2020 (10) TMI 330 - AT - Insolvency and Bankruptcy

Seeking recalling of Resolution Plan as approved - rejection on the ground that the networth criteria, which was crucial, was overlooked and certificate produced by the Respondent No.3 in regard to its networth was fraudulent and sham which vitiated the whole exercise and approval of said Resolution Plan - HELD THAT - It is not in dispute that as per eligibility criteria laid down by the CoC the Resolution Applicant was required to have a networth of ₹ 5 crores. Appellant is aggrieved of acceptance of bid of Respondent No.3 on the score that the Respondent No.3 did not comply with the networth eligibility. In this regard, it is pointed out that the networth certificate dated 1st October, 2018 shows the networth of ₹ 637.40 lakhs as on 31st August, 2018 qua M/s. Vaibhav Build Tech Pvt. Ltd., JSV Motors Constructions Pvt. Ltd. - It is brought to our notice that the Appellant has participated in Committee of Creditors meeting during CIRP process but never raised the issue with regard to the eligibility of Respondent No.3 as regards networth criteria. It is too late in the day to accept the argument emanating from the Appellant that the networth of the Resolution Applicant calculated on the basis of market value of fixed assets minus secured loans is not in accordance with the definition of networth under Section 2 (57) of the Companies Act, 2013. No objection to calculation having been raised at the relevant time and the criteria adopted for arriving at the conclusion in regard to networth not being shown to be fundamentally flawed and perverse, argument raised on this score is repelled. No objection on this score can be permitted to be raised by the Appellant after the Resolution Plan has been approved by the Committee of Creditors with huge majority of voting share. Objection in regard to valuation conducted by the Resolution Professional and approved by the Committee of Creditors is equally without substance. It is not disputed that two registered Valuers were appointed to determine fair value and liquidation value of the Corporate Debtor. Such valuation reports were placed before Committee of Creditors which in its 6th meeting held on 18th July, 2019 considered the same before approving the Resolution Plan. Implementation of the approved Resolution Plan is underway. Respondent No.3 is stated to have already deposited an amount of ₹ 30 lakhs being 5% of cash contribution of the Resolution Plan having total value of ₹ 22.10 crores. An upfront payment of ₹ 3 crores besides investment of ₹ 4.5 crores on building infrastructure for setting up plant and machinery for the Corporate Debtor is said to have been made by Respondent No.3 - The Appellant cannot be permitted to scuttle the process at this stage and that too without substantial grounds. No material irregularity in resolution process vitiating it, has been canvassed or brought to our notice, which would render the whole exercise unsustainable. The impugned order does not suffer from any legal infirmity or factual frailty - Appeal dismissed.

Summary

Issues Involved:
1. Compliance with net worth eligibility criteria by the Successful Resolution Applicant.
2. Validity and accuracy of the net worth certificate submitted by the Successful Resolution Applicant.
3. Adherence to the provisions of the Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016.
4. Valuation of the Corporate Debtor’s assets by the Resolution Professional.
5. Locus standi of the Appellant to challenge the Resolution Plan.
6. Commercial wisdom of the Committee of Creditors (CoC) in approving the Resolution Plan.

Issue-wise Detailed Analysis:

1. Compliance with net worth eligibility criteria by the Successful Resolution Applicant:
The appellant contended that the Successful Resolution Applicant (Respondent No.3) did not meet the net worth eligibility criteria of ?5 crores as required by the Committee of Creditors (CoC). The initial net worth certificate dated 1st October 2018 showed a net worth of ?637.40 lakhs but included another company, JSV Motors & Constructions Pvt. Ltd., which was not a Resolution Applicant. The revised net worth certificate dated 15th March 2019 was submitted later, correcting the error.

2. Validity and accuracy of the net worth certificate submitted by the Successful Resolution Applicant:
The appellant argued that the net worth certificate was fraudulent and did not comply with the provisions of the Companies Act, 2013. The net worth of Respondent No.3 was only ?24.65 lakhs and ?2.93 crores as of March 2018 and 2019, respectively, which was below the eligibility criteria. The Respondent No.3 clarified that the initial error was a typographical mistake and the revised certificate accurately reflected their net worth.

3. Adherence to the provisions of the Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016:
The appellant claimed that the provisions of Section 25(2)(h) of the Insolvency and Bankruptcy Code (IBC) were violated as the Resolution Professional accepted the bid despite the net worth discrepancy. The Tribunal found that the revised net worth certificate was considered by the CoC and the approval process was in compliance with the IBC and its regulations.

4. Valuation of the Corporate Debtor’s assets by the Resolution Professional:
The appellant alleged that the valuation was flawed as it did not include the entire assets of the Corporate Debtor, only the plant and machinery. The Tribunal noted that two registered valuers were appointed, and their reports were considered by the CoC. The Hon'ble Apex Court's judgment in "Maharashtra Seamless Ltd. vs. Padmanabhan Venkatesh & Ors." was cited, emphasizing that the valuation assists the CoC in decision-making and does not need to match the maximized asset value.

5. Locus standi of the Appellant to challenge the Resolution Plan:
The Respondent No.2 argued that the appellant had no locus standi as he did not raise objections during the Corporate Insolvency Resolution Process (CIRP) and had previously claimed to be falsely arrayed as a Director. The Tribunal agreed, noting that the appellant participated in CoC meetings without raising eligibility issues and cannot challenge the commercial wisdom of the CoC post-approval.

6. Commercial wisdom of the Committee of Creditors (CoC) in approving the Resolution Plan:
The Tribunal emphasized the paramount status of the CoC's commercial wisdom, as established in "K. Shashidhar vs. Indian Overseas Bank and Ors." and "Committee of Creditors of Educomp Solutions Ltd. vs. Ebix Singapore Pte. Ltd. & Anr." The CoC approved the Resolution Plan with 93% voting shares, and the Tribunal found no material irregularity or legal infirmity in the process.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the appellant's arguments. The impugned order approving the Resolution Plan was upheld, and the implementation of the plan was allowed to continue. The appeal was dismissed with no order as to costs.