Vistra ITCL (India) Ltd vs Torrent Investments Pvt. Ltd. & Ors.
Company Appeal (AT) (Insolvency) No. 132, 133 & 134 of 2023
Facts:
1.On 29.11.2021, Reserve Bank of India superseded the Board of Directors of Reliance Capital Limited (Corporate Debtor) and appointed Shri Y. Nageswara Rao, Respondent No.2 herein as the Administrator. By order dated 06.12.2021, NCLT Mumbai Bench initiated Corporate Insolvency Resolution Process against the Corporate Debtor.
2.On 26.04.2022, Administrator issued the Request for Resolution Plan (RFRP) in terms of Regulation 36B of Insolvency and Bankruptcy Board of India (CIRP) Regulations 2016. RFRP was reissued on 22.10.2022, last date for submission of Resolution Plan was 28.11.2022. Four Resolution Applicants submitted their signed plans namely (i) Torrent Investments Pvt. Ltd. (ii) IndusInd International Holding Ltd. (iii) Cosmea Financial and Piramal Group; and (d) Oaktree Capital.
3.On 14.12.2022, Challenge Mechanism Process Note was issued by the Administrator. On 19.12.2022, steps for Challenge Mechanism Process Note was issued. On 21.12.2022, Challenge Mechanism Process was conducted in which two Resolution Applicants namely (i) Torrent Investments Pvt. Ltd. (for short ‘Torrent’) (ii) IndusInd International Holding
Ltd. (for short ‘IIHL’) participated.
4.IIHL participated until third round of the Challenge Mechanism with final NPV of Rs.8110 Crores and Torrent Investments Pvt. Ltd. submitted bid till fourth round with final NPV of Rs.8640 Crores, each as self-certified by them subject to verification by CoC Advisors. The Administrator, on the same day, sent an email to the Resolution Applicants that highest NPV is INR 8640 Crore.
5.On 23.12.2022, 29th CoC meeting conducted on the submission of Revised Draft Resolution Plan as per Challenge Mechanism. Covering email of IIHL included additional payments totaling to Rs.9000 Crores which was in deviation from the final bid submitted by IIHL. In the minutes of the meeting, it was noted that the CoC Advisors will evaluate and compare both the plans and will share the presentation and evaluation by 28.12.2022.The Torrent sent an objection to the Administrator citing media reports with reference to revision in bid by IIHL. On 03.01.2023, the Adjudicating Authority allowed prayer (E) of the I.A. No. 1/MB/C-I/2023 and directed the Administrator not to submit any non-compliant plan to the CoC. Torrent was given liberty to implead the CoC as party to the application
6.On 03.01.2023, 30th CoC meeting was held. The Process Advisor informed the CoC that NPV calculated on the basis of financial proposal of Torrent and IIHL were different from the NPV submitted by the Resolution Applicants in the Challenge Mechanism. It was decided that both the Resolution Applicants may make corrections to their Draft Resolution Plans submitted on 22.12.2022 and resubmit within 24 hours of the communication. On 06.01.2023, the Administrator received email from IIHL and Torrent including draft resolution plan. Torrent gave draft resolution plan with revised offer offering entire amount of Rs.8640 Crores as upfront. IIHL gave its revised draft resolution plan including some additional payment
7.On 09.01.2023, Torrent filed I.A. No. 99/MB/C-I/2023 seeking impleadment of the CoC in the application and addition of certain additional prayers. On 10.01.2023, a resolution was passed by the CoC with 98% votes in favour of the extended Challenge Mechanism. On 02.02.2023, final orders were pronounced by the Adjudicating Authority allowing the I.A. No. 1/MB/C-I/2023 and I.A. No. 99/MB/C-I/2023. The Administrator was directed to take the resolution process of the Corporate Debtor to its logical conclusion and the Administrator and the CoC were not to allow deviation in the highest NPV financial proposal of INR 8110 Crore of IIHL and the highest NPV financial proposal of INR 8640 Crore of the Applicant – Torrent.
8.Aggrieved against the order dated 02.02.2023, as noted above, Company Appeal (AT) (Ins.) No. 132, 133 & 134 of 2023 has been filed by the Vistra ITCL (India) Ltd
Issue: Whether COC is having the power to re-issue RFRP after completion of challenge mechanism?
Arguments:
Appellant:
1.Counsel submitted that the Adjudicating Authority committed serious error in interdicting the insolvency resolution process by passing interim order on 03.01.2023 which was continued till passing of the final order which effectively prohibited the CoC to exercise its jurisdiction vested in it regarding consideration of the draft resolution plans which were submitted to the Administrator consequent to the Challenge Mechanism held on 21.12.2022. It is submitted that even after conclusion of Challenge Mechanism on 21.12.2022, the jurisdiction and power of the CoC to direct for extended Challenge Mechanism or to negotiate with both the Resolution Applicants to enhance their plan value is not prohibited.
2.It is submitted that the decision of the CoC to conduct an extended Challenge Mechanism amongst the existing bidders cannot be held to be contrary to Regulation 39(1A) (b) of the CIRP Regulations. It is submitted that the Adjudicating Authority has prohibited the CoC to take steps to maximize the value of the Corporate Debtor and to take steps to undertake price discovery of the Corporate Debtor.
3.It was submitted that Neither both the Resolution Applicants have submitted their signed Resolution Plans nor Administrator has certified that both the Resolution Plans are compliant of the I&B Code and its Regulations. At this premature stage, the Adjudicating Authority ought not to have entertained any application, which entertainment is not contemplated in the I&B Code. It is submitted that the Regulation 39(1A) Sub-clause (b) does not restrain holding of extended Challenge Mechanism or Second Challenge Mechanism
4.It is submitted that within a span of 24 days, Torrent has increased value of bid from Rs.1100 Crore upfront to Rs.3750 Crore upfront and then within further two weeks from Rs.3750 Crore upfront to Rs.8640 Crore upfront, which clearly indicate that there is more value to discover and same cannot be interdicted by judicial intervention at this stage. It is further submitted that as per the Challenge Mechanism Process, CoC is the sole authority to determine the NPV which determination is binding on the Resolution Applicants. The self-certification by Torrent that it’s NPV is Rs.8640 Crores does not prohibit the Administrator and the CoC to find out the correct NPV submitted by Torrent. There can be no dispute that in the CIRP Process timelines have to be given due weight but in the name of timelines, maximization of the value of Corporate Debtor cannot be sacrificed.
For Respondents:
1.Counsel contended that the second Challenge Mechanism is in violation of Regulation 39 (1A) of the CIRP Regulations. Regulation 39(1A) was introduced in the CIRP Regulations w.e.f. 30.09.2021 to achieve an objective i.e. to remove the shortcomings and pitfalls in the CIRP process causing delays on account of unsolicited bids received from the Resolution Applicants.
2.When the Challenge Mechanism was concluded on 21.12.2022, the CoC has to vote on the resolution plans received consequent to the Challenge Mechanism. There can be no dispute to the proposition that the CoC in its consideration can either approve the plan or reject the plan but the CoC cannot refuse to vote on the resolution plan received consequent to completion of Challenge Mechanism. The commercial wisdom of the CoC is not unlimited, it cannot be exercised arbitrarily and in derogation of the Code and the Regulations.
3.The sub-optimal and unsatisfactory nature of the resolution plans were purely engineered to circumvent the interim order dated 03.01.2023. The decision is motivated on the revised offer given by the IIHL. The increase of the offer made by IIHL from Rs.8110 Crore to Rs.9000 Crores is contrary to the Challenge Mechanism process. The CoC has no jurisdiction to resort to another Challenge Mechanism. No mantra of maximization can be applied after insertion of Regulation 39(1A). Regulation 39(1A) is peremptory in nature and no discretion is left in the CoC thereafter. The best bid value which is obtained under Regulation 39(1A) is nothing but negotiation as per decision of CoC
4.Counsel for Torrent submitted that The power reserved to the CoC in RFRP is subject to the CIRP Regulation. The CoC did not reserve power to negotiate. The CoC adopted the Challenge Mechanism Method as negotiation mechanism. The CoC cannot go back to old negotiation, toppling bid received from IIHL of Rs.9000 Crores, has to be ignored. IIHL in the Challenge Mechanism elected not to go any higher from Rs.8110 Crores. Timelines and certainty are two most important factors in the insolvency resolution process. No increase in the final bid is permissible after conclusion of the Challenge Mechanism.
5.It was submitted that the Appellant has not placed on record appropriate authority to pursue the present appeal. It is submitted that the Appellant is authorised representative of Bondholders forming part of the CoC and the authorised representative is required to always act in accordance with the prior written instructions from the Financial Creditors it represents. Section 25A and Section 21(6A) of the I&B Code has been relied in the above context.
Decision: COC is having the power to re-issue RFRP after completion of challenge mechanism
Rationale:
1.NCLAT after going through the provision of Regulation 39(1A)(b) and clauses of RFRP issued by administrator noted that Resolution Plans are received in accordance with Regulation 39(1A), the right of the CoC to negotiate with Resolution Applicants, after receipt of the Plan and/ or before the Plan is put to vote, is clearly reserved. Clause 4.2.4 again reserves the right of CoC to annul the Resolution Plan process and call for submission of new Resolution Plan from any person/ Resolution Applicant to make modification to the Plan and to submit a revised Resolution Plan or revised Resolution Bid or Combined Resolution Plan. Clause 4.2.4 (c), (e), (h) and (i) clearly envisage such consequence.
2.It held that the submission of the Respondent that after completion of Challenge Mechanism under Regulation 39(1A), the power of CoC is circumscribed and Coc is only obliged to vote on the Plans received consequent to Challenge Mechanism is clearly unsustainable, in view of the above explicit clauses of RFRP.
3.The power to cancel a Challenge Process is not confined only to the cases of fraud detected, but there may be other circumstances also, when Challenge Process may be annulled by the CoC with right to initiate fresh Challenge Process or a Revised Challenge Process. One of such circumstances under which Coc is fully justified to discard the Challenge Process is a case when CoC comes to the conclusion that there was cartelization between Resolution Applicants.
4.The Minutes of CoC held on 06.01.2023 clearly recorded the dissatisfaction of the CoC with the outcome of the process and the events that have transpired thereafter. The CoC was of the view that it demonstrates that outcome of the Challenge Mechanism undertaken was sub optimal and not satisfactory. The CoC in its meeting has also referred the relevant Clauses of RFRP and it was clearly mentioned that CoC retained the right at all time to negotiate with bidders to improve the Resolution Plan.
5.The decision of the CoC to go for Extended Challenge Mechanism cannot be said to be based on the bid of IIHL and further the view of the Adjudicating Authority that second Challenge Mechanism runs fouls to Regulation 39(1A) also cannot be sustained.
6.Regulation 39(1A)(b) cannot prohibit any negotiation or any further steps of the CoC. The view of the Adjudicating Authority that “no negotiation or value maximizatioin exercise can be individually undertaken by the CoC dehors the mandate of Regulation 39(1A)” is contrary to the Scheme delineated by the Code and CIRP Regulations. The very concept of negotiation envisages dialogue between two parties.
7.Reference to Regulation 39(1A) contemplate modification of Resolution Plan and improvement of Resolution Plan at the instance of Resolution Applicant. The above modification or improvement in the Plan cannot be confined only to Plan value, rather, it shall cover the entire Plan and if it is held that any modification or improvement is not permissible after conclusion of process under Regulation 39(1A), it shall become handicap in successful resolution of the Corporate Debtor, since CoC may opine that certain modification and improvement in Plan are necessary for successful resolution of the Corporate Debtor.
Order Copy:
