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TMI Blog2019 (7) TMI 1634X X X X Extracts X X X X X X X X Extracts X X X X ..... upplement the wisdom of the COC. If the COC has come to a conclusion that the Resolution Plan submitted by the Resolution Applicant i.s commercially not viable and does not fulfill the eligibility criteria and consequently issued direction to the Resolution Professional to file an Application before the Adjudicating Authority for passing an order of liquidation, the Adjudicating Authority is bound to pass an order of liquidation unless it is shown that the decision of the COC in seeking liquidation is arbitrary and contrary to the extant provisions of the Insolvency and Bankruptcy Code and the Regulations made thereunder. On a combined reading of Sections 12, 31 and 33 of the Code, it is clear that if the Adjudicating Authority does not receive a Resolution Plan approved by the COC within 180 days or 270 days, as the case may be, or where the COC resolves to refer the Corporate Debtor into liquidation, the Adjudicating Authority shall accordingly pass an order liquidating the assets of the Corporate Debtor - the application along with prayer of order of Liquidation has prayed to pass an order restraining the invocation of any bank guarantees which have been extended by the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant to continue as a liquidator for undertaking the liquidation process of the Corporate Debtor as going concern having same fee structure as it has been for Resolution Professional, as per the provisions of the Code and its support team comprising professional advisory support, or any other advisors being provided by Insolvency Professional Entity of which he is a partner, legal counsel and industry expert team as per the provisions of the Code along with all the powers to engage, appoint, replace such advisors or any other advisors as he may deem fit in order to ensure that the business of the Corporate Debtor is sold as a going concern. 3. Brief facts of the CIRP of Corporate Debtor as stated by RP are as follows:- 4. It is stated that the Application U/s 7 of IBC was filed by State Bank of India as against the Corporate Debtor herein i.e., IVRCL Limited and the same was admitted for CIRP on 23.02.2018 and IRP was appointed. 5. It is stated that the appointment of IRP was confirmed as Resolution Professional by the Committee of Creditors of the Corporate Debtor in accordance with the provisions of the Code. 6. It is stated that the Public Announcement for inviting Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution Plan from the person who submitted expression of interest in response to the EOI. 10. It is stated that the Original Consortium submitted a Resolution Plan on October 4, 2018 and the First Global has submitted its updated Resolution Plan on November 5, 2018 along with Phoenix ARC as financial sponsor for the said Resolution Plan. Thereafter, the COC was informed that Phoenix did not want to be categorised as a Resolution Applicant along with First Global. First Global did not qualify as per the criteria specified in the EOI. In order to include a fresh Resolution Applicant or make any deviations in the EOI, the COC was required to approve the deviation in the EOI and restart the EOI process. 11. It is stated that in the 14th COC meeting held on November 12, 2018, the COC has rejected the deviations of certain terms and conditions of the EOI and the Process Memorandum in relation to the Resolution Plan received from First Global. 12. Thereafter, on November 16, 2018 First Global submitted a revised Resolution Plan along with Mr. Ravindra Deol, Mr. Shankar Sharma and Ms. Devina Mehra as Resolution Applicants ("Reconstituted Consortium"). 13. It is further stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G's which are issued/covered as per Court orders. 17. It is further stated that members of COC in the 16th COC meeting had discussed that under law BGs extension would occur only due to nonperformance of the parties. One of the representatives of member stated that the Corporate Debtor would realize better Liquidation value if it is liquidated on a going concern basis and therefore it is imperative for this Tribunal to grant a restraining order from invocation of any BG's of the Corporate Debtor as the date on which a liquidation order is passed by this Tribunal, all customers, contractors having contracts with the Corporate Debtor would come forward for invoking their BG's. 18. Reiterating above, the Counsel for the RP prayed to allow the Application as prayed for. IA No.680/2018 19. Aggrieved by the decision of the Rejection of Resolution Plan by COC on the above stated grounds, the unsuccessful Resolution Applicant filed the Application bearing IA No. 680/2018 in IA No. 544/2018 seeking following prayers: a) Leave be granted to the Applicant to intervene in the present proceedings, being IA No.544/2018 filed by the RP in CP (IB) No.294/7/HDB/2018, titled as Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined in the EOI dated 14.08.2018. B. Non-submission of the EMD along with the submission of the Resolution Plan application dated 04.10.2018 as required by the Bid Process Memorandum. C. Constitution of the Resolution Applicants as per the Resolution Plans being different from the constitution of the Resolution Applicants as per the EOI submitted earlier. 22. With respect to each of the aforesaid grounds for rejection of the Resolution Plan(s), the counsel for the Applicant stated as under: A. Non-Compliance with the minimum qualification criteria as defined in the EOI dated 14.08.2018. It is stated that the RP has not informed the RA in the e-mail dated 21.11.2018 as to the exact eligibility criteria on which the RA has been found to be lacking. However, since in the e-mails sent by the BPA to the Applicant, certain queries had been put forth in respect of the parameters on the basis of which the Applicants s competence and capability had to be established, the Applicant believes that it has been non-suited on the grounds of competence/capability only which had to be established broadly by the following parameters as per the EOI dated 14.08.2018 1. Business Capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evina Mehra as the consortium members and gave following particulars of Turnover and Net Worth: S.No. Name of Entity Turnover (Rs.Crs.) FY18 Networth (Rs.Crs.) 31.3.2018 Asset Under Management (Rs.Crs.) 1 First Global Stockbroking Pvt. Ltd. (100% Holdco of First Global Finance Pvt. Ltd. 1,902.65 27.41 0.00 2 First Global Finance Pvt. Ltd 1.98 20.61 0.00 3 Mr. Shankar Sharma 0.00 43.81 0.00 4 Ms. Devina Mehra 0.00 34.00 0.00 Total 1,904.63 125.83 0.00 iv. It is stated that the COC arbitrarily rejected the contention of the Applicant herein on the ground that the said turnover was not proprietary turnover only as it included client turnover also despite the fact that the Turnover figures were certified by the Stock Exchange and also by a qualified Chartered Accountant. v. It is stated that as an alternative and seeing that the COC was unrelenting, the Applicant in the same COC meeting of 06.11.2018 even offered to bring in another person as a consortium member in place of Phoenix ARC/First Global Stockbroking Pvt. Ltd. with a stupendous net worth (in excess of 450 crores) whose credentials could be taken into account for the purposes of deciding upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18, the RP accordingly asked the Applicant to make a specific request to that effect along with the Resolution Plan, so that the same could be placed before the COC. Accordingly, at the time of submission of the 1st Resolution Plan through the e-mail sent to the RP on 04.10.2018, the Applicant on behalf of the Consortium requested for waiver of the condition regarding the deposit of ₹ 5 crores in the form of EMD on the ground that the Consortium was of the view that it should be asked to part with any money only if their plan was approved by the COC. However, the said request was not acceded to by the COC and the Applicant was directed by the COC to deposit the EMD of ₹ 5 crores. Accordingly, the Resolution Applicant undertook to deposit the EMD of ₹ 5 crores on or before 05.11.2018, vide its e-mail dated 26.10.2018. The Applicant then deposited the amount of ₹ 2 crores on 31.10.2018 in the designated account and in the e-mail dated 31.10.2018 sent to the RP, for seeking confirmation regarding the said payment of ₹ 2 crores, further requested that it only needed 3-4 days to transmit the outstanding EMD of ₹ 3 crores. On 01.11.2018, the RP thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested that it intended to be described as a 'financial sponsor' instead of a Resolution Applicant, though it had no objection to continue being a part of the consortium and even signed the Resolution Plan submitted on 05.11.2018. However, at the end of the CIRP, the COC started objecting to it even though no objection whatsoever was raised between 04.10.2018 (date of submission of the 1 st Resolution Plan) and the last week of October, 2018. Though it was clear from the outset that Phoenix ARC wanted its description to be that of a 'financial sponsor'. It is stated that, in the COC meeting held on 06.11.2018, once it was insisted upon by the COC that in the event Phoenix ARC would not be a Resolution Applicant, its credentials could not be considered while deciding the eligibility, the Applicant put forth the suggestion of including its own holding company in the consortium whose turnover was about ₹ 1902. 65 crores and net worth was about ₹ 27.41 crores while Phoenix ARC would continue to be associated as a 'financial advisor'. However, this was not found to be acceptable by the COC leading to the Applicant advancing the proposal to include an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 3rd Resolution Plan, the RP made certain observations and sought some clarifications. The said concerns were duly addressed by the Resolution Applicant on 06.11.2018 wherein the Resolution Applicant sent an e-mail to the RP annexing a list containing query wise responses. iv. That there was also a COC meeting held on 06.11.2018, which was attended by the Applicant and Phoenix ARC wherein the COC insisted for an undertaking from the Phoenix ARC to act as the RA whose proposal was not acceptable to it as from the outset Phoenix ARC intended to act as the 'financial sponsor' though it was indeed a member of the consortium. Eventually, this created a situation wherein the COC insisted that the credentials of Phoenix ARC could not be taken into reckoning for the purposes of deciding the eligibility of the consortium. In order to resolve the intertwined issues, the Applicant again put forth the suggestion to consider the Applicant along with its holding company, First Global Stockbroking Pvt. Ltd., and Mr Shankar Sharma and Ms. Devina Mehra as the consortium members. Both the companies were 100% beneficially owned by Mr. Shankar Sharma and Ms. Devina Mehra. v. That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aith the Applicant decided to alter the constitution of the consortium, so that its Resolution Plan be approved by the COC. Therefore, the rejection of the Resolution Plan submitted by the Resolution Applicant on such technical grounds, is a mere afterthought. Therefore, the COC are in breach of fiduciary duty under the Code to uphold and protect the interests of all stakeholders / creditors of the Corporate Debtor since such actions by the COC have directly resulted in the Corporate Debtor being pushed into liquidation and the loss of livelihood of the employees and workmen of the Corporate Debtor even when there is a financially viable insolvency Resolution Plan being available, which is completely antithetical to the objectives of the Code. 5. It is further stated that the COC, has been grossly unfair towards the Applicant and has arbitrarily and capriciously rejected a commercially viable and sound Resolution Plan without any cogent reason. It remains a matter of record that after submitting the 1 st Resolution Plan (on 04.10.2018) and till the date when the 5th Resolution Plan was submitted (on 16.11.2018), the RP/BPA sent several e-mails from time to time for seeking clarifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t voted upon as the Applicant has been given to understand that the COC only voted upon the eligibility criteria as decided in the COC meeting on 06.11.2018. The Applicant in this context draws the kind attention of this HonSble Tribunal to the following for the kind consideration of the Adjudicating Authority: i. The plan envisaged a two-fold approach for value maximization for the stakeholders of the Corporate Debtor. The said approach involved:- I. Monetization of non-core real assets (under a new company); II. Achieving a turnaround in the core (EPC/BOOT) business of the Corporate Debtor. b. It is stated that the Resolution Plan i.e. 5th Resolution Plan submitted by the Resolution Applicant for the Corporate Debtor is in complete conformity with Section 30 of the Code and duly satisfies the requirements of Regulation 38 of the CIRP Regulations, 2016, including furnishing of a statement regarding dealing with the interest of all stakeholders of the Corporate Debtor. Also, it is apparent that in terms of Regulation 37 of the CIRP Regulations, 2016, the instant Resolution Plan aims at maximization of the value of the assets of the Corporate Debtor. 8. It is further stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and is justified in placing the objections before this Adjudicating Authority. 12. Reiterating above, the Counsel for the Applicant prayed to allow the Application as prayed for. 13. In response to the contentions of the Applicant in IA No. 680/2018 in IA No. 544/2018, the Resolution Professional filed a short reply and stated as under: A. It is stated that the members of COC had informed the Resolution Professional for the rejection of the Resolution Plan submitted by Original/Reconstituted Consortium due to the following reasons: i. Deviation to the EOI was rejected by the COC, therefore, reconstituting the Original Consortium by the Reconstituted Consortium as Resolution Applicants is in violation of the EOI and the provisions of IBC; ii. Original Consortium had not placed the Ernest Money Deposit (EMD) along with submitting the Resolution Plan on October 4, 2018 as required by the Bid Process Memorandum; iii. Original Consortium was not in compliance of the minimum qualification criteria as defined in the EOI published on August 14, 2018; and iv. Resolution Plan submitted by Reconstituted Consortium was not commercially acceptable by the members of COC and despi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjudicating a uthority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under section 33(1) of the 1 & B code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision ofthe CoCmuch less to enquire into the justness of the rejection of the resolution plan by the dissen ting financial creditors. c) It is further stated that in view of the Reconstituted Consortium not being eligible as per the eligible criteria laid down by the COC, there was no valid Resolution Plan before the COC and hence there was no question of the COC voting on any Resolution Plan as such. d) The COC has not considered the Resolution Plan submitted by the Applicant and the decision being a majority decision of the COC taken on a prudent business and commercial propositions, this Adjudicating Authority maybe pleased to reject the IA No.680/2018 imposing exemplary costs. 15. Counsel for the Respondent filed Rejoinder reiterating the averments made in the Application, denying the allegations made in the Application bearing IA No. 680/2018 in IA No. 544/2018 and further pray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.00 34.00% 11.56 Mr. Ravindra Deol 464. 16.00% 74.24 Total 561.81 100.00% 105.32 19. The objective of the Insolvency & Bankruptcy Code 2016 as stated in its preamble is 'An Act to consolidate and amend the laws relating to re-organisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders 20. It is pertinent to note that the word 'Liquidation' does not appear anywhere in the stated objectives of the Code. However, if no viable Resolution Plan is received by the COC, the only alternative left is liquidation. 21. In the present case, it is observed that the COC has rejected the 5 th Revised Resolution Plan considering both on technical and commercial aspects. The Hon'ble Supreme Court in K. Shashidhar v. IOB as also in Swiss Ribbons v. Union of India has categorically held that the commercial wisdom of the COC cannot be questioned or intervened either by the Adjudicating Authority. 22. Once the COC has exercised its commercial wisdom in rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int Mr. Sutanu Sinha, as Liquidator, who shall issue a public announcement stating therein that the Corporate Debtor is in Liquidation; (iv) The moratorium declared under Section 14 of the I&B Code, 2016, shall cease to have effect from the date of the order of Liquidation; (v) Subject to Section 52 of the I&B Code, 2016, no suit or other legal proceedings shall be instituted by/or against the Corporate Debtor. However, a suit and other legal proceedings may be instituted by the Liquidator, on behalf of the Corporate Debtor, with the prior approval of this Authority. (vi) I make it clear that para (iv) hereinabove shall not apply to legal proceedings in relation to such transactions as notified by the Central Government in consultation with any financial sector regulator. (vii) This Order shall be deemed to be a notice of discharge to the officers, employees and workmen of the Corporate Debtor, except when the business of the Corporate Debtor is continued during the Liquidation process by the Liquidator. (viii) All the powers of the Board of Directors, Key Managerial Personnel and the Partners of the Corporate Debtor, as the case may be, shall cease to have effect and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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