Fresh resolution plan cannot be considered by COC once a plan is approved earlier - NCLAT

Steel Strips Wheels Limited. v. Shri Avil Menezes, Resolution Professional of AMW Auto component Limited and Others [Company Appeal (AT) (Insolvency) No. 89 of 2022]

HELD THAT

The National Company Law Appellate Tribunal ("NCLAT") has in the judgement dated April 18, 2022 ("Judgement"), in the matter of Steel Strips Wheels Limited. v. Shri Avil Menezes, Resolution Professional of AMW Autocomponent Limited and Others [Company Appeal (AT) (Insolvency) No. 89 of 2022] held that a fresh resolution plan cannot be considered by committee of creditors of AMW Autocomponent Limited ("CoC").

BRIEF FACTS

• The present appeal had been filed by the successful resolution applicant, that is, Steel Strips Wheels Limited ("Appellant") under Section 61 of the Insolvency and Bankruptcy Code, 2016 ("Code") challenging the order dated January 18, 2022 ("Impugned Order") wherein the National Company Law Tribunal, Ahmedabad, ("NCLT") had allowed an application filed by Triton Electric Vehicle, LLC ("Respondent No. 3") for consideration of its resolution plan Previously, by an order dated September 01, 2020.
• The corporate insolvency resolution process ("CIRP") was initiated against AMW Autocomponent Limited ("Corporate Debtor").
• Consequent to negotiations undertaken with the CoC, the Appellant submitted its resolution plan on April 24, 2021 ("Resolution Plan") and an addendum dated August 27, 2021.
• The Resolution Plan was approved by the CoC with 98.55% voting share. The 'Letter of Intent' was issued by the respondent no.1, Mr. Avil Menezes ("Resolution Professional") to the Appellant on September 21, 2021.
• Pursuant to this, the Appellant submitted a bank guarantee of INR 20 Crores on September 23, 2021.
• On September 24, 2021, the Resolution Professional filed an application before the NCLT seeking approval of the Resolution Plan.
• On December 13, 2021, the Resolution Professional received the request from Respondent No.3 for submitting a resolution plan.
• The Resolution Professional placed the request of the Respondent No.3 before the CoC. In the meeting of the CoC held on December 18, 2021, it was opined that the Resolution Plan had already been approved by the CoC and application for approval of the Resolution Plan had already been filed by the Resolution Professional before the NCLT, therefore, a fresh plan cannot be considered.
• The Resolution Professional by his e-mail dated December 22, 2021, conveyed CoC's decision to the Respondent No.3.
• The Respondent No.3 filed an application before the NCLT wherein it was prayed that the Respondent No.3 be permitted to submit the Resolution Plan and that the Resolution Professional and the CoC be directed not to consider the Resolution Plan of the Appellant.

APPEAL BEFORE NCLAT

• The above application was allowed by the NCLT by Impugned Order. The Appellant, aggrieved by the Impugned Order, filed the present appeal.
• Issue If a resolution plan has already been approved, whether a fresh resolution plan can be considered by the CoC.

Arguments Contentions raised by the Appellant

• The Appellant submitted that the Resolution Plan having been approved by the CoC and the application for approval of the Resolution Plan pending before the NCLT, there was no occasion for the NCLT to pass the Impugned Order. The period for submitting a resolution plan had long expired. Even otherwise, the name of the Respondent No.3 was not included in the final prospective list of the resolution applicants, and it had no authority to submit any plan.
• The NCLT had no jurisdiction to permit the CoC to consider the resolution plan of the Respondent No.3 when the Resolution Plan of the Appellant has already been approved by the CoC and it fully complied with the provisions of the Code.
• Further, finality had been attached to the Resolution Plan of the Appellant as it was approved by the CoC, and the said finality could not have been taken away by the Impugned Order passed by the NCLT.
• The Appellant submitted that the Impugned Order indicates that it was passed without even hearing the Resolution Professional and the CoC, since the order itself mentions "Issue notice to RP and CoC."
• The NCLT ought not to have passed the Impugned Order without hearing the affected parties. The Impugned Order deserved to be set aside on this ground alone. The Appellant submitted that the NCLT was not made aware that the Resolution Plan had already been approved by the CoC and that previously, on December 18, 2021, the CoC had already declined the request of the Respondent No.3. The NCLT not being posted with the facts, has erroneously passed the Impugned Order directing the CoC to consider the Resolution Plan.
• The timeline under the Code cannot be breached.
• Further, the Respondent No.3 who was not part of the CIRP could not have been permitted to join at such a late stage.

Submissions by the Resolution Professional and the Respondent no.3

• The Resolution Professional submitted that, the Resolution Plan of the Appellant stood approved by the CoC and an application for approval of the Resolution Plan was pending before NCLT.
• As per CoC's instructions, it was communicated to the Respondent No.3 that the CIRP of the Corporate Debtor was at very advanced stage, hence, the CoC could not be able to consider the proposal at that stage.
• However, referring to reply filed by the CoC in the proceedings, it was noted that during the proceedings the CoC had shown its willingness to consider the plan of the Respondent No.3. It was further submitted that, keeping in mind the objects and reasons of the Code, the CoC subsequently, in its meeting dated March 05, 2022, deliberated and decided that the Respondent No.3 may be given an opportunity to present their resolution plan. The commercial wisdom of the CoC is to be given due credence. The Resolution Plan of the Appellant is neither binding nor irrevocable. The NCLT has all powers and jurisdiction to permit the CoC to consider the resolution plan of Respondent No.3.
• The Respondent No.3 submitted a joint resolution plan with regard to Corporate Debtor as well as another sister concern.
• The Appellant itself had failed to submit the Resolution Plan before the final date of submission fixed by the CoC, that is, April 19, 2021.
• It was submitted that, the Respondent No.3 is a leading company in the auto component sector and the resolution plan of the Respondent No.3 will not only maximise the value of the assets of the Corporate Debtor, but also provide value maximisation and a timely exit to all stakeholders of the CIRP, including all the employees/ ex-employees of the Corporate Debtor. Keeping in mind the object and purpose of the Code and in the interest of the Corporate Debtor, the Respondent No.3 be permitted to submit the resolution plan.

Observations of the NCLAT

• The NCLAT noted relevant facts and presentations made by the parties. The approval of the Resolution Plan was well within the CIRP period as extended by the NCLT.
• During the CIRP, two plans were placed for approval before the CoC, and the Resolution Plan of the Appellant received 98.55% voting shares.
• Further, for the first time, the expression of interest was shown by Respondent No.3 by its e-mail dated December 13, 2021, by which time, entire CIRP of the Corporate Debtor was at an advanced stage including approval of the Resolution Plan of the Appellant which was pending consideration before the NCLT.
• The NCLAT noted that the Hon'ble Supreme Court ("SC") in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another [2021 SCC OnLine SC 707] held that the resolution plan even prior to the approval of the NCLT, is binding inter se the CoC and the successful resolution applicant by virtue of the Code's framework. In the said case, it was noted that the report of the Bankruptcy Law Reforms Committee mentioned that the resolution professional submits a binding agreement to the adjudicator before the default maximum date. Further, the SC had emphasised on the timeline.
• Therefore, the NCLAT observed that the CoC, having approved the Resolution Plan of the Appellant, had rightly taken a decision that the resolution plan of the Respondent No.3 cannot be considered.
• The NCLAT noted that, the SC, in Ebix (supra) mentioned that the delays were attributable to:

- The NCLT taking considerable time in admitting CIRPs.

- Late and unsolicited bids by resolution applicants after the original bidder becomes public upon passage of the deadline for submission of the plan; and 3. multiplicity of litigation and the appellate process to the NCLAT and the SC.

- The NCLAT noted that such inordinate delays cause commercial uncertainty, degradation in the value of the corporate debtor and makes the insolvency process inefficient and expensive.

- The NCLAT observed that, in view of the law laid down by the SC in Ebix (supra), there was no valid reason given by the NCLT for permitting the consideration of the resolution plan of the Respondent No.3 and that such consideration shall be breaching both timeline as well as the finality of the Resolution Plan of the Appellant. Further, the NCLAT noted that in Chhatisgarh Distilleries Limited v. Dushyant Dave (Resolution Professional of Anand Distilleries Private Limited) [2020 SCC OnLine NCLAT 1078], it was observed that, the adjudicating authority suo moto cannot direct the CoC to consider the new resolution plan and re-consider the already approved resolution plan. The decision of the COC accepting or rejecting the resolution plan is limited to the grounds mentioned in Section 30(2) of the Code, and the purely commercial decision of the COC cannot be adjudicated by the adjudicating authority.

- The NCLAT noted that the SC in Committee of Creditors of Essar Steel India Limited v. Satish Gupta [2019 SCC Online SC 1478] observed that, the adjudicating authority cannot direct the CoC to consider the second resolution plan submitted before the authority although the second resolution applicant is ready to invest more amount in comparison to first resolution applicant.

- The NCLAT noted that, the SC in the said judgment held that under Section 30(2) of the Code, decision of the committee of creditors is purely commercial and cannot be adjudicated by the adjudicating authority.

- The NCLAT observed that, present case was not a case where issue of commercial wisdom of the CoC regarding approval or disapproval of the plan is under consideration. In exercise of commercial wisdom, the CoC has already approved the plan of the Appellant with voting share of 98.55%. Further, after approval of the Resolution Plan by the CoC by requisite vote and after expiry of CIRP, it is not open for the CoC to contend that it is ready to consider the plan of the Respondent No.3, which according to it may be a better plan having much higher value.

Decision of the NCLAT

• The NCLAT held that the CoC could not as per existing law, consider the resolution plan of the Respondent No.3 after approval of the Resolution Plan of the Appellant. Further, there was no valid reason indicated in the Impugned Order for permitting the CoC to consider the resolution plan of the Respondent no.3, which was submitted after approval of the Resolution Plan. The Impugned Order was declared as unsustainable and was set aside.
• Consequently, the appeal was allowed.
• The NCLAT held that the NCLT had erroneously entertained the application and the resolution plan of the Respondent No. 3.

CONCLUSION

The NCLAT in this Judgement has rightly observed that, the fact that the CoC was willing to consider the plan of the Respondent No.3 does not in any manner take away the finality of the Resolution Plan of the Appellant approved by the CoC.

The NCLAT has reiterated that the CIRP is a time bound process with a specific aim of maximizing the value of assets of the Corporate Debtor. The Code and the regulations made thereunder lay down strict timelines which need to be adhered to by all the parties, at all stages of the CIRP.

It was observed that, delays are also a cause of concern because the liquidation value depletes rapidly, irrespective of the imposition of a moratorium. A delayed liquidation is harmful to the value of the Corporate Debtor, the recovery rate of the CoC and consequentially, the economy at large. Therefore, the NCLT cannot direct the CoC to consider a new resolution plan.

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