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TMI Blog2020 (11) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... with other Resolution Applicants in the Consortium. The plan is not in conformity with the RFRP. The RFRP is duly approved by the CoC. When the Plan is in conformity with the RFRP, then only the Resolution Professional is expected to place such Resolution Plan with CoC. The Adjudicating Authority cannot decide viability or feasibility of the requirements in RFRP. The CoC in its wisdom has formulated RFRP in their own interest. The Resolution Plan is inevitably to be complied with the requirements before placing the same at CoC for its consideration. M/s. Prudent ARC joined in the Consortium only to satisfy the requirements of networth. It is the requirement of RFRP that the Resolution Applicant cannot unilaterally change/withdraw Resolution Plan once it is submitted to the Resolution Professional. According to the Resolution Plan filed by the Resolution Applicants, M/s. Prudent ARC, they will not participate in the equity as per the extent of RBI Guidelines. It is very clear from the arguments of the learned counsel for the Resolution Professional that the Plan submitted by the applicants is contrary to the conditions laid down in RFRP. Interestingly, the Resolution Professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant No. 1 is the lead Member of the Consortium and is authorised to act on behalf of the Consortium in all matters related to Resolution Plan. 3. It is averred in paras 3 to 6 of the application that the main petition is pending and the Resolution Proposals made by the eligible Resolution Applicants are under consideration. The applicants herein being eligible Resolution Applicants have submitted Final Resolution Plan dated 23.05.2020. However, the Resolution Professional denied consideration thereof on the ground that Resolution Plan is not in accordance with the Request for Resolution Plan (RFRP) dated 13.01.2020 and thereby the applicants/interveners were denied access to the Meeting of CoC, through virtual mode held on 26.05.2020. 4. AVERMENTS IN THE APPLICATION: 4.1 The main petition filed by the Financial Creditor under section 7 of the I B Code, 2016 has been admitted vide order dated 09.04.2020 (ANNEXURE-1) and Shri Naga Bhushan Bhagwati has been appointed as IRP. Subsequently said IRP has been replaced by Resolution Professional -Shri Raj Kumar Ralhan vide order dated 13.06.2019 (ANNEXURE-2). The Resolution Professional has issued RFRP (ANNEXURE-3) on 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants challenged the action of the Resolution Professional on the following GROUNDS: (A) That certain requirements contained in RFRP are arbitrary and not in consonance with fair bidding. The RFRP to be harmonious with the objectives of I B Code. (B) That Resolution Professional failed to comprehend that Final Resolution Plan dated 23.05.2020 complies with the provisions of IBC, as the role and responsibility of each of the RA under Consortium has been specifically and mutually described for implementation of the approved Resolution Plan. (C) That Resolution Professional failed to understand that Asset Reconstruction Company (ARC) ought to follow provisions of SARFAESI Act as well as the guidelines of RBI. The ARC, for asset reconstruction, adopts one or more measures under section 9 of the SARFAESI Act. Other functions of ARC apart from securitisation and reconstruction are provided under section 10 of the Act. Said section provides that an ARC may undertake any activity without incurring any pecuniary liability. As per Securitization of Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003, notified by RBI vide Notification dated 01.07.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal itself is flawed to the extent that major contraventions can be observed in the RFRP. The disclaimer provided in RFRP, at page No. 2, reads thus, ''Neither this document nor anything contained herein or anything contained in the Information Memorandum (defined below) or provided in the Data Room (defined below) or otherwise shall form the basis of, or be relied upon in connection with any contract, agreement, undertaking, understanding or any commitment whatsoever. This document has not been approved and will or may not be reviewed or approved by any statutory or regulatory authority in India or by any stock exchange in India or any other jurisdiction. It is contended that section 29 of the I B Code provides that Resolution Professional to circulate Information Memorandum to all eligible resolution applicants, which is to be relied on by the RAs to make a Resolution Plan. As provided in the disclaimer, if the Information Memorandum itself is not to be relied on, the entire process of issuing Information Memorandum gets defeated and deviates from section 29 of the I B Code. (G) That RFRP, at page No. 3, under disclaimer states as under: Neither the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 4.6 of the RFRP is mentioned in Clause (vi), page 24 of the IA. It is contended that the complete discretion and powers provided to the Resolution Professional under Clause 4.6 are against the provisions of the IBC, the IBBI Regulations, 2016, and other statutory provisions. (M) The contravention under Clause 5 of the RFRP is mentioned in Clause (vii), page 25 of the IA. It is contended that submission of Resolution Plan is for resolution of the Corporate Debtor as a going concern. The Resolution Professional has to maintain health of assets and keep running the Corporate Debtor as a going concern. The Resolution Plan needs to be viable and feasible. It is further contended that the condition imposed under Clause 5(f) of the RFRP is against the requirements of IBC, 2016. (N) It is contended on page 29 of the IA that Clause 6.4(d) of the RFRP also provides unconditional power to the Resolution Professional, which is completely against the essence of the CIRP. Cancellation or disqualification of a Resolution Plan should be as per the rules specified under IBC, 2016, and not as per the whims and fancies of the Resolution Professional. (O) On page 29 of the IA, objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od for a total period of 330 days under section 12(3) of the Code and also sought approval of the Tribunal for re-issuance of RFRP for Corporate Debtor without first inviting EoI. The Tribunal vide order dated 31.01.2020 allowed the said IA observing that the Resolution Professional has to act basing on approval of CoC to issue new RFRP in case Resolution Plans received earlier are not satisfactory. It is therefore, for CoC to approve reissuance of request for RFRP. The Tribunal directed the Resolution Professional to act in terms of approval of the Resolution, if passed by the CoC in connection with re-issuance of RFRP. 7.2 It is submitted by the Resolution Professional in paras 9 of the reply that the Resolution Professional has received a request on 11.02.2020 from applicant No. 3 to extend timeline for submission of Resolution Plan. The request has been approved by the CoC. 7.3 It is submitted by the Resolution Professional in paras 10 and 11 of the reply that the Resolution Professional has received e-mail on 30.03.2020 from applicant No. 1 herein stating that they are joining it as co-applicant with one of the prospective applicant, viz. M/s. Prudent ARC in the CIRP of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the Resolution Plan and for the implementation of the Approved Resolution Plan. 7.9 It is averred in paras 25 and 26 of the Reply that the Resolution Professional was not legally empowered to present the Consortium Resolution Applicant's Resolution Plan to the CoC due to noncompliance of the Resolution Plan. It is averred that the Resolution Plan of the applicants being non-compliant was duly communicated to the CoC. The CoC refused to consider the said non-compliant Resolution Plan. 7.10 It is averred in paras 34 and 35 of the Reply that clause 3.3.12(b)(ix), All the members of the consortium shall be jointly and severally liable in respect of obligations under the Bid Document, the Resolution Plan, and for the implementation of the Approved Resolution Plan. ... Whereas the applicants' Resolution Plan stipulates that Resolution Applicant No. 1 is not liable for implementation of Resolution Plan. Nevertheless section 74 of the IBC stipulates that Corporate Debtor, its officer or creditors or any person on whom Resolution Plan is binding shall be liable for any contravention of Resolution Plan. By virtue of section 74 of IBC, RA 1 is liable for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verred that Resolution Professional has received multiple requests from the applicants for extension of time for submission of Resolution Plan on 08.04.2020 and 14.04.2020, which have been accepted by CoC and Resolution Professional. Consequently, the applicants were allowed to submit Resolution Plan, after extending the time limit for submission. The Consortium submitted Resolution Plan on 27.04.2020. The Resolution Professional having examined the Resolution Plan articulated his observations and 'Compliance Checklist' was shared with the Consortium Resolution Applicant vide email on 07.05.2020, seeking certain amendments/clarifications/modifications qua the Resolution Plan in order to submit a compliant Resolution Plan. The Resolution Professional shared another compliance checklist on 14.05.2020 and 18.05.2020. The Consortium Resolution Applicant submitted Revised Resolution Plan on 22.05.2020 with Revised Financial Proposal; and thereafter on 23.05.2020 submitted Final Revised Resolution Plan. The Resolution Professional sent email on 24.05.2020 flagging Points marked as (a), (b) and (c) and communicated to the Consortium Resolution Applicant asking to submit Revised Pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mittee of Creditors'. 8.7. It is further submitted that in a decision in the case of COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VS. SATISH KUMAR GUPTA Ors. - CIVIL APPEAL NOS. 8766-67 OF 2019 ETC. , the Hon'ble Supreme Court held that the commercial aspects of a 'Resolution Plan', its viability of otherwise, and, distribution of proceeds amongst stakeholders, were to be looked only by the 'Committee of Creditors' who are competent to go through all relevant aspects. Therefore, this Appellate Tribunal cannot deliberate on such issue. 8.8 By virtue of the above decision it is contended that approval by CoC vests binding effect and the Prospective Resolution Applicants must abide by the provisions laid out in the RFRP. The Resolution Plan submitted by the applicants was not in compliance with the RFRP. 8.9 With the aforesaid submissions and in view of Points (a) to (f) as formulated by the Resolution Professional in the last para of his submissions, the Resolution Professional prays that the IA may be dismissed. FINDINGS 9. I have heard the counsel for the applicants and the counsel for the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the same time control the management of the Corporate Debtor. Thus, M/s. Prudent ARC joined applicants No. 1 and 2 and proposed the Resolution Plan. The Resolution Professional failed to consider the intent of the plan to make the Corporate Debtor/company as a going concern. Consortium of applicants was formed for the sole purpose of rehabilitating the Corporate Debtor. 13. The learned counsel contended that certain clauses of RFRP are arbitrary. The learned counsel challenged the action of the Resolution Professional and contended that Resolution Plan was submitted as per the direction of the Resolution Professional. The Resolution Plan was submitted within the time limit. However, it was rejected on the ground that the Plan was not complying with the RFRP Guidelines. It is the case of the M/s. Prudent ARC that it has to comply with the RBI Guidelines and also the provisions of the SARFAESI Act, as such it cannot invest or own a company. However, the Resolution Professional has been raising the same objection and finally rejected the same. The contention of the learned counsel is that the ARC is involved in the Consortium to satisfy the turnover requirement. The counsel co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as received on 23.05.2020 and this Plan was also not in conformity with the RFRP. The learned counsel contended that certain clauses in the Resolution Plan are in conflict with the provisions of the RFRP, which are as under: (a) On page 1 of the resolution plan dated 23.05.2020, Clause 1 states: The Resolution Applicant SPV shall not unilaterally change/withdraw the Resolution Plan once submitted to the RP in case there is no Material Adverse Change from the Information Memorandum dated June 2019 provided to the Resolution Applicant. The above excerpt is in contravention of the RFRP. specifically: 3.3.6 The Resolution Applicant cannot unilaterally change/withdraw the Resolution Plan once submitted to the Resolution Professional. (a) On page 10 of the Consortium Plan dated 23.05.2020, Section 5.4(6) states that: RA-1 (Prudent ARC) will not participate in the equity as per extant RBI guidelines. The above excerpt is in contravention of the RFRP, specifically: 3.3.12(vii) The consortium shall collectively hold entire (100%) share capital and the ownership interest in the SPC, if SPC is formed. (b) On page No. 9 and 10, Section Nos. 5.4 and 5.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the evaluation criteria suggest that only top three 'Resolution Applicants' should be negotiated, the Appellant who ranked 6th among the 'Resolution Applicants' cannot have any right to participate for re-negotiation over the decision of the 'Committee of Creditors'. 10. In Committee of Creditors of Essar Steel India Limited Through Authorised Signatory v. Satish Kumar Gupta Ors.-- Civil Appeal Nos. 8766-67 of 2019 etc. , the Hon'ble Supreme Court held that the commercial aspects of a 'Resolution Plan', its viability or otherwise, and, distribution of proceeds amongst stakeholders, were to be looked only by the 'Committee of Creditors' who are competent to go through all relevant aspects. Therefore, this Appellate Tribunal cannot deliberate on such issue. 17. The learned counsel contended that the Resolution Professional has rightly rejected the Resolution Plan and there is no error committed by the Resolution Professional. 18. The question is whether the Resolution Professional committed any error in rejecting the Resolution Plan submitted by the Consortium/applicants herein. The main contention of the learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 3.3.12(vii) of the RFRP, which provides that, (vii) The consortium shall collectively hold entire (100%) share capital and the ownership interest in the SPC if SPC is formed. 21. The Resolution Professional has specifically stated that in the Resolution Plan filed by the applicants, sections 5.4 and 5.5 provide that only RA-2 and RA-3 are responsible and liable for any and all the obligations under the RFRP and for implementation of the Resolution Plan. Clause 5 in the Financial Proposal states that the RA1 is responsible only to the extent of purchasing the debt but will not be liable in the event of any failure to implement the Plan, managing the affairs of the Corporate Debtor. 22. It is the case of the Resolution Professional that the above clause is in contravention to Clause 3.3.12(b)(ix), which provides that, All the members of the consortium shall be jointly and severally liable in respect of obligations under the Bid Document, the Resolution Plan, and for the implementation of the Approved Resolution Plan. 23. It is very clear from the arguments of the learned counsel for the Resolution Professional that the Plan submitted by the applicants is con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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