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TMI Blog2020 (8) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... any Petition (IB) No. 156/MB/2017 whereby, the Adjudicating Authority, vide the first impugned Order, has rejected the Application No. MA/1039/2019 raising objections against the alleged illegalities committed in the conduct of CIRP and vide the second impugned Order passed in MA 691/2019, the Adjudicating Authority has approved the Resolution Plan. The Parties are represented by their original status in the Company Petition and Miscellaneous Applications for the sake of convenience. 2. The brief facts of the case are as follows: MA No.1039 of 2019 is filed by M/s Kotak Investment Advisors Limited (from now on referred to as KIAL), stated to be unsuccessful Resolution Applicant. The Appellant has filed this Application on 14th March 2019 seeking rejection of the approved Resolution Plan submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala, based on the illegalities committed in the conduct of Corporate Insolvency Resolution Process. Since the Adjudicating Authority has passed Orders in MA No. 1039 of 2019 and MA No.691 of 2019 at the same time, and the facts being the same, both these appeals are taken together. The Appellant/Applicant contends that an advertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts who had submitted its Resolution Plan, which was rejected bythe CoC in its Meeting dated 13th February 2019 and on the same date, the Resolution Plan of the Successful Resolution Applicant was approved with 84.36% vote share. It is further stated by the Resolution Professional that an email was received from 'WeP' Solution Private Limited seeking time till 14th January 2019 to file a Resolution Plan. The CoC, in its Meeting dated 11th January 2019 allowed for submission of the Resolution Plan by 'WeP' Solutions Private Limited and in its 11th Meeting held on 24th January 2019, considered the Resolution Plan submitted by WeP Solutions Private Limited. Subsequently, the CoC in its 12th Meeting dated 30th January 2019 approved the joint Resolution Plan submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala by vote share of 85%, which is under challenge in these Appeals. 7. The Adjudicating Authority has rejected the Application MA No. 1039 of 2019 by placing reliance upon the judgement of Hon'ble the Supreme Court of India in K. Sashidhar v. Indian Overseas Bank & Ors in Civil Appeal No.10673 of 2018,wherein it is held that the commercial decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Resolution Professional. After this, no further fresh bid or offer could have been accepted or considered. But the RP illegally and unlawfully received EOI from Kalpraj Dharamshi & Rekha Jhunjhunwala on 27th January 2019. It is further pleaded that the alleged action of the RP is unlawful under the teeth of the provision of IBC and Regulation 36A of the CIRP Regulations. 13. The Learned Counsel for the Respondent No 2 & 3 contends that the Appeals are barred by limitation under Section 61(2) of the I&B Code, 2016 and thus, are not maintainable. 14. In reply to the objections of the Respondents regarding maintainability of the Appeals on limitation issue, the Appellant contends that the Appeal is filed against the impugned Order dated 28th November 2019. The certified copies of the Orders were issued on 18th December 2019, which were challenged before the Hon'ble High Court of Judicature of Bombay in Writ Petition No. 3621 of 2019. The Hon'ble High Court vide Order dated 28th January 2020 dismissed the abovementioned Writ petition on the ground that alternate and equally efficacious remedy is available. Copy of the Order of the Hon'ble High Court dated 28th January 2020 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution 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? 3. 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? 4. Whether Judgment of the Bench consisting of Member (Technical), who has not heard the argument regarding MA No.1039 of 2019 is valid? Issue No 1 & 2; The Appellant has challenged the illegalities and alleged fraud committed by the Resolution Professional in accepting the Resolution Plan submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala. Admittedly, in the instant case the deadline for submission of Resolution Plan was 08th January 2019, and only two Resolution Applicants had submitted their Resolution Plans within the timeline. The first being KIAL/Appellant and other being one Karvy Group. Subsequently, CoC in its Meeting Dt. 10th January 2019 opened the two Resolution plans submitted by Appellant (KIAL) and Karvy Group and intimated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 27th January 2019, i.e. after the expiry of the deadline for submission of EOI. 24. The Resolution professional has accepted the Resolution Plan of Kalpraj after the expiry of the deadline for submission of Expression of Interest, under Clause 10.4 of the Process Memorandum. The Resolution Professional contends that under clause 10.4 of the Process Memorandum, he was authorized to accept any Resolution Plan, at any stage of CIRP with the approval of CoC. 25. It is contended that the use of the phrase, in Clause 10.4 of the process memorandum, stating that the Resolution professional shall be free to examine such Resolution Plan with the approval of the CoC' at any stage of the resolution plan process', and the applicant will not have any right to object to submission or consideration of such plan, does not provide immunity to the Resolution Professional to accept the Resolution Plan of any Resolution Applicant, which has not submitted Expression of Interest/Bid within the timeline prescribed in the notification for inviting Expression of interest. 26. Appellant contends that the Resolution Professional/Respondent No.1 received the EOI from Respondents No.2 and 3 on 27th Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consent of CoC. It cannot be said that as per Process Memorandum, the Resolution Professional was entitled to accept any Resolution Plan at any point of time, without following the due process under the guise of maximization of value. The alleged act of the Resolution Professional in accepting the Resolution Plan after the expiry of the deadline for submission of Resolution Plan is arbitrary, illegal and against the principle of natural justice and cannot be treated as an act within the commercial wisdom of the CoC. 28. The Learned Adjudicating Authority, while rejecting MA No.1039 of 2019, observed that: "4. Pleadings and Arguments of both the sides are considered. Keeping brevity in mind the Arguments revolving around certain case laws and legal ratio laid down therein are not reiterated. At the outset it is prudent to place reliance on a decision of Hon'ble Supreme Court pronounced in the case of K. Sashidhar V/s Indian Overseas Bank and Ors. in Civil Appeal No. 10673 of 2018 Order dated 05.02.2019, wherein it is held that the "Commercial decision" of Committee of Creditors is required to be sanctioned by the Adjudicating Authority when a Resolution Plan is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board. Significantly, the matters or grounds - be it under Section 30(2) or under Section 61(3) of the I&B Code - are regarding testing the validity of the "approved" resolution plan by the CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by the CoC in exercise of its business decision. 45. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the Resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question the logic or justness of the commercial opinion expressed by the majority of the financial creditors albeit by requisite percent of voting share to approve the resolution plan; and in the process authorize the adjudicating authority to reject the approved resolution plan upon accepting such a challenge. That is not the scope of jurisdiction vested in the adjudicating authority under Section 31 of the I&B Code dealing with approval of the resolution plan." 48. Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar (supra)." 29. Based on the ratio of the above case-law of Hon'ble the Supreme Court of India, the CoC indeed, has the power to exercise its commercial wisdom in approval or rejection of the Resolution Plan. However, the same cannot mean that the Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t CIRP. However, if the CoC took a commercial decision to extend the timeline, it should have done so by publishing a fresh notice in Form 'G' under Regulation 36A of the CIRP Regulations. By adopting a special procedure for accepting the Resolution Plan of the Successful Resolution Applicant, under the guise of maximization of value, the Resolution Professional and the CoC have deviated from the norms prescribed under the Code and the Regulations framed there under, which vitiates the Corporate Insolvency Resolution Process conducted by the RP. 32. It is further to notice that for effective analytical financial bidding and to understand and analyze the status of the company, Resolution Applicants are given access to the data room on the signing of Non-Disclosure Agreement with Resolution Professional. As per terms, the said data room was closed on 07th January 2019, and after this date, no one has access to the data room. 33. There are remarkable similarities between the belated Resolution Plan submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala with Appellants/KIAL's Resolution Plan, that was submitted, opened for discussion and deliberated upon within the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere put before the CoC for voting wherein, the Resolution Plan of Successful Resolution Applicant was overwhelmingly approved while the Resolution Plan of Applicant/Appellant was rejected. 37. The Respondent further submits that Clause 8.1 of the Process Memorandum (which was binding on all the Resolution Applicants) envisages that the CoC may vote on one or more Resolution Plans presented to it and a Resolution Applicant, whose plan was finally approved by CoC, would be declared successful. Clause 8.1 of the Process Memorandum is given as under: "8.1 The Committee of Creditors may vote on one or more Resolution Plans presented to it, and the Qualified Applicant whose Resolution Plan is approved by the Committee of Creditors will be identified as the Successful Applicant. The Committee of Creditors shall have the right to approve the Resolution Plan subject to modifications it deems fit." 38. The Resolution Professional has submitted his response to the allegations of accepting the Resolution Plan after the expiry of the deadline. In its response to the above contention, the Resolution Professional submits that Clause 10.4 of the Process Memorandum provides that at any stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent' and if it is considered then it would be a deviation of the process laid down in the 'process document' by the 'Committee of Creditors'. Third objection was that the offer was beyond the time as stipulated under the 'I&B Code'. 32. The Adjudicating Authority has rejected such objections by detailed impugned Order. It appears that the 'process document' was issued on 20th December, 2017 which inter alia stipulated general and qualitative parameters. It clearly indicated that 'Committee of Creditors' will negotiate only with the 'Resolution Applicant' which reveals highest score based on the evaluation criteria and whose 'Resolution Plan' is in compliance with the requirements of the 'I&B Code' as confirmed by the 'Resolution Professional'. We have dealt with the object of the 'I&B Code' as recorded above. The 'Resolution Professional' as well as the 'Committee of Creditors' are duty bound to ensure maximization of value within the time frame prescribed by the 'I&B Code'. Such an object in finding out a 'Resolution Applicant' who can offer maximum amount so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent of the 'Resolution Applicant'. To apply this clause there is no time limit prescribed except that the 'Resolution Process' should be completed within the stipulated period of 180 days or maximum 270 days. 40. The 'Committee of Creditors' have failed to notice the aforesaid 'process document' and the provision of the 'I&B Code'. Only considering one of the 'Resolution Plan' of 'Rajputana Properties Private Limited' and ignoring the other 'Resolution Plans' including that of the 'Ultratech Cement Limited' which are in consonance with Section 30(2) for the purpose of negotiation and for maximization of the value of the assets. Non-application of mind by the 'Committee of Creditors' and discriminatory behavior in approving the plan submitted by the 'Rajputana Properties Private Limited' is apparent. 49. According to learned Senior Counsel for the 'Rajputana Properties Private Limited', the revised offer was submitted by 'Ultratech Cement Limited' at a belated stage on 8th March, 2018, only after becoming aware of the financial elements of 'Rajputana Properties Private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady under consideration and which otherwise also, is compliant with the provision of Sec 30(2) of the Code, for maximization of assets of the Corporate Debtor. It does not mean that the Resolution Professional or the CoC is authorized to accept a Resolution Plan from a new Resolution Applicant that had not submitted the EOI within the prescribed timeline. 41. The Ld Counsels for the Respondent further argued that the acceptance of the Resolution Plan is under the exercise of commercial wisdom of CoC which is non-justiciable as per the law laid down by Hon'ble the Supreme Court of India in case of K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150: (2019) 4 SCC (Civ) 222: 2019 SCC OnLine SC 257 at page 183. 42. In the above mentioned case, Hon'ble the Supreme Court has held; "52. As aforesaid, upon receipt of a "rejected" resolution plan the adjudicating Authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating Authority (NCLT) with the jurisdiction or Authority to analyze or evaluate the commercial decision of CoC much less to enquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a vote of not less than 75% (as in October 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting financial creditors. That must prevail, if it is not less than the specified per cent (25% in October 2017; and now after the amendment w.e.f. 6-6-2018, 44%). The inevitable outcome of voting by not less than requisite per cent of voting share of financial creditors to disapprove the proposed resolution plan, de jure, entails in its deemed rejection. 64. Suffice it to observe that in the I&B Code and the regulations framed the reunder as applicable in October 2017, there was no need for the dissenting financial creditors to record reasons for disapproving or rejecting a resolution plan. Further, as aforementioned, there is no provision in the I&B Code which empowers the adjudicating Authority (NCLT) to oversee the justness of the approach of the dissenting financial creditors in rejecting the proposed resolution plan or to engage in judicial review thereof. Concededly, the inquiry by the Resolution professional precedes the consideration of the resolution plan by CoC. The Resolution pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the Resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal exercise of power by the Resolution Professional in conducting CIRP cannot be treated as an exercise of power for maximization of value under Commercial Wisdom. Issue No 3; 46. It is further contended that the Regulation 36A was amended w.e.f. 04th July 2018, which prohibits the Resolution Plan received after the last date from being considered. In response to the above Regulation, it is contended that in the instant case, the CIRP started on 14th May 2018. Therefore, the amendment introduced vide notification dated 04th July 2018 will not be applicable in this case. The Ld. Counsel for the Appellant emphasizes on the violation of Amended Regulation 36A of the CIRP Regulations 2016. Amended and unamended Regulation 36A is given as under for ready reference. Regulation 36A Subs. by Noti. No. IBBI/2018-19/GN/REG031, dt. 3-7-2018 (w.e.f. 4-7-2018).Sec 36 A of the Code is as under; [36-A. Invitation for Expression of interest.-(1) The Resolution professional shall publish brief particulars of the invitation for Expression of interest in Form G of the Schedule at the earliest, not later than seventy-fifth day from the insolvency commencement date, from interested and el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent applicable; (d) relevant information and records to enable an assessment of ineligibility under clause (c); (e) an undertaking by the prospective resolution applicant that it shall intimate the Resolution professional forthwith if it becomes ineligible at any time during the corporate insolvency resolution process; (f) an undertaking by the prospective resolution applicant that every information and records provided in Expression of interest is true and correct and discovery of any false information or record at any time will render the Applicant ineligible to submit resolution plan, forfeit any refundable deposit, and attract penal action under the Code; and (g) an undertaking by the prospective resolution applicant to the effect that it shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Section 29. (8) The Resolution professional shall conduct due diligence based on the material on record in order to satisfy that the prospective resolution applicant complies with- (a) the provisions of clause (h) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) where a period of less than eighteen days is left for submission of resolution plans under sub-regulation (2). (5) The Resolution professional shall publish brief particulars of the invitation in Form G of the Schedule: (a) on the website, if any, of the corporate debtor; and (b) on the website, if any, designated by the Board for the purpose." 47. 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. 48. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Adjudicating Authority dated 10th June 2019, it appears that on that day the Adjudicating Authority adjourned the hearing of MA No.1039 of 2019, MA No.1040 of 2019 for 12th June 2019. Thereafter, this MA No.1039 of 2019 was heard along with the MA No.2023 of 2019 on 03rd July 2019 by Single Member Bench of Member (Judicial) Mr M. K. Shrawat, and was reserved for the Order. 54. It is also noted in the Order sheet dated 10th June 2019 that the MA No.1039 of 2019 was adjourned to 3rd July 2019 for hearing. Thereafter, on 3rd July, the arguments on MA 1039 of 2019 were heard and the application was reserved for Order by the same Bench. It is also evident that from 07th August 2019 onwards, the Bench was reconstituted from a Single Member Bench to a Division Bench consisting of one Judicial Member and one Technical Member. 55. Thus, it is clear that argument on MA No.1039 of 2019 was heard by Single Member Bench consisting of Mr M.K. Shrawat, Member (Judicial) and after that, it was reserved for Order. However, the impugned Order dated 28th November 2019 passed on MA No.1039 of 2019 is passed by the reconstituted Bench consisting of Mr Chandra Bhan Singh, Member (Technical) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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