority held that the Resolution Plan did not meet the requirements of Section 30(2) of the I&B Code and proceeded to order liquidation under Section 33(1)(b) of the Code.

2. Consideration of Restructuring Plan as Resolution Plan:
The Adjudicating Authority observed that the Restructuring Plan, approved as the Resolution Plan by the Committee of Creditors, was not in conformity with Section 30(2) of the I&B Code. It noted that the former Managing Director's involvement in the new shareholding pattern raised concerns about backdoor access to the Corporate Debtor, leading to the rejection of the plan.

3. Eligibility of Resolution Applicant under Section 29A of I&B Code:
The Court emphasized that Section 29A aims to prevent persons associated with the default of a company from gaining control during insolvency proceedings. It highlighted the importance of excluding unscrupulous individuals from submitting Resolution Plans or acquiring assets of the Corporate Debtor. The Settlement Agreement between the Resolution Applicant and the former Promoter was viewed as an attempt to gain control through a disguised Restructuring Plan.

4. Committee of Creditors' decision-making process:
The Committee of Creditors' approval of the Restructuring Plan without considering the withdrawal of the Company Petition raised concerns about the transparency and adherence to the I&B Code's provisions. The approval of the plan based on an agreement between the Resolution Applicant and the former Promoter was deemed questionable.

5. Adjudicating Authority's role in approving Resolution Plan:
The Adjudicating Authority's role is to ensure that the approved Resolution Plan complies with the provisions of the I&B Code, particularly Section 30(2). It must prevent ineligible persons from gaining control of the Corporate Debtor and safeguard the interests of creditors. In this case, the Authority rightly declined to approve the Resolution Plan, considering it as a ploy to retain control by the person responsible for the Corporate Debtor's insolvency.

In conclusion, the appeal was dismissed as the impugned order was deemed well-reasoned and aligned with the objectives of the I&B Code, with no legal infirmity found.