An order was passed by the National Company Law Appellate Tribunal (NCLAT) regarding setting aside the approval which was earlier granted by the National Company Law Tribunal (NCLT) to a Resolution Plan of an ethanol plant and machinery and remanding the matter back to the NCLT with a direction to have the Resolution Plan resubmitted before the Committee of Creditors (CoC), the financial creditor, and the Resolution Professional. This order was challenged by the appellant “The Karad Urban Cooperative Bank” in the case of “The Karad Cooperative Bank v. Swwapnil Bhingardevay”
Facts of the Case:
An application was filed on 4th September, 2017 by the appellant ‘The Karad Urban Cooperative Bank Ltd’, which is the ‘financial creditor’, under Section 7 of the Insolvency and Bankruptcy Code, 2016, (IBC) before the NCLT against ‘M/S. Khandoba Prasanna Sakhar Karkhana Limited’, which is the ‘corporate debtor’. The application was later accepted by the NCLT and an Interim Resolution Professional was appointed. After the first meeting of the Committee of Creditors took place, Mr. Jitendra Palande was appointed by the NCLT as Resolution Professional. In the second meeting, the Resolution Professional issued an advertisement inviting Expression of Interest. In the meantime, the Director of the Corporate Debtor moved the High Court of Judicature of Bombay by way of a writ petition, challenging the order of NCLT which was eventually dismissed.
Thereafter, several other meetings of the Committee of Creditors were held and in their 8th meeting, it was held to approve the Resolution Plan submitted by one ethanol plant and machinery ‘M/S. Sai Agro Chemicals’, against which an application was moved before NCLT by the Corporate Debtor which was again rejected. Therefore, the Resolution Plan was submitted by M/S. Sai Agro Chemicals was accepted and they have become the ‘Successful Resolution Applicant’ (SRA).
An Appeal was filed by the director/Promoter of the Corporate Debtor before NCLAT regarding the approval of the Resolution Plan of the SRA which was later on accepted and the matter was remanded back to the adjudicating authority with a direction to send back the Resolution Plan to the Committee of Creditors. It was also ordered by NCLAT that any appeal after the Resubmission of the Resolution Plan will be disposed of accordingly. However, contrary to this order appeals were made by the Financial Creditor (Appellant) and Resolution Professional. Also, the Appellate Tribunal interfered with the order of NCLT and granted approval to the Resolution Plan.
Issues of the Case:
The order of the NCLAT is assailed by the appellant on the following grounds:
Observations of the Court:
Regarding the first question related to the viability and feasibility of a resolution plan, the court is of the view that there is not a well-settled and certain law for it. However, there should be a natural assumption that financial creditors are fully educated about the viability of the corporate debtor and feasibility of the resolution plan. Further, it was pointed out by the Court that under Section 31(1) read with Section 30(2) of the Insolvency and Bankruptcy Code, 2016, does not invest jurisdiction and authority of NCLAT or NCLT to restrict the Committee of Creditors from approving the Resolution Plan, but instead, it provides limited ground for approving a Resolution Plan. The Adjudicating Authority cannot interfere on the merits with the commercial decision taken by the Committee of Creditors, however, the limited judicial review is made available to see that the Committee of Creditors has taken into account the facts of the corporate debtor during the insolvency resolution process. Therefore, the first ground on which NCLAT interfered with the decision of the NCLT to approve the resolution plan is wholly untenable, misconceived, and unjustified.
Pointing to the second issue, it was observed by the court that it is obvious from the material on record that the Director of the Corporate Debtor has tried to take advantage of two small mistakes on the part of SRA, which was a typographical error mentioning the wrong date at the bottom of self-declaration and other happened as a matter of coincidence which made NCLAT take advantage and recorded a finding even beyond the pleadings in the Memorandum of Appeal. Hence, the second ground on which NCLAT interfered with the decision of the NCLT is the alleged breach of confidentiality and the impugned order passed was legally and factually untenable.
Pointing to the last ground that revolves around the advertisement issued by the Resolution Professional, it was observed that the second meeting was held on 27th March 2018 and the advertisement was approved in the said meeting, However, it was the unamendable Regulation 36A that was in force that time. This had not been valued by NCLAT and consequently NCLAT was wrong in its approach in this regard. Hence, the advertisement issued was not actually in tune with Regulation 36A of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
After all the observations, it was held that the impugned order of the NCLAT is flawed and hence, liable to be set aside. Accordingly, the Civil Appeals are allowed and the order of the National Company Law Tribunal (NCLT) is restored.