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TMI Blog2024 (9) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... by the PRAs and fell short of his statutory obligations to ensure that the interests of all stakeholders are protected before placing the same before the CoC for its approval - failure on the part of CoC to apply its commercial wisdom in a proper manner - error on the part of Adjudicating Authority in approving the resolution plan of the SRA or not. HELD THAT:- The democratic principles of a determinative role of majority opinion in the decision making process of CoC is well established. When the resolution plan has been approved by the CoC with requisite majority and after holding due deliberations, the decision becomes a collective business decision. There are no hesitation in holding that in facts of the present case, when the CoC stood properly constituted and it approved the resolution plan after holding due deliberations and with prescribed requisite majority, there is no foundational basis to agree with the bald assertion made by the Appellant that the principles of corporate democracy has not been upheld. Regardless of the composition of CoC, the IBC places the CoC in control of the insolvency resolution process. For this purpose it has provided for different threshold lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant : Mr. A.N. Ray, Sr. Advocate with Mr. Gaurav H. Sethi, Advocates For the Respondents : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Nicholas Choudhury, Mr. Kartik Bhatnagar and Mr. Akash Chatterjee, Advocates for LICHFL/CoC. Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Dikshat Mehra, Mr. Anurag Anand, Mr. Mukul Kulhari and Ms. Geetika Mahajan, Advocates for R-3 For the Appellant : Mr. Gaurav H. Sethi, Mr. Deeptanshu Chandra and Mr. Rahul Pawar, Advocates For the Respondents : Mr. Dhaval Deshpande, Advocates for R-1/CoC. Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Dikshat Mehra, Mr. Anurag Anand, Mr. Mukul Kulhari and Ms. Geetika Mahajan, Advocates for R-2. Mr. Abhijeet Sinha, Sr. Advocate with Mr. Nicholas Choudhury, Mr. Kartik Bhatnagar and Mr. Akash Chatterjee, Advocates for R3/(LICHFL) JUDGMENT ( Hybrid Mode ) Per: Barun Mitra, Member (Technical) The present two appeals have been filed under Section 61 of Insolvency and Bankruptcy Code 2016 ( IBC in short) by the Appellants which arises out of the Order dated 29.03.2023 (hereinafter referred to as Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CoC. The Adjudicating Authority allowed IA No. 1575 of 2022 and approved the resolution plan. Aggrieved with the approval of the resolution plan by the Adjudicating Authority, the present appeals have been preferred by the Appellants. Since the pleadings and facts in CA(AT)(Ins) No. 751 of 2023 and CA(AT)(Ins) No. 717 of 2023 largely overlap, we shall refer to the pleadings and facts in CA(AT)(Ins) No. 751 of 2023 for deciding these two appeals. However, in respect of certain specific pleadings made in CA(AT)(Ins) No. 717 of 2023, the same would also be taken into consideration and dealt appropriately. 3. Making his submissions, the Ld. Sr. Counsel for the Appellants submitted that the Adjudicating Authority had erred in considering the I.A. 1575 submitted by the RP seeking approval of the resolution plan of Respondent No.3 without deciding IA No. 1569 of 2022; IA No. 2055 of 2022 and IA No. 2214 of 2022 filed by them in which they had raised objections to the resolution plan. The RP had failed in his duty to examine and scrutinize the resolution plans submitted by the PRAs and fell short of his statutory obligations to ensure that the interests of all stakeholders are protected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the revival of the Corporate Debtor. While admitting that the Hon ble Apex Court in a catena of judgements has upheld the supremacy of the commercial wisdom of the CoC, it was pressed hard that the hands-off approach to the exercise of commercial wisdom of CoC was premised in all cases where the CoC comprised of more than one member and had many other heads to deliberate upon the matter. It was contended that the present is a case of oppression of minority stakeholders by the dominant member of the CoC. Hence, despite commercial wisdom of CoC being paramount, in the present case, interference was warranted as CoC overstepped its mandate but the Adjudicating Authority failed to discharge its obligations. In support of their contention, reliance was placed on the judgment of the Hon ble Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 wherein it was held that where the Company Court is called upon to sanction a scheme of compromise or arrangement, it has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o factor in this increase while formulating their plans and there was no deliberate ploy to deny the passing on of these benefits to the home-buyers. 8. It has also been contended that the business decision of CoC has been given primacy in the statutory construct of IBC. There is an intrinsic assumption that the financial creditors take an informed decision on the viability of the Corporate Debtor and act on the basis of a thorough examination of the proposed resolution plan and its feasibility for the revival of the Corporate Debtor and hence not justiciable. As long as the mandatory, statutory requirements have been met and duly complied with, the Adjudicating Authority is not empowered to verify whether the CoC has exercised its commercial wisdom in a prudent manner or whether the CoC has acted in a just and fair manner. The Adjudicating Authority cannot substitute its views in place of the commercial wisdom of the CoC as it goes against the legal precepts laid down in several judgements of the Supreme Court. In the present case, when the commercial terms of the resolution plan had been considered and passed by the CoC with requisite majority and keeping in view that the Adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the resolution plan of the SRA only maximised their own benefits while putting the burden of additional payments on the home-buyers. Since the plan of the Aanya was more beneficial to both the home buyers and Respondent No.2, the Appellants had approached Respondent No. 2 by way of letter dated 28.04.2022 to vote in favour of Aanya. However, Respondent No. 2 being the dominant of CoC not only did not reply to the letter but instead voted in favour of the SRA. The 17th CoC meeting which approved the resolution plan is also silent about the representation dated 28.04.2022 and does not mention about other CoC members who voted against the resolution plan of the SRA. It is also their contention that RP and Respondent No. 2 had colluded trying to unduly benefit the SRA at the cost of the minority homebuyers. It has been vehemently contended that the CoC ignored the plea of the home-buyers that the plan of Aanya was better than that of the SRA. Since Respondent No.2 had the dominant vote share in the CoC, it approved the plan of SRA while the other stakeholders having voting rights unanimously voted for Aanya. This clearly shows that the CoC failed to apply commercial wisdom in a jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to blame the RP on this score. 15. This brings us to the contention of the Appellants that RP and Respondent No. 2 had colluded so as to unduly benefit the SRA at the cost of the minority home-buyers. The Appellants to buttress their contention, mentioned that the Appellants had sent a letter dated 28.04.2022 to the Respondent No.2 to vote in favour of Aanya since their plan was beneficial to both the Home-buyers as well as Respondent No. 2. On close scrutiny, it becomes clear that the representation sent by the home-buyers on 28.04.2022 urging Respondent No. 2 to cast their vote in favour of Aanya was submitted after the cut-of date fixed for voting on the resolution plan which happened to be on 24.04.2022. It is also pertinent to note that the Appellants till the stage of voting also did not make a murmur of mention in respect of any such written representation. Hence, submission of any representation once the voting process was already over was a meaningless exercise and the Respondent No. 2 cannot be faulted on this score now. Moreover, since this letter was sent by the Appellants directly to LICHFL and that too after the voting on the plan was over, we are inclined to believ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the one hand, it ensured that the home buyers were finally able to take possession of the units promised to be allotted to them on the other hand it also provided for an exit option for home buyers who wished to withdraw from the project on receipt of due refunds. The resolution plan of the SRA gave the home buyers two options which was either to accept possession according to the resolution plan or opt for refund of the principal amount in 24 monthly instalments. The SRA has therefore contended that this clearly demonstrates the fairness of the resolution plan and the viability of the plan in addressing the interest of all the stakeholder while reviving the project. 18. This now brings us to the role played the CoC in the exercise of its commercial wisdom in the scrutiny of the plans in the light of the contentions raised by the Appellants that it was commercial folly and not display of wisdom. For better appreciation of this issue at hand, at this stage, it may be useful to notice the minutes of the 17th CoC meeting held on 24.04.2022 to approve the resolution plan of the Corporate Debtor which is as under: AGENDA ITEM NO 5: TO DISCUSS AND APPROVE THE RESOLUTION PLAN FOR THE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh email. Further, the RP received the Evaluation Matrix from the members of the CoC with their scoring on all three Resolution Plans. .. ( Emphasis supplied ) 19. The above minutes of the 17th CoC meeting clearly shows that all the three PRAs were given equal opportunity by the CoC to present their respective resolution plans. The Authorized Representative of the creditors in class were also present in the deliberations. Furthermore, we notice from the above minutes, that the decision of the CoC to approve the plan of the SRA was preceded by extensive negotiations with all PRAs; holding of thorough and comparative analysis of all plans of the PRAs against a structured evaluation matrix and after satisfying itself that the plans are compliant with the provisions of the IBC and regulations framed thereunder. While approving the Resolution Plan, the CoC has considered several factors including past experience, progress, market value, financial strength, capability etc. of all the resolution applicants. On conclusion of voting, the resolution plan of the SRA was passed by the CoC with 76.35% vote share which exceeded the stipulated requisite majority. 20. The democratic principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members or any class of them for whom the scheme is mooted by the company concerned, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to sav that once the scheme acts sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the scheme concerned placed for its sanction.... 29. However further question remains whether the Court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by Section 391 sub-section (2). On this aspect (the nature of compromise or arrangement between the 5 company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberation in the CoC meetings through voting, as per voting shares, in a collective business decision. The legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore of the considered view that neither the learned NCLT nor the learned NCLAT were justified in not giving due weightage to the commercial wisdom of CoC. 24. It is, however, the contention of the Appellants that the above judgments of the Hon ble Supreme Court which the Respondents have relied upon to assert the supremacy of the commercial wisdom of the CoC are not applicable in the present matter since in the present case the CoC was a single member CoC. We are not in a position to agree with this misplaced interpretation of the Appellants since the Hon ble Apex Court has not made any such artificial distinction between a single-member or a multi-member CoC in bestowing supremacy to its commercial wisdom. Regardless of the composition of CoC, the IBC places the CoC in control of the insolvency resolution process. For this purpose it has provided for different threshold levels of voting percentages for CoC to take decisions. As regards approval of resolution plan is concerned, the IBC provides for 66% vote share and once this threshold is met, the decision of the CoC, irrespective of whether it is a single-member or multi-member, the decision of the CoC becomes sacrosanct and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viable, according to the CoC and approved by 76.35% vote; g. The Resolution Professional made a determination if the Corporate Debtor has been subjected to any transaction of the nature covered under sections 43, 45, 50 or 66, before the one hundred and fifteenth day of the Insolvency Commencement date, under intimation to the Board; h. The amount due to the operational creditors under the Resolution Plan has been given priority in payment over financial creditors; i. The resolution plan includes a statement as to how it has dealt with the interests of all stakeholders; and j. The Resolution Applicant has submitted the statement giving details of non-implementation in case the Resolution Applicant or any of its related parties has failed to implement or contributed to the failure of implementation of Resolution Plan approved under the Code. Para 5 the instant Resolution Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38, 38(1A) and 39 (4) of the Regulations. The Resolution Plan is not in contraventions of nay of the provisions of Section 29A of the Code and is in accordance with law. The same needs to be approved .. The Appellants have however failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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