SUPREME COURT REITERATES THAT CORPORATE DEBTOR CANNOT RAISE DISPUTE AFTER COMMITTEE OF CREDITORS APPROVE RESOLUTION PLAN

The Supreme Court has in a recent case of Karad Urban Cooperative Bank Ltd vs Swwapnil Bhingardevay and Others passed a Judgment dated 04-09-2020 and reiterated that once the #committeeofcreditors have approved a #resolutionplan, the #corporatedebtor cannot raise dispute/issue in that regard except in certain circumstances.

In this case, the Appellant Bank, Karad Urban Cooperative Bank Ltd, had initiated a corporate insolvency resolution process (CIRP) against M/s Khandoba Prasanna Sakhar Karkhana Ltd (the Corporate Debtor Company) under Section 7 of the #InsolvencyandBankruptcyCode 2016 (the Code) before the #NCLT Mumbai Bench. The NCLT admitted the Section 7 Application on 01-01-2018 and thereby, appointed an Interim Resolution Professional (IRP).

Thereafter, one, Mr. Jitendra Palande, was appointed as the Resolution Professional (RP) by the NCLT on 06-03-2018 based on the decision of the Committee of Creditors (CoC). The RP then issued an advertisement on 30-03-2018 inviting Expression of Interest (EoI), based on the decision of CoC. Meanwhile, the Director/Promoter of the Corporate Debtor Company challenged the Orders of the NCLT of 01-01-2018 and 06-03-2018, which related to appointment of IRP and RP, in the Bombay High Court by way of a Writ Petition. But the Bombay High Court eventually dismissed the Writ Petition.

On the other hand, the CoC had resolved to approve the Resolution Plan submitted by one, M/s Sai Agro (India) Chemicals (the Resolution Applicant) on 09-02-2019. The said decision/resolution was submitted by the RP before NCLT. At this stage, the Director/Promoter of the Corporate Debtor Company sought permission of NCLT to file a resolution plan under Section 10 of the Code. But the NCLT dismissed the Section 10 Application of the Corporate Debtor and approved the Resolution Plan submitted by the Resolution Applicant, vide Order dated 01-08-2019. Being aggrieved, the Director/Promoter of the Corporate Debtor Company filed an appeal in NCLAT against the said NCLT Order dated 01-08-2019.

The NCLAT passed an Order dated 02-06-2020, whereby, the NCLT Order was set aside on the ground that there were material irregularities in the CIRP Process and that the Resolution Plan suffered from issues of viability and feasibility. Thus, NCLAT directed the NCLT to have the Resolution Plan re­submitted before the CoC for re-consideration. Being aggrieved, the Appellant Bank filed an Appeal before the Supreme Court against the NCLAT Order dated 02-06-2020.

The Supreme Court made certain significant observations in this case which are given below:

1- That if the CoC has taken a conscious decision about the viability and feasibility of the Resolution Plan and has decided about whether the Corporate Debtor Company can be kept running as a going concern, then the Adjudicating Authority cannot interfere with the decision of the CoC.

2- But the Corporate Debtor can raise the issue of viability and feasibility of the #ResolutionPlan only in certain circumstances, i.e. if the Resolution Plan did not take care of certain relevant facts about the Company. For instance, in this case the ownership and possession of the Ethanol Plant of the Company was the subject-matter of dispute in another case. Therefore, it was likely that the Ethanol Plant and Machinery would not be eventually available to the Resolution Applicant. So, in case, the Resolution Plan did not take care of the said contingency, only then the Corporate Debtor Company could raise the issue of viability and feasibility of the Resolution Plan.

3- But the Resolution Applicant and the CoC had full knowledge about the aforesaid dispute and outcome in the said matter, where the possession of the Ethanol Plant and Machinery was handed over to one, M/s Sarvadnya Industries Pvt. Ltd. Thus, it implies that the CoC had taken a conscious decision to approve the Resolution Plan, after properly examining the question of viability and feasibility of the Resolution Plan.

4- Further, the total pay-out quoted by the Resolution Applicant in the Resolution Plan was Rs. 29.74 Crores, which was higher than the liquidation value calculated by the RP i.e. Rs. 13.53 Crores. This implies that the employees would be paid 100% of their dues, the statutory dues would be cleared 100% and the financial creditors in CoC would be paid 60% of their dues, etc. Thus, it could not be established that any unlawful benefit could have accrued to the Resolution Applicant or there was any mala fide intention behind quoting a sum higher than the liquidation value.

Therefore, the Apex Court set aside the NCLAT Order dated 02-06-2020 and upheld the NCLT Order dated 01-08-2019 on the ground that there were no material irregularities in the CIRP Process and that the Corporate Debtor Company could not have raised the dispute after the CoC had approved the Resolution Plan.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer