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Judgment
Per : Jatindranath Swain, Member (Technical) :
The instant Appeal has been filed by the Appellant against the order dated 07.12.2023 of NCLT Hyderabad in IA No.192/2023 in CP(IB) 206/7/HDB/2021, by virtue of which, the learned Adjudicating Authority allowed the implementation of the Resolution Plan filed by the Respondent No.3 (Successful Resolution Applicant).
The brief facts of the case are given below:-
a. The Corporate Debtor, YKM Entertainment and Hotels. Pvt. Ltd was involved in building a 5-Star Hotel at Tirupati, Andhra Pradesh. He entered into O&M Agreement with Intercontinental group under the brand name Holiday Inn on 30.12.2012 with a project cost of Rs.130.25 Crore.
b. The Corporate Debtor entered into a Term Loan Agreement dated 30.08.2011 for an amount of Rs.113.7 Crore, which was subsequently enhanced to Rs.138.7 Crore by an Agreement dated 27.10.2015.
c. The accounts of the Corporate Debtor was declared as NPA on 29.11.2016. The Financial Creditor (FC), the State Bank of India sought to enforce it securities qua the Corporate Debtor by holding a Public Auction on 08.12.2021. Further for the said auction, the reserve price of the assets of the Corporate Debtor was fixed around Rs.150 Crore.
d. On 05.01.2022, the Corporate Debtor was admitted into CIRP by an order of NCLT, Hyderabad and Respondent No. 2 was appointed as the Interim Resolution Professional. The CoC was constituted and several rounds of meetings were held between 10.03.2022 to 01.02.2023. In the 2nd CoC meeting, held on 19.04.2022, the eligibility criteria for EoI were decided and the eligibility was fixed as a turnover of Rs.60 Crore and net worth of Rs.30 Crore and above and Expression of Interest (EoI) was called for accordingly. In the 3rd CoC meeting held in 24.05.2022, certain queries were raised regarding the eligibility of Respondent No. 3 and in the 4th CoC Meeting on 01.07.2022, Respondent No. 3 was held to be not eligible under section 29A of the I & B Code, 2016.
e. As none of the Resolution Plans were to the satisfaction of CoC, in the 6th CoC meeting on 19.08.2022, it was decided to call for Resolution Plans once again in terms of Regulation 36B (7) of IBBI Regulations. This time, Respondent No. 3 was again included in the list of PRAs as per the decision in the 7th CoC Meeting, and in the 8th CoC meeting, the Respondent No. 3 was found to be eligible and was allowed to submit the Resolution Plan.
f. In the 12th CoC meeting held on 01.02.2023 the CoC approved the Resolution Plan of Respondent No. 3. Consequently, the Resolution Professional filed an application being IA No. 192 of 2023, before the learned NCLT for approval of the Resolution Plan.
g. The learned NCLT, Hyderabad, by its order dated 07.12.2023, approved the Resolution Plan of Respondent No. 3.
The Appellant submits that he is an Aggrieved Person under section 61(1) of I & B code 2016 as he is the promoter/Ex-Director and as he has a better, more viable One Time Settlement proposal which was rejected by CoC as compared to the Resolution Plan which has been approved in the Impugned Order.
The Appellant further submits that the learned Adjudicating Authority has held that the approved Resolution Plan does not contravene by Section 29A of the Code, merely on the basis of RP’s submission without going into the records, that the Successful Resolution Applicant was not eligible as per this section 29A of the I & B Code, 2016, which has been overlooked.
The Appellant has further contended that the RP has acted contrary to Regulation 36A (5) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 by including Respondent No. 3 in the list of Prospective Resolution Applicants (PRAs), even though, he did not meet the eligibility criteria.
The Applicant has further contended that the CoC has erred in accepting the Liquidation Value of the Corporate Debtor to be around Rs. 80 Crores as against its own previous valuation of Rs 120 Crores and that the Commercial Wisdom has not been applied. He has further contended that because of the above, the Impugned Order approving the Resolution Plan as passed in IA No. 192/2023 by the learned NCLT, Hyderabad on 07.12.2023 is liable to be set aside and fresh EOIs may be directed to be issued and that in the meanwhile, the CoC may be directed to consider his O.T.S. proposal.
The Respondent Nos. 1, 2 & 3 have also submitted their respective Counters.
The Respondent No. 1 has submitted that the Appeal is not maintainable either on facts or in law because of the reasons as below:
The Applicant being the suspended Director does not have the locus standi to file this Appeal as Section 29A prohibits a promoter of a Corporate Debtor from submitting a Resolution Plan, as the Corporate Debtor entered into CIRP only because of his actions and his present appeal is only meant to delay the process and to erode the Asset Value of the Corporate Debtor. He has further stated that this position has been reiterated in various judgments of NCLAT and Hon’ble Apex Court, notably in Ravi Shankar Vedam V. Tiffins Barytes Asbestos and Paints limited (2023 SCC OnLine NCLAT 274).
He has further stated that the Appeal in any case is barred by Res-Judicata as the Appellant had already filed IA No.315/2023 before the learned NCLT, Hyderabad, for the following relief:
“Declaration that the process of approval of Resolution Plan as conducted by Respondent No. 1 in not in accordance with I & B Code, 2016, and to set aside the minutes of CoC in 12th meeting dated 01.02.2023 to the extent of approval of Resolution Plan” and that the same application was dismissed by learned NCLT by an order dated 05.07.2023, Appeal against the same was dismissed by this Tribunal on 30.11.2023 in CA(AT)(CH)(Ins) No. 370 / 2023 and by Hon’ble Apex Court on 13.12.2023 in Civil Appeal No. 7979 / 2023’’.
He has further stated that Respondent No. 3 / SRA, had been declared ineligible on the basis of his EOI submitted in response to Form G called for on 25.04.2022 on basis of overdue amount in Credit Card transaction of Mr. Ganesh Kumar Singhania and Deactivation of DIN of 2 Directors of Respondent No. 3, that as per information given in the EoI submitted, pursuant to Form G published on 22.08.2022, these defects were found rectified and therefore, Respondent No. 3 was found eligible, that the entire Resolution Process was conducted as per the provisions of IBC 2016 and the Regulations thereunder, as can be evidenced from COC meeting minutes and information/records submitted to Regulatory Authorities including IBBI.
He has further stated that due process for valuation has been followed. He has contended that the Appellant has participated in all COC meetings and participated in discussions of Agenda items, that he is well aware of terms and conditions of documents, evaluation matrix, criteria and decisions taken in the meetings and has never raised his objections in respect of alleged ineligibility of Respondent No. 3.
Respondent No. 2, the Financial Creditor, State Bank of India has seconded the contention of Respondent No.1, in respect of locus of the Appellant in challenging the Resolution Plan, and has cited following cases, i.e. Jaydip Ghosh & Ors. V Niraj Agrawal and Ors. (2023 SCC Online NCLAT 396), Ramesh Kesavan V. CA Jasin Jose & Anr. (2024 SCC Online NCLAT 56) & Ravi Shankar Vedam V. Tiffins Barytes Asbestos and Paints Ltd. (2023 SCC Online NCLAT 274).
He has also supported the stand of Respondent No. 1 that the Appeal is barred by Res-Judicata, that the Appellant has challenged the approval of CoC of Resolution Plan in IA No. 315/2023 and pursued the challenge right up to the Hon’ble Apex Court, which was dismissed. He points out that NCLAT in its order dated 30.11.2023 has categorically held that due process has been followed in the approval of Resolution Plan. Therefore, he cannot re-litigate on the same subject, especially when he did not raise the issues now being raised in IA Nos. 315 & 316 of 2023, before the learned NCLT.
He has stated that the Appellant, choosing not to raise any objection on the eligibility of Respondent No. 3, in the 2nd round of EoI and having waived his right cannot now claim that right on grounds of ignorance.
He has supported the stand taken by Respondent No. 1 in the context of eligibility of Respondent No. 3, stating that RP has followed due process as stipulated in IBC 2016 therein.
He has also stated that Respondent No. 1 / RP has followed due process in valuation of the assets of the Corporate Debtor.
Respondent No. 3 / the Successful Resolution Applicant has endorsed the stand of Respondent Nos. 1 & 2, in respect of the locus of the Appellant stating that the Appellant has no locus to file the appeal, that the Appeal is barred by Res-Judicata. He has further added that after having unsuccessfully challenged the process of approval of Resolution Plan and having exhausting his remedies, the Appellant has filed this appeal by suppressing the fact of challenging the Resolution Plan earlier and on the garb of new grounds without raising them, before the CoC and the learned NCLT. He has stated that the Appellant in Para 7.14 of the Appeal has stated that the Application being IA Nos. 315 & 316 of 2023 filed before the learned NCLT was for seeking approval of O.T.S. submitted by him which is clearly not the relief sought for by him in the aforesaid applications.
Respondent No. 3 has also stated that he was fully eligible to submit the Resolution Plan under the terms and conditions of RFRP (Request for Resolution Plan), that he met the turnover criteria in January 2022 when he received Occupancy Certificate and thus Rs 180 Crore shown as ‘Other Current Liabilities’ under the head ‘Advance against Booking’ in FY 2020-2021 was transferred to ‘Revenue from Operations’ in FY 2021-2022, that he has clarified that there was no overdue against him and overdue of Rs. 30,809/- appearing in CIBIL report has long been written off by the bank on 30.03.2010 and that he has also clarified the issue of deactivated status of DIN in respect of Nishant Purohit and Sanad Singh to RP and the same has correctly been agreed to and therefore he is not ineligible to be a Resolution Applicant under the provisions of Section 29A of the Code.
On the above grounds, the Respondents have contended that the Appellant is not entitled for any relief and that the impugned order merits no interference.
As per the contentions of the Appellants and the Respondents, there are 3 sets of issues to be decided;
Firstly, whether the Appellant has the locus standi to maintain the appeal.
Secondly, whether the appeal is hit by Res-Judicata, i.e. the subject matter is already decided.
Whether the approved Resolution Plan is in contravention of any law for the time being in force and whether there has been material irregularity in exercise of the power of RP during CIRP.
As far as the locus of the Appellant is concerned, he claims that he is the promoter and ex-director of the Corporate Debtor; the ratio of Ravi Shankar Vedam V. Tiffin Barytes Asbestos and Paints Limited is applicable only to shareholders as held in Para 28 of the Judgment that ``a shareholder has no locus standi to challenge the Resolution Plan’’.
Further, Ramesh Kesavan v. CA Jusin Jose & Anr. only notes the upholding of the above ratio by Hon’ble Apex Court; it does not lay down any ratio that ex-Director cannot maintain an appeal.
Jaydip Ghosh & Ors. V. Niraj Agrawal & Ors. is based on a specific set of facts, where the ex-Director had committed an act of facts where the ex-Director had committed an act of fraud and hence the ratio that ``law is settled on the point that suspended Board of Directors have got no locus to file an appeal against approval of the Plan by the Committee of Creditors and finally approved by the learned Adjudicating Authority’’. He contends that none of these Judgments hold that an ex-Director is not an Aggrieved Person within the ambit of Section 61(1) of the Code.
He further states that in Deepak Sakharam Kulkarni & Anr. V. Manoj Kumar in CA (AT) (INS) No. 63/2024, the Principal Bench of NCLAT has ruled, specifically at para 176 that ``The Appellant, who feels aggrieved by the order passed by the Adjudicating Authority, approving the Resolution Plan, can very well maintain the Appeal and the locus of the Appellant to file the Appeal cannot be questioned by the SRA.’’. Thus, the Appellant has the locus to file the Appeal as an Aggrieved Person, provided he is able to demonstrate his grievance.
With regard to the averment of the Respondent that the Appeal is barred by the principle of Res-judicata, the Appellant has stated that the prayer Clause of IA No. 315 / 2023 and that of the present Appeal are completely different, i.e. in IA No. 315 / 2023 he had challenged only the process of approval of Resolution Plan and not the merits of Resolution Plan. He states that the issues raised in CA (AT) (CH) (INS) No. 370 / 2020 was only qua the non-consideration of the One Time Settlement and the process of conduct of CIRP from 9th CoC Meeting to 12th CoC Meeting. In the instant Appeal, he has raised the issues of contravention of Section 29A by allowing an ineligible person to participate as `Resolution Applicant’ and of not properly valuing the assets of the Corporate Debtor which resulted in approval of a sub-optimal Resolution Plan.
The Respondents have countered the same by stating that the relief sought in IA No. 315 / 2023, were;
``5 (a). ``Declare that the process of approval of Resolution Plan as conducted by Respondent No. 1 was not in accordance with the Insolvency and Bankruptcy Code, 2016, and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and consequently, set aside the minutes of the CoC in the 12th CoC meeting dated 01.02.2023 to the extent of approval of resolution plan.’’
They have stated further that on appeal against the order of NCLT dated 05.07.2023 in IA No. 315 / 2023, NCLAT also upheld the order of NCLT stating that ``due process has been followed in the approval of the Resolution Plan’, and the order of Hon’ble NCLAT has been upheld by the Hon’ble Apex Court. They have stated that the relief sought by Appellant in IA No. 315 / 2023 was not to seek approval of his One Time Settlement Plan as he claimed in Para 7.14 of his Appeal, but to get the Resolution Plan approved by CoC, to be set aside on basis of alleged irregularities. They have alleged that the Appellant is re-agitating the issue under a new garb by suppressing the fact of challenging the Resolution Plan before this Tribunal.
They have further contended that the Appellant attended all the relevant CoC Meetings where Respondent No. 3 was first held as ineligible and then was held as eligible on the basis of fresh Expression of Interest called for in the second round, that he had opportunity to raise this matter of the alleged contravention of Section 29A in the CoC Meetings and that he has not chosen to do so. He has not even raised this issue in IA No. 315 / 2023 before the learned NCLT and he has admitted the same during the hearing before this Tribunal. Having chosen not to do so, he will not have the liberty to raise the said issues of implications of Section 29A of the Code now.
The above contentions of the Respondents have merit in it; the Appellant cannot plead ignorance as a ground as the case will squarely fall within the legal maxim; ignorantia juris non excusat (meaning ignorance of law excuses no one).
Be it as it may, on merits also the Appellant does not appear to have a case, for the reason being that his case rests on the allegation that Respondent No. 3 is clearly ineligible, having been established so in 4th CoC Meeting on 01.07.2022 which comes to a nought as per the decision in 7th CoC Meeting held on 23.09.2022 where, on the basis of 2nd Form G called for on 22.08.2022, 11 out of 14 applicants were shortlisted as PRA and the Respondent No. 3 was included in the same list of eligible PRAs. It is seen that the RP has done the necessary due diligence and utilised the services of experts to analyse the information provided by the applicants to arrive at the recommendations in respect of list of eligible PRAs and the same has been approved by Committee of Creditors. He has also clearly explained the decisions taken in 4th CoC & 7th CoC with respect to Respondent No. 3.
Neither the Appellant himself nor the other unsuccessful PRAs have raised any objection on the proceedings of CoC dated 23.09.2022. In fact, the Appellant has chosen to keep quiet even after 12th Meeting of CoC dated 30.01.2023 where the Resolution Professional informed about the approval of the Resolution Plan submitted by Respondent No. 3. Peculiarly, the Appellant has chosen to challenge the rejection of his O.T.S. proposal and only after that challenge was negatived, and after exhausting all his remedies, he has filed this Appeal alleging contravention of Section 29A & Section 25(2)(h) of the Code and Regulation 36A(5) of IBBI (IRP for Corporate Persons) Regulations and non-application of commercial wisdom in maximising the value of assets of the Corporate Debtor.
A reading of the Impugned Judgment of the learned NCLT makes it clear that due process was followed in the CIRP process and that the statutory requirements are met. It has also noted that once the CoC approves the Resolution Plan as per Section 30 (6) of the Code and the RP submits the same to the learned Adjudicating Authority, the Tribunal is required to satisfy itself that the Resolution Plan as approved by CoC meets the requirement specified in Section 30(2) of the Code. As such, no infirmity in the Impugned Order has been found out.
The Appellant alleges that the fact of contravention of Section 29A and Section 25(2)(b) was not brought to the notice of CoC and there was no discussion on it. The Minutes of the concerned CoC Meetings do not reflect that; all the Resolution Plans and the Evaluation Matrix were placed before the CoC. The Appellant, having participated in the CoC meetings, had access to the deliberations therein and the minutes, but, he has not raised these points. RP has satisfactorily explained the apparent discrepancy between decision of CoC on 01.07.2022 and 01.112022. This has been endorsed by Respondent No. 2 / the Financial Creditor. This being so there is nothing left in the grounds of Appeal.
Summarising, the Appellant’s locus standi is not very clear; at best he can be taken as an `Aggrieved Person’. Clearly his Appeal is hit by Res-judicata as the relief requested, i.e. setting aside the process of approval of the Resolution Plan is more or less same in IA No. 315 / 2023 and in the instant Appeal. He has also not raised the issues now being raised, before the learned NCLT in his Application i.e. IA No. 315 / 2023. Further, on merit also, there is no force in his contentions as to establish that the Resolution Plan was approved in contravention of statutory provisions, especially Section 25(2)(h) and Section 29A of the Code and Regulation 36A(5) of IBBI (IRP for Corporate Persons) Regulations, 2016. Therefore, there is no reason to interfere with the Impugned Order of the learned NCLT, Hyderabad.
Accordingly, the Company Appeal (AT) (CH) (INS) No. 9 / 2024 is dismissed as devoid of merits. All pending Interlocutory Applications are also closed.