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TMI Blog2024 (10) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... rove the Resolution Plan treating it to be the plan of Respondent No.4 or to substitute Respondent No.4 as Resolution Applicant. The outcome of the CoC approval and filing of revised Form-H is that now the Respondent No.4 has become the SRA whose plan has been approved. The approval of the Resolution Plan of Respondent No.4 is clearly in breach of Regulation 39(1)(B). Right from Request for Resolution Plan and mandatory contents consideration of the Resolution Plan, there are different stages for reevaluation of the Resolution Plan and applicant who has not participated in any of the stages of CIRP process cannot suddenly be substituted as SRA to impleme - it is opined that substitution of Respondent No.4 in the Resolution Plan is contrary to the statutory scheme of the IBC read with CIRP Regulations 2016. The Adjudicating Authority committed error in approving the Resolution Plan which was modified Resolution Plan substituting Respondent No.4 as SRA. Order of the Adjudicating Authority is unsustainable and cannot be approved. In the facts of the present case, one more time bound opportunity to be given for finding out as to whether any other Resolution Applicants can revive the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther extension of time. After order dated 23.08.2021 passed by the Adjudicating Authority directing the CoC to consider Resolution Plan submitted by JSPL, CoC decided to give PRAs an opportunity to amend the Resolution Plan. The Resolution Plans were submitted by the Applicant, JSPL and the Respondent No.3- Invent Assets Securitization Reconstruction Private Limited . All the Resolution Plans were considered in 20th CoC meeting held on 21.10.2021 on the basis of voting result, the plan submitted by Respondent No.3- Invent Assets Securitization Reconstruction Private Limited was approved with 72.97% votes. The Resolution Professional after approval of the Resolution Plan submitted by the Respondent No.3 on 25.10.2021 filed IA No.764 of 2021 for approval of Resolution Plan. During the period IA No.764 of 2021 remained pending before the Adjudicating Authority for approval, RBI issued a Circular dated 11.10.2022 which provided that ARCs are currently not permitted to commence or carry on any business other than that of the securitization or asset reconstruction or the business referred to in Section 10(1) of the SARFAESI Act, without prior approval of the RBI subject to fulfilment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Appellant, Shri Abhijeet Sinha, Learned Senior Counsel for the CoC, Shri Nikhil Nayyar, Learned Senior Counsel for the Respondent No.4 and Shri Ravi Raghunath, Learned Counsel for the Respondent No.1. 4. Shri Krishnendu Datta, Learned Senior Counsel for the Appellant submits that the Adjudicating Authority committed error in approving a Resolution Plan in which Resolution Applicant after approval of plan by the CoC on 21.10.2021 has substituted the Resolution Applicant with Respondent No.4 with the approval of the CoC which is clearly contrary to the entire scheme of the IBC and the CIRP Regulations 2016. It is submitted that the SRA i.e. Respondent No.3 whose plan was approved on 21.10.2021 became ineligible as Resolution Applicant, hence, the process of the CIRP ought to have been initiated afresh by issuance of fresh Form-G inviting the Resolution Applicants to submit the plan. On the basis of Resolution Process which culminated in approval of the plan by Respondent No.3 on 21.10.2021 no new Resolution Applicant can be substituted even after approval by the CoC. After approval of the plan on 21.10.2021, the CoC has no jurisdiction or authority to pass a Resolution for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the CoC could have been called after expiry of the period of the CIRP. 5. Shri Abhijeet Sinha, Learned Senior Counsel appearing for the CoC submits that there is no modification in the Resolution Plan which was approved on 21.10.2021 except the change of the Resolution Applicant who is none other than the sponsor company of Respondent No.3- Invent Assets Securitization Reconstruction Private Limited . Respondent No.3 could not have implemented the Resolution Plan in view of the RBI Circular dated 11.10.2022 hence for implementation of the Resolution Plan, Respondent No.3 was fully entitled to nominate an entity. It is submitted that the provision of the Resolution Plan clearly permits the Resolution Applicant to implement the plan through its subsidiary including the special purpose vehicle etc. Respondent No.4 has been substituted for the purposes of implementation of the plan which does not violate any provisions of the IBC and CIRP Regulations. It is further submitted that the applicant who was Unsuccessful Resolution Applicant has no locus to file the appeal. Appellant, a disgruntled PRA whose plan was considered and rejected by the CoC, cannot be allowed to challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal which we shall refer to while considering the submissions in detail. 10. From the submissions of the Counsel for the parties and materials on record, following questions arises for consideration:- (i) Whether after approval of the Resolution Plan of a Resolution Applicant by the CoC and filing of application before the Adjudicating Authority for approval of the Resolution Plan which is approved by the CoC, the CoC had any jurisdiction to substitute the SRA with another SRA who was not part of the CIRP process? (ii) Whether CoC has jurisdiction to modify a Resolution Plan already approved by the CoC and submitted before the Adjudicating Authority for approval under Section 30(6) of the IBC? 11. The above questions being inter-related are being taken together. 12. From the facts as noticed above, following facts and sequence are undisputed:- (a) In the CIRP of the Corporate Debtor, CoC deliberated on the Resolution Plan received in the CIRP including the Resolution Plan of Respondent No.3- Invent Assets Securitization Reconstruction Private Limited and by its 20th CoC meeting held in October, 2021 and on the basis of result of e-voting held on 21.10.2021 approved the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COC meeting. After filing of the application before Adjudicating Authority for approval of Resolution Plan of Respondent No. 3 by subsequent Resolution by the COC, SRA has been permitted to be changed from Respondent No.3 to Respondent No.4 and modified Resolution Plan as subsequently approved by the CoC has been approved. The submission is that when Respondent No.3 became ineligible as Resolution Applicant, the process of CIRP ought to have been initiated de novo from the stage of publication of Form-G to enable all Resolution Applicants including the Appellant to participate in the process to take their chance of being the SRA. Thus, Resolution Professional and the CoC adopted a process contrary to the IBC and CIRP Regulations 2016 which denied the right of the Appellant to participate in the process which became necessary after ineligibility of SRA. The above submissions of the Counsel for the Appellant does indicate that the Appellant is not questioning the commercial wisdom of the CoC by which it had approved the Resolution Plan of Respondent No.3- Invent Assets Securitization Reconstruction Private Limited . Thus, the present is not an appeal challenging the approval of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed to consider the respective questions which have been framed by us, as above and the respective submissions of the parties. 17. The Resolution Professional has brought on record the Form-H dated 25.10.2021 which he has filed after approval of the Resolution Plan by the CoC on 21.10.2021. Paragraphs 3 and 4 of the Form-H refers to the Resolution Plan received from Invent Assets Securitisation and Reconstruction Pvt. Ltd. and approved by 72.97% of voting share, which reads as follows:- 3. I have examined the Resolution Plan received from Resolution Applicant M/s Invent Assets Securitisation Reconstruction Pvt. Ltd. and approved by Committee of Creditors (CoC) of E- complex Pvt. Ltd. 4. I hereby certify that- (i) the said Resolution Plan complies with all the provisions of the Insolvency and Bankruptcy Code 2016 (Code), the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and does not contravene any of the provisions of the law for the time being in force. (ii) the Resolution Applicant M/s Invent Assets Securitisation Reconstruction Pvt Ltd. has submitted an affidavit pursuant to section 30(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure R-5 which was filed along with the Affidavit dated 28.06.2023. The Form H referred to 26th CoC meeting held on 05.05.2023, by which meeting the Resolution Plan was approved with 100% vote share received from Resolution Applicant- Westend Investment and Finance Consultancy Private Limited (Respondent No.4). It is useful to notice paragraphs 3, 4 and 5 of Form H which give details of Resolution Applicant modified as well as 100% voting by CoC:- 3. I have examined the Resolution Plan received from Resolution Applicant West End Investment Finance Consultancy Private Limited, and approved by Committee of Creditors (CoC) of E-complex Pvt. Ltd. 4. I hereby certify that- (i) the said Resolution Plan complies with all the provisions of the Insolvency and Bankruptcy Code 2016 (Code), the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and does not contravene any of the provisions of the law for the time being in force. (ii) the Resolution Applicant West End Investment Finance Consultancy Private Limited. has submitted an affidavit pursuant to section 30(1) of the Code confirming its eligibility under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails of shareholders payments etc. has been provided. 21. One more submission which need to be noticed at this stage which was advanced by Counsel for the Respondent that Appellant had filed an IA No.68 of 2023 challenging the Resolution Plan approved by the CoC on 21.10.2021 which having been withdrawn on 14.06.2023, Appellant cannot be allowed to question the Resolution Plan now approved by the impugned order. Appellant had filed an IA No.68 of 2023 challenging the approval of the Resolution Plan dated 21.10.2021 which was withdrawn on 14.06.2023. The order dated 14.06.2023 by which application was withdrawn is to the following effect:- IA/68(AHM) 2023 Learned Counsel for the applicant seeks permission to withdraw this application. The permission is granted. Accordingly, IA/68(AHM) 2023 stands dismissed as withdrawn. 22. The withdrawal of application IA No.68 of 2023 has no effect on grounds which have been sought to be raised in the present appeal. Appellant is no more challenging the approval of Resolution Plan on 21.10.2021 in which Resolution Plan of Appellant was not approved. The challenge in the present appeal is to the subsequent events and resolution of the CoC culminati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditor Voting Share (%) Assent Dissent Abstained 1. Citi Securities Financial Services Pvt. Ltd. 72.97% 2. RKG Asset Management LLP (Manager of RKG Fund-I) 23.38% 3. Prudent ARC LTD. 3.65% Total 100 % 26. However, Counsel for the CoC submitted that actually no amendments were made in the RFRP which is also admitted by the Resolution Professional. It is not case of either of the Respondents that RFRP permits change of the Resolution Applicant after approval of the Resolution Plan. CoC has approved the amendment of RFRP which was not actually done. Thus, the conclusion is inescapable that there was no provision in the RFRP by which Resolution Applicant could be changed after approval of the Resolution Plan. 27. The CIRP process was conducted as per the CIRP Regulations 2016. Regulation 36 (B) provide for Request for Resolution Plan. Regulation 39 deals with approval of the Resolution Plan. Regulation 39(1)(B) provides as follows:- [39-B. Meeting liquidation cost. -(1) While approving a resolution plan under sub-section (4) of section 30 or deciding debtor under sub-section (2) to liquidate the corporate of section 33, the committee may make a best estimate of the amount required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vehicle of the SRA. Counsel for the SRA has referred to Clause 1.1.4 to support his submission. Clause 1.1.4 (iii) (viii) has been extracted in the reply of Respondent No.4 which are as follows:- (a) Clause 1.1.4- Key steps of the Plan : (iii) I nfusion of Equity: A need-based amount up to a maximum of Rs. 26 lakhs (Indian Rupees twenty six lakhs only) (either in one or more tranches) shall be infused by RA (indirectly or directly, through its subsidiary(ies) / special purpose vehicle(s) / limited liability partnership/ nominees of the Resolution Applicant into the Company from its own funds, in consideration of which, the Monitoring Agency on behalf of the Company will issue to RA or its subsidiary(les)/ special purpose vehicle(s)/ limited liability partnership/ nominees of the Resolution Applicant, as the case maybe 2,60,000 (two lakh sixty thousand) equity shores of face value of Re. 10 (ten) each ( RA Equity Subscription Amount) constituting 26% (One Hundred Percent) of the issued and paid up equity share capital of the Company post cancellation of entire existing shareholding. All the corporate actions (if any) required to achieve the aforesaid events shall be taken by the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Respondents. Another clause which has been relied is regarding Clause 6 (viii) i.e. category of shareholders which also in no manner support the submission of the Respondents that clause of Resolution Plan for which SRA be substituted by another SRA. 33. We have noticed that the Adjudicating Authority by its order dated 01.09.2023 directed the Resolution Professional to point out the clause of RFRP by which SRA can be changed after approval of the plan. It is not in dispute that neither there is any such clause in the RFRP nor such clause has been pointed out before us during hearing. Adjudicating Authority, however, after noticing of the facts in the impugned order has relied on the judgment of this Tribunal in Puissant Towers India Pvt. Ltd. vs. Neueon Towers Limited- Company Appeal (AT) (CH) (Ins.) No. 181 of 2022 dated 12.06.2023, paragraphs 9 to 12, to support its order. Judgment of this Tribunal which has been relied by the Adjudicating Authority was a case where Respondent No.3 herein- Invent Assets Securitization Reconstruction Private Limited was one of the co-applicant and Resolution Plan was rejected by the Adjudicating Authority holding that Invent Assets Securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ARC as part of the resolution plan submitted by it is not prohibited under SARFAESI Act. Hence, prima facie, when an ARC is a resolution co-applicant , as is in the instant case, RBI s prior approval is not always required. Thus, there is no need to make RBI a party in the present appeal . 37. This Tribunal based its judgment on the clarification given by the RBI that prior permission is not required, hence, allowed the appeal and directed for passing orders regarding approval of the Resolution Plan which finding is in paragraph 11:- 11. Keeping in view, the clarification given by the Counsel for RBI that the prior permission is not required, this Tribunal is of the considered view that the Adjudicating Authority ought not to have rejected the Resolution Plan, more so, when the principal objective of the Code is that revival of the Corporate Debtor and Resolution . Liquidation ought to be the last resort, keeping in view the scope and spirit of the Code. 38. Reliance on the above judgment by the Adjudicating Authority is wholly erroneous. In the present case, Invent Assets Securitization Reconstruction Private Limited was sole Resolution Applicant and present is not a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Counsel relied on paragraph 157 and 158 of the judgment which is as follows:- 157. These are binding precedents. Absent a clear legislative provision, this Court will not, by a process of interpretation, confer on the adjudicating authority a power to direct an unwilling CoC to renegotiate a submitted resolution plan or agree to its withdrawal, at the behest of the resolution applicant. The adjudicating authority can only direct the CoC to re-consider certain elements of the resolution plan to ensure compliance under Section 30(2) IBC, before exercising its powers of approval or rejection, as the case may be, under Section 312. In State of A.P. v. P. Laxmi Devi, while determining the constitutionality of a statute, this Court observed that it should g be wary of transgressing into the domain of the legislature, especially in matters relating to economic and regulatory legislation. This Court observed: (P. Laxmi Devi case, SCC p. 751. para 80) 80. As regards economic and other regulatory legislation judicial restraint must be observed by the court and greater latitude must be given to the legislature while adjudging the constitutionality of the statute because the court does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case had occasion to consider the judgment of the Ebix (supra) and has observed that no modification in the plan is permissible after approval by the CoC. Following observations has been made in paragraphs 23, 24 and 25:- 23 . It clearly manifests from the record that the resolution plan was approved by the CoC with 81.39% of voting and it complied with the requirement as contemplated under Sections 30(2) and 30(4) IBC and so far as the exclusive right to use of brand names of Deccan Chronicle and Andhra Bhoomi is concerned, a specific reference was made in the resolution plan, and to be more particular in Clause 11.12 of the resolution plan. 24 . It clearly indicates that what was approved by the CoC with 81.39% of its voting is to the effect that the corporate debtor has a perpetual exclusive right to use the brands, namely, Deccan Chronicle and Andhra Bhoomi and it nowhere indicates regarding the right of ownership over the trade marks/brands, Deccan Chronicle and Andhra Bhoomi of the corporate debtor. But the adjudicating authority while adjudicating application IA No. 155 of 2018, apart from upholding the exclusive right to use the trade marks, Deccan Chronicle and Andhra Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicating authority after due compliance with the procedural requirements and timelines, would create another tier of negotiations which will be wholly unregulated by the statute. Since the 330 days' outer limit of the CIRP under Section 12(3) IBC, including judicial proceedings, can be extended only in exceptional circumstances, this openended process for further negotiations or a withdrawal, would have a deleterious impact on the corporate debtor, its creditors, and the economy at large as the liquidation value depletes with the passage of time. A failed negotiation for modification after submission, or a withdrawal after approval by the CoC and submission to the adjudicating authority, irrespective of the content of the terms envisaged by the resolution plan, when unregulated by statutory timelines could occur after a lapse of time, as is the case in the present three appeals before us. Permitting such a course of action would either result in a downgraded resolution amount of the corporate debtor and/or a delayed liquidation with depreciated assets which frustrates the core aim of IBC. 222. If the legislature in its wisdom, were to recognise the concept of withdrawals or mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion praying for substitution of Resolution Applicant with another entity, which has been rejected by the Adjudicating Authority by the impugned order. 2. Learned counsel for the Appellant submits that in view of the circular issued by the Reserve Bank of India, Asset Reconstruction Companies cannot be Resolution Applicant unless they have achieved certain net worth which the present Appellant has not. Reserved Bank of India has also issued show cause notice against the Appellant which matter has been taken before the Hon ble Delhi High Court which is pending consideration. Learned counsel for the Appellant submits that the Appellant cannot be Resolution Applicant in view of the clouds on the eligibility of the Appellant, hence, he has prayed for substituting another Resolution Applicant. 3. The Adjudicating Authority after hearing learned counsel for the Applicants as well as learned counsel for the Monitoring Committee took the view that new Resolution Applicant cannot be brought in nor can be substituted with another Resolution Applicant and rejected the application. Learned counsel for the Appellant submits that the Appellant cannot be Resolution Applicant in view of the clouds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed that as per Form-H submitted by the Resolution Professional, the CIRP period has come to an end on 14.09.2021. IA for extension and exclusion was filed on 13.09.2021. Item No.17 of Form H is as follows:- Sl. No. Particulars Description 17. Date of Expiry of Extended Period of CIRP 14.09.2021 (IA for extension and exclusion is filed on 13.09.2021) 47. We have noticed that despite the CIRP having come to an end, the CoC proceeded to hold the meeting and modify the Resolution Plan. We have already noticed above that CIRP of the Corporate Debtor has come to an end on 14.09.2021 but CoC thereafter continued for two years by holding several CoC meeting with object to change that SRA into another entity. We have already observed that the steps taken by the CoC and the Resolution Professional were subsequent to filing the application for approval of the Resolution Plan are not inconformity with the IBC and the CIRP Regulations 2016. 48. In the facts of the present case, we are of the view that one more time bound opportunity be given for finding out as to whether any other Resolution Applicants can revive the Corporate Debtor. We, thus, are of the view that by setting aside the order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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