9911796707
TMI Blog2019 (9) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... process of submission, finalisation and filing of the resolution plan for approval of this Adjudicating Authority as being vitiated by misrepresentation and/or mutual mistake of fact and also seeking stay on encashment of Bid Bond Guarantee. 2. It is stated in the Application that on 20.04.2018 Deccan had submitted a Bid Bond Guarantee dated 13.04.2018 for Rs.40crore as required under the Process Memorandum. Subsequently, Deccan submitted its resolution plan on 30.04.2018, and the plan was approved by the Committee of Creditors (CoC) on 28.08.2018. 3. It is stated that on 04.09.2018, 05.09.2018, 08.10.2018 and 09.10.2018 the representatives of Deccan conducted various meetings with the Resolution Professional and the management of the Corporate Debtor and visited various plant sites of the Corporate Debtor during which it is alleged that Deccan came to know material and contradictory information regarding production capabilities of the Corporate Debtor that are said to have material impact on the viability of the resolution plan. 4. The Resolution Professional, vide its letter dated 15.10.2018, called upon Deccan to submit the performance guarantee. In reply to this demand of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that Deccan are merely seeking time to negotiate and submit revised resolution plan in light of new material facts and circumstances and the CoC shall not encash the Bid Bond Guarantee as it would be highly detrimental to Deccan. 10. The Resolution Professional has filed its Affidavit in Reply date 07.12.2018stating that this application by Deccan is an attempt to renegotiate the terms of its approved resolution plan, which is conclusive and binding. It is submitted that ambit of examination, by the Adjudicating Authority, of an application under section 31 is limited and cannot be expanded beyond those stipulated in the section to decide disputed questions of fact and any triable issues. It is further submitted that the I&B Code does not have any provision for withdrawal of a resolution plan in contrast with the section 12A that provides for the withdrawal of application filed under section 7, 9 or 10 of I&B Code. 11. The Resolution Professional had prepared a data room for ease of access to data by the potential resolution applicants to enable them to make an informed decision after conducting their due diligence. This data room is said to have contained information of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal preferred by 'Tata Steel Limited' is premature, uncalled for, in absence of any final decision taken by the Adjudicating Authority under Section 31, this appeal is not maintainable" 14. It is further submitted that, in case of Arcelor Mittal India Private Limited v. Satish Kumar Gupta &Ors. (Civil Appeal Nos. 9402-9405 of 2018 etc.), the Hon'ble Supreme Court has held: "75. What has now to be determined is whether any challenge can be made at various stages of the corporate insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage, is it open to the concerned resolution applicant to challenge the Resolution Professional's rejection? It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable.... 76. Given the timeline referred to above and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage. A writ petition under Article226 filed before a High Court would also be turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings." 15. Given the above, it is submitted that in terms of the Code, a Resolution Plan can only be challenged, once the resolution plan has not only been approved by the Committee of Creditors but has also passed the muster before the Adjudicating Authority. In view thereof, Deccan has no right to challenge, withdraw or modify the resolution plan, pending the adjudication of the Adjudicating Authority. 16. It is submitted that Deccan, by participating in the process for submission of the Resolution Plan, is bound by the terms of the Process Note which is "irrevocable and binding on the Shortlisted Applicant". Further, the Resolution Applicants cannot unilaterally change/withdraw the financial bid or resolution plan, once the same has been submitted to the Resolution Professional. Moreover, the Resolution Plan has already been approved by the CoC and the LOI, confirming Deccan has also accepted such approval of Resolution Plan. 17. The Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of 3059 M.T. (which would potentially annualise to around 36,078 M.T.). 22. However, it was made clear that Deccan, vide their independent due diligence is required to ascertain the production capacity of the Corporate Debtor, based on the details of the machinery provided and after conducting a physical inspection at the site of the condition of the equipment, if necessary along with their specialised/advisory experts. 23. The Resolution Professional also gave detailed financial information with the plant-wise profit and loss statements, including specific classification of the revenues for the year 2015-16 and 2016-17 and for the six months up to September 2017 into "Manufacturing" and "Trading/Metals". These were part of the "H.O. Model" placed in the VDR and made available to all potential Resolution Applicants. 24. Based on the information available and their due diligence exercise, Deccan, with the aid of their experts, submitted their Resolution Plan. For their calculation purposes, Deccan appear to have taken into account the total revenue and price to arrive at annual production capacity. This is their exercise, based on the correct figures provided by the RP. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional has opposed Deccan's case that since corporate insolvency resolution process has been commenced with respect to Clover, the press may not be available for Deccan, and this has led to the Resolution Plan of Deccan being impossible to be implemented as an attempt to resile from binding and irrevocable Resolution Plan approved by the COC. 31. It was pointed out that as per Resolution Professional's understanding, Deccan itself has participated in the CIRP process of Clover and has submitted an expression of interest for Clover. Further, as is admitted by each party, the Resolution Professional had negotiated and agreed to a lease agreement between Corporate Debtor and Clover. The Clover land could also be made available to Deccan using a simple application in the CIRP of Clover by Deccan. 32. It is submitted that Deccan had arranged an inspection of 12,500 Ton press by the SMS team, which was facilitated by the Resolution Professional in good faith. The SMS team stated during their visit to Aurangabad that each of the 100 Crates (which contain different parts of the 12,500 M.T. Press) have been packed by SMS in 3 protective layers of packaging. The SMS team, based on their rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Successful Applicant, as the case may be" 38. Given Deccan's failure in providing the performance guarantee, the State Bank of India invoked the Bid Bond through a letter dated 23rd October 2018. Moreover, the invocation of the Bid Bond could not have limited the rights and remedies available to the Resolution Professional under law or otherwise against Deccan. 39. In terms of Clause 1.9.1 of the Process Note, the COC was provided with discretion whether or not to treat the non-submission of the performance guarantee by the successful applicant as an event which leads to cancellation of LoI. The relevant portion of the Clause 1.9.1 of the Process Note reads thus:- "It is hereby clarified that non-submission of the Performance Guarantee by the Successful Applicant, along with the acceptance of the LoI, shall lead to cancellation of LoI issued by the CoC, unless determined by the CoC at its sole discretion." 40. It was thus the sole discretion of the CoC whether or not to treat the LoI as revoked/cancelled given the non-submission of the performance guarantee by Deccan. By exercising its discretion, the CoC through the letter dated 23rd October 2018, while invoking the bid bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's present application. 44. It is stated that on a bare perusal of the resolution plan it is apparent that Deccan made representations to the CoC about their capacity and their intent, to convince the CoC of their ability to perform the Resolution Plan and eliminate other potential bidders. It is stated that if Deccan is allowed to resile from its resolution plan at this belated stage, the Corporate Debtor will be forced into liquidation, causing huge loss to the CoC. 45. About the invoking of the Bid Bond Guarantee, it is submitted that as per the Letter of Intent and the Process Note, Deccan was required to submit the Performance Bank Guarantee on or around 08.09.2018. Deccan admittedly failed in submitting the Performance Bank Guarantee, and therefore the CoC invoked the Bid Bond Guarantee strictly as per the terms of the Bid Bond Guarantee. 46. We have heard the Ld. Counsels appearing from both the sides and perused the records. 47. It is stated that Deccan submitted its resolution plan dated 30.04.2018 and subsequent addenda to it dated 20.08.2018 and 23.08.2018 based on the several representations made by the Resolution Professional and the CoC. However, subsequent to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the 2018 MM Report that Deccan resolution plan was 'conservative' is incorrect. 48. It is noted that the Committee of Creditors discussed the 2018 MM Report with the RP, following which the Resolution Applicants were requested to increase the bid-offer made, as is evident from the minutes of the Meeting held on 21st August 2018. The Resolution Professional has also sought to distance himself from the 2018 MM Report which he commissioned. 49. It is further stated that in the interactions and/or meetings held on 4th/5th September 2018 and 8th October 2018, it emerged that the realistic production volume from the existing facilities represented by the RP's team was not higher than 25 % - 30% than the prevailing levels [i.e. 25% - 30% higher than average monthly production volume during the CIRP of 3059 MT per month, with a peak of 3513 MT in March 2018 therefore, potentially between approx. 36,000 MTPA - 42,000 MTPA and confirmed by the management team of the Corporate Debtor to be no higher than 5500 MT per month in its history (i.e. potentially only 66,000 MT per annum). It is to be noted that even this level was never actually achieved in a single month - it was derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue of the Corporate Debtor would come from trading, and not from manufacturing, which would mean that the Corporate Debtor's business has been misrepresented to bidders as a primarily manufacturing company, and the size and scale of the purported revenues from manufacturing were also misrepresented. 54. With regard to the installation and utilization of the 12.5K ton press, it is submitted that at the meeting held on 05.09.2018, and thereafter, by way of the Resolution Professional's letter dated 23.10.2018 it was informed that the 12,500 ton Press that was proposed to be installed as part of Deccan's Resolution Plan, would only be installed on-premises owned by a third-party, Clover Forgings and Machining Pvt. Ltd. ("Clover") and that it is not possible to install the 12.5k ton Press at the Aurangabad plant of the Corporate Debtor. It was also pointed out that insolvency resolution proceedings had been admitted in respect of Clover, by way of an Order dated 4th December 2018 of the National Company Law Tribunal, New Delhi Bench. 55. It may be noted that once the CIRP is admitted against the Clover, the Resolution Professional cannot enter into a lease agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the negotiations. Finally, she is responsible for inviting and collecting proposals of solutions to keep the entity going. In this role, she is responsible for managing the process through which to invite proposals from the overall financial market, rather than just the creditors and debtor. The Committee discussed that this could include other potential market participants, such as other financial institutions, asset reconstruction companies, foreign financiers, strategic investors, other firms and minority shareholders in the entity. Part of the task of the RP is to ensure as much equality of information about the entity to all participants in the negotiations as is possible. Thus, the RP needs to ensure several features in the IRP, giving priority to the need to preserve time value and equality in negotiations in the process. 1. The RP must provide the most updated information about the entity as accurately as is reasonably possible to this range of solution providers. In order to do this, the RP has to be able to verify claims to liabilities as well as the assets disclosed by the entity. The RP has the power to appoint whatever outside resources that she may require in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l solution to selection by the majority vote from the creditors committee." 60. Thus, on perusal of the above report, regarding the role of the Resolution Professional about the preparation of the Information memorandum, it is clear that Resolution Professional is duty-bound to provide the most updated information about the entity as accurately as is reasonably possible to this range of solution providers. 61. It is also the duty of the Resolution Professional to prepare the Information Memorandum, in order for the prospective investors to provide solutions to keep the entity as a going concern, the information memorandum must be made available to potential financiers within a reasonable period of time and if the information is not comprehensive, the Resolution Professional must put out the Information Memorandum with a degree of completeness and the information that she is willing to certify. In the report, an example is also given that the part of the Information Memorandum; the Resolution Professional must clearly state the expected shortfall in the coverage of liabilities and assets of the entity presented in the Information Memorandum. The Resolution Professional also must m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delays. Consumers in a well functioning market for IPs are likely to have greater trust in the overall insolvency resolution system. On the other hand, poor quality services, and recurring instances of malpractice and fraud, erode consumer trust."(Emphasis supplied) 63. It is also to be noted that the Hon'ble Supreme Court in the case of Mobilox Innovations (P) Ltd vs. Kirusa Software (P) Ltd (2018 1 SCC 353, while tracing the background of the I&BCode, referred to the "Legislative Guide on Insolvency Law of the United Nations Commission on International Trade Law" and the following pertinent provisions/clauses thereof: '11. An insolvency law should be transparent and predictable. This will enable potential lenders and creditors to understand how insolvency proceedings operate and to assess the risk associated with their position as a creditor in the event of insolvency. This will promote stability in commercial relations and foster lending and investment at lower risk premiums. Transparency and predictability will also enable creditors to clarify priorities, prevent disputes by providing a backdrop against which relative rights and risks can be assessed and help define the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted purpose of the due diligence of the resolution applicants. 68. The Applicants were entitled to rely on the data provided in the VDR and to proceed on the basis that the said data was accurate in its representation of the Corporate Debtor, especially since the Applicants were only afforded a 2-2.5 hour walk-through site visit at the plants of the Corporate Debtor prior to Submission of the resolution plan. The said site visit in no manner would enable the Applicants to assess the technical capacity of the Corporate Debtor correctly, and this visit does not give/afford any basis to the Resolution Professional and the COC to assert that there was either full knowledge or awareness on the part of the Applicants, considering that the Resolution Professional himself states that even a six month period was insufficient to conduct due diligence. 69. It is pertinent to mention that "Due Diligence" a key challenge when acquiring an asset under Insolvency and Bankruptcy Code. The issue is that the asset you would not get everything -not all the information, not all the assets, as the Resolution Professional is himself is struggling in managing the business and is not an Industry Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, after considering its feasibility and viability, and such other requirements as may be specified by the Board." 74. Thus, a resolution plan is to be approved by the CoC only after being satisfied that it is feasible and viable. This clearly implies that if a resolution plan is not viable and found unfit for implementation or does not have proper provisions for its successful implementation or is based on incorrect assumptions which would lead to failure of the resolution plan and eventual, inevitable death of the Corporate Debtor, then the CoC ought to reject such a Resolution Plan. Regulation 38(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that the resolution plan shall demonstrate with (a) it addresses the cause of default, (b) it is feasible and viable, (c) it provides for effective implementation, (d) it provides for approvals required and the time lime for the same, and (e) the Resolution Applicant has the capability to implement the resolution plan. 75. Thus,it is clear that mandatory contents of the resolution plan as provided in the Resolution Process Regulations provides that the resolution plan should be feasible a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 was relating to the production capacity of the corporate debtor,though it was admittedly prepared for the particular purpose for inviting investment, was uploaded in VDR at the instance of Resolution Applicant has derailed the Resolution Plan. It is on record that the Resolution Professional had negotiated a lease agreement for installation of the 12.5k ton Press with Clover. However, the land on where press was to be installed, was of sister concerns land, i.e. Clover, which also went into CIRP, that created uncertainty over the lease and installation of the said Press. 79. The resolution Professional cannot be said to have misrepresented any fact or misled the Resolution Applicant in any way as he has always represented and communicated the facts about the 2016 MM Report and has never represented otherwise. This conduct of Resolution Professional is also not controverted by the applicant. The Resolution Professional provided detailed financial information to all the potential resolution applicants with plant wise profit and loss statements, including specific classification of the revenue during those years into "Manufacturing" and "Trading / Metals" for the period between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants to provide a Bank Guarantee of Rs.40,00,00,000/- from an India Bank along with the Financial Bid which shall be valid for atleast six months from the last date for submission of the resolution plan as may be amended. The non-submission of the Bid Bond Guarantee along with the Financial Bid would lead to rejection of the Financial Bid. 84. The Bid Bond Guarantee is to be returned to the applicants who are not shortlisted within 45 days from the declaration of the list of shortlisted applicants or in case of expiry of the resolution plan validity period, whichever is earlier. Further, the Bid Bond Guarantee is to be returned to the shortlisted applicants who are not selected as Successful Applicant within 45 days from the declaration of the Successful Applicant or in case of expiry of the resolution plan validity period, whichever is earlier. The Bid Bond Guarantee is to be returned to the Successful Applicant upon submission of Performance Guarantee and signing of Letter of Intent by such Successful Applicant. 85. Thus, BBG is to be submitted by an applicant at the initiation of the resolution plan process at Stage-I and is returned when either the applicant is not shortlist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted Applicant or Successful Applicant, as the case may be." 87. Further, the BBG is forfeited in the following conditions which also leaves the financial bid or the resolution plan rejected: (a) the Applicant fails to provide the Bid Bond Guarantee in the format and the as per conditions as specified in Clause 1.8.1 of the Process note and the clause 1.8.1 itself provides that non-submission of the BBG would lead to rejection of the Financial Bid; or (b) in case of any non-compliance with the Resolution Plan Process or unilateral change by the Shortlisted Applicant to the Resolution Plan submitted by it and if the Financial Bid or the Resolution Plan is not in compliance of the Process note it will be rejected as per the clause 1.13.4 and 1.13.7; or (c) in case of non-submission of Performance Guarantee by the Successful Applicant and this would also lead to cancellation of the Letter of Intent, as per discretion of the CoC under clause 1.9.1; or (d) if any of the conditions under this Process Note are breached by the relevant Applicant this also would lead to rejection of the Financial Bid. 88. Thus, the purpose of the Bid Bond Guarantee is to serve as security for adh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant has also affected the viability and fesibility of the Resolution Plan, hence liable to be rejected. 91. It is also well-established that the object of the I&B Code is not liquidation of the Corporate Debtor but resolution of the insolvency situation. This is clear by the Preamble of the I&B Code and more specifically explained by the Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. &Anr. Vs Union of India &Ors. (WRIT PETITION (CIVIL) NO. 99 OF 2018) judgment dated 25.01.2019 in the following extracts of the judgment: "11. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment of the commitment by the resolution applicant which resulted in expiry of CIRP period available under section 12 of the I&B Code. Further, the Apex Court also considered that as per The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (No. 26 of 2019) with effect from 16.08.2019, by which the resolution process may be permitted to be completed within 90 days from the date of the commencement of the Amendment Act and there were eight other parties which have submitted their expression of interest. The relevant portion of the Amtek order (supra.) is reproduced below: "It is submitted by the learned Solicitor General appearing on behalf of the Committee of the Creditors of Amitek Auto Limited that a resolution plan was prepared that has failed owing to nonfulfillment of the commitment by Liberty House. That has consumed the time which was available as per the provisions contained in Section 12 of the Insolvency and Bankruptcy Code, 2016. Our attention has also been drawn to the third proviso by virtue of the Amendment Bill, 2019 with effect from 16.08.2019, by which the resolution process may be permitted to be completed within 90 days from the date of the commencement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above observations and decision, is rejected. We further pass an order for inviting fresh Bid. 96. We are of the considered opinion that the entire Resolution Process was derailed and the Resolution Applicant withdrew its Plan, on account of uploading of M.M.Report 2016 which contains misleading and incorrect information in the VDR and further by non-availability of the lease of the land where the 12500 Tons of Press was to be installed. Therefore the applicant will also be allowed to submit fresh bid based on same BBG,to avoid the Liquidation of the Corporate Debtor. However, it will be the sole discretion of the CoC to either approve or disapprove the Resolution Plan. It is further clarified that the Resolution Applicants will not be entitled to refund of forfeited amount of BBG in case fresh Bid of Resolution Applicant is not accepted or Resolution Applicant didn't participate in fresh Bidding process. 97. Considering the recent order of the Hon'ble Supreme Court in Amtek Auto (supra.) and the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the Resolution Professional and the CoC is directed to invite the fresh offers within a period of 21 days from the date of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
