2021 (8) TMI 414 - AT - Insolvency and Bankruptcy

Rejection of Resolution Plan - benefit of any orders passed in the avoidance application filed or to be filed by the Respondent No.1- Administrator under Sections 43 to 51 or under Section 66 of the Insolvency and Bankruptcy Code, 2016 - recoveries/ contributions in the avoidance application - HELD THAT - In matter of M/S. VENUS RECRUITERS PRIVATE LIMITED VERSUS UNION OF INDIA AND ORS. 2020 (11) TMI 850 - DELHI HIGH COURT , Committee of Creditors had no occasion to deal with transaction which was later filed as Application under Sections 25(2) (j), 43 to 51 and 66 of the I B Code - in the present matter, the learned Counsel for the Respondents are submitting that here there were detailed deliberations on how to deal with the avoidance application under Section 66 of the I B Code and once it has been thoroughly discussed and decisions taken by the Committee of Creditors by majority, the same are not open for deliberations specially in the context where the Appellant has voted in favour of the Resolution Plan in the group to which the Appellant belonged. It appears that the Company Appeal in MOONS TECHNOLOGIES LIMITED VERSUS THE ADMINISTRATOR DEWAN HOUSING FINANCE CORPORATION LTD. AND ORS. 2021 (7) TMI 435 - NATIONAL COMPANY LAW TRIBUNAL , MUMBAI BENCH is heavily based on the observations in the matter of M/s. Venus Recruiters Pvt. Ltd. . At this preliminary stage, it will not appropriate for us to make detail observations as it may be treated as a finding in the Appeals The rival claims, which are more questions of law would require deliberation and decision at appropriate stage. If the averments made by Appellant are juxtaposed with averments made by Respondents, we do not find it a fit case to pass interim orders as sought. We do not think that any interim order as sought with regard to Resolution Plan approved needs to be passed. Application disposed off.

Summary

Issues Involved:
1. Dismissal of the Appellant's Interlocutory Application seeking rejection of the Resolution Plan.
2. Approval of the Resolution Plan by the Adjudicating Authority.
3. Appropriation of recoveries from avoidance applications by the Successful Resolution Applicant.
4. Commercial wisdom of the Committee of Creditors (CoC) and its binding nature.
5. Legal implications of the judgment in "M/s. Venus Recruiters Pvt. Ltd. vs. Union of India & Ors."

Detailed Analysis:

1. Dismissal of the Appellant's Interlocutory Application Seeking Rejection of the Resolution Plan:
The Appellant filed an appeal against the impugned order dated 7th June 2021, which dismissed their Interlocutory Application seeking the rejection of the Resolution Plan of Respondent No.2. The Appellant argued that the Resolution Plan allowed the Successful Resolution Applicant to benefit from avoidance applications under Section 66 of the Insolvency and Bankruptcy Code, 2016 (I&B Code), which should instead benefit the creditors of DHFL. The Adjudicating Authority dismissed the application, stating that it could not substitute its wisdom for the commercial wisdom of the Committee of Creditors (CoC).

2. Approval of the Resolution Plan by the Adjudicating Authority:
The Appellant also challenged the impugned order approving the Resolution Plan submitted by Respondent No.2, which was accepted by the Adjudicating Authority. The Appellant sought a stay on the execution of the Resolution Plan, arguing that the approval would irreversibly alter the position of all stakeholders. The Adjudicating Authority, however, emphasized that the CoC's decision, which had a 93.65% majority, was made after extensive deliberations and negotiations, and thus, it should not be interfered with.

3. Appropriation of Recoveries from Avoidance Applications by the Successful Resolution Applicant:
The primary legal issue was whether the Successful Resolution Applicant could appropriate recoveries from avoidance applications filed by the Administrator. The Appellant argued that future recoveries from fraudulent transactions should benefit the creditors, not the new entity formed after the Resolution Plan's approval. The Appellant cited the judgment in "M/s. Venus Recruiters Pvt. Ltd. vs. Union of India & Ors.," which held that benefits from avoidance applications are meant for the creditors of the Corporate Debtor, not for the Corporate Debtor in its new avatar.

4. Commercial Wisdom of the Committee of Creditors (CoC) and Its Binding Nature:
The CoC, consisting of 77 financial creditors, decided that recoveries from avoidance applications under Section 66 would accrue to the Successful Resolution Applicant, while recoveries under Sections 43-50 would benefit the CoC. The Adjudicating Authority held that this decision was within the CoC's commercial wisdom, which it could not interfere with. The CoC's decision was made after considering various factors, including the net present value and the risk of recovery, and ascribing a value of ?1 to the future recoveries from fraudulent transactions.

5. Legal Implications of the Judgment in "M/s. Venus Recruiters Pvt. Ltd. vs. Union of India & Ors.":
The Appellant heavily relied on the judgment in "M/s. Venus Recruiters Pvt. Ltd.," which stated that the benefits of avoidance applications are meant for the creditors of the Corporate Debtor and not for the new entity formed after the Resolution Plan's approval. However, the Adjudicating Authority distinguished this case, noting that in "M/s. Venus Recruiters Pvt. Ltd.," the CoC had no occasion to deal with the transaction later filed as an avoidance application. In contrast, in the present case, the CoC had thoroughly deliberated and decided on the treatment of recoveries from avoidance applications under Section 66.

Conclusion:
The Appellate Tribunal found that the issues raised by the Appellant required detailed deliberation and decision at an appropriate stage. The objections to the Resolution Plan were based on legal questions that needed further examination. However, the Tribunal did not find a prima facie case to grant interim relief or stay the execution of the Resolution Plan. The applications for interim relief were disposed of, and the execution of the Resolution Plan would proceed subject to the outcome of the appeals.