Insolvency and Bankruptcy Code, 2016: Appellant financial creditor filed s.7 application before NCLT against corporate debtor – Committee of Creditors (CoC) resolved to approve the Resolution Plan submitted by one M/s Sai Agro – On the basis of approval of Resolution Plan, Resolution Professional moved an application before NCLT – At this stage, the Director/Promoter of corporate debtor also came up with an application seeking permission to file Resolution Plan – NCLT rejected the application of corporate debtor and approved Resolution Plan submitted by M/s Sai Agro – Thus, M/s Sai Agro became Successful Resolution Applicant (SRA) – Director/Promoter of corporate debtor filed appeal before NCLAT against the approval of the Resolution Plan of SRA – NCLAT allowed the appeal and remanded the matter back to NCLT with direction to send back the Resolution Plan to the CoC – Order of NCLT was challenged on the ground inter alia that the Resolution Plan suffered from issues of viability and feasibility and that the Resolution Plan did not take note of important fact that the ethanol plant and machinery shown as part of the assets of the corporate debtor, actually belonged to another company by name, Sarvadnya Industries Private Ltd. (SIPL) and that a bank by name, Janata Sahkari Bank Ltd. had taken possession of the same under the SARFAESI Act – Financial creditor and Resolution Professional both filed separate appeals respectively – Held: It is not the case of corporate debtor or its promoter/Director or anyone else that some of the factors which were crucial for taking a decision regarding viability and feasibility were not placed before the CoC or the Resolution Professional – The only basis for the corporate debtor to raise the issue of viability and feasibility was that the ownership and possession of the ethanol plant and machinery was the subject matter of another dispute and that the Resolution Plan did not take care of the contingency where the said plant and machinery may not eventually be available to SRA – However, records very clearly show that SRA, Resolution Professional and financial creditor were fully aware of the said issue – The order passed by the NCLAT showed that the possession of the ethanol plant and machinery was restored to SIPL, in the appeal to which SRA was also a party – SRA also appeared to have offered to Janata Sahkari Bank to purchase the said plant and machinery – In the appeal before the NCLAT out of which these appeals arose, SIPL which claimed ownership of the ethanol plant and machinery, was also a party – In any case, the Resolution Professional took a specific plea in his grounds of appeal before this Court, that SRA was itself into the ethanol manufacturing business and that they had sufficient ethanol production capacity required to fulfil their Resolution Plan – Therefore, the fact that there was an issue with regard to the ethanol plant and machinery, had been taken note of by Resolution Professional, CoC and SRA – Since all these three parties took note of the said fact and took a conscious decision to go ahead with the Resolution Plan, it cannot be stated that the question of viability and feasibility was not examined in the proper perspective – Therefore, the main ground on which NCLAT interfered with the decision of the NCLT to approve the Resolution Plan, was wholly untenable, misconceived and unjustified.
Allowing the appeals, the Court
HELD: 1.1 If all the factors that need to be taken into account for determining whether or not the corporate debtor can be kept running as a going concern have been placed before the Committee of Creditors and the CoC has taken a conscious decision to approve the resolution plan, then the adjudicating authority will have to switch over to the hands off mode. It is not the case of the corporate debtor or its promoter/Director or anyone else that some of the factors which are crucial for taking a decision regarding the viability and feasibility, were not placed before the CoC or the Resolution Professional. The only basis for the corporate debtor to raise the issue of viability and feasibility is that the ownership and possession of the ethanol plant and machinery is the subject matter of another dispute and that the resolution plan does not take care of the contingency where the said plant and machinery may not eventually be available to the Successful Resolution Applicant. [Para 13][477-C-E]
1.2 The records very clearly show that the Successful Resolution Applicant, the Resolution Professional and the financial creditor were fully aware of the said issue. The order passed by the NCLAT passed on 16.12.2019 shows that the possession of the ethanol plant and machinery was restored to Sarvadnya Industries Pvt. Ltd., in the appeal to which the Successful Resolution Applicant was also a party. The Successful Resolution Applicant also appears to have offered to Janata Sahkari Bank to purchase the said plant and machinery. In the appeal before the NCLAT out of which the present Civil Appeals arise, Sarvadnya Industries Pvt. Ltd. which claims ownership of the ethanol plant and machinery, were also a party. In any case, the Resolution Professional has taken a specific plea in his grounds of appeal before this Court, that the Successful Resolution Applicant is itself into the ethanol manufacturing business and that they have sufficient ethanol production capacity required to fulfil their Resolution Plan. Therefore, the fact that there was an issue with regard to the ethanol plant and machinery, had been taken note of by the Resolution Professional, the Committee of Creditors and the Successful Resolution Applicant. Once all these three parties have taken note of the said fact and taken a conscious decision to go ahead with the Resolution Plan, it cannot be stated that the question of viability and feasibility was not examined in the proper perspective. [Paras 14-17][477F-H; 478-A-B, E-F]
2.1 The second ground on which NCLAT interfered with the decision of the NCLT is the alleged breach of confidentiality. The contention of the Promoter/Director of the corporate debtor is that the liquidation value mentioned in the Resolution Plan submitted by the SRA exactly tallied with the liquidation value obtained by the Resolution Professional and that the whole sequence of events would show clearly that there was an attempt to cover up. According to the Director/Promoter of the corporate debtor, the self-declaration signed by the Resolution Applicant, and which forms part of the Resolution Plan, bears the date 9th February 2019. This document mentions the liquidation value as Rs. 13.53 crores. It was the same value as obtained by the Resolution Professional. It is the contention of the Director/Promoter of the corporate debtor that the Resolution Professional wrote an email on 07.02.2019 itself (2 days before the submission of the Resolution Plan by the SRA), asking for clarification as to how the liquidation value matched. This, according to the Director of the corporate debtor, was proof enough to show that there was not merely a leakage of information, but also an attempt to coverup. This contention cannot be accepted. The Resolution Plan actually runs to 31 pages. Pages 30 and 31 contain Annexure A, which provides the business plan. Page 29 contains a selfdeclaration certificate signed by the partners of the SRA. Just below the signatures of the partners at page 29, the date “09th February 2019” is type-written. But the cover page of the entire document contains the date “7th February 2019” as the date of submission of the Resolution Plan. The last date for submission of the resolution plan was 08.02.2019. [Paras 27-30][480-F-H; 481-A-D]
2.2 Nowhere in the Memorandum of Appeal filed by the Promoter/Director of the corporate debtor before the NCLAT, has he claimed that the Resolution Plan was submitted by the SRA after the last date. We have perused the Memorandum of Appeal filed by the Promoter/Director of the corporate debtor before the NCLAT. It was not his case at all that the Resolution Plan was submitted by the SRA after the last date, but the same was predated by the Resolution Professional acting in collusion. [Para 31][481-E]
2.3 It appears from the impugned order of NCLAT that only in the course of hearing of the appeal, the date “09th February 2019” type-written at the bottom of the self-declaration (page 29 of the Resolution Plan) was sought to be taken advantage of. Since this was not raised as one of the grounds in the Memorandum of Appeal but raised in the course of arguments, the Resolution Professional could do no more than to file the print-out of the email correspondence between him and the SRA dated 07.02.2019. In the first email dated 07.02.2019, the Resolution Professional had sought a clarification from the SRA as to how they discovered the liquidation value and the source for the same. In response to this mail, the SRA sent a reply email contending that they undertook a due diligence to know the current market value and liquidation value and that what was quoted by them in the Resolution Plan, was something that an independent agency provided to them. Unfortunately, NCLAT rejected the print-out of the email correspondence dated 07.02.2019 on the sole ground that the same was not supported by affidavit and that it was filed after the conclusion of the oral arguments. But NCLAT failed to take note of the fact that the Resolution Professional did not have any alternative except to respond in the manner that he did, to a point raised only in the course of arguments, but not raised in the Memorandum of Appeal. If the Promoter/Director of the corporate debtor had raised the issue of collusion or the submission of the Resolution Plan after the expiry of the last date, even in the Memorandum of Appeal, a duty would have been cast upon the Resolution Professional to respond in an appropriate manner. But that was not the case. [Paras 32, 33, 34][481-F-H; 482-A-C]
2.4 The fact that there was an email correspondence between the Resolution Professional and the SRA on 07.02.2019, touching upon one of the contents of the Resolution Plan, would show (i) that the SRA had submitted the Resolution Plan before the last date and (ii) that the Resolution Professional had obviously scrutinised it, as otherwise he could not have found out the liquidation value mentioned therein matching the confidential information that he had. The liquidation value mentioned in the Resolution Plan of the SRA is Rs. 13.53 crores. But the actual total pay-out as per the Resolution Plan is Rs. 29.74 crores. This meant that the workers and employees of the corporate debtor were to be paid 100% of their dues; that all statutory dues would be cleared 100% and that the financial creditors who constituted the CoC were to be paid 60% of their dues. It offends common sense to think that a resolution applicant who had the benefit of leakage of information relating to liquidation value would quote a figure of Rs. 29.74 crores as the total pay-out, as against a liquidation value of Rs. 13.53 crores. The question of breach of confidentiality and leakage of confidential information can easily be tested on the touchstone of the benefit that accrued to the party who got the information. In the case on hand, no benefit accrued to the SRA. [Paras 35-38][482-D-H]
2.5 It is obvious from the material on record that the Promoter/Director of the Corporate Debtor has tried to take advantage of two small mistakes on the part of the SRA, one of which was a typographical error mentioning the date “09th February 2019” at the bottom of the self-declaration and the other, which happened as a matter of coincidence. The NCLAT appears to have made a mountain out of a molehill and has recorded a finding even beyond the pleadings in the Memorandum of Appeal. Hence, the second ground on which the NCLAT was convinced to pass the impugned order, is legally and factually untenable. [Para 39][483-A-B]
3. The next ground on which NCLAT proceeded, related to the ethanol plant and machinery. SRA admittedly did not make his Resolution Plan on the strength of the ethanol plant and machinery in question. The threat looming large over the availability of the ethanol plant and machinery has admittedly been taken note of by the SRA and the CoC. The Resolution Plan does not give an indication anywhere that without this plant and machinery the whole resolution plan will fail. In paragraph 8.04 of the Resolution Plan, the SRA has undertaken to continue the operations in the normal course of business. It is a commercial decision that they have taken. The corporate debtor cannot cry wolf over the said decision. Therefore, the third ground on which NCLAT chose to interfere, is also bound to be rejected. [Para 40][483-C-E]
4.1 The last ground revolves around the advertisement issued by the Resolution Professional on 30.03.2018. NCLAT holds that the advertisement was not in conformity with Regulation 36A of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and as per Form G of the Schedule. Regulation 36A was inserted only with effect from 06.02.2018 under Notification No. IBBI/2017-18/GN/REG024 dated 06.02.2018. It underwent a change under Notification No. IBBI/2018-19/GN/REG031 dated 03.07.2018, with effect from 04.07.2018. Regulation 36A, as it stood during the period from 06.02.2018 to 04.07.2018, did not mandate the publication of the invitation of Resolution Plans, either in Form G or otherwise, in newspapers. It is only the amended Regulation 36A, which came into effect from 04.07.2018, that requires the publication of Form G in newspapers. Therefore, the publication in newspapers made by the Resolution Professional, in the case on hand, on 30.03.2018, was something that was statutorily not required of him and hence the Promoter/Director of the corporate debtor cannot take advantage of the amendment that came later, to attack the advertisement. The unamended and amended Regulation 36A are provided in a tabular column for easy comparison and appreciation. The second meeting of the Committee of Creditors was held on 27.03.2018. The advertisement was approved in the said meeting. It was the unamended Regulation 36A that was in force at that time. This has not been appreciated by NCLAT. Therefore, the NCLAT was wrong in its approach even in this regard. [Paras 41, 45, 46][483-E-F; 484-E-H; 487-C-D]
Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others (2019) SCC Online SC 1478; K. Sashidhar v. Indian Overseas Bank (2019)
12 SCC 150; [2010] 3 SCR 845 – relied on
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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