2023 (3) TMI 176 - AT - Insolvency and Bankruptcy

Competency of appeal - Appellant Vistra ITCL (India) Ltd. has appropriate authority to pursue the present Appeal - after completion of Challenge Mechanism on 21.12.2022 the Committee of Creditors was obliged to put the draft plans submitted by the Resolution Applicants on 22.12.2022 to vote without it having any other option or not - value maximization was achieved and Committee of Creditors was prohibited to take any further steps towards value maximization or not. Whether the Appellant Vistra ITCL (India) Ltd. has no appropriate authority to pursue the present Appeal and the Appeal is not competent at its instance? - HELD THAT - When Board of Directors of the Appellant has authorised filing of the appeal by authorized person we fail to see how the appeal filed by Vistra ITCL (India) Ltd. is incompetent. The submission of learned counsel for Respondent No.1 that Bondholders has not authorized filing of the Appeal does not commend us. The Board of Directors is fully competent to take all steps on behalf of Vistra ITCL (India) Ltd. including initiation of legal proceedings. When the Board has authorised filing of the appeal through authorised representative the submission cannot be accepted that Appellant is not authorised by the shareholders. Interests of the shareholders are looked by the Board of Directors of the Vistra and Board having been authorized the preliminary objection raised by Respondent No.1 cannot be accepted. The Appeal by financial creditor who is member of the Coc and as per learned senior counsel for the Appellant holds 90% vote share in the CoC there is sufficient locus with the Appellant to challenge the impugned order dated 02.02.2023. Appellant being Financial Creditor in the CoC which is admitted fact there is no lack of jurisdiction in the Appellant to file this appeal. Whether Regulation 39(1A) contains an implied prohibition on the jurisdiction of the CoC to enter into any further negotiations with Resolution Applicant or to further ask a Resolution Applicant to increase its Resolution Plan value? - HELD THAT - Regulation 39(1A) was inserted empowering Resolution Professional to allow modification of the Resolution Plan but not more than once or use a Challenge Mechanism to enable Resolution Applicants to improve their Plans. The Regulation 39(1A) cannot be read containing any fetter on the right of the CoC to take further action as per RFRP after receipt of the Resolution Plan consequent to Challenge Mechanism - there is no consideration of the relevant Clauses of RFRP and without adverting to relevant Clauses of RFRP the Adjudicating Authority opined that the same run foul to Regulation 39(1A). The Adjudicating Authority further fell into error in coming to a conclusion that there is no power with the CoC to enter into negotiations with the Resolution Applicant after the Challenge Mechanism and the exercise of the commercial wisdom is circumscribed by the framework for value maximization provided under the Code read with the Regulations. Whether the Regulation 39(1A) has taken place of the negotiation process and it forecloses any negotiation by CoC with Resolution Applicant? - HELD THAT - The consideration by the CoC comes after the Plan is examined by Resolution Professional and presented before the CoC and thereafter the deliberation by CoC begins in the presence of Resolution Applicants. The process of negotiations thus can commence only after Plan comes for consideration when the Resolution Applicants are also present. The modification of Plan not more than once and improvement of Plan under Regulation 39(1A) completes before deliberation on the Plan. Thus it can neither foreclose nor prohibit negotiations. The Clauses in RFRP as noticed above reserve right to the CoC to negotiate and interact with one or all Resolution Applicants which obviously is subsequent act after Plan is received under Regulation 39(1A). Hence Regulation 39(1A) cannot prohibit any negotiation or any further steps of the CoC. The view of the Adjudicating Authority that no negotiation or value maximizatioin exercise can be individually undertaken by the CoC dehors the mandate of Regulation 39(1A) is contrary to the Scheme delineated by the Code and CIRP Regulations. The very concept of negotiation envisages dialogue between two parties. The Adjudicating Authority has again concluded that no negotiation or value maximization exercise can be individually undertaken by the CoC in view of the provisions of Regulation 39(1A) - It is opined that Adjudicating Authority committed error in allowing IA No.1/MB/C-I/2023 and IA No.99/MB/C-1/2023. 60. Thus even after completion of Challenge Mechanism under Regulation 39(1A)(b) the CoC retain its jurisdiction to negotiate with one or other Resolution Applicants or to annul the Resolution Process and embark on to re-issue RFRP - appeal allowed.

Note:- Maximizing Value in Insolvency: NCLAT Upholds CoC's Right to Negotiate Post-Challenge Mechanism

Issues Involved:
1. Whether the Appellant - Vistra ITCL (India) Ltd. has appropriate authority to pursue the present Appeal.
2. Whether the Committee of Creditors (CoC) was obliged to put the draft plans submitted by the Resolution Applicants to vote without any other option after completion of the Challenge Mechanism.
3. Whether value maximization was achieved after the result of the Challenge Mechanism held on 21.12.2022 and if the CoC was prohibited from taking further steps towards value maximization.
4. Whether the clauses of the Request for Resolution Plan (RFRP) permit the CoC to negotiate, enter into discussion with the Resolution Applicants to increase their plan value, amend their plan, or tweak any other Challenge Mechanism, and if these clauses are ultravires under Regulation 39(1A) (b).
5. Whether the decision of the CoC taken in the meeting dated 06.01.2023 to conduct an extended Challenge Mechanism amongst both the Resolution Applicants is impermissible and violative of Regulation 39(1A) (b).

Issue-wise Detailed Analysis:

1. Authority of Appellant - Vistra ITCL (India) Ltd.:
The Appellant, Vistra ITCL (India) Ltd., was impleaded as a respondent in the application filed by Torrent Investments Pvt. Ltd. and is a member of the CoC. The appeal was filed through an authorized representative, Mr. Supratik Dasgupta, supported by a Board Resolution. The Appellant, being a financial creditor and member of the CoC, holds sufficient locus to challenge the impugned order.

2. Obligation of CoC Post-Challenge Mechanism:
The CoC is not obliged to put the draft plans to vote immediately after the Challenge Mechanism. The RFRP clauses, such as 3.17.17 and 4.2.4, reserve the right for the CoC to negotiate with the Resolution Applicants even after the Challenge Mechanism. The CoC can reject all plans, call for new ones, or negotiate further to maximize value.

3. Value Maximization and Further Steps by CoC:
The completion of the Challenge Mechanism does not imply that value maximization is achieved. The CoC retains the right to further negotiate and take steps to maximize the value of the Corporate Debtor. Regulation 39(1A) does not prohibit the CoC from taking further steps post-Challenge Mechanism.

4. Clauses of RFRP and Their Validity:
Clauses 4.2.4, 4.2.9, 4.3.7, and 4.4.4 of the RFRP permit the CoC to negotiate, amend, and call for revised plans. These clauses are not ultravires under Regulation 39(1A) (b). Regulation 39(1A) is a procedural mechanism and does not restrict the CoC's right to negotiate or take further steps for value maximization.

5. Decision to Conduct Extended Challenge Mechanism:
The decision of the CoC on 06.01.2023 to conduct an extended Challenge Mechanism is permissible and not violative of Regulation 39(1A) (b). The CoC's decision was based on dissatisfaction with the outcomes of the initial Challenge Mechanism and was within their rights as per the RFRP clauses.

Conclusion:
The appeals are allowed, and the order dated 02.02.2023 is set aside. The CoC is empowered to negotiate further with the Resolution Applicants and conduct an extended Challenge Mechanism. The CoC may proceed to fix a date for holding a Revised Challenge Mechanism or take any steps for further negotiations as per the RFRP. An exclusion of 30 days period is allowed for this process.

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