Mr. Sumit Khanna vs Mr. Jossy Stephen Kattur & Ors.

The present Application has been filed by Mr. Sumit Khanna, the Resolution Applicant in respect of Kerala Chamber of Commerce and Industries (‘Corporate Debtor’). He had submitted a Resolution Plan dated 11.12.2022, which was subsequently reslated and resubmitted on 26.02.2023 (‘Resolution Plan’) before the erstwhile Resolution Professional (‘Erstwhile RP’).

The Erstwhile RP had appointed two registered valuers, Mr. Rama Kurup Sanjeevan and Mr. Kalayatholil Thankappan Gangadharan (“Valuers”), to carry out the valuation in accordance with the applicable valuation standards, following physical verification of the Corporate Debtor’s inventory and fixed assets. The Valuers thereafter submitted their valuation reports to the Erstwhile RP. However, based on the liquidation value (“LV”) indicated by the current RP in his observations on the compliance of the Resolution Plan with the Code and the Regulations, it prima facie appears that the methodology adopted by the Valuers for valuing the assets of the Corporate Debtor was flawed and materially erroneous.

The Corporate Debtor had entered into a Joint Venture Agreement dated 09.03.2011 (“JV”), which was subsequently modified/renewed on 08.12.2013 and 05.08.2020, with Cherupushpam Films (P) Ltd. (“CFL”) for the development of a project titled Kerala Trade Centre on land owned by CFL. Under the terms of the JV, the parties agreed that the net income—after deducting all expenses related to the construction of the building complex, including actual costs, charges, loan repayments, etc.—arising from the sale of the constructed area to prospective buyers would be shared between them in the ratio of 60:40. Accordingly, CFL would be entitled to 60% of the net proceeds, while the Corporate Debtor would be entitled to the remaining 40% from the construction and sale of the apartments and commercial spaces.

The Corporate Debtor owns only one fixed asset—its office building, Chamber Corner—situated on 6.3 cents of land belonging to the Corporate Debtor. According to the Applicant, the market value of this property is approximately INR 5 crores. Apart from this, the Corporate Debtor does not possess any other major asset of significant value. Therefore, the Applicant was taken aback upon being informed, through the Mandatory Compliance Report issued by Respondent No. 1, that the Resolution Plan was considered non-compliant on the ground that it did not meet the minimum payout requirements based on a liquidation valuation of INR 66,67,62,000/-(Indian Rupees Sixty-Six Crores, Sixty-Seven Lakhs and Sixty-Two Thousand only).

The Valuers appear to have provided an inflated valuation of the Corporate Debtor by adopting an incorrect methodology, which may ultimately result in the Corporate Debtor being driven into liquidation. Respondent No. 3 has already filed an application (IA No. 99 of 2023) seeking the appointment of a third valuer, contending that the valuation submitted by the existing Valuers is grossly inflated, erroneous, and based on a defective methodology. It is also pertinent to note that the Applicant has lodged complaints before the Insolvency and Bankruptcy Board of India against the Erstwhile RP and the Valuers for alleged contraventions of the provisions of the Code and the applicable Regulations.

The Applicant, through his e-mail dated 10.01.2023, expressed concerns regarding the liquidation valuation of the Corporate Debtor and specifically pointed out inconsistencies in the methodology adopted. It is further submitted that the land on which the Kerala Trade Centre building stands is not owned by the Corporate Debtor. In the event of liquidation, the Corporate Debtor would lose its development rights over the project and, consequently, would not be entitled to receive its 40% share of the net proceeds after deduction of expenses. It is also submitted that certain portions of the land have already been monetised, and the proceeds have been received and apportioned between the Corporate Debtor and CFL. Therefore, according to the Applicant, the liquidation value attributable to the said building is effectively nil.

In the present case, the liquidation valuation of the Corporate Debtor must be undertaken by duly considering the absolute interest of the homebuyers in the units, as mandated under Section 11(4)(h) of the Real Estate (Regulation and Development) Act, 2016. The land on which the Kerala Trade Centre building has been constructed is not owned by the Corporate Debtor, and therefore, cannot form part of its assets for valuation purposes, failing which it would amount to double counting. Likewise, the apartments/units that have already been sold cannot be included in the value of the Corporate Debtor, since the homebuyers hold absolute ownership rights over such units. On a broad assessment, the current valuation appears to be manifold higher than the actual and realistic value of the Corporate Debtor, as it seemingly treats 100% of the land and building as assets of the Corporate Debtor, despite the fact that the Corporate Debtor has no ownership over them. Even assuming the Corporate Debtor to be a going concern, these components would not qualify to be included in its liquidation value in any event.

The Erstwhile RP acted in direct contravention of Regulation 35(1)(a) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), as he failed to appoint a third valuer for the Corporate Debtor despite a specific request from the financial creditors in a class, namely the homebuyers. Under the said provision, the Erstwhile RP was obligated to appoint a third valuer where such a request is made by the Committee of Creditors (“CoC”), which is precisely the situation in the present CIR Process. A reading of the minutes of the 10th CoC meeting held on 03.03.2023 clearly reflects that the Erstwhile RP had deliberately misinterpreted the provision to deny the homebuyers rights conferred upon them under the Code.

On 10.05.2023, the Applicant addressed an e-mail to the RP highlighting the erroneous valuation and the inconsistencies in the methodology adopted.

On 21.05.2023, the RP informed the Applicant via e-mail that the Committee of Creditors had decided not to consider the Resolution Plan submitted by him. The CoC also rejected the Applicant’s e-mail dated 10.05.2023 seeking additional time to submit a revised Resolution Plan. It was further communicated that the CoC had unanimously resolved to issue a fresh Expression of Interest (“EOI”) inviting new proposals.

Although the said e-mail does not specify the reasons for rejection, it appears that the Resolution Plan submitted by the Applicant was purportedly rejected on the ground that the RP found it to be non-compliant with the Code and the Regulations, particularly because it did not provide for payment of the allegedly inflated and incorrectly computed liquidation value payable to dissenting financial creditors. It is also unclear whether the CoC independently arrived at its decision after considering the RP’s prima facie observations, as required under settled law, or whether it merely adopted the RP’s views without separate evaluation. Without prejudice to the foregoing, this is not a case where the Resolution Plan has been rejected on the basis of the CoC's commercial wisdom; rather, the purported rejection stems solely from a defective computation of the liquidation value. The Resolution Plan, inter alia, provides for the completion of construction and delivery of the allotted units, thereby fully securing the interests of all allottees by ensuring repayment of their principal amounts.

The RP has already issued two Expressions of Interest ("EOIs") dated 07.05.2022 and 06.08.2022, along with addendums dated 28.05.2022 and 30.08.2022 to each of the respective EOIs. In these circumstances, the Respondents cannot now issue a fresh EOI, as doing so would be in clear violation of Regulation 36(4A) of the CIRP Regulations.

In view of the above circumstances, the Applicant is constrained to file the present Application, inter alia, seeking a direction to the present RP to appoint fresh valuers and an additional valuer for undertaking a proper valuation of the Corporate Debtor.

Respondent No. 1 is the RP of the Corporate Debtor. The Applicant in the present Application is a resolution applicant who had originally submitted his Resolution Plan before the erstwhile RP on 11.12.2022 and subsequently resubmitted a modified version on 26.02.2023. The Resolution Plan has already been rejected by the CoC as non-compliant in both the 11th and 14th CoC meetings. Accordingly, the Applicant has no locus standi to maintain the present petition, as the CoC, in its commercial wisdom, has unequivocally rejected the Plan for non-compliance, and such rejection is not open to challenge before this Adjudicating Authority.

The Committee of Creditors (CoC) exercises a pivotal authority under Sections 30 and 31 of the Insolvency and Bankruptcy Code, to evaluate and approve a resolution plan submitted for the revival of a distressed company.

Since the CoC has already appointed fresh valuers in the 13th CoC meeting, the relief sought in this regard has become infructuous.

The Applicant has sought a direction to restrain Respondent No. 1 from issuing a fresh Form G for inviting EOIs. In this regard, the Respondent No. 1 submits that the said relief has become infructuous, as a fresh Form G has already been issued. Moreover, although the Applicant has filed this Application seeking an injunction against the issuance of a fresh Form G and subsequently sought further directions to restrain any action pursuant to the newly issued Form G, he has deliberately suppressed the fact that he himself submitted an EOI in response to the re-issued Form G.

The Respondent No. 1 submits that the Applicant must either participate in the resolution process by submitting a fresh EOI or challenge the issuance of Form G on the merits. However, the Applicant is attempting to do both—participating in the process while simultaneously challenging it. It is a settled principle of law that a person who voluntarily participates in a fresh invitation for EOIs cannot thereafter question or assail the same, having by his conduct forfeited the right to raise such a challenge.

The Applicant has sought an injunction restraining Respondent No. 1 from issuing a fresh Form G for inviting EOIs. The Respondent No. 1 submits that this relief has become infructuous, as a fresh Form G has already been issued. Furthermore, although the Applicant has filed the present Application seeking to restrain the issuance of a fresh Form G and has also sought further directions to prevent any steps pursuant to the newly issued Form G, he has deliberately suppressed the fact that he himself submitted an EOI in response to the re-issued Form G.

Both this Respondent/RP and the erstwhile RP had, on multiple occasions, communicated to the Applicant the preliminary compliances required under the I&B Code and had provided sufficient opportunities to carry out the mandatory modifications to the Resolution Plan as stipulated under Section 30 of the Code. The Resolution Plan submitted by Mr. Sumit Khanna was first placed before the CoC in the 11th meeting held on 16.03.2023, during which the homebuyer class holding 69.04% voting share was absent. Subsequently, in the 11th CoC meeting held on 16.06.2023, the CoC passed the following resolution in respect of the Applicant's Resolution Plan:

The reasons cited by the erstwhile RP for rejecting the Applicant’s Resolution Plan are duly recorded and highlighted in the minutes of the 11th CoC meeting.

The Respondent No. 1 had communicated to the Applicant his preliminary observations on the Resolution Plan and requested the Applicant to submit a modified plan at the earliest. The operative portion of these observations is reproduced below:-

The Respondent No. 1 further placed the Resolution Plan for discussion and voting in the 14th CoC meeting held on 15.05.2023, wherein the CoC, with 100% voting, resolved that the Resolution Plan submitted by Mr. Sumit Khanna was not in compliance with Section 30(2) of the Code, despite having been afforded multiple opportunities to make the necessary modifications.

Following the CoC's rejection of the Resolution Plan, the Respondent No. 1 requested the Applicant to provide his bank account details for the refund of the EMD. However, the Applicant declined to furnish the required details.

Regulation 36(4A) merely restricts the modification of an existing invitation for expression of interest to not more than once. The Respondent No. 1 submits that neither the Code nor the Regulations curtail the CoC's right to issue a fresh Expression of Interest in Form G. The said amendment applies only to repeated modifications of an already issued Form G. Therefore, the Applicant's interpretation of Regulation 36(4A) is misconceived and has no application to the present facts. In this case, the Resolution Plan was unanimously rejected by the CoC, necessitating the issuance of a fresh Form G.

During the 8th meeting of the Committee of Creditors (CoC) held on 11.01.2023, the erstwhile RP informed the members that he had received the Resolution Plan; however, he also stated that, in his view, the Plan was not in compliance with the provisions of the Code.

Consequently, the Applicant resubmitted a modified Resolution Plan on 26.02.2023. It is pertinent to note that the Plan submitted by the Applicant was found to be non-compliant and was rejected in both the 11th and 14th meetings of the CoC. Therefore, the Applicant has no locus standi to maintain the present petition, as the CoC, in its commercial wisdom, has rejected the Plan for non-compliance, leaving no valid grounds for challenge. The CoC is vested with the authority to evaluate and approve a resolution plan under Sections 30 and 31 of the Code, and its commercial decisions are not subject to interference by this Tribunal in the absence of any material irregularity or statutory violation. Since the Resolution Plan submitted by the Applicant has already been rejected by the CoC, the present Application is not maintainable and is liable to be dismissed with costs, as the Applicant's attempt appears to be directed towards forcing the Corporate Debtor into liquidation, which is contrary to the primary objective of the Code.

The CoC had appointed new valuers in the 13th CoC Meeting held on 28.04.2023; therefore, prayers (a) and (b) have become infructuous. With respect to Prayer (c), a fresh Form G has already been issued by the Resolution Professional, rendering that prayer also infructuous. It is further submitted that, having participated in the fresh invitation for Expression of Interest, the Applicant is now estopped from challenging the same. Moreover, the former RP had, on multiple occasions, informed the Applicant regarding the necessary compliances under the IBC and had afforded sufficient opportunities to make the required modifications to the resolution plan.

The reasons recorded by the erstwhile RP for rejecting the Applicant's resolution plan are clearly reflected in the minutes of the 11th CoC Meeting. The present RP also communicated his preliminary observations on the resolution plan to the Applicant and requested that a revised and compliant resolution plan be submitted at the earliest.

Prima facie, the Resolution Plan submitted by the Applicant does not unconditionally or unequivocally provide for the payment of CIRP costs, dues payable to operational creditors (including Government dues), or amounts payable to dissenting financial creditors. Consequently, the plan fails to comply with Section 30(2)(a) and (b) of the Code. Further, the average liquidation value of KCCI and KTC, as determined by the valuers and communicated to the Applicant by the former RP, is Rs. 66.67 crore. Therefore, the assumption of a NIL liquidation value in the submitted plan is illogical and contrary to the objectives of the Code.

The Resolution Applicant is required to furnish an undertaking regarding compliance with Section 30(2)(a) and (b) of the Code. However, the Resolution Plan contains ambiguity concerning such compliance. Since the Applicant is obligated to adhere to these statutory requirements, an unconditional undertaking incorporating compliance with the aforesaid provisions is necessary to enable the RP to place the plan before the CoC. Further, the Applicant is required to submit the Resolution Plan by considering Rs. 66.67 crores as the minimum base value for settlement of the claims.

The 1st Respondent placed the Resolution Plan before the CoC for discussion and voting in the 14th CoC meeting held on 15.05.2023. In that meeting, the CoC, with 100% voting share, resolved that the Applicant's Resolution Plan was non-compliant with Section 30(2) of the Code, despite having afforded the Applicant several opportunities to rectify and modify the plan.

The Applicant contends that, in terms of Regulation 36(4A), an Expression of Interest (EOI) cannot be modified more than once. However, the said regulation pertains only to modifications of an existing EOI and merely restricts such modification to a single instance. It does not, in any manner, limit or prohibit the CoC from issuing a fresh EOI. Therefore, the Applicant's interpretation of Regulation 36(4A) is misconceived and has no relevance to the present case.

Furthermore, even if the Applicant's argument is assumed to be correct, the period of exclusion of time already granted to the Corporate Debtor would become meaningless, as the timelines for issuance of EOI, RFRP, and submission of the resolution plan had already expired.

In terms of Regulation 39(1A), a resolution applicant may modify a resolution plan only once, and that too with the approval of the Resolution Professional. In the present case, the plan submitted by the Applicant is admittedly non-compliant on several grounds under Section 30(2) of the Code. Consequently, the Applicant is now estopped from making any further modifications to the resolution plan.

Furthermore, the fact that existing CoC members now appear in the new list of PRAs—issued pursuant to the impugned Form G—reveals the true intent and underlying purpose behind the rejection of the Applicant’s Resolution Plan, namely, to allow these CoC members to participate as PRAs after having gained knowledge of the commercial terms of the Applicant’s Plan. Such conduct on the part of the RP and the CoC is mala fide, contrary to the express prohibitions of the Code, and strikes at the very foundation of the CIRP framework.

The newly inducted Prospective Resolution Applicants (“PRAs”), having already had access to and reviewed the Resolution Plan submitted by the Applicant, ought not to be permitted to participate in the bidding process to the prejudice of the Applicant, who has been diligently engaged in and committed to the Corporate Insolvency Resolution Process (“CIRP”) for over 18 months with bona fide intent to resolve the Corporate Debtor. It is a well-settled position in law that a resolution plan cannot be disclosed or made accessible to any third party, including competing resolution applicants. The circumstances of the present case, therefore, stand in direct contravention of the settled legal principles governing confidentiality and competitive fairness in the CIRP.