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Judgment
Ashok Bhushan, J.
These two Appeals have been filed by Rajesh Kumar Damani, the promoter and ex-director of the Corporate Debtor challenging the order dated 05.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Special Bench (Court-II), Kolkata in IA No. 1330/(KB)/2022 and IA No. 1523/(KB)/2022. Both the Appeals arising out of common facts and common question of law have been heard together and are being decided by this common judgment.
Brief facts of the case necessary to be noticed for deciding these Appeals are:-
On an application filed under Section 7 by Financial Creditor- ‘Sreenath Finvest Pvt. Ltd.’, an order of commencement of Corporate Insolvency Resolution Process was passed by the Adjudicating Authority on 03.11.2021. Mr. Jitendra Lohia was appointed as the Interim Resolution Professional (IRP) who issued public announcement on 17.11.2021. Form G was published on 17.01.2022 inviting Expressions of Interest (EoI) for the Corporate Debtor-‘Pami Metals Private Limited’. Appellant, promoter of the Corporate Debtor who is an MSME has submitted an EoI on 02.02.2022. Two other Resolution Applicants including ‘Eastern Copper Manufacturing Company Pvt. Ltd.’ and ‘Sreenath Finvest Private Limited’ submitted their EoIs. All the three Resolution Applicants filed the Resolution Plans. In the 5th CoC meeting held on 11.04.2022, Resolution Professional informed the CoC that he has received three Resolution Plans. In the 6th CoC meeting held on 20.06.2022, discussion on Resolution Plans submitted by PRAs was made. The Appellant who had filed Resolution Plan has not submitted the EMD of Rs. 1 Crore, his plan was treated as non-compliant and the CoC decided to conduct a Swiss Challenge Process between two Resolution Applicants i.e. ‘Eastern Copper Manufacturing Company Pvt. Ltd.’ and ‘Sreenath Finvest Private Limited’. In the Swiss Challenge Method, ‘Eastern Copper Manufacturing Company Pvt. Ltd.’ was held to be H-1, having given the Resolution Plan of Rs.10.51 Cr. ‘Sreenath Finvest Private Limited’ was held to be H2. Appellant filed an application before the Adjudicating Authority praying for direction to CoC and Resolution Professional to allow the applicants to make payment of EMD of Rs.1 Crore and to consider the Resolution Plan of the Appellant. Adjudicating Authority passed an order on 30.09.2022 in IA No.900/KB/2022 filed by the Appellant by which the Adjudicating Authority issued following directions in paragraphs 22 and 23:-
“22.Thus keeping in mind the main objective of the Code which is the maximization of the value of the Corporate Debtor vis-à-vis the facts and circumstances of the case as brought out herein above, We hereby revert the matter back to CoC and RP to consider the resolution plan submitted by the applicant subject to depositing of required EMD of Rs.One Crore within two days from the date of order.
23.It is made clear that the CoC shall consider the plan on its merits, with an open mind, uninfluenced by the fact that the delay occurred thus far is hereby condoned.”
After the order of the Adjudicating Authority, the Resolution Plan of the Appellant as well as two other plans of Resolution Applicants was discussed in 8th CoC meeting held on 08.10.2022. In the 9th CoC meeting, Resolution Plan submitted by the Appellant was discussed and decision was taken to put the plans to vote. In result of the voting, the plan of ‘Eastern Copper Manufacturing Company Pvt. Ltd.’ has been approved with 86.02% votes and the plan of Appellant was rejected by 76.11% vote. After approval of the plan of ‘Eastern Copper Manufacturing Company Pvt. Ltd.’, the Resolution Professional filed an IA No.1330/KB/2022 before the Adjudicating Authority praying for approval of the plan. The Appellant, aggrieved by result of the e-voting filed an IA No.1523 of 2022 where following prayers have been made:-
“a. Appropriate and necessary orders be passed thereby setting aside and / or quashing the voting process whereby the resolution Plan of the Applicant was rejected and the purported resolution plan of respondent no. 16 was approved.
b. Appropriate and necessary orders be passed thereby setting aside and / or quashing the e-voting result and/or the scrutinizer's e-voting dated 21 October, 2022;
c. Appropriate and necessary orders be passed thereby sending back the matter to the CoC for reconsideration and fresh voting on the resolution plans after giving adequate opportunities to the applicant to clarify, and if required to negotiate and revise his plan.
d. Appropriate order be passed for the removal of the present RP and an appointment of the new RP to conduct the CIRP transparently.
e. An Appropriate order be passed to stay the notice dated 10.11.2022 issued by the State Bank of India, till the disposal of this application.
f. Appropriate orders and directions be passed upon the RP and the CoC to adopt Swiss challenge method in the voting process for approval of the resolution plan.
g. An order of injunction be passed restraining the respondents from taking any steps in respect of the e-voting result and/or the scrutinizer's e-voting report dated 21 October, 2022;”
The Adjudicating Authority heard the parties on both the IAs being IA No.1330/KB/2022 and IA No.1523 of 2022 and by separate order passed on 05.01.2024 allowed the IA No.1330/KB/2022 approving the Resolution Plan and the order of the same date rejected the IA No.1523 of 2022 filed by the Appellant. Appellant aggrieved by both the aforesaid order has come up in these Appeals.
We have heard Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant, Shri Shaunak Mitra, Learned Counsel for the Resolution Professional and Shri Krishnendu Datta, Learned Senior Counsel for the Successful Resolution Applicant (SRA).
Shri Abhijeet Sinha, Learned Senior Counsel for the Appellant challenging the order passed by the Adjudicating Authority dated 05.01.2024 approving the Resolution Plan as well as rejecting IA No.1523(KB)2022 filed by the Appellant submits that the Appellant being promoter of the Corporate Debtor which is an MSME unit, Adjudicating Authority ought to have approved the Resolution Plan so that Appellant could have revived the Corporate Debtor. It is submitted that the plan value which was given by the Appellant was much higher than the plan value of Respondent No.16 which has been approved. It is submitted that the Appellant’s plan value was Rs.12 Crores with Rs.3 Crore towards working capital whereas total plan value of Respondent No.16 was Rs.10.15 Crores. The CoC committed error in approving the Resolution Plan of the Respondent No.16 and rejecting the Resolution Plan of the Appellant. The Swiss Challenge Process which was adopted earlier for finding out H-1 was not adopting with regard to Resolution Plan of the Appellant. There was no consideration of plan of the Appellant by the CoC and without consideration and appropriate examination of the plan of the Appellant, the plan of the Appellant has been rejected. It is submitted that the promoters of MSME unit should be given an opportunity to revive the Corporate Debtor.
Learned Counsel for the Resolution Professional refuting the submission of the Counsel for the Appellant submits that the Resolution Plan of the Appellant was fully considered and deliberated in the meeting of the CoC. In the 8th CoC meeting held on 08.10.2022 and 9th meeting of the CoC held on 15.10.2022, the Resolution Plan of the Appellant was put to vote. The CoC has taken decision of approval of the plan of Respondent No.16 in its commercial wisdom which cannot be questioned by the Appellant before the Adjudicating Authority. The jurisdiction of the Adjudicating Authority and this Appellate Tribunal to sit in appeal over commercial wisdom of the CoC is not available. It is submitted that in the plan submitted by the Appellant, Appellant has proposed sale of the Calcutta Factory for making the payment in which factory SBI has a charge. All aspects of the plan were duly considered and decision was taken by the CoC in the best interest of the Corporate Debtor.
Learned Counsel for the SRA also supporting the submission of the Resolution Professional submits that the SRA has given the best plan which was found viable by the CoC. The plan of SRA was duly considered by the CoC and approved.
We have considered the submissions of the Counsel for the parties and perused the record.
From the facts as noticed above, it is clear that the Resolution Plan which was submitted earlier by the Appellant did not have EMD, hence, it was held to be non-compliant and in the Swiss Challenge Process which was undertaken between Respondent No.5 and Respondent No.16, Respondent No.16 was held to be H-1. It was only subsequent to the order dated 30.09.2022 passed by the Adjudicating Authority that the Appellant submitted EMD and his plan was put for consideration in the 8th CoC meeting held on 08.10.2022.
Plan of the Appellant was also decided to put on vote and after result of the voting, plan of SRA has been approved.
The grievance which has been raised by the Appellant is that there is no proper consideration of the plan submitted by the Appellant even though he has submitted the EMD of Rs.1 Crore after the order dated 30.09.2022. The minutes of 8th CoC meeting held on 08.10.2022 has been brought on the record. In the 8th CoC meeting, the Appellant as a Director of the Suspended board was also present. The CoC took note of the order dated 30.09.2022 an EMD of Rs.1 Crore submitted by the Appellant on 02.10.2022. Under the Agenda Item No.5, it was noticed that the CoC members requested the Appellant to explain the plan submitted by him. The Appellant has explained his plan. Discussion on Agenda Item No.5 is as follows:-
“Item No.5 TO DISCUSS AND EXTEND THE VOTING LINES FOR
CONSIDERATION OF THE RESOLUTION PLANS SUBMITTED:
The Chairman had informed the COC that he had already shared the resolution plan submitted by the suspended board of the corporate debtor. He then had requested the COC to go through the plan submitted by Mr Damani and also submitted that he shall also submit his compliance report and that he shall need a time of two or three days so that he can also evaluate the plan submitted by Mr Damani and raise further queries on the plan. He further asked the members of the COC to extend the time for the voting on the approval of the resolution plan. Since after the order of the NCLT dated 30.09.2022 the resolution plan of Mr Damani is also to be considered to which the COC members had agreed to extend the time for the voting of the resolution plan till 15.10.2022 for the time being and the same may be considered further if it is required. The COC members and the chairman then requested Mr Damani to explain the plan submitted by him to which he replied that he has given the value of the plan for Rs. 12 crore and shall also bring in the working capital of Rs.3 crore for the maximization of the assets of the corporate debtor. Mr Dhananjay from Tata Capital had asked Mr Damani regarding the break up regarding the payments proposed to the creditors in the resolution plan. To which Mr Damani had replied that he had proposed a payment of Rs 8.15 Crores to secured financial creditors, Rs 2.00 crores to unsecured financial creditor, Rs 24.50 lacs to employee and workmen and Rs.1.60 crore to operational creditors. Mr Dhananjay further enquired that whether the price offered in the resolution plan is final or it can be negotiated further to which Mr Damani had replied that he may further discuss although he has given his best value. The Chairman then said that if after evaluating the plan of Mr Damani any changes are required to be made in the resolution plan then the same shall be sent to him in the email and if so required the changes shall be made through addendum to the resolution plan. The Chairman further informed that the last date for the closure of CIRP is 27.10.2022 so that all the members have to expediate the process as CIRP is a time 2022 so that all the d that coc members must also simultaneously evaluate the plan & email their observation or queries on the plan. It was informed that the next CoC meeting would be called shortly within few days after plan of Mr. Damani is evaluated by the Resolution Professional.”
After the 8th CoC meeting, the plan submitted by the Appellant was examined by the Resolution Professional and the observations of the Resolution Professional was circulated. Those observations were also communicated to the Appellant. It was communicated that the CIRP period was expiring on 27.10.2022. 9th Meeting of the CoC was convened for 15.10.2022 in which meeting the plan submitted by the Appellant was discussed in Item No.4. Discussion in Item No.4 is relevant to notice which is as follows:-
“Item No.4 TO DISCUSS THE RESOLUTION PLAN SUBMITTED BY MR. RAJESH DAMANI:
Pursuant to the discussion in the last COC meeting the where the chairman had informed the COC members regarding the order passed by the Hon’ ble NCLT Kolkata Bench dated 30.09.2022. Whereby the Hon'ble NCLT has directed that the Resolution Plan submitted by the suspended board ie by Mr Rajesh Damani shall be considered afresh the chairman further informed the COC members that Mr. Rajesh Damani had already submitted the E.M.D amount of Rs. 1 crore which was required to be submitted along with the resolution plan in the name of State Bank of India representing the COC members with a demand draft of Rs. 50 lacs each issued by MBGA Hotels Pvt Ltd and Mr. Vijay Kumar Mundhra. Further the chairman informed that he had sent the observation with respect to the resolution plan submitted by the suspended board and that the clarification of the same had been sent by Mr Damani to the chairman and to all the members of the COC. In the clarifications to the resolution plan Mr Damani had agreed to make the changes in the resolution plan which are required to be made as per the provisions under the IBC, 2016 and he further assured the chairman and the COC members that he shall submit the resolution plan after incorporating the changes on 16.10.2022. The Chairman requested Mr. Damani to submit the resolution plan after making the requisite changes as required under the code and submit the revised plan at the earliest so that the same can be considered, which was confirmed by Mr. Damani. It was further stated that Resolution Plan of Mr. Rajesh Damani read with the query/ observation alongwith reply and that has already been sent to all the CoC members should be read conjointly. The Resolution Professional stated that once he receives the revised resolution plan, he would alongwith other details and documents would circulate the same to all the CoC members through email for considerations.
Further pursuant to the discussion in the last COC meeting where the chairman had requested Mr Damani to submit the declaration and the KYC documents of MBGA Hotels Pvt Ltd and Mr Vijay Kumar Mundhara were submitted by Mr. Damani to the chairman before the members of the COC in original and were also sent through email. That Mr Damani had further submitted during the CoC meeting the declaration of all the investors who shall invest in the resolution plan of Pami Metals Pvt Ltd along with their declaration on the networth. Resolution professional further asked Mr. Damani to give the details about the resolution plan submitted by him to which he stated that his resolution plan takes care of interest of all the stakeholder of the corporate debtor and that he has proposed total plan value of Rs. 12 Crores and further Rs.3 crores for working capital towards improving the operations in the company. It was stated that Rs.815.50lac is proposed to be paid to secured financial creditors, Rs.200lac proposed to be paid to unsecured financial creditors, Rs.24.50lacs to workmen & employees and Rs.160lac less CIRP cost to operational creditors. It was further submitted that he proposes to make the payments by way of upfront payments within 60 days and that as per him his plan provides maximum total value to all the creditors. On the query raised by one of the CoC members, Mr Damani had explained that he shall make arrangements to sell the factory of the corporate debtor situated at Kolkata and that he shall make all the arrangements to make the Vadodara plant a going concern he further explained that the decision for the same has been taken after considering the well being of all the stake holders and for the maximization of the assets of the corporate debtor. Mr Sridip from State Bank of India had asked Mr Damani that he must be aware that State Bank of India has charge on the factory of the corporate debtor situated at Kolkata and that he can only sell the same once the charge is released by the SBI to which Mr Damani had replied that the process of the same had been duly explained in the resolution plan. Resolution professional further stated that resolution plan of Mr.Rajesh Damani has already been circulated through email to all the CoC members and which was again circulated pursuant to the last CoC meeting, and requested all the members to consider the plan.
He further placed before the CoC members that the resolution plan read with reply to the observation on the plan was found compliant with the provisions of Insolvency and Bankruptcy Code, 2016 and other mandatory requirement of the Code & regulations, as such requested the CoC members to consider the resolution plan submitted by Mr. Rajesh Damani. It was further stated by the Resolution Professional that Mr. Rajesh Damani being director/promoter of the suspended board and being registered as MSME is eligible to submit the resolution plan under section 29A of Insolvency and Bankruptcy Code, 2016. CoC members were further asked that since Mr.Rajesh Damani is physically present at the meeting, they may further discuss about the plan with him. After brief discussions by few of the CoC members with Mr.Damani on the Resolution Plan, it was submitted that the Resolution Plan be put for voting and that they would consider the resolution plan on its merits after evaluating the details of the proposed plans.
It was finally discussed that the Resolution Plan of Mr.Rajesh Damani be added as the agenda item for voting alongwith other two resolution plans which has already been placed for voting. Resolution Professional further mentioned that the CoC members can vote simultaneously of all the resolution plan or any of the plans, and that the agenda if technically possible would be added in the existing voting lines or separate voting items would be added for consideration by the CoC member. It was discussed that the voting lines should be kept open at lease till 20th October 2022 6 PM, for the voting on all the agenda items including the agenda items as was placed in the previous CoC meeting.
Following additional Resolution would be placed for E-Voting:
"Resolved that, after considering the feasibility and viability of the Resolution Plan and such other requirements as specified in the appropriate sections of the Insolvency and Bankruptcy Code 2016 and Other Regulations as specified under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 including amendments, if any, by the Board, the Committee of Creditors, in pursuance to Sec. 30 of the Insolvency and Bankruptcy Code 2016 and subject to the approval of the Hon'ble National Company Law Tribunal, Kolkata Bench, the COC hereby approves the Resolution Plan submitted by the Suspended Board ie Mr. Rajesh Damani being the Resolution Applicant. Resolution professional is further authorised to issue LOI in term of RFRP and submit the application along with compliance certificate in Form H before the Hon'ble NCLT for its approval."
(THIS WILL BE TAKEN AS Resolution 5 FOR E-VOTING)
The RP informed that as per the Regulation 25, IBBI (CIRP) Regulation, 2016, RP shall take a vote of members of the committee present in the meeting and seek a vote of the members who did not vote at the meeting on the matters listed for voting by electronic voting system. It was further communicated that E-Voting may be opened for the all the member as no physical voting has taken place. The e-voting shall commence on 16th October, 2022 (4:00 P.M. IST) and end on 20th October, 2022 (06:00 P.M. IST). He further informed that login and voting details would be emailed after circulation of the minutes of the meeting, members were requested to vote after going through minutes of the meeting relating to respective agenda items. A detailed e-voting guideline is being attached separately along with voting credentials.”
The decision was taken in the 9th meeting to put the plan of the Appellant also for voting. The report on voting was received and was communicated to the CoC by the Resolution Professional by letter dated 21.10.2022. The Resolution Plan submitted by Respondent No.16- ‘Eastern Copper Manufacturing Company Pvt. Ltd.’ received 86.02% vote in favour and was approved. The plan which was submitted by the Appellant was disapproved by vote share of 73.41% and only 11.48% votes were in favour of the plan. After the voting result, the Resolution Professional filed an IA No.1330 of 2022 for approval of the plan. It was subsequent to filing of IA No.1330 of 2022 that IA No. 1523 of 2022 was filed by the Appellant.
First submission of the Appellant that the plan submitted by the Appellant was not duly considered by the CoC is not found correct. A perusal of the minutes of the 8th CoC meeting and 9th CoC meeting as extracted above clearly indicate that the plan of the Appellant was duly considered. In the minutes, it was also noticed that the Appellant had proposed sale of the Calcutta factory in which State Bank of India had a charge. Thus, all aspects of the plan including the plan value of Appellant as well as Respondent No.16 were in the knowledge of the CoC and were deliberated before voting. We, thus, are of the view that the Resolution Plan was approved by the CoC after due consideration. It is well settled that the commercial wisdom of the CoC in approving the Resolution Plan is not open to judicial review and there are very limited ground to interfere with the decision i.e. only when the plan is in violation of any statutory provision like Section 30(2) of the Code. Hon’ble Supreme Court in “Committee of Creditors of Essar Steel India Ltd. vs. Satish Kumar Gupta & Ors.- (2020) 8 SCC 531” has laid down following in paragraph 61:-
“61.Thus, it is clear that since corporate resolution is ultimately in the hands of the majority vote of the Committee of Creditors, nothing can be done qua the management of the corporate debtor by the resolution professional which impacts major decisions to be made in the interregnum between the taking over of management of the corporate debtor and corporate resolution by the acceptance of a resolution plan by the requisite majority of the Committee of Creditors. Most importantly, under Section 30(4), the Committee of Creditors may approve a resolution plan by a vote of not less than 66% of the voting share of the financial creditors, after considering its feasibility and viability, and various other requirements as may be prescribed by the Regulations.”
The Hon’ble Supreme Court in earlier judgment i.e. “K. Sashidhar v. Indian Overseas Bank- (2019) 12 SCC 150” has held that the commercial wisdom of the CoC in approving the plan has to be given due regard. Paragraph 52 of the judgment is as follows:-
“52………………….Besides, the commercial wisdom of CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable.”
The promoter of the MSME had submitted a plan which was duly considered and the CoC in commercial wisdom approved the plan of the Respondent No.16 and did not approve the plan of the Appellant which decision was taken after considering all aspects of the matter. There is no ground taken by the Appellant that the plan submitted by the Respondent No.16 violates any of the provisions of Section 30(2) of the Code. The submission of the Appellant that Swiss Challenge Method was not adopted with regard to plan of the Appellant also need no consideration. Swiss Challenge Method was adopted between Respondent No.5 and Respondent No.16 when the plan of the Appellant was not compliant and Respondent No.16 was declared as H-1. Thus, when plan of the Appellant was directed to be considered by the Adjudicating Authority on 30.09.2022, plan of the Appellant came for consideration in the 8th and 9th CoC meeting. Adoption of Swiss Challenge Method is enabling provision which can be adopted by the CoC. No infirmity can be found in the consideration of the plan of the Appellant if CoC did not adopt any Swiss Challenge Method.
As far as the plan value which has been offered by the Appellant and the plan value which has been offered by Respondent No.16 and various payments offered in both the plans are in the domain of the commercial wisdom of the CoC and this Court shall not sit in appeal over the said decision nor it is jurisdiction of this Court to compare the plan offers submitted by the Respondent No.16 and Appellant and come to a contrary conclusion. The plan submitted by the Appellant have been duly considered and voted upon which could not muster the requisite vote, there is no error in the order passed by the Adjudicating Authority allowing IA No. 1330 of 2022 approving the Resolution Plan.
The Adjudicating Authority while considering IA No. 1523 of 2022 filed by the Appellant has considered all submissions advanced by the Appellant and has also returned a finding that the plan of the Appellant was deliberated upon and found not to be viable. In paragraphs 15, 18, 19 and 20 of the judgment, following was observed:-
“15.We have considered the submissions. We have already extracted the gist of CoC Minutes particularly the 5th 6th 7th 8th and 9th Meetings. We have already noticed that the Plan of PMPL was deliberated upon and found to be not viable and feasible in view of the fact that the Plan proposed selling of the Kolkata Plant and disclosed that an interested buyer has given its commitment on 15.11.2022 etc. It was argued for PMPL that at least Mr. Damani had disclosed the source of funds which ECMPL Plan did not do.
It was argued that the ECMPL Plan is feasible but not viable, since it does not disclose source of funds, provides NIL. payments to Operational Creditors and yet it is passed without giving the MSME Promoter a level playing field.
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18.We have noted that the CoC has discussed and deliberated upon the Plan of the MSME Promoter Mr. Damani (PMPL) at length and found that the Plan it is not feasible and viable due to reasons mentioned in the Minutes extracted above.
19.It is almost trite and settled law that the commercial wisdom of CoC cannot be called into question unless there are glaring omissions and the deficiencies are stark. In view of the fact that the CoC is of the opinion that the PMPL Plan in fact, does not deal with the source of funds and is based on contingencies which is a fact evident from records, we find no reason to interfere with the well-considered decision of the CoC in rejecting the said Plan with reasons.
20.The allegation that the Plan was not put up for voting or the same was not considered or deliberated upon is not substantiated as the Minutes of CoC Meeting would suggest.”
We, thus, are of the view that the order of the Adjudicating Authority rejecting IA No. 1523 of 2022 is after consideration of all submissions of the Appellant. No grounds have been made on which this Court may interfere with the said order. In result, both the Appeals are dismissed.