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TMI Blog2024 (3) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory compliances of the Application. The provisions of Section 54A and 54C, where under Section 54C, sub-section (4), the Adjudicating Authority is required to admit the Application, if it is complete or reject the Application, if it is incomplete. In paragraphs 10 to 16 of the impugned order, the Adjudicating Authority itself has noticed that all necessary compliances are fulfilled by the Corporate Debtor in filing Application under Section 54C. Thus, when accordingly to the Adjudicating Authority itself, all necessary compliances have been completed by the Corporate Applicant, whether the Adjudicating Authority could have entered into issue of Base Resolution Plan and reject the Application on the ground that Base Resolution Plan is not acceptable is a question to be answered. In the present case, the Adjudicating Authority has rejected 54C Application after entering into the merits of the Base Resolution Plan, which is not contemplated by statutory Scheme. The order of Adjudicating Authority, thus, rejecting the Application under Section 54C entering into Base Resolution Plan, is thus, contrary to the statutory Scheme of Chapter III-A and on this ground itself the order beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the Adjudicating Authority committed error in rejecting the Application of the Appellant by entering into adjudication with regard to Base Resolution Plan, which was not the stage for consideration. It is submitted that Application filed by the Appellant under Section 54C was fulfilling all eligibility as provided under Section 54A and Application was complete in all respect. The Adjudicating Authority under Section 54C was only required to look into as to whether the Application fulfills eligibility and on the basis of the Application, Adjudicating Authority was to either admit or reject the Application. The question of adjudication of Resolution Plan has to be undertaken at a later stage under Section 54K, on which stage, the Adjudicating Authority has to examine whether Resolution Plan is to be approved or not. At the time of admission of the Application under Section 54C, there was no occasion for entering into Base Resolution Plan. The Adjudicating Authority at the stage of admission has rejected the Base Resolution Plan, which is contrary to the scheme of the IBC. The Adjudicating Authority erroneously returned a finding that Application of the Appellant is not intende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be specified, have proposed the name of the insolvency professional to be appointed as resolution professional for conducting the pre-packaged insolvency resolution process of the corporate debtor, and the financial creditors of the corporate debtor, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, have approved such proposal in such form as may be specified: Provided that where a corporate debtor does not have any financial creditors, not being its related parties, the proposal and approval under this clause shall be provided by such persons as may be specified; (f) the majority of the directors or partners of the corporate debtor, as the case may be, have made a declaration, in such form as may be specified, stating, inter alia, that (i) the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding ninety days; (i) the pre-packaged insolvency resolution process is not being initiated to defraud any person; and (ii) the name of the insolvency professional proposed and approved to be appointed as resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval of financial creditors for initiating pre-packaged insolvency resolution process in terms of section 54A; (b) the name and written consent, in such form as may be specified, of the insolvency professional proposed to be appointed as resolution professional, as approved under clause (e) of sub-section (2) of section 54A, and his report as referred to in clause (a) of subsection (1) of section 54B; (c) a declaration regarding the existence of any transactions of the corporate debtor that may be within the scope of provisions in respect of avoidance of transactions under Chapter III or fraudulent or wrongful trading under Chapter VI, in such form as may be specified; (d) information relating to books of account of the corporate debtor and such other documents relating to such period as may be specified. (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order, (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete: Provided that the Adjudicating Authority shall, before rejecting an application, give notice to the applicant to rectify the defect in the application within seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appointment of Insolvency Professional, Manish Motilal Jaju having Registration No. IBBI/ IPA-001/IP-P00034/2016-17 /10087, holding AFA Certificate No. AA1 / 10087/ 02/170124/ 105393 email: [email protected] and the proposed Insolvency Professional has filed his written consent in form P1. It is annexed as Annexure H with the Petition, thereby complying with the provisions of Section 54A(2)(e) of IBC, 2016 read with Regulation 14(5) of IBBI (Prepackaged Insolvency Resolution Process) Regulations, 2021. The said Insolvency Professional is proposed to be appointed as Resolution Professional to conduct the PPIRP and to discharge duties before initiation of PPIRP. The resolution for appointment of Insolvency Professional was voted by 100% vote. 15. The Resolution Professional's Report dated 21.08.2023 under Section 54B (l)(a) of the Code read with Regulation 17 of IBBI (Pre-packaged Insolvency Resolution Process) Regulations, 2021 in Form-P8 is annexed as Annexure Q with the Petition. 9. In paragraph 16 of the impugned order, the Adjudicating Authority has noticed the Compliance with Provisions of Section 54C . Paragraph 16 of the order is as follows: 16. Compliance with Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulations, 2015 and Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and SEBI (SAST) Regulations and any other applicable laws and Regulations shall be dispensed off in implementing this plan; (b) The Approval of Resolution Plan shall be deemed approval as specified above in point XII (1 to 12) as required under the Companies Act, 2013, SEBI (LODR) .. Regulations, 2015, SEBI (!CDR) Regulations, 2011, and any other applicable laws, rules, Regulations, and schedule etc. In other words, the Plan seeks exemption from compliance to SEBI Takeover Regulations. 21. From these facts we find that present application is not intended towards resolution of the Corporate Debtor but is an attempt to circumvent the Takeover Regulations of SEBI by bringing M/ s WZ Enterprises Private Limited in control in place of existing promoter group led by Mr. Mahesh Gordhandas Garodia. The fact of the payments towards listing fees and NSDL charges made by M/s WZ Enterprises Private Limited immediately prior to filing of this Application, no business carried out by the Corporate Debtor in the last 3 years as discernible form NIL revenue reported in the Audited Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor in filing Application under Section 54C. Thus, when accordingly to the Adjudicating Authority itself, all necessary compliances have been completed by the Corporate Applicant, whether the Adjudicating Authority could have entered into issue of Base Resolution Plan and reject the Application on the ground that Base Resolution Plan is not acceptable is a question to be answered. 14. We may first notice the Report of the Insolvency Law Committee on Pre-Packaged Insolvency Resolution Process, July 2021, which dealt with admission of an Application for Pre-packaged Insolvency, has stated following in paragraph 4.8: 4.8. Once an application for initiating the pre-pack process is filed by the corporate debtor, the Adjudicating Authority shall pass an order either admitting or rejecting the application. The Committee discussed that the Adjudicating Authority should analyse if the application is complete and if the corporate applicant has submitted the requisite documents along with the application. Based on the contents of such application, the Adjudicating Authority may assess if the corporate debtor is eligible for the pre-pack process and if it has complied with the pre-initiati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration and approval of resolution plan. (1) The corporate debtor shall submit the base resolution plan, referred to in clause (c) of sub-section (4) of section 54A, to the resolution professional within two days of the prepackaged insolvency commencement date, and the resolution professional shall present it to the committee of creditors. (2) The committee of creditors may provide the corporate debtor an opportunity to revise the base resolution plan prior to its approval under sub-section (4) or invitation of prospective resolution applicants under sub-section (5), as the case may be. (3) The resolution plans and the base resolution plan, submitted under this section shall conform to the requirements referred to in sub-sections (1) and (2) of section 30, and the provisions of sub-sections (1), (2) and (5) of section 30 shall, mutatis mutandis apply, to the proceedings under this Chapter. (4) The committee of creditors may approve the base resolution plan for submission to the Adjudicating Authority if it does not impair any claims owed by the corporate debtor to the operational creditors. (5) Where (a) the committee of creditors does not approve the base resolution plan under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission to the Adjudicating Authority: Provided that where the resolution plan selected for approval under sub-section (11) is not approved by the committee of creditors, the resolution professional shall file an application for termination of the pre-packaged insolvency resolution process in such form and manner as may be specified. (13) The approval of the resolution plan under subsection (4) or sub-section (12), as the case may be, by the committee of creditors, shall be by a vote of not less than sixty-six per cent. of the voting shares, after considering its feasibility and viability, the manner of distribution proposed, taking into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified. (14) While considering the feasibility and viability of a resolution plan, where the resolution plan submitted by the corporate debtor provides for impairment of any claims owed by the corporate debtor, the committee of creditors may require the promoters of the corporate debtor to dilute their shareholding or voting or control r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CoC under Section 54K. The statutory Scheme as noticed above, thus, clearly indicates that there is no occasion for consideration of Base Resolution Plan at the time of consideration of Application under Section 54C for admission or rejection. In the present case, the Adjudicating Authority has rejected 54C Application after entering into the merits of the Base Resolution Plan, which is not contemplated by statutory Scheme. The order of Adjudicating Authority, thus, rejecting the Application under Section 54C entering into Base Resolution Plan, is thus, contrary to the statutory Scheme of Chapter III-A and on this ground itself the order becomes unsustainable. 19. We, however, also proceed to examine the reasons given by the Adjudicating Authority. The observations made in the impugned order, indicate that the Adjudicating Authority noticed that under the Base Resolution Plan, the Corporate Applicant is bringing M/s WZ Enterprises Pvt. Ltd. in control in place of existing promoter group. The Base Resolution Plan was filed by Corporate Applicant along with M/s WZ Enterprises Pvt. Ltd. M/s WZ Enterprises Pvt. Ltd. is a Financial Creditor of the Corporate Debtor, who had granted nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also relied on the amendment dated 31.05.2018 in Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ( SEBI Regulations ). By amendment dated 31.05.2018, a proviso has been inserted in Regulation 3, sub-regulation (2), which is as follows: 3.I. in regulation 3, in sub-regulation (2), after the proviso and before the explanation to sub-regulation (2), the following proviso shall be inserted, namely,- Provided further that, acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No.31 of 2016] shall be exempt from the obligation under the proviso to the sub-regulation (2) of regulation 3. 24. It is clear that the said amendment was brought on 31.05.2018 and the resolution approved under Section 31 has been referred to, at that time Section 54A was not in statute. When an exemption has been granted to the Resolution Plan approved under Section 31 of the IBC, the question whether resolution under Chapter III-A is also covered by proviso, was a question, which was required to be considered. The Adjudicating Authority without adverting to the said amendment has come to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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