NCLAT HOLDS THAT NCLT MUST TAKE CONSIDERATION OF ALL FACTS AND CIRCUMSTANCES BEFORE REJECTING RESOLUTION PLAN

A three Judge Bench of National Company Law Appellate Tribunal (NCLAT) comprising of Justice Ashok Bhushan and Technical Members Barun Mitra and Arun Baroka passed a judgement dated 30.05.2024 in M/s. Eagle Fashions Pvt. Ltd. & Ors. v. M/s. Sumeet Industries Ltd. Company Appeal (AT) (Insolvency) No. 922 and 838 of 2024 wherein the Hon’ble Bench held that the Tribunals must take into consideration all facts and circumstances before rejecting a resolution plan submitted during the Corporate Insolvency Resolution Process (CIRP).

Facts

An Application bearing no. I.A. 1394/2023 was filed by the IDBI Bank under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC) (Initiation of corporate insolvency resolution process by financial creditor) in respect of Sumeet Industries Ltd (Corporate Debtor). CIRP was commenced against the Corporate Debtor vide Order dated 20.12.2022 in Company Petition bearing no. C.P. (IB) No. 38/2020.

The Resolution Plan provided by M/s. Eagle Fashions Private Ltd & Anr. was considered by the Committee of Creditors (CoC) and was approved by 74.90% voting shares. The Resolution Professional (RP) filed an Application under Section 30(6) of the IBC (Submission of resolution plan) read with Section 31 of the IBC (Approval of resolution plan) seeking approval of the Resolution Plan.

The Application was listed before the National Company Law Tribunal Ahmedabad Bench (NCLT) and the Resolution Plan was rejected by NCLT vide Order dated 05.04.2024 (Impugned Order). The Resolution Plan was rejected for several reasons such as the RP did not submit copy of Information Memorandum, Request For Resolution Plan (RFRP), Valuation Report, receipt of Performance Security and Minutes of the 8^th Meeting of the CoC.

The Counsel for the RP provided that if the opportunity to file the necessary documents would have been provided by the NCLT, then the RP would have provided all the requisite documents.

One of the grounds for rejection of Resolution Plan was that ‘Fair Value’ and the ‘Liquidation Value’ of the Corporate Debtor was far higher than the ‘Resolution Plan Value’.  Moreover, NCLT observed that the Resolution Plan as approved by the CoC did not comply with the requirements of Section 30 of the IBC.

Thus, aggrieved by the Order of NCLT, the RP and the Resolution Applicant- M/s. Eagle Fashions Private Ltd and others filed Appeals in NCLAT for setting aside the Impugned Order.

Issues

I) Whether the NCLT was right in rejecting the Resolution Plan provided by the Appellants?

II) Whether the grounds mentioned by the NCLT for rejection of Resolution Plan were sufficient for its rejection?

Decision by the NCLAT

The Ld. Tribunal observed that the point that ‘Fair Value’ and the ‘Liquidation Value’ of the Corporate Debtor were far higher than the ‘Resolution Plan Value’, cannot be a ground to reject the Resolution Plan. Moreover, the Bench observed that there were no objections raised before the NCLT regarding the eligibility of Appellants under Section 29A of IBC (Person not eligible to be resolution applicant) nor any grounds have been indicated for the same.

Subsequently, the Bench held that the NCLT’s observation regarding non-compliance of Section 30 of IBC are only bare observations and are without any basis or material information.

The Tribunal relied on the judgement of Committee of Creditors of Essar Steel India Limited’ Vs. `Satish Kumar Gupta & Ors.’ in (2020) 8 SCC 531 and stated that rejection of the Resolution Plan can be on limited grounds as laid down in the judgement of Essar Steel India (supra) and held that the Adjudicating Authority’s jurisdiction is limited by Section 30(2) of IBC. Moreover, the Bench observed that there were no reasons or material given as to how the Resolution Plan was in non-compliance of Section 30(2) of IBC.

The Bench further stated that the observation of Ld. NCLT Bench stating that liquidation is better option cannot form a ground for rejection of a Resolution Plan.

The Ld. Tribunal also provided that regarding the Minutes and Documents that RP had not filed, the Adjudicating Authority was always free to request the appropriate documents from RP for review and the possible rejection of the Plan on the grounds that RP had not filed the Information Memorandum, RFRP, and some Minutes of the CoC were clearly uncalled for.

Conclusion

The Bench held that there was no evidence or material findings that the Resolution Plan was in non-compliance of Section 30(2) of IBC. The Ld. Tribunal also provided that the requisite documents can be filed by the RP with an additional Affidavit. Thus, the Ld. Tribunal allowed both the Appeals and set aside the Impugned Order dated 05.04.2024 passed by NCLT in C.P. (IB) No. 38/2020.

 

ARJAV JAIN

ASSOCIATE

THE INDIAN LAWYER & ALLIED SERVICES