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Judgment
O R D E R
[Per: Mr. Naresh Salecha, Member (Technical) (Oral)]
There are two connected appeals bearing Company Appel (AT) (Ins.) No. 190 of 2023 and Company Appeal (AT) (Ins.) No. 219 of 2023. Both have been filed by the Appellant Mr. Satish Dhondiram Chavan.
In Company Appel (AT) (Ins.) No. 190 of 2023
There are 12 Respondents including the Resolution Professional of the Corporate Debtor under CIRP and other financial creditors Bank of India, State Bank of India, Karur Vysya Bank Limited, HDFC Bank Limited, Bank of Baroda, and so on.
The appeal has been filed to set aside the Impugned Order 02.02.2023 dated in IA 1899 of 2021 in CP (IB)- 1852/(MB)/2019 passed by the National Company Law Tribunal, Mumbai Bench, Court - III (in short ‘Adjudicating Authority’) filed under Section 61 of the Insolvency & Bankruptcy Code, 2016 (in short ‘Code’).
From the Impugned Order, we find that the Appellant herein, filed an IA 1899 of 2021 in CP (IB)- 1852/(MB)/2019 before the Adjudicating Authority with prayer for following reliefs :-
“1.The present Applicant Mr. Satish Dhondiram Chavan who is the member of the suspended board of the Corporate Debtor filed the above application praying the following reliefs:
i.Direct the CoC of the Corporate Debtor to condone the delay of 3 (three) days by the Applicant in submitting a bank guarantee in respect of the Resolution Plan;
ii.Direct the Respondent No. 1 and the CoC to consider the Resolution Plan of the Applicant as per the provisions of the said Code and its Regulations.
iii.Stay the resolution passed by the CoC of the Corporate Debtor in the 14th meeting approving the liquidation of the Corporate Debtor under Section 33(2) of the Code.
iv.Ad interim in term of prayer Clause (i) to (iii) above;
v.Any other order that this Hon'ble Tribunal may deem fit in the facts and circumstances of this case.” (Emphasis Supplied)
The Appellant is the Suspended Director of the Corporate Debtor who submitted that his Resolution Plan was not considered by the Committee of Creditors (in short ‘CoC’) and aggrieved by the same, he approached the Adjudicating Authority with prayers we noted in the previous paragraph.
After detailed examination, the Adjudicating Authority dismissed the application IA 1899 of 2021 in CP (IB)- 1852/(MB)/2019 of the Appellant herein. The relevant paras of the Impugned Order are noted as under :-
“7.This Bench further notes that the Petitioner is challenging the decision of the COC in opting for liquidation on the ground that he has filed a Writ Petition before the Hon'ble Bombay High Court against the order of the RBI in declaring him as a wilful defaulter in which the Hon'ble High Court of Bombay vide its interim order dated 30th June, 2022 directed the Bank not to take any precipitative steps pursuant to the impugned RBI circular and therefore he is not ineligible under Section 29A of the Code for submitting a Resolution Plan. This Bench observes that the Applicant was reported as fraud on 8th July 2021 by the Head Office of Fraud Monitoring Department and reported as fraud on 23rd July 2021 on the RBI platform and also the Respondent No. 2 has filed a FIR with CBI on 24th September 2021 which are very serious in nature. As rightly contended by the Respondents, the Applicant cannot escape the clutches of Section 29A simply because an interim stay has been granted by the Hon'ble High Court directing the Banks not to take any precipitative steps unless the Applicant comes out clean with specific findings from the Hon'ble High Court. In addition to the above, the rejection of the Resolution Plan on both the grounds of non-furnishing of Bank Guarantee and ineligibility under Section 29A is not on account of any precipitative action of the lenders and is not protected under the interim order of the Hon'ble High Court.
8.It is also appropriate to mention here that the Resolution Professional has already filed an application bearing I.A. 1984/2021 for liquidation of the Corporate Debtor which was backed by 96.18 % voting of the COC by exercising their commercial wisdom and this Tribunal has no power to interfere with such commercial wisdom of the COC.
9.Therefore, for the aforesaid reasons this Bench is of the considered opinion that the above application is devoid of merits and is liable to be rejected.
10.Accordingly, the above Interlocutory Application is rejected.” (Emphasis Supplied)
Shorn of unnecessary details and without going in the chequered history of the Corporate debtor of non payments, default, alleged frauds, alleged wilful defaulters declaration by the Financial Creditors, we would like to restrict ourselves to the averments made before us by both the parties.
It is the case of the Appellant that the Resolution Plan was rejected primarily on three factors
a. The bank guarantee was furnished on 5th March 2021 with delay of 3 days as the last date of submission of bank guarantee was 1st March 2021.
b. He submitted the bank guarantee of ICICI bank as against the bank guarantee which should have been issued from nationalised bank located in India as stipulated in clause 1.8.1. of RFRP. ‘Request for Resolution Plan’ (in short ‘RFRP’).
c. The Appellant was made ineligible under section 29 A of the Code.
At the outset, we would like to restrict our examination on the first two issues since, there are threshold issues which any Resolution Applicant including the Appellant herein is required to meet, in order to be qualified for consideration of the Resolution Plan by the CoC.
In this background, it would be desirable to look into exact wordings of clause 1.8.1 of RFRP which reads as under :-
“1.8.1Resolution Applicant(s) shall provide a Bank guarantee / Earnest Money Deposit of INR 1,00,00,000/-(One Crore) in favor of Bank of India, as part of the Binding Resolution Plan (hereinafter referred to as the “Binding Submission Bond Guarantee” or “BSBG”). The BSBG should be payable at Mumbai and should be executed from Nationalised Bank located in India. The BSBG shall be valid for the Plan Validity Period and shall be renewed / extended by the Resolution Applicant(s) for a period as may be required by the CoC (“BSBG Validity Period”). The BSBG shall have a claim period of 30 days after the BSBG Validity Period. The form of the BSBG shall be as per the Format indicated in Appendix-3. The designated Lender will hold the BSBG in trust on behalf of the CoC.” (Emphasis Supplied)
From the above, following emergence :-
a. Applicant was required to provide bank guarantee of Rs. 1 Crore.
b. This was a part of “Binding Resolution Plan”/ BRP or referred as “Binding Submission Bond Guarantee”/ BSBG.
c. The BSBG should have been executed only from any nationalised bank located in India.
d. The form of BSBG was prescribed as per the format indicated in Appendix 3.
We note that this Clause 1.8.1 of RFRP was with reference to eligibility criteria for Resolution Plan and Evaluation Matrix which was basis for the Resolution Applicant to submit the Resolution Plan and was also the basis for the CoC to consider the same.
Thus, we may treat this Clause 1.8.1. of RFRP akin to situation where the Applicant is required to meet the legal hurdle of Limitation Act and in case the application is submitted after the limitation period has expired including discretionary period available to the concerned legal authority, then in such eventuality, the application cannot be considered.
It is the case of the Appellant that there was the delay of only 3 days and so called wisdom of the CoC in rejecting the Resolution Plan was in effect non exercise of commercial wisdom by the CoC.
The Appellant referred to us few documents including the minutes of few CoC Meetings.
The Appellant submitted that as per the 9th CoC Meeting held on 05.11.2020. there were only 4 Prospective Resolution Applicants, namely, SIPUL Enterprises, Disha Milk and Milk Products Private Limited, Panchtawta Milk Industries Private Limited & Satish D Chavan.
As per the minutes of 10th CoC Meeting held on 22.12.2020 only two Resolution Plan were available from Satish Dhondiram Chavan the Appellant herein and Disha Milk and Milk Products Private Limited.
The Appellant emphasized that from the minutes of the 10th CoC Meeting, it is evident that his Resolution Plan was of Rs. 144.45 Crores with upfront payment of Rs. 11.80 Crores which was far more than the plan amount of another Resolution Applicant Disha Milk and Milk Products Private Limited which was merely Rs. 40.85 Crores with upfront payment of Rs. 5.36 Crores.
It is the case of the Appellant his Resolution Plan was three times than only other Resolution Applicant, which should have been considered by the CoC.
The Appellants submitted that the original date of submission of bank guarantee was 15.11.2020 which was extended to 15.12.2020 and finally up to 01.03.2021. In this connection, the Appellant referred to minutes of the 11th CoC Meeting, held on 25.02.2021.
“12.To table and open the Resolution Plans received in a sealed envelope and to handover the same to the Resolution Professional to check if the same comply with the requirements of the Code and the Regulations made thereunder and fit to be placed before the CoC:
The Chairman informed the members that one of his team member Mr Pritam Jain has handed over sealed envelopes of resolution plans to one of the CoC member Mr. Sachin Kothawale representing PCB which he verified and acknowledged the sealed parcels. He further added that he has received two resolution plans as follows:
S. No. Name of Resolution Applicant Date of Plan Received Time of Plan Received Constitution 1. Mr. Satish Dhondiram Chavan 15/10/2020 19.50 Individual 2. Disha Milk and Milk Products Pvt Ltd 15/12/2020 17:50 Company (Emphasis Supplied)
The Appellant referred to minutes of 11th Meeting held on 25.02.2021 to show that the date was extended up to 01.03.2021.
“The Resolution Professional also apprised members that the Resolution Applicants have not yet submitted the requisite Bank Guarantee as per Appendix 3 read with clause 1.8.1 of the Request For Resolution Plan (RFRP). Promoter Resolution Applicant Mr. Satish D. Chavan present in the meeting confirmed to submit the Bank Guarantee by 1st March, 2021. Members agreed to the same. The Resolution Professional tried to talk to the other Resolution Applicant who connected to the meeting but the same couldn’t be heard. Bank of Baroda suggested the Resolution Professional to also inform the other Resolution Applicant to submit requisite Bank Guarantee within the given extended time as above.”
Subsequently the Appellant referred to 12th Meeting of CoC held on 09.03.2021 and the relevant para is 12, is reproduced as under :-
“12.To update on the rejection of the requisite Bank Guarantee received from a Resolution Applicant after the extended date; The RP informed that post the last meeting, while talking to Disha Milk Product, the intimation from them was that they may not be submitting bank guarantee as required. The reason cited was that as per their analysis there may be political influence in that area which is not congenial for business. The RP also informed that on similar grounds, other PRAs have also backed out at the last moment. Thus, the only plan received so far is from Mr. Satish Chavan. The RP also informed that as per the last meeting held on the 25th February 2021, bank guarantee was to be made available latest by 1st March 2021, however, bank guarantee was received only on 5th March 2021 which cannot be accepted. Hence, the RP informed that as of now there is no binding resolution plan available with him. The RP also informed that as per the order of the Hon’ble NCLT, the extended period of CIRP, excluding the period for Covid 19, has ended on the 26th February 2021. Therefore, going forward there are no probable option available but liquidation. The RP also informed that this present CoC meeting is also subject to the approval of Hon’ble NCLT for any further exclusion. The RP also informed that he has already prepared an application seeking further exclusion before the Hon’ble NCLT. The RP also opined that since the exclusion period got over on the 26th February 2021, whether the RP can move such an application before the Hon’ble NCLT required clarification. The RP also submitted that the validity of today’s CoC Meeting is subject to a disclaimer to the approval of Hon’ble NCLT. The Promoter Director Resolution Applicant informed the members that the BG would have been ready by 1st March, 2021 but due to some mistakes in the draft and other reasons it could not be submitted. The RP confirmed that the issuing bank, ICICI Bank Ltd. had regularly written to him intimating receipt of FD for issue of before BG by 1st March, 2021 and due to some mistakes in the draft and other reasons, the final BG could not be issued and was finally received on 5th March, 2021. At this, member representing SBI raised queries regarding the original time line for submission of bank guarantee. The RP informed that the original time line for submission of resolution plan along with which bank guarantee was to be submitted was 15th November 2020. However, the CoC had extended the time line to 15th December 2020. Both the Resolution Applicants did not submit the BG with their Resolution Plans and he had followed up with them frequently. The RP had circulated an email to the members about non-receipt of BG calling for their advice in the matter. Reminder was also sent, but there was no advice from any member. In the last meeting, the CoC had decided to extend the timeline to submit BG by 1st March, 2021 but one of the RAs submitted it only on 5th March, 2021.” (Emphasis Supplied)
The Appellant also referred to 13th Meeting of CoC held on 03.05.2021 which discussed the issue regarding 29A of the Code as well as the submissions of bank guarantee. For the limited purpose of noting reference regarding bank guarantee, the following is relevant para which reads as under:-
“The Bank of India raised concern over the further extension of the due date for submission of Bank Guarantee which was extended and approved by the CoC members upto 01st March 2021 in its 11th meeting of the CoC held on 25th February 2021. However, the Bank Guarantee was not received from a Nationalized Bank but from ICICI Bank and that too on 5th March, 2021 sighting some technical glitch from the issuing bank which is in contravention of the terms of clause no. 1.8.1. of the approved RFRP….” (Emphasis Supplied)
In the 13th meeting a resolution was put for voting regarding condonation of delay in submission the requisite bank guarantee by the Appellant, which was rejected by CoC with 94.16%.
The Appellant finally referred to meeting of 14th meeting of CoC held on 09.07.2021 where the CoC passed a resolution for liquidation of the Corporate Debtors which reads as under :-
It is the case of the Appellant that the CoC has not acted in the interest of the stakeholders and rather resorted to irrational decision which cannot be justified in commercial sense. The Appellant, therefore, submitted that there is no commercial wisdom in the decision of the Committee of Creditors in rejecting the Resolution Plan of the Appellant which was more than three times than the value of next Resolution Applicant.
The Appellant also assailed the CoC for treating him to be eligible under Section 29A of the Code and stated that he was ineligible at the time of submission of the Resolution Plan.
The Appellant reiterated that liquidation of the Corporate Debtor is death of the corporate entity which is against the philosophy of the Code.
Concluding his arguments, the Appellant submitted that his prayer to set aside the Impugned Order may be accepted.
Per contra, the Respondent Nos. 2,3, 4, 5, & 7(in short ‘Answering Respondents’) representing Bank of India, State Bank of India, Karur Vysya Bank Limited, HDFC Bank Limited, Bank of Baroda, respectively, denied all the averments and submissions of the Appellant treating these as mischievous, misleading and without any basis.
The Answering Respondents gave the history of the case which led to well reasoned speaking order by the Adjudicating Authority after examination of all the facts and law.
The Answering Respondents submitted that the Appellant is the Promoter and the member of Suspended Board of Director of the Corporate Debtor. The Answering Respondents brought out that the interlocutory Application of the Appellant seeking direction from the Adjudicating Authority to direct the CoC to condone delay of three days in submitting bank guarantee in respect of Resolution Plan was rejected by the Adjudicating Authority vide Order dated 02.02.2023 in CP (IB) No. 1852/(MB)/2019 as the Appellant failed to furnish the bank guarantee within the stipulated time period which was extended on few occasions to accommodate the Resolution Applicant.
The Answering Respondent informed that the original last date for submission of the bank guarantee was on 15.11.2020 which was subsequently extended to 15.12.2020. The Answering Respondents submitted that in 11th CoC Meeting, it was further decided to extend the timelines for Resolution Applicant to submit the bank guarantee along with Resolution Plan up to 01.03.2021.
The Answering Respondents assailed the conduct of the Appellant, who despite such liberal extensions of time limits, the Appellant failed to furnish the bank guarantee, before the stipulated last date of 01.03.2023.
The Answering Respondents also pointed out that the terms and conditions as stipulated while inviting Resolution Plan are sacrosanct for the CoC in order to ensure the transparency, fairness and keeping in view the principles of natural justice. In this respect, the Answering Respondents referred to Clause 1.8.1 of RFRP, whereby it was clearly mentioned that the bank guarantee should be executed only through nationalised bank located in India. The Answering Respondents stated that the bank guarantee submitted by the Appellant has been issued by the ICICI Bank which is a non-nationalised bank and hence could not have been accepted.
The Answering Respondent emphatically reiterated that terms of RFRP is the bid document governing the entire Resolution Plan submission process and any departure to comply with the terms stipulated in RFRP including timelines to submit the bank guarantee obligates the CoC to reject such Resolution Plan.
The Answering Respondents submitted that in the present case, the CoC gave multiple opportunities to the Appellant to submit the bank guarantee and only on failure on the last occasion when the last date was 01.03.2021, the CoC decided not to consider the Resolution Plan purely because of failure of the Appellant to comply with the timelines as well as due to submission of bank guarantee in non-compliance mode.
The Answering Respondents mentioned that the Resolution Plan submitted by the Appellant was ineligible in terms of Section 29A of the Code, however, the Appellant is not labouring on this point since according to the Answering Respondents, the Appellant failed to meet the minimum threshold criteria.
The Answering Respondents also assailed the conduct of the Appellant who has been declared wilful defaulter on several occasions.
The Answering Respondents further assailed the conduct of the Appellant who is in habit of submitting incomplete and non compliant of Resolution Plans and failure to give bank guarantee which only derail the process of the Resolution of the Corporate Debtor and cited the instance of Pandhari Milk Private Limited, where the same Appellant submitted the Resolution Plan and despite several opportunities by the concerned CoC failed to submit the bank guarantee and therefore the CoC was compelled to recommend for liquidation of the Corporate Debtor which was approved by the Adjudicating Authority on 15.03.2022 in CP (IB)- 1852/(MB)/2019 .
The Answering Respondents submitted that there is no ground for the Appellant to challenge the commercial wisdom of the CoC and relied on the judgment rendered in the case of K.Sashidhar V/s Indian Overseas Bank & Ors. [(2019) 12 SCC 150].
The Answering Respondents submitted that the CoC is very conscious about recovery of their outstanding dues from the Corporate Debtor and only as a last resort, the CoC was compelled to go for liquidation on the failure of the Appellant and therefore at this stage commercial wisdom of the CoC represented by the Answering Respondents cannot be challenged in the present Appeal.
Concluding arguments, the Answering Respondents requested this Appellate Tribunal to dismiss the appeal.
Finding
From various averments and submissions we find that the Resolution Plan of the Appellant was not approved and rejected primarily on the following accounts :-
Non submission of bank guarantee within the stipulated last date.
Submission of bank guarantee in non compliance mode.
The Appellant being ineligible in terms of Section 29A of the Code.
Having noted above, we tend to agree with the request of the Answering Respondents that at first stage, we may restrict only to look into the aspects regarding failure on the part of the Appellant, if any, to meet with the requirements of Clause 1.8.1 of RFRP, which is basic threshold for eligibility to submit the Resolution Plan and we should examine the issue of ineligibility under Section 29A of the Code only if find merit for the Appellant on issue of Clause 1.8.1. of RFRP.
We note from RFRP, where it was clearly mentioned that the bank guarantee need to executed by any nationalised bank located in India.
Similarly, the original date of submission of bank guarantee was 15.11.2020 which was extended to 15.12.2020 and finally extended up to 01.03.2021. We observe that these facts were admitted by the Appellant who also admitted that he furnished the bank guarantee only on 05.03.2021, i.e., after delay of 3 days.
The Appellant also fairly conceded to the fact that the bank guarantee was executed by the bank other then the nationalised bank.
The Appellant however, challenged non suiting him on such technicalities which is non exercise of commercial wisdom by the CoC and it was within the preview of the Answering Respondents to consider the Resolution Plan of the Appellant.
This Appellate Tribunal is of considered opinion that terms and conditions as stipulated in RFRP are required to be treated valid and legal binding terms and conditions which has been stipulated by the CoC after fair deal of deliberations. The framing of such terms and conditions, evaluation of the Resolution Plan against such matrix is considered to be entirely within the commercial wisdom domain of the CoC.
In this connection, we would like to refer to the judgement of the Hon’ble Supreme Court of India which clearly bind all concerned to follow dictum that it is the role of the CoC and CoC only in exercising the commercial wisdom and the Adjudicating Authority or for that matter the Appellate Tribunal has no role to dwell into such territory which is sole jurisdiction of the CoC. This reads as under :-
“K.Sashidhar V/s Indian Overseas Bank & Ors. [(2019) 12 SCC 150].
. As aforesaid, upon receipt of a “rejected” resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of the 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 the 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 nonjusticiable”. (Emphasis Supplied)
Based on the above judgement of the Hon’ble Supreme Court of India and after analysing the facts in the appeal in details in provisions paragraphs, we hold that the Appellant failed to comply with the conditions as stipulated in RFRP. We do not find any reason to interfere with the Impugned Order dated 02.02.2023 passed by the Adjudicating Authority since, we do not find any error in the Impugned Order.
The Appeal, devoid of any merit, stand dismissed. No Costs. Interlocutory Applications, if any, are Closed.
In Company Appeal (AT) (Ins.) No. 219 of 2023:
The Appellant has filed the Appeal i.e, Company Appeal (AT) (Ins.) No. 219 of 2023 with a request to set aside the Impugned Order dated 02.02.2023 in I.A. No. 1984 of 2021 in C.P. No. (IB)/ 1852/ (MB)/ 2019 passed by the Adjudicating Authority.
The I.A. No. 1984 of 2021 was filed by the Resolution Professional Mr. Vishal Jain seeking liquidation of Pratibha Krushi Prakriya Limited, the Corporate Debtor, under Section 33 (3) of the Code which was accepted by the Adjudicating Authority vide order dated 02.02.2023.
Since, we have already dismissed the other connected Appeal of the Appellant in Company Appeal (AT) (Ins.) No. 190 of 2023 (as discussed above), therefore the present appeal has become infructuous and no interference of this Appellate Tribunal is required.
In short, the Appeal fails and stand dismissed. No Costs. Interlocutory Applications, if any, are Closed.