Rai
Bahadur Shree Ram and Co. Limited v. Bhuvan Madan, Resolution Professional of
Ferro Alloys Corporation Limited [Co. Appeal (AT) (Insolvency) No. 207/2020]
In
the said matter, the approval of a resolution plan by the Adjudicating
Authority was challenged before the NCLAT. Amongst other things, the grouse of
the Appellant was that settlement proposal offered to the COC during the CIRP
was not given due consideration and was rejected.
The
NCLAT while rejecting the challenge to the resolution plan, placed reliance on K.
Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150 which brings out the
following principles on the aspect of challenge of a resolution plan:
a) A
collective business decision/commercial wisdom of the COC on the issue of a
resolution plan is beyond the pale of challenge before the Adjudicating
Authority.
b) The
jurisdiction to challenge a resolution plan before the NCLAT is circumscribed
to the express grounds/provisions mentioned in Section 61 (1) of the Code.
This limited judicial review does not
give the right to tribunals to question a commercial decision of the COC or to
direct a re-consideration of a settlement proposal offered by the ex-management
of the corporate debtor.
The
NCLAT further relied upon another decision of the Supreme Court in Maharashtra
Seamless Limited v. Padmanabhan Venkatesh & Others [Civil Appeal
No.4242 of 2019, 22.01.2020] which observes that the NCLAT should cede ground
to the commercial wisdom of the COC rather than attempting to assess the
resolution plan on the basis of quantitative analysis.
In
Maharashtra Seamless Limited, the Supreme Court held that the NCLAT had,
while disallowing a resolution plan, proceeded on equitable perception rather
than commercial wisdom (here the COC approved resolution plan provided for a
value which was less than the liquidation value of the corporate debtor). The
Supreme Court, despite acknowledging the fact that accepting a resolution plan
at a value significantly lesser than the liquidation value may seem
inequitable, however finally concluded that the commercial wisdom of the COC
must take precedence.
Finally,
the NCLAT relied upon Committee of Creditors of Essar Steel India Limited v.
Satish Kumar Gupta and Others, (2019) SCC OnLine SC 1478 wherein the
Supreme Court made the following observations on the aspect of approval of
resolution plan:
a) The
judicial review of a resolution plan by the Adjudicating Authority has to be
within the four corners of the grounds mentioned under Section 31 (1) & 32
of the Code.
b) The
judicial review of a resolution plan by the NCLAT has to be within the limits prescribed under Section 32 &
61 of the Code.
c) The
above-mentioned judicial review can, in no circumstance, trespass upon a
business decision made by a majority of the COC.
d) There
exists no provision under the Code enabling the resolution professional, the
Adjudicating Authority and the NCLAT from reversing the ‘commercial decision’
of the COC much less of the dissenting financial creditors for not supporting
the proposed resolution plan.
e) The
Code does not obligate the dissenting financial creditors to record reasons for
disapproving or rejecting a resolution plan.
f) The
Adjudicating Authority is not empowered to oversee the justness of the approach
of the dissenting financial creditors in rejecting the proposed resolution plan
or to engage in judicial review thereof. At best, the Adjudicating Authority may
cause an inquiry into an ‘approved’ resolution plan on limited grounds referred
under Section 30 (2) and Section 31 (1) of the 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.
g) 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.
Ishrat
Ali v. Cosmos Cooperative Bank [Co. Appeal (AT) (Insolvency) No. 1121/2019]
In
the said matter, the question which arose for consideration was whether the
benefit of Section 14 of the Limitation Act, 1963 could be availed by a
financial creditor on the premise that proceedings under SARFAESI Act were
being diligently pursued by it against the corporate debtor and hence whether the
said period ought to be excluded for the purpose of computing limitation of the
Section 7 Application subsequently preferred by the financial creditor.
The
NCLAT while answering in the negative, made the following observations on the
aspect of Section 14 of the Limitation Act, 1963:
a) NCLAT
relied upon the Supreme Court judgement of Jignesh Shah v. Union of India
indicated that institution of civil proceedings against the corporate debtor will
not impact a separate and independent remedy of winding up proceedings.
Further, the date of default is the relevant date for the purpose of computing
limitation period under Section 7 of the Code.
b) A
judgement or a decree passed by a civil court or a Debt Recovery Tribunal,
pursuant to recovery proceedings initiated by the corporate debtor cannot shift
forward the date of default for the purpose of computing limitation period
under Section 7 of the Code.
c) To
take advantage of Section 14 (2) of the Code in a Section 7 Application, the
Applicant must satisfy/show the following: (i) the applicant has been
prosecuting with due diligence another civil proceeding, whether in a court of
first instance, appellate court or revisionist court; (ii) the said proceedings
are against the corporate debtor; (iii) the said proceedings are for the same
relief.
d) Proceedings
instituted by the financial creditor against the corporate debtor under Section
13 (2) of SARFAESI Act cannot be termed to be civil proceedings. Therefore,
such proceedings cannot be taken into account under Section 14 (2) of the
Limitation Act 1963.
The
NCLAT also observed that its previous decision on the subject in Sesh Nath
Singh v. Baidyabati Sheoraphuli Cooperative Bank Limited [Co. App. (Ins.)
No. 672/2019] cannot be held to be good law [the said judgement has held that
the time spent by the financial creditor pursuing SARFAESI proceedings against
the corporate debtor is liable to be excluded (under Section 14 of the
Limitation Act, 1963) while computing the limitation period of a Section 7
Application]
Dr.
Bramha Nand Singh v. Resolution Professional, Shivani Alloy Casting Limited [Co.
Appeal (AT) (Insolvency) No. 400/2020]
In
the said matter, the NCLAT, while observing that the CIRP of the corporate
debtor was pending for a long time, primarily because of filing of
interlocutory applications, and directed the Adjudicating Authority to
expediate the process and pass reasoned orders qua the pending
applications within a strict time line.
Anumati
Consultancy & Services Private Limited v. Wellside Global Private Limited [Co. Appeal
(AT) (Insolvency) No. 413/2020]
In
the present matter, a Section 7 Application was preferred by a flat allottee
(financial creditor) alleging debt and default against the corporate debtor.
The NCLAT observed that the Section 7 Application was pre-mature since a
default had not yet occurred in the matter (by the corporate debtor) since as
per the agreement between the parties the date of delivery of the flats had not
yet reached.
Shrawan
Kumar Agrawal Consortium v. Rituraj Steel Private Limited [Co. App. (AT) (Ins.)
No. 1490/2019 & 78/202 & 184/2020]
In
the present batch of matters, the NCLAT made several observations on the issue
of the powers of the tribunal and the authority of the COC qua a resolution
plan.
The
Appellants contended that the resolution professional had manipulated the
bidding process, had not granted opportunity of hearing to the non-successful
bidders, had declared the bid winner on the basis of Net Present Value (NPV) of
the corporate debtor and not on the basis of the evaluation matrix.
It
was also the contention of the Appellant that the Adjudicating Authority had
ignored the fact that the resolution plan in question violated Sections 30 (2)
& (4) of the Code in as much as the COC had overlooked the obligation
regarding the maximisation of value of assets of the corporate debtor while
approving the said plan. In this regard, the NCLAT, while stressing on the
limited power of judicial scrutiny of the Adjudicating Authority, observed that
the Authority cannot interfere with the commercial wisdom of the COC. Even for
maximisation of value of the assets of the corporate debtor, the Authority is
not entitled to overturn the business decision(s) of the COC.
As
regards the role of the resolution professional qua the approval of the
resolution plan, the NCLAT observed that a resolution professional is simply a
facilitator and not a decision maker. Further aspects such as evaluation matrix
fall within the domain of the COC, the interference with which is non-justiciable.
During
the course of determination, the NCLAT relied extensively on the Supreme Court
judgement of Maharashtra Seamless Limited to hold that the commercial
wisdom of the COC on the aspect of the resolution plan must take precedence.
Bimalkumar
Manubhai Savalia v. Bank of India [Co. Appeal (AT) (Insolvency) No. 1166/2019]
In the said matter, the following
observations were made by the NCLAT on the aspect of computation of limitation
and acknowledgement of debt with respect to a Section 7 Application:
a) Proceedings (initiated or pending)
under the provisions of SARFAESI Act 2002 or the RDB Act 1993 will not be taken
into account for the purpose of computing limitation period of a Section 7
Application.
b) An OTS of the corporate debtor which is
not accepted by the financial creditor may not amount to an acknowledgement of
debt for the purpose of Section 18 of the Limitation Act, 1963.
c) In the matter, a contention of the
financial creditor that the OTS proposal of the corporate debtor without the
usage of the expression ‘without prejudice’ ought to be treated as an
acknowledgement for the purpose of limitation was rejected by the NCLAT.
d) Peculiarly, the NCLAT observed that
Section 19 of the Limitation Act 1963 (i.e. part payments to extend limitation
period) applies only to suits and may be incapable of application to a Section
7 Application in as much as a Section 7 Application is not akin to a suit.
Varsha
Jain v. ISEO Chemdis Private Limited [Co. Appeal (AT) (Insolvency) No. 250/2020]
In
the said matter, the Appellant claimed to be a financial creditor of the
corporate debtor on the strength of a draft agreement (shared between the parties),
in terms of which the Appellant infused a sum of Rs. 1 crore into the corporate
debtor, partly in the form of equity and partly as loan against consideration
of time value of money. The Appellant appeal was dismissed by the NCLAT on the
following grounds:
a) The draft agreement was not followed by
executing an enforceable agreement.
b) Separately, the said draft agreement
contained a provision which provided a lock in on the investment of the
Appellant for a period of 60 months, which had not expired till date. Hence, no
default could be stated to have occurred in the present matter.
Rainbow
Digital Services Private Limited v. Growthways Trading Private Limited [Co.
Appeal (AT) (Insolvency) No. 255/2020]
In
the present matter, the Appellant (a financial creditor of the corporate
debtor) assailed the admission order made by the Adjudicating Authority in a
Section 7 Application preferred by another financial creditor of the corporate
debtor ‘Elite Steels Pvt. Ltd.’ However, the NCLAT observed that the appeal was
not maintainable for the following reasons: (i) the Appellant had not made
Elite Steels Pvt. Ltd. a party therein; and (ii) the claim of the Appellant
(made before the interim resolution professional) had been admitted in full by
the said interim resolution professional.
Digamber
Bhondwe, Director v. JM Financial Asset Reconstruction [Co. Appeal (AT)
(Insolvency) No. 1379/2019]
In
the present matter, on the aspect of limitation, the NCLAT observed that once
limitation time starts running against the corporate debtor, a subsequent
filing of a recovery application in the DRT under the RDB Act, 1993 will make
no difference, for the purpose of the Code. Further, limitation period for the
purposes of the Code cannot be computed from the date of recovery certificate
issued by the DRT against the corporate debtor.
Central
Transmission Utility v. Korba West Power Company Limited & Others [Co.
Appeal (AT) (Insolvency) No. 1334/2019]
In
the present matter, the appeal was filed by the Appellant with a delay of more
than 150 (one hundred and fifty) days. The justification for the delay offered
by the Appellant was as follows: (i) The Appellant was not in a position to
quantify its debt against the corporate debtor on account of pending
proceedings before the Central Electricity Regulatory Commission (CERC),
and that it was in a position to make the quantification only upon termination
of the said proceedings; (ii) The Appellant was also not in a position to file
an appeal before the NCLAT during the pendency of the above CERC proceedings.
The
NCLAT rejected the above said justifications by making the following
observations:
a) As regards justification (i) above, the
NCLAT observed that inability to quantify debt cannot be an obstruction from
filing an appeal under Section 61 of the Code.
b) As regards justification (ii) above,
the NCLAT observed that there exists no bar in law which allows a person to
withhold filing of an appeal under the Code on account of pendency of any other
proceeding between the parties.
The
NCLAT further observed that merits of the matter are of no significance in case
the appeal is held to be beyond the limitation period prescribed under Section
61 of the Code.
Kotak
Mahindra Bank v. Testtex India Laboratories Private Limited & Others [Co.
Appeal (AT) (Insolvency) No. 1513/2019]
In
this matter, the Adjudicating Authority rejected the Section 7 Application of
the financial creditor on the premise that settlement talks were ongoing
between the parties and that substantial payments had been made to the
financial creditor. The said position was refuted by the financial creditor and
the rejection order was assailed before the NCLAT.
The
NCLAT while allowing the appeal of the financial creditor, observed that a
Section 7 Application can be rejected only on specific situations provided
under the Code viz. default not occurred, non-existence of debt,
incomplete application and pendency of disciplinary proceedings against the
proposed interim resolution professional. Hence, the ground for dismissal made
by the Adjudicating Authority in the Section 7 Application did not constitute a
permissible ground. Finally, the matter was remitted back to the Adjudicating
Authority for a fresh adjudication uninfluenced by the Impugned Order.
Anju
Industries v. Supervising Agency of Rishi Ganga Power Corporation [Co. Appeal
(AT) (Insolvency) No. 04/2020]
In
this matter, the question before the NCLAT was whether a claim (of a creditor)
could be entertained by the resolution professional where the COC-approved
resolution plan was pending sanction/adjudication before the Adjudicating
Authority.
The
NCLAT while replying in the negative, observed that accepting claim(s) from the
creditors at this stage of the CIRP would tantamount to a ‘fresh hydra head’
for the resolution applicant which was impermissible.
T.
Johnson v. St. John Freight Systems Limited [Co. Appeal (AT) (Insolvency) No.
1402/2019]
In
the facts of the present matter, the promoters of the corporate debtor, during
the course of the CIRP, applied for and obtained a registration certificate
under the Micro Small and Medium Enterprises Act, 2006 (MSME Act).
Parallelly, the resolution plans of resolution applicants were unable to garner
the requisite majority with the COC and consequently, the Adjudicating
Authority ordered a liquidation of the corporate debtor. At the same time, the
request of the promoters to become a resolution applicant (on the strength of
the MSME registration) was turned down.
The
NCLAT explained that a liquidation under the Code can be triggered only under
the following circumstances and not otherwise:
a) Where no resolution plan is received by
the Adjudicating Authority from the resolution professional prior to the expiry
of the insolvency resolution process period.
b) Where the Adjudicating Authority
rejects the resolution plan under Section 31 of the Code for non-compliance of
the requirements specified therein.
c) Where the COC at any time before
confirmation of the resolution plan decides to liquidate the corporate debtor
and the same is intimated to an Adjudicating Authority.
d) Where the corporate debtor violates a resolution
plan as approved by the Adjudicating Authority and any person other than the corporate
debtor prejudicially affected by such breach files an application seeking a liquidation
order before the Adjudicating Authority.
The
NCLAT observed that the Adjudicating Authority can order a liquidation only
under the above mentioned circumstances. Further, the NCLAT clarified that
under the Companies Act, 2013 a company can be wound up in case the tribunal
opines that it is just and equitable to do so, however the Code has no similar
residual or inherent powers/grounds to order liquidation.
The
NCLAT further made the following observations qua a liquidation order:
a) Where no resolution plan is approved by
the COC, an Adjudicating Authority is bound to order liquidation of the
corporate debtor.
b) If the time prescribed under Section 12
of the Code has lapsed, an Adjudicating Authority will pass a liquidation order
against the corporate debtor regardless of whether the management of corporate
debtor or the resolution applicant had enough opportunity to come up with
viable/suitable plans, as the case may be.
c) Notwithstanding the fact that
‘Resolution of Corporate Insolvency’ is meant for survival of a company as a going
concern, it cannot be ignored that ‘Timely Liquidation’ is to take precedence
over ‘Indefinite Resolution Proceedings’.
On
the aspects of illegibility conditions prescribed under Section 29A of the Code
and illegibility of a MSME to participate in the CIRP as a resolution applicant
(in accordance with Section 240A of the Code), the NCLAT made the following
observations:
a) Sec 29A of the Code mentions the persons
who cannot be a ‘Resolution Applicant’ (including an ‘Undischarged Insolvent’,
‘Wilful Defaulter’ of loans, anyone who has an ‘NPA loan’ as per RBI
Guidelines, etc.). In fact, restrictions shall apply in respect of an
ineligible individual or any other person acting jointly with such person and
submitting a plan.
b) Section 240A (2) of the Code confers
power on the Central Government to direct by notification in ‘public interest’ that
any of the provisions of the Code shall not apply to MSMEs or apply to them
with such variations as may be mentioned in the notification.
It is beyond one’s comprehension as to
how the promoters of the corporate debtor without the knowledge of resolution
professional and that too, after initiation of CIRP had secured a registration under MSME Act.
Such underhanded act was only to overcome the inelligibility under Section 29A
of the Code.
Deepakk
Kumar v. Phoenix ARC Private Limited [Co. Appeal (AT) (Insolvency) No. 848/2019]
In
the present matter, the following principles with regard to acknowledgement and
limitation were discussed:
a) An acknowledgement by the borrower binds
the guarantors as well. Reliance placed on Om Prakash v. UCO Bank 2005
MP234 (DB)
b) When a plaintiff who has concurrent
remedies, avails one remedy and remains unsuccessful, then in such case, he cannot
seek the benefit of Section 14 of the Limitation Act while instituting the
alternative remedy. Reliance placed on Hasan Chand Sons v. Gaj Singh ILR
1961 11 Raj 365.
Union
of India v. Shri Lakshmi Cotyn Limited [Co. Appeal (AT) (Insolvency) No.
374/2020]
In
the said matter, the adjudication of the liquidation application was delayed on
account of various miscellaneous applications filed by various parties in the
matter. The NCLAT directed the Adjudicating Authority to decide the said
application within a period of 10 (ten) days.
Techno
Electric & Engineering Co. Ltd. v. McLeod Russel India Limited [Co. Appeal
(AT) (Insolvency) No. 367/2020]
In
the said matter, a Section 7 Application was pending for over 7 (seven) months
before the Adjudicating Authority at the ‘pre admission stage’. The NCLAT
observed that though the 14 (fourteen) day time period for adjudication
(prescribed under the Code) was not mandatory, however, it is trite that the
adjudication must be done by the Adjudicating Authority with utmost expedition.
The NCLAT consequently directed the Adjudicating Authority to endeavour to
decide the Section 7 Application within a period of 15 (fifteen) days.
