2020 (8) TMI 389 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - alleged illegalities committed in the conduct of CIRP - Violation of principles of natural justice - Appeal is filed mainly on the ground that impugned Order has been passed in violation of Principles of Natural Justice, as one of the Members of the Bench, which passed the impugned Order, was not a Member of the Bench that had heard the arguments. Whether the Resolution Professional with the approval of CoC, was authorized to accept the Resolution Plans after the expiry of the deadline for submission of the Bid, without extending the timeline for submission of EOI? - Whether the act of the Resolution Professional, with the approval of CoC, in accepting the Resolution Plan after the expiry of the deadline for submission of Resolution Plan, can be treated as an act under commercial wisdom of the CoC? - HELD THAT - After the expiry of the deadline for submission of Resolution Plan, the Resolution Professional, with the approval of CoC, was fully authorized to invite fresh invitation for Expression of Interest for submission of Resolution Plan. It is apparent that three notices for inviting Expression of Interest were issued and the offer was open to the public to submit Resolution Plans. When Expression of Interest is invited, then notices should be published, and the offer for inviting EOI should be made public. It is noticed that the Resolution Professional had earlier issued public notices in Form-G as per Regulation 36A on 24th August 2018, whereby offer was made public to submit EOI/Resolution Plan by 06 00 pm on 28th September 2018. It is also on record that another notice in Form-G was published by Resolution Professional on 09th November 2018, which was also made public and the offer was made to submit Resolution Plan by 06 00 pm on 13th December 2018 - All the above notices inviting Expression of Interest were made public, and Resolution professional under Regulation 36A published the notice in Form-G as per CIRP Regulation, 2016. For approval of Resolution Plan the Adjudicating Authority can only exercise power U/S 30(2) read with Sec 31(1) and the Appellate Court can only exercise its power under Sec 61(3) of the I B Code - Thus it is clear that approved Resolution Plan can be challenged before the Adjudicating Authority on limited grounds referred to in Section 30(2) or the Appellate Authority on ground of material irregularity in exercise of the powers by the Resolution Professional during the Corporate Insolvency Resolution period. The material irregularity in exercise of powers by the Resolution Professional, even with the approval of CoC, in the conduct of CIRP cannot be treated as an exercise of Commercial Wisdom. In the instant case, the Adjudicating Authority has not given any finding on the issues raised in MA 1039 of 2019 by the Appellant, specifically regarding illegalities committed, in accepting the Resolution Plan of the successful Resolution Applicant. The Adjudicating Authority has justified the actions of the Resolution Professional on the ground that the alleged act of accepting the Resolution Plan is based on the commercial decision of the CoC. It is important to mention that the approval of the Resolution Plan depends on the business decision of CoC. Still, the CoC is not empowered to approve the illegalities committed in the conduct of CIRP - After expiry of the deadline for submission of EOI, CoC was fully competent to extend the timeline for submission of EOI. It could have done so by following the Rules and Regulations as per due process. We have noticed that earlier, the RP had thrice issued notices in 'Form G' for inviting Expression of Interest. As to why the same procedure was not adopted in accepting the Resolution Plan of successful Resolution Applicant/Respondents No. 2 and 3, the RP has failed to come up with any proper justification. Whether Amended Regulation 36A, which came into effect from 04.07.2018, will be applicable in this case, where CIRP is initiated against the Corporate Debtor before coming into force of the amended Regulation? - HELD THAT - Regulation 36A came into force w.e.f. 04th July 2018 by the amendment in CIRP Regulation, 2016. There is nothing in the amended Regulation which provides for retrospective operation of the amended Regulation - However, the Learned Counsel for the Respondent No.1 contends that Regulation 36A(6) was introduced vide Notification No. IBBI/2018-19/GN/REG031, which clearly states that the amended CIRP Regulations shall apply to CIRP commencing on or after 04th July 2018. The law intends that for CIRPs commencing before 04th July 2018 (like the present case), the earlier CIRP Regulation (as they stood before the amendment) should apply. The Corporate Debtor was admitted to CIRP on 14th May 2018, and hence, the amendments introduced vide notification No. IBBI/2018-19/GN/REG031 are not applicable to Corporate Debtor's CIRP. Regulation 36A(6) was introduced vide Notification No. IBBI/2018-19/GN/REG031, which clearly states that the amended CIRP Regulations shall apply to CIRP commencing on or after 04th July 2018.The Corporate Debtor was admitted to CIRP on 14th May 2018, and hence, the amendments introduced vide notification No. IBBI/2018-19/GN/REG031 is not applicable to Corporate Debtor's CIRP. Whether Judgment of the Bench consisting of Member (Technical), who has not heard the argument regarding MA No.1039 of 2019 is valid? - HELD THAT - The salutary principle applicable in the instant case is that of the maxim, one who hears the matter must decide . It is the Single Member Bench which had heard the argument of the Miscellaneous Application 1039 of 2019 and thus, it alone could have decided it. Merely because the presiding member of the Single Member Bench was also a part of the reconstituted Division Bench of the Tribunal comprising of two members, it does not mean that he could have taken up the Applicant's MA No.1039 of 2019 along with the MA No.691 of 2019. Thus, the Bench has passed the Order on the MA No.1039 of 2019, even though the other Member of the Bench, Member (Technical), didn't get an opportunity to hear the arguments on that application. Rule 150(2) NCLT Rules, 2016 provides for the Bench which hears the case to also pronounce the Order - the Resolution Professional committed a grave error in accepting the Resolution Plan of the Resolution Applicant Kalpraj Dharmshi Rekha Jhunjhunwala after the expiry of the deadline for submission of the Bid/Resolution Plan without notifying/publishing the extension of the timeline for submission of EOI, as per provision of the I B Code and Regulations thereof. The Adjudicating Authority has also failed to appreciate the illegalities and irregularities pointed out by the Appellant. Appeal allowed.

Summary

Issues Involved:
1. Acceptance of Resolution Plans after the deadline.
2. Commercial wisdom of the Committee of Creditors (CoC).
3. Applicability of Amended Regulation 36A.
4. Validity of the judgment delivered by a bench with a member who did not hear the arguments.

Issue-Wise Detailed Analysis:

Issue 1 & 2: Acceptance of Resolution Plans After the Deadline and Commercial Wisdom of CoC
The Appellant challenged the acceptance of Resolution Plans submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala after the deadline, arguing it was illegal. The deadline for submission was 08th January 2019, with only two applicants submitting within this period. The CoC opened these plans on 10th January 2019 and discussed them on 15th January 2019. However, two additional plans were accepted post-deadline on 13th January 2019 and 28th January 2019. The Appellant argued that this acceptance without extending the deadline or issuing a new notice was against the principles of natural justice. The Resolution Professional contended that Clause 10.4 of the Process Memorandum allowed acceptance of plans at any stage with CoC approval. The Tribunal concluded that accepting plans post-deadline without issuing a fresh notice was arbitrary and illegal, thus not within the commercial wisdom of the CoC. The Tribunal emphasized that the commercial decision of CoC does not justify procedural irregularities.

Issue 3: Applicability of Amended Regulation 36A
The Appellant argued that Amended Regulation 36A, effective from 04th July 2018, which prohibits considering plans submitted after the deadline, was violated. However, the Tribunal noted that the CIRP commenced on 14th May 2018, prior to the amendment, making the amended regulation inapplicable. The Tribunal confirmed that the pre-amended regulation, which did not have such prohibitions, was applicable in this case.

Issue 4: Validity of Judgment by a Bench with a Member Who Did Not Hear the Arguments
The Appellant contended that the judgment was invalid as one member of the bench, which passed the order, did not hear the arguments. The arguments on MA No.1039 of 2019 were heard by a Single Member Bench (Judicial Member), but the order was pronounced by a reconstituted Division Bench including a Technical Member who did not hear the arguments. The Tribunal upheld the principle that "one who hears the matter must decide," declaring the judgment invalid due to this procedural lapse.

Conclusion:
The Tribunal found that the acceptance of Resolution Plans after the deadline without proper notification was illegal and not covered under the commercial wisdom of the CoC. The amended Regulation 36A did not apply as the CIRP commenced before its enforcement. The judgment was invalid due to the procedural irregularity of a bench member not hearing the arguments. Consequently, the Tribunal set aside the impugned orders and directed the CoC to reconsider the Resolution Plans submitted within the stipulated timeline. If no decision is communicated within the given timeframe, the Adjudicating Authority is to pass an order for liquidation.