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TMI Blog2021 (2) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... t continued to persist in raising the same pleas within and outside the proceedings before the NCLAT. The conduct of DVI is lacking in bona fides. The issue however is whether this conduct in raising the untenable plea and in failing to adhere to its obligations under the resolution plan can per se be regarded as a contempt of the order of this Court dated 18 June 2020. DVI was undoubtedly placed on notice of the order that should it proceed in such terms, it would invite the invocation of the contempt jurisdiction. Having said that, it is evident that the order of this Court dated 18 June 2020 rejected the IA moved by DVI and as a necessary consequence, the basis on which the reliefs in the IA were sought. Therefore correctly, it has been now stated on behalf of the DVI that it will not set-up a plea of force majeure in view of the dismissal of its IA on 18 June 2020. However lacking in bona fides the conduct of DVI was, we must be circumspect about invoking the contempt jurisdiction as setting up an untenable plea should not in and by itself invite the penal consequences which emanate from the exercise of the contempt jurisdiction. Likewise, the default of DVI in fulfilling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal - Civil Appeal No. 6707 of 2019 for violation of an order passed by this Court on 18 June 2020- Order dated 18 June 2020 passed in I.A. No. 54321 of 2020 in Civil Appeal No. 6707 of 2019 . (ii) An application for rectification- I.A. No.58156 of 2020 of the order of this Court dated 18 June 2020 instituted by DVI. Both the proceedings are inter-related. Both have been heard together. 2 On 24 July 2017, an application under Section 7 of the Insolvency and Bankruptcy Code 2016 ( IBC ) was admitted by the National Company Law Tribunal ( NCLT ). Mr Dinkar T Venkatsubramanian was appointed as Interim Resolution Professional. He was later confirmed as the Resolution Professional ( RP ). 3 On 31 August 2017, the RP published an advertisement inviting resolution plans from prospective resolution applicants. Resolution plans were submitted by Liberty House Group and DVI. 4 On 6 March 2018, a revised plan submitted by Liberty House Group emerged as the highest evaluated plan, while DVI withdrew its plan. 5 The Committee of Creditors ( CoC ) by a majority of 94.20 per cent approved the final revised plan of Liberty House Group on 2 April 2018. On 25 July 2018, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution plans on 26 September 2019, and the last date for submission of resolution plans was 22 October 2019. The CoC on 23 October 2019 concluded that only one resolution plan was received within the stipulated timeline. DVI submitted a financial proposal on 4 November 2019. In the meantime on 6 November 2019, the CoC moved an IA - I.A. No.168814 of 2019 before this Court seeking an extension of four weeks to consider three resolution offers received by the RP, including that of DVI. On 13 November 2019 when the I.A. came up before this Court, an order was passed that: The consideration to be confined to five offers received within the time specified in the advertisement inviting offers. Two offers received thereafter not to be considered. 9 On 21 November 2019, the CoC again moved an IA - I.A. No.177847 of 2019 for modification of the order dated 13 November 2019 on the ground that while five resolution applicants had responded to the fresh invitation of offers, only one had submitted the resolution plan before the last date specified in the advertisement. 10 On 2 December 2019, the IA seeking modification of the earlier order was partly allowed by this Court b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me day seeking approval of the resolution plan submitted by DVI. While seeking a extension of time of two months before this Court, DVI in its IA inter alia stated that: 4. The Approval Application by the Appellant seeking approval of DVI s Resolution Plan, was listed for hearing on 08.06.2020, when the Applicant submitted that due to Covid-19 pandemic DVI s Resolution Plan (as submitted and approved by the CoC) was unviable and not feasible in the present circumstances and the Respondent No. 3/Applicant required sometime to assess the impact of the Covid-19 pandemic on the Indian economy as well as the Auto Industry (including but not limited to the impact on the overall business and financial health of the Corporate Debtor). It was therefore requested that this Hon ble Court may be pleased to relegate the issue of the approval of a resolution plan to the Adjudicating Authority, so as to enable the parties to re-negotiate the terms of the Resolution Plan and to hear all the stakeholders before approving a resolution plan. [ ] 7 [ ] Based on a prima facie analysis of the said information provided by the RP and subject to a detailed examination and verification, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 14 July 2020. On 14 July 2020, DVI by its email stated that formation of the IMC and the convening of meetings was premature and recorded its intent to institute an appeal against the order of the NCLT dated 9 July 2020 approving the resolution plan. On 21 July 2020, the RP addressed a communication to DVI to implement the resolution plan and submit a performance bank guarantee for the balance INR 150 crores. This was reiterated in a communication dated 23 July 2020 of the CoC to DVI. DVI by its letter dated 25 July 2020 reiterated its intent to lodge an appeal against the order of NCLAT and eventually filed its appeal - Company Appeal (AT) (Insolvency) No. 654 of 2020 before the NCLAT challenging the order of the NCLT dated 9 July 2020. The said appeal is pending adjudication before the NCLAT. On 3 September 2020, DVI addressed an email invoking clause 8.7 of the resolution plan to seek its termination forthwith. The email recorded that: 6. Our client states that in view of outbreak of the COVID-19 pandemic since March 2020 and continuing till date, the business/assets/revenues of the Corporate Debtor have been adversely and materially affected beyond INR 300 crores t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing the Court on the first of the above premises, Mr Rohatgi submitted that the reliefs which were sought in the application that was filed by DVI on 12 June 2020 were in the following terms: (a) Pass an order modifying the Order dated 08.06.2020 to grant a period of 2 (two) months from the date of the Order to the Respondent No. 3/ Applicant to examine and understand the impact of the Covid-19 pandemic and the lock down to discuss the terms of the Resolution Plan with the Committee of Creditors and thereafter direct the NCLT to consider the matter of I.A. No. 48906 of 2020 and pass appropriate orders; (b) Pass an order directing the Committee of Creditors and the resolution professional not to act upon the existing resolution plan until conclusion of the above process, subject to the Applicant/ Respondent No. 3 extending the term of the existing bank guarantee for a corresponding period; 20 It was urged that there was no attempt on the part of DVI to withdraw from the resolution plan. On the contrary, what the IA postulated was that a period of 15 days which was fixed, commencing from 8 June 2020, for the NCLT to pass orders on the approval application had result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth of the corporate debtor. (ii) Despite this Court having rejected the IA on 18 June 2020 : (a) DVI failed to take steps in pursuance of the resolution plan which is approved by the NCLT on 9 July 2020 by (i) failing to submit the second tranche of the performance bank guarantee of INR 150 crores; (ii) failing to provide its nomination to the IMC; (iii) refusing to attend the meetings of the IMC; (iv) setting up through its advocates the plea that a force majeure event had occurred resulting in termination of the resolution plan. (b) This conduct, it has been submitted, is contumacious in that despite being placed on notice by the order of this Court dated 18 June 2020 that: (i) DVI s IA stood dismissed; and (ii) Any attempt to resile from the resolution plan would result in the invocation of the contempt jurisdiction, DVI effectively thwarted the implementation of the resolution plan. The Solicitor General has thus opposed the application for rectification and supported the contempt petition on the above submissions. 21 Adopting a similar line of submissions, Mr Niraj Kishan Kaul, learned Senior Counsel urged that: (i) A plea of force majeur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the prior written consent of the mortgage of the Ace Complex Land whilst executing a long term lease deed on behalf of the Corporate Debtor. By an email dated 29.01.2020, such default was brought to the due notice of the Resolution Professional by the representative of DVI. The aforesaid requirement of obtaining the prior written consent was further reiterated by DVI in the addendum dated 07.02.2020. A copy of the email dated 29.01.2020 is attached as Annexure R-1. (Pages 37-40) 6. It is a matter of record that the aforesaid issues were brought before the National Company Law Tribunal, Chandigarh ( NCLT ) at the time of hearing of the IA filed by the Resolution Professional for the approval of the Resolution Plan. However, the NCLT proceeded to approve the Resolution Plan on 09.07.2020 by inter alia unilaterally modifying the provisions of the Resolution Plan to the detriment of DVI. Respectfully, it is submitted that in the absence of fulfilment of the aforementioned provisions of the Resolution Plan (amongst others), the very implementation/feasibility/ viability of the Resolution Plan and revival of the Corporate Debtor fails into jeopardy. DVI has accordingly exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and. 11. Significantly, the aforesaid requirement of the Execution of a long term lease (subsisting for 20 years or more) for the ACE Complex Land with Acceptable Terms was reiterated in the addendum to the Resolution Plan dated 07.02.2020. 23 During the course of the hearing, Dr Singhvi made the following oral statement namely that the application filed by DVI before the Supreme Court was to consider finding solutions for the delay occasioned by COVID-19. Neither was force majeure pleaded nor has it been pleaded now and only an extension of time has been sought on the ground of Covid-19 . In other words, the submission of Dr Singhvi is that (i) DVI has not set up a plea of force majeure as a basis for withdrawing from the resolution plan; and (ii) Whether the conditions precedent under the resolution plan have been fulfilled is a matter which is sought to be urged in the appeal before the NCLAT. The application for rectification 24 The application for rectification is premised on the assertion that there are two factual misconceptions contained in the order of this Court dated 18 June 2020. Firstly, the order proceeds on the basis that DVI in its IA of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lect what has been decided. The order of this Court dated 8 June 2020 indicates that since the fresh resolution plan had been passed by the CoC with the majority of 70 per cent, the matter of IA namely, IA 48906 of 2020 filed by the CoC was being relegated to the NCLT for passing appropriate orders . There is absolutely no indication in the order of the Court dated 8 June 2020 that the purpose of relegating the IA to the NCLT was to facilitate a fresh evaluation being made by DVI in regard to the impact of the pandemic on the economy, the auto industry and the health of the corporate debtor. DVI, in other words, has attempted to read into the order dated 8 June 2020 a basis which does not find expression in the terms of the order. Such an exercise is plainly impermissible. Secondly, Section 31 of the IBC provides the requirements to be observed, before the adjudicating authority approves the resolution plan. Sub-Sections (1) and (2) of Section 31 are in the following terms: (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any meaningful discussions and negotiations . To assert that there was any scope for negotiations and discussions after the approval of the resolution plan by the CoC would be plainly contrary to the terms of the IBC. DVI, in paragraph 7 of its application stated that it was seeking a clarification/modification for, inter alia, the following reasons: (i) Its management team was based out of the US and found it difficult to travel to India during the course of the pandemic; (ii) The pandemic had had a drastic impact on the business, revenue, assets and financial and operational health of the corporate debtor; (iii) The meeting of the CoC dated 4 May 2020 recorded the performance updates of the corporate debtors bearing on its financial health; (iv) The RP had on 3 June 2020 shared additional information with DVI, which was substantial in its significance; (v) DVI s resolution plan was based on the financials of the corporate debtor prior to the COVID-19 pandemic; (vi) The pandemic had materially and adversely impacted commercial assumptions underlying the business plan and financial proposal for revival of the corporate debtor; (vii) The RP was requiring DVI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowing it to keep the bank guarantee alive until the process of re-negotiation was completed in two months. This again was to overcome the consequence of the invocation of the bank guarantee arising from DVI s default. The prayer seeking a direction to allow DVI to extend the bank guarantee was artfully worded since the effect would be to restrain the invocation of the bank guarantee. One of us (Justice MR Shah) was a member of the Bench which declined to grant relief on the IA filed by DVI on 12 June 2020. But, for the purpose of the present application, this judgment is based on the record as it stands, which leaves no manner of doubt that DVI was seeking to renege on its commitments. When the order of this Court dated 18 June 2020 alludes to the application made by the applicant for withdrawal of the offer , the reference is clearly to the substantive content of the IA which indicates that DVI was not ready to abide by the commitments made by it in the resolution plan. The latter part of the order dated 18 June 2020, placed DVI on notice that if it indulged in such kind of practices in the future, it was to be treated as contempt of this Court in view of the various orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k note of the fact that the CoC was in the process of approving a resolution plan following which an extension of two weeks was granted. DVI submitted an addendum to the resolution plan on 7 February 2020. 29 On 10 February 2020, the CoC sought an extension of a week for the resolution plan to be voted upon by the members of the CoC. On 11 February 2020, the resolution plan of DVI was approved and an affidavit was filed by the RP before this Court on 19 February 2020 reporting the approval of DVI s resolution plan by the CoC. Appropriate directions were sought. This sequence of events leaves no manner of doubt that the extensions which were granted were to facilitate the process initially of inviting resolution applicants to submit their plans and later for the evaluation of the plans which had been submitted. After DVI was found to be the highest evaluated resolution applicant, extensions were sought and granted for the resolution plan to be finalized and voted upon by the CoC. Who sought an extension of time is really beside the point and is of subsidiary importance. Formally it may be true that the extensions were applied for by the CoC, with the RP having apprised this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une 2020, clearly sought to setup a foundation for force majeure. In paragraph 9, DVI pleaded that Covid-19 pandemic has materially and adversely impacted commercial assumptions underlying the business plan and financial proposal for revival of the corporate debtor and the feasibility and viability of the resolution plan . In paragraph 12, DVI urged that the execution of a letter of intent and submission of an additional bank guarantee would mean that the approved resolution plan is being implemented without taking into consideration the changed circumstances, and would be directly in conflict with the intent of discussing the plan after understanding the impact of the changed financial position of the Company and the market as a whole ; (ii) Para 13 of the IA stated that DVI has been placed in an impossible situation where, on one hand the impact of the changed circumstances needs to be taken into consideration for examining the impact of the same on the resolution plan ; (iii) In para 15, DVI submitted that it was imperative that the CoC and the resolution professional do not move forward without first giving it [DVI] the opportunity to examine the impact of the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation dated 3 September 2020 of ELP made on behalf of DVI, Dr Abhishek Singhvi submitted that the submission was not before the NCLAT. However, even this is factually incorrect. 36 Mr Niraj Kishan Kaul, learned Senior Counsel has drawn the attention of the Court to the fact that on 12 September 2020, additional affidavit was filed before the NCLAT where the plea of force majeure was raised by DVI. Besides this, DVI has, despite the approval of the resolution plan, failed to (i) submit a performance bank guarantee for the balance of INR 150 crores; (ii) make a nomination to the IMC; and (iii) failed to attend the meetings of the IMC. 37 The provisions of the IBC are premised on a time bound process for the resolution of corporate insolvencies. Effectively, the conduct of DVI after the CoC approved the resolution plan on 11 February 2020 has thwarted the entire process, thus, bringing things to a stand-still. Alive to the realities of the situation, Dr Abhishek Manu Singhvi, learned Senior Counsel has stated before the Court that in the proceedings which are pending before the NCLAT, DVI shall not plead force majeure based on the outbreak of the Covid-19 pandemic. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the contempt petition while seeking to urge that DVI will be within in its rights to urge whether the conditions precedent to the enforcement of the resolution plan have been fulfilled. Since DVI is in appeal before the NCLAT, we express no opinion on the merits of the submission. The NCLAT will take a view on the tenability and merits of the submission of DVI that the conditions precedent under the resolution plan have not been fulfilled after hearing the parties. This is not an issue which arises before the Court in the present proceedings either upon the application for rectification moved by DVI or the contempt petition moved by the CoC. 39 For the above reasons, our conclusions and directions are that : (i) There is no merit in the application for rectification moved by DVI. IA No. 58156 of 2020 in Civil Appeal No 6707 of 2020 shall stand dismissed; (ii) It is not expedient in the interest of justice to pursue the contempt proceedings. The Contempt Petition (C) No. 524 of 2020 in Civil Appeal No. 6707 of 2019 shall accordingly stand dismissed, subject to (iii) below; (iii) In terms of the submission which has been made by DVI before this Court and even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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