The RP committed a grave error in accepting the Resolution Plan of a new Resolution Applicant after the expiry of the deadline for submission of the Bid/Resolution Plan without notifying/publishing the extension of the timeline for submission of EOI : NCLAT
ORDER
The Hon’ble National Company Law Appellate Tribunal (NCLAT) has, by way of its order dated 5th August 2020, in the matter of Kotak Investment Advisors Limited (Appellant) Versus Mr. Krishna Chamadia, Resolution Professional & Ors. in Company Appeal (AT) (Insolvency) No. 344 – 345 of 2020 inter-alia opined that the Resolution Professional has done a grave error in accepting the Resolution Plan of the Resolution Applicant Kalpraj Dharmshi & Rekha Jhunjhunwala after the expiry of the deadline for submission of the Bid/Resolution Plan without notifying/publishing the extension of the timeline for submission of EOIas per provision of the I&B Code and Regulations thereof.
These Appeals emanate from the two impugned Orders, both dated 28th November 2019, passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench in Miscellaneous Applications No. MA/1039/2019 and MA/691/2019 in Company Petition (IB) No. 156/MB/2017 whereby, the Adjudicating Authority, vide the first impugned Order, has rejected the Application No. MA/1039/2019 raising objections against the alleged illegalities committed in the conduct of CIRP and vide the second impugned Order passed in MA 691/2019, the Adjudicating Authority has approved the Resolution Plan. The Parties are represented by their original status in the Company Petition and Miscellaneous Applications for the sake of convenience.
BRIEF FACTS
The following facts are noteworthy:
a) MA No.1039 of 2019 is filed by M/s Kotak Investment Advisors Limited (from now on referred to as KIAL), stated to be unsuccessful Resolution Applicant. The Appellant has filed this Application on 14th March 2019 seeking rejection of the approved Resolution Plan submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala, based on the illegalities committed in the conduct of Corporate Insolvency Resolution Process. Since the Adjudicating Authority has passed Orders in MA No. 1039 of 2019 and MA No.691 of 2019 at the same time, and the facts being the same, both these appeals are taken together.
b) The Appellant/Applicant contends that an advertisement was made by the Resolution Professional on 09th July 2018 calling for Expression of Interest (from now on referred to as EOI).
c) Pursuant to it, Phoenix Asset Reconstruction Company Limited, an Associate of the Appellant/Applicant, submitted EOI on 07th August 2018.
d) On receiving EOI, the Resolution Professional had issued “Process Memorandum” on 17th & 27th August 2018 calling for submission of Resolution Plan. In the invitation for Resolution Plan, the last date for submission of Resolution Plan was 08th January 2019.
e) Accordingly, Phoenix Asset Reconstruction Company Limited submitted a Resolution Plan on 08th January 2019.
f) Admittedly, two Resolution Applicants had filed their Resolution Plans within the deadline for submission of Resolution Plan. However, the Resolution Applicant Karvy Group, tendered its Resolution Plan without furnishing guarantee of Rs.10 Crore.
g) On 10th January 2019, the Committee the Creditors (for Short ‘CoC’) had opened both the Resolution Plans.
h) As per the Appellant, in addition to the abovementioned Resolution Plans, two more Resolution Plans were accepted by the Resolution Professional after expiry of the deadline for submission of the Resolution Plans, one from “WeP” Peripherals on 13th January 2019 and another on 28th January 2019 from a consortium of Kalpraj Dharamshi & Rekha Jhunjhunwala.
i) In this regard, the RP stated that an email was received from ‘WeP’ Solution Private Limited seeking time till 14th January 2019 to file a Resolution Plan.
j) After that, on 15th January 2019, the Resolution Plans were discussed.
k) As per the facts stated by RP, the CoC, in its Meeting dated 11th January 2019 allowed for submission of the Resolution Plan by ‘WeP’ Solutions Private Limited and in its 11th Meeting held on 24th January 2019, considered the Resolution Plan submitted by WeP Solutions Private Limited.
l) Subsequently, the CoC in its 12th Meeting dated 30th January 2019 approved the joint Resolution Plan submitted by a consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala by vote share of 85%, which is under challenge in these Appeals.
m) The CoC and the RP, subsequently, permitted the Appellant to submit a revised Resolution Plan on or before 12th February 2019.
n) The Resolution Professional has contended that the Appellant was one of the four Resolution Applicants who had submitted its Resolution Plan, which was rejected by the CoC in its Meeting dated 13th February 2019 and on the same date, the Resolution Plan of the Successful Resolution Applicant was approved with 84.36% vote share.
Matter before NCLT
1) The Adjudicating Authority has rejected the Application MA No. 1039 of 2019 by placing reliance upon the judgment of Hon’ble the Supreme Court of India in K. Sashidhar v. Indian Overseas Bank & Ors in Civil Appeal No.10673 of 2018, wherein it is held that the commercial decision of CoC for approval of resolution Plan is non-justiciable and hence, is required to be sanctioned by the Adjudicating Authority.
2) The Adjudicating Authority has further observed, “it is a case where due opportunity was granted to all the Resolution Applicants. Moreover, the most attractive plan was sanctioned for approval by the Adjudicating Authority”.
Submissions/Contentions by the Appellant
a) The Applicant/Appellant questioned the RP over acceptance of two Resolution Plans that had been submitted after the expiry of deadline for submission of Resolution Plan, without obtaining any CoC resolution to extend the deadline and issuing notice for inviting EoI from other potential resolution applicants.
b) The grievance of the Applicant/Appellant is that the Successful Resolution Applicant was allowed to submit its Bid after the expiry of the deadline for submission of Resolution Plan when the Bids by other Resolution Applicants had already been opened and deliberated upon by the CoC.
c) The impugned Order has been passed in violation of Principles of Natural Justice, as one of the Members of the Bench, which passed the impugned Order, was not a Member of the Bench that had heard the arguments on Application MA No.1039 of 2019. The Appellant contends that the MA No.1039 of 2019 was heard, and the matter was reserved for Order on 3rd July, 2019 by Single Member Bench of Mr. M.K. Shrawat. The MA No.691 of 2019 for sanctioning the Resolution Plan was heard and decided by Division Bench but the argument raised in MA No.1039 of 1019 was never heard by the Technical Member of the reconstituted Division Bench, which has passed the impugned Order regarding the rejection of the MA No 1039/2019.
d) The Appellant also contended that the Learned Adjudicating Authority has failed to appreciate that:
(i) The RP had accepted two other Resolution Plans, one from “WeP” Peripherals and another from a consortium of Kalpraj Dharamshi & Rekha Jhunjhunwala on 13th January 2019 and 28th January 2019 respectively.
(ii) The RP has not only accepted the Resolution Plan after the expiry of the deadline/cut-off date but also gave a go by to the deadline for submission of Expression of interest, in contravention of the provision of IBC and Regulation thereof.
(iii) The successful Resolution Applicant, Kalpraj Dharamshi and Rekha Junjhunwala had been allowed to take part in the Corporate Insolvency Resolution Process (for short ‘CIRP’) even after expiry of the deadline for submitting Expression of interest and Resolution Plan, which is in contravention of Clause 2.4 of the Process Memorandum issued by the RP.
e) Appellant further contends that the Resolution Plan submitted by the Appellant was opened on 09th January 2019 and the fundamentals of the plan and financials of the plan and offers made by Appellant were disclosed to all the participants, including the RP. After this, no further fresh bid or offer could have been accepted or considered.
f) The RP illegally and unlawfully received EOI from Kalpraj Dharamshi & Rekha Jhunjhunwala on 27th January 2019.
g) The action of the RP is unlawful under the teeth of the provision of IBC and Regulation 36A of the CIRP Regulations.
#In reply to the objections of the Respondents regarding maintainability of the Appeals on limitation issue:
h) The Appellant contended that the Appeal was filed against the impugned Order dated 28th November 2019. The certified copies of the Orders were issued on 18th December 2019, which were challenged before the Hon’ble High Court of Judicature of Bombay in Writ Petition No. 3621 of 2019. The Hon’ble High Court vide Order dated 28th January 2020 dismissed the abovementioned Writ petition on the ground that alternate and equally efficacious remedy is available. Copy of the Order of the Hon’ble High Court dated 28th January 2020 was uploaded on the website of the Hon’ble High Court on 04th February 2020, when the Appellant had the opportunity to have access to the same. After that, these Appeals were filed on 18th February 2020. Since the certified copy of the impugned Order dated 28th November 2019 were issued on 18th December 2019, therefore, the time spent in obtaining the certified copy will not be computed for limitation. Thus, from 18th December 2019, 30 days were available for filing Appeal under Section 61(2) of the I&B Code, 2016. It is also pertinent to mention that after getting the certified copy of the impugned Order, it was challenged before the Hon’ble High Court. Therefore, the time spent in the writ petition before the Hon’ble High Court shall be excluded from the computation of the limitation period. It is also evident that the copy of Judgment of the Hon’ble High Court was uploaded on the website on 04th February 2020. Therefore, the time spent in disposal of Writ Petition till 04th February 2020 shall be excluded from the computation of limitation, as per Section 12 of the Limitation Act. Appellant has also applied under Rule 11 of NCLT Rules, read with Section 5 of the Limitation Act for Condonation of the delay in filing the Appeals wherein it is stated that there is an inadvertent delay of 31 days in filing the Appeals. Since the Impugned orders were passed on 28th November 2019 in MA No. 1039 of 2019 and MA No. 691 of 2019 and certified copy of the impugned Order was received on 18th December 2019, after that impugned orders were challenged before the Hon’ble High Court in Writ Petition No. 3621 of 2019. The Hon’ble High Court dismissed the Writ Petition on 28th January 2020 which was uploaded on the website 04th February 2020. After that, this Appeal is filed in the shortest possible time, i.e. on 18th February 2020. Therefore, the present Appeals are maintainable and not barred by limitation.
Submissions/Contentions by the Respondents [RP (R1) & Successful RA (R2 & R3)]
a) The RP has contended that correct procedure was followed as prescribed under the Code and accompanying Regulations.
b) The Learned Counsel for the Successful RA contended that the Appeals are barred by limitation under Section 61(2) of the I&B Code, 2016 and thus, are not maintainable.
QUESTIONS FRAMED?
1) Whether the Resolution Professional with the approval of Committee of creditors, was authorized to accept the Resolution Plans after the expiry of the deadline for submission of the Bid, without extending the timeline for submission of EOI?
2) Whether the act of the Resolution Professional, with the approval of Committee of creditors, in accepting the Resolution Plan after the expiry of the deadline for submission of Resolution Plan, can be treated as an act under commercial wisdom of the Committee of creditor?
3) Whether Amended Regulation 36A, which came into effect from 04.07.2018, will be applicable in this case, where CIRP is initiated against the Corporate Debtor before coming into force of the amended Regulation?
4) Whether Judgment of the Bench consisting of Member (Technical), who has not heard the argument regarding MA No.1039 of 2019 is valid?
On Question No. 1 & 2
a) The Resolution professional has accepted the Resolution Plan of Kalpraj after the expiry of the deadline for submission of Expression of Interest, under Clause 10.4 of the Process Memorandum. The Resolution Professional contends that under clause 10.4 of the Process Memorandum, he was authorized to accept any Resolution Plan, at any stage of CIRP with the approval of CoC.
b) It is contended that the use of the phrase, in Clause 10.4 of the process memorandum, stating that the Resolution professional shall be free to examine such Resolution Plan with the approval of the CoC‘ at any stage of the resolution plan process’, and the applicant will not have any right to object to submission or consideration of such plan, does not provide immunity to the Resolution Professional to accept the Resolution Plan of any Resolution Applicant, which has not submitted Expression of Interest/Bid within the timeline prescribed in the notification for inviting Expression of interest.
c) It is further alleged by the Appellant that the Adjudicating Authority has failed to appreciate that the CoC had approved a Resolution Plan submitted by a consortium of minority shareholders of the Corporate Debtor, which provides for significant, if not wholly unjustified, payouts to be made to the minority shareholders at exorbitant rates for their holding from the Corporate Debtor. This blatant conflict of interest is ignored by the Resolution Professional. Regulation 38(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation 2016 mandates to include complete details and particulars of the Resolution Applicants, to enable the CoC to assess the credibility of the Applicant and connected persons to take a prudent decision.
d) If the Resolution Professional, on the advice of CoC had decided to extend the timeline for submission of bids, then it was mandatory to issue a notification in Form-G, for inviting EOI and in compliance of sub-regulation (5) of Regulation 36A of the CIRP Regulation.
e) Only after publication of fresh invitation in Form-G and fixing a deadline, the Resolution Plan could have been accepted with the consent of CoC. It cannot be said that as per Process Memorandum, the Resolution Professional was entitled to accept any Resolution Plan at any point of time, without following the due process under the guise of maximization of value.
f) The alleged act of the Resolution Professional in accepting the Resolution Plan after the expiry of the deadline for submission of Resolution Plan is arbitrary, illegal and against the principle of natural justice and cannot be treated as an act within the commercial wisdom of the CoC.
g) Based on Hon’ble the Supreme Court of India judgements, the CoC indeed, has the power to exercise its commercial wisdom in approval or rejection of the Resolution Plan. However, the same cannot mean that the Resolution Professional, whether with the approval of CoC or without that, or in pursuance of Process Memorandum under the guise of maximization of value, is empowered to adopt a procedure in the conduct of CIRP which is, ab-initio illegal, arbitrary and against the Principles of Natural Justice.
h) The act of the Resolution Professional to accept the Resolution Plan after opening the other bids, which were all submitted within the deadline for submission of Resolution Plan cannot be justified by any means and is a blatant misuse of the authority invested in the Resolution Professional to conduct CIRP.
i) However, if the CoC took a commercial decision to extend the timeline, it should have done so by publishing a fresh notice in Form ‘G’ under Regulation 36A of the CIRP Regulations.
j) It is further held that all the ‘Resolution Plans’ which meet the requirements of Section 30(2) of the ‘I&B Code’ are required to be placed before the ‘Committee of Creditors’ and the ‘Resolution Professional’ can review the ‘Resolution Plan’ and the ‘Committee of Creditors’ is entitled to negotiate and modify it with the consent of the ‘Resolution Applicant’. However, the CoC can negotiate with only those Resolution Applicants whose plans are already under consideration and which otherwise also, is compliant with the provision of Sec 30(2) of the Code, for maximization of assets of the Corporate Debtor. It does not mean that the Resolution Professional or the CoC is authorized to accept a Resolution Plan from a new Resolution Applicant that had not submitted the EOI within the prescribed timeline.
On Question No. 3
1) The Ld. Counsel for the Appellant emphasizes on the violation of Amended Regulation 36A of the CIRP Regulations 2016.
2) Regulation 36A came into force w.e.f. 04th July 2018 by the amendment in CIRP Regulation, 2016. There is nothing in the amended Regulation which provides for retrospective operation of the amended Regulation.
3) Regulation 36A(6) was introduced vide Notification No. IBBI/2018-19/GN/REG031, which clearly states that the amended CIRP Regulations shall apply to CIRP commencing on or after 04th July 2018. The Corporate Debtor was admitted to CIRP on 14th May 2018, and hence, the amendments introduced vide notification No. IBBI/2018-19/GN/REG031 is not applicable to Corporate Debtor’s CIRP.
On Question No. 4
1) It is also noted in the Order sheet dated 10th June 2019 that the MA No.1039 of 2019 was adjourned to 3rd July 2019 for hearing. Thereafter, on 3rd July, the arguments on MA 1039 of 2019 were heard and the application was reserved for Order by the same Bench. It is also evident that from 07th August 2019 onwards, the Bench was reconstituted from a Single Member Bench to a Division Bench consisting of one Judicial Member and one Technical Member.
2) Thus, it is clear that argument on MA No.1039 of 2019 was heard by Single Member Bench consisting of Mr M.K. Shrawat, Member (Judicial) and after that, it was reserved for Order. However, the impugned Order dated 28th November 2019 passed on MA No.1039 of 2019 is passed by the reconstituted Bench consisting of Mr Chandra Bhan Singh, Member (Technical) and Mr M.K. Shrawat, Member (Judicial).
3) The salutary principle applicable in the instant case is that of the maxim, “one who hears the matter must decide”. It is the Single Member Bench which had heard the argument of the Miscellaneous Application 1039 of 2019 and thus, it alone could have decided it. Merely because the presiding member of the Single Member Bench was also a part of the reconstituted Division Bench of the Tribunal comprising of two members, it does not mean that he could have taken up the Applicant’s MA No.1039 of 2019 along with the MA No.691 of 2019.
4) Thus, the Bench has passed the Order on the MA No.1039 of 2019, even though the other Member of the Bench, Member (Technical), didn’t get an opportunity to hear the arguments on that application. Rule 150(2) NCLT Rules, 2016 provides for the Bench which hears the case to also pronounce the Order.
CONCLUSION
By this order, the Hon’ble NCLAT inter-alia opined that the Resolution Professional has done a grave error in accepting the Resolution Plan of the Resolution Applicant Kalpraj Dharmshi & Rekha Jhunjhunwala after the expiry of the deadline for submission of the Bid/Resolution Plan without notifying/publishing the extension of the timeline for submission of EOIas per provision of the I&B Code and Regulations thereof.
The Hon’ble NCLAT also directed the CoC to take a decision afresh in the light of the directions given above for consideration on the Resolution Plans already submitted within the stipulated timeline within ten days from the date of this Order.
If no decision is communicated to the Adjudicating Authority and the timeline for completion of CIRP has already expired, then the Adjudicating Authority is to pass an order for liquidation of the corporate debtor.
Relevant Links/Downloads:
Date: August 10, 2020
About the Author: The author (CS Lovkesh Batra) is Company Secretary by profession and works in the area of Insolvency & Bankruptcy Law.
About the Co-Author: The co-author, Ms. Sneha Solanki is pursuing Law from the University of Petroleum and Energy Studies, Dehradun.
Disclaimer: The entire contents of this document have been prepared on the basis of the information existing at the time of the preparation. The authors and IBC Law Reporter does not take responsibility of the same and this document cannot used to be quoted before any authority under any law.
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