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TMI Blog2024 (6) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... approval of the Resolution Plan submitted by M/s. Eagle Fashions Private Ltd & Anr. Both the RP and Successful Resolution Applicant (SRA) aggrieved by rejection of the Resolution Plan has come up in these appeals. 2. Brief facts giving rise to these appeals are: i. On an application filed by the IDBI bank under Section 7, Corporate Insolvency Resolution Process (CIRP) commenced against the Corporate Debtor, Sumeet Industries Ltd. by order dated 20.12.2022. ii. On 04.03.2023, Interim Resolution Professional (IRP) was replaced and Mr. Satyendra Prasad Khorania was appointed as a RP. iii. Registered valuers were appointed in Second Committee of Creditors (CoC) Meeting iv. Form G was issued and thereafter Request for Resolution Plan (RFRP) and evaluation matrix was issued, in response to the RFRP, 5 Resolution Plans were received. v. The CoC considered the Resolution Plan received in the CIRP of the Corporate Debtor and the CoC in its commercial wisdom approved the Resolution Plan submitted by M/s. Eagle Fashions Private Limited & Ors. with 74.90% voting shares. vi. Letter of Intent (LoI) was issued on 20.11.2023 by the RP to SRA who unconditionally accepted the LoI. vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively. This is far higher than the Resolution Plan Value. b) There has been a Swiss Challenge Method followed to select the highest bidder, however, a pending IA filed by one of the Resolution Applicants reveals that the present applicant has been approved at a later stage after declaring the Highest 1 Bidder i.e. M/s C H Gajera. While his plan was rejected at a later stage merits of this application, particularly when it was far lower than the Fair Value and Liquidation Value were not assessed by the CoC. The COC did not approve an RFRP with a floor price keeping in mind the realizable value as per valuation as the bid price where far lower than the estimated fair and liquidation values. Even if there was a Swiss auction the realization through the plans submitted is considered to be way far from the probable realization of the assets of the entity. c) The RP has not submitted a copy of the RFRP and the Information Memorandum to further verify the facts and it is also observed that the original applicant's financial creditor for initiating the CIRP had dissented from the approval of the Resolution Plan and the reasons for dissent, if any have not been recorded. d) An opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the valuation is also not provided by the RP to this Tribunal and it is also observed that as per Regulation 39(4) of the IBBI (CIRP) Regulations, 2016, the copy of the receipt of performance security required under sub-regulation (4A) of Regulation 36B of the IBBI (CIRP) Regulations, 2016 not attached with the Compliance certificate. i) The copy of the minutes of the meeting of the 8th CoC meeting that was held on 28.07.2023 is also not attached to the application wherein the process of the Swiss challenge was carried out. j) The RP has not made the Operational Creditor - Statutory Authorities who were not paid in terms of Section 30(2)(b) of IBC Code, 2016. k) It is observed that the Resolution Plan as approved by the CoC does not confirmed to the requirements of Section 30 of the IBC." 8. Observation in sub-Para (a) of the Adjudicating Authority is that fair value and the liquidation value of the Corporate Debtor is higher than the Resolution Plan Value. It is settled by the Judgment of the Hon'ble Supreme Court in `Maharashtra Seamless Steel Ltd.' Vs. `Padmanabhan Venkatesh & Ors.' in Civil Appeal No. 4242 of 2019, that a Resolution Plan can be approved with the commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r selling the assets of the Corporate Debtor as a going concern through Resolution Process has been undertaken. However, later part of the observation indicates that challenge process was undertaken and process complies and seems to have gone through the process of due diligence. In observation (f), Adjudicating Authority has noticed the limited jurisdiction to review the commercial wisdom of CoC and has also referred to the Judgment of the `Committee of Creditors of Essar Steel India Limited' Vs. `Satish Kumar Gupta & Ors.' in (2020) 8 SCC 531, and `Maharashtra Seamless Steel Ltd.' Vs. `Padmanabhan Venkatesh & Ors.' in Civil Appeal No. 4242 of 2019. In observation in Para (g), it has noticed that Customs and State Tax Department has filed their claim i.e. Rs. 55.20 Crores, but the claim was not admitted and no reasons have been given for the same at Schedule 4. Further in the Resolution Plan, the Resolution Applicant paid a NIL amount regarding the statutory dues which is against the provision of Section 30(2) of the Code. We fail to see any reason in the above observation when the claim of Customs & State Tax Department was not admitted, there was no reason of allocating any amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Essar Steel India Limited' (Supra) as has been noticed by the Adjudicating Authority itself. Hon'ble Supreme Court in `Committee of Creditors of Essar Steel India Limited' (Supra) has held that Adjudicating Authority's jurisdiction is circumscribed by Section 30(2). `Committee of Creditors of Essar Steel India Limited' (Supra) has referred to earlier Judgment of the Hon'ble Supreme Court in the case of `K. Sashidhar' Vs. `Indian Overseas Bank & Ors.' (2019) 12 SCC 150 in Paragraph 67 of the Judgment of the `Committee of Creditors of Essar Steel India Limited' (Supra) following has been held: "67. After adverting to the 2016 Regulations, the Court in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] set out the jurisdiction of the Adjudicating Authority as well as the Appellate Tribunal as follows: (K. Sashidhar case [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] , SCC pp. 185-89, paras 55-59, 62 & 64) "55. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan "as approved" by the requisite per cent of voting share o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '61. Appeals and appellate authority. - (1) Notwithstanding anything to the contrary contained under the Companies Act, 2013 (18 of 2013), any person aggrieved by the order of the adjudicating authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2)*** (3) An appeal against an order approving a resolution plan under Section 31 may be filed on the following grounds, namely - (i) the approved 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.' 57. On a bare reading of the provisions of the I&B Code, it would appear that the remedy of appeal under Section 61(1) is against an " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers. 59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority per cent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 6-6-2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in Chapter III of the I&B Code, is avoidable, only if approval of the resolution plan is by 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution 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 professional is not required to express his opinion on matters within the domain of the financial creditor(s), to approve or reject the resolution plan, under Section 30(4) of the I&B Code. At best, the adjudicating authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I&B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors - be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the appellate authority (NCLAT) is limited to the grounds under Section 61(3) of the I&B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting. To take any other view would enable even the minority dissenting financial creditors to question the logic or justness of the commercial opinion expressed by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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