M/s. Swan Energy Limited VS Chandan Prakash Jain & ORS CA (At) Ins 313 of 2024
Facts:
1) Corporate Insolvency Resolution Process of the Corporate Debtor commenced vide an order dated 09.12.2020 on an application filed under Section 9.. 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
2) 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 various/ certain conditions. The Respondent No.3 who was Asset Reconstruction Company was clearly not eligible to give Resolution Plan or to continue to be Resolution Applicant without prior approval of the RBI. On 14.12.2022, IA No.1 of 2023 in IA No.764 of 2021 was filed by Respondent No.3- ‘Invent Assets Securitization & Reconstruction Private Limited’ seeking substitution of its name as Resolution Applicant with that of Respondent No.4.
3) On 09.04.2023, on request made by Respondent No.3, Adjudicating Authority allowed withdrawal of IA No. 1 of 2023 with liberty to move an appropriate representation before the CoC. Subsequent to the order dated 09.04.2023, CoC in its 26th meeting of the COC held on 05.05.2023 approved the Resolution Plan with modification that Respondent No.4 shall be substituted as Resolution Applicant in place of Respondent No.3. The Resolution to modify the Resolution Plan by substituting Respondent No.4 was approved by the CoC with 100% vote share
4) On 01.09.2023, the Adjudicating Authority while hearing the application IA No.764 of 2021 directed the Resolution Professional to file the Request for Resolution Plan (RFRP) and to point out the relevant provisions in the RFRP whereby the Resolution Applicant could be changed after Resolution Plan was approved by the CoC. CoC in its 29th CoC meeting held on 12.09.2023 examined the feasibility and viability of the plan already approved and the Resolution Plan was again re-approved by the CoC by third time with 100% approval. On 20.10.2023, 30th CoC meeting was held where COC by appropriate voting resolved to amend RFRP and to include provision for substitution / replacement of the Resolution Applicant. On 24.11.2023, Resolution Professional filed another updated Form-H before the Adjudicating Authority. Adjudicating Authority after hearing the parties has passed the impugned order on 04.12.2023 approving the Resolution Plan as modified with Respondent No.4 as Resolution Applicant, aggrieved by which order this appeal has been filed.
Issue: Whether the appeal can be allowed ?
Argument:
Appellant:
1) Counsel submitted that 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.
2) 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
3) Counsel submitted that When SRA i.e. Respondent No.3 whose plan was approved became ineligible, even by any subsequent event, was not eligible to submit a Resolution Plan without the approval of the RBI and the entire process ought to have been initiated de novo giving opportunity to all Resolution Applicants including the appellant who had earlier filed Resolution Plan which was not approved in comparison with the Resolution Plan of the Respondent No.3.
4) The entire process adopted by the Resolution Professional and the CoC were clearly contrary to the provisions of the CIRP Regulations 2016. Adjudicating Authority committed serious error in approving such modified Resolution Plan with new Resolution Applicant i.e. Respondent No.4 who had neither filed any EoI nor has filed any Resolution Plan in the process. Permitting the SRA to be changed after Resolution Plan of the SRA has been approved, is clearly impermissible and mockery of the entire CIRP process.
Respondent:
1) Counsel submitted that 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.
2) 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.
Decision: NCLAT allowed the appeal.
Rationale:
1) It noted that there is no provision in the RFRP by which Resolution Applicant could be changed after approval of the Resolution Plan. It held that 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).
2) After approval of the Resolution Plan of Respondent No.3 by the CoC on 21.10.2021 and after filing of the application for approval of the plan before the Adjudicating Authority, the CoC has no jurisdiction to substitute the SRA with another SRA who was not part of the CIRP process.
Order:
