Variant Commercial Private Limited vs Indian Mining Works Private Limited

Table of Contents

Prologue

Particulars of Indian Mining Works Private Limited (Corporate Debtor)

Public Announcement

Constitution of the Committee of Creditors (CoC)

Collation of Claims

Our first observation vide order dated 01.08.2023:

a. There are two financial proposals attached to the Resolution Plan, one dated 01 February 2022 at pages 9-11 of the Resolution Plan and the second financial proposal undated at pages 73 to 76 of the I.A., the first financial proposal offers lesser value and the second financial proposal states that the successful Resolution Applicant has proposed a value which is higher. In the minutes of the 13th CoC Meeting, the financial proposal of Rs.1,00,00,000/- was discussed and agreed by the one of the CoC members which is reflected in Agenda 5 (page 105 of the I.A.). Why has the CoC accepted the proposal in which a lesser amount has been proposed?

Additional observation vide order dated 21.08.2023:

Let fresh compilation be provided which shall on what basis, out of the two plans one has approved and one is rejected, and valuation report that forms basis.

Clarification by the RP:

It is clarified that the financial proposal of the resolution plan annexed at Page 73 to Page 76 was originally submitted by the said resolution applicant and subsequently, after negotiation and discussion with the COC revised financial proposal including the revised resolution plan was submitted on 03.02.2022, which superseded the original financial proposal attached at Page 73-76. It is hereby additionally clarified that the financial outlay submitted through the revised Resolution plan is higher than the original proposal submitted by the said PRA. The difference between the original and the revised resolution plan is depicted through the following tabulation:

FINANCIAL PROPOSAL SUBMITTED WITH THE ORIGINAL RESOLUTION PLAN ANNEXED AT PAGE 73-76 OF THE APPLICATION FOR THE APPROVAL OF RESOLUTION PLAN:

COMPONENTS	AMOUNT (Rs.)	TIMELINE FOR PAYMENT AND OTHER TERMS
CIRP Cost	17,50,000/-	Within 30 days from the receipt of certified copy of the order passed by the Adjudicating Authority approving the Resolution Plan.
Financial Creditor (Un-related)	62,25,952/-	Within 60 days from the receipt of certified copy of the order passed by the Adjudicating Authority approving the Resolution Plan. To be paid in proportion to their admitted claims.
TOTAL PLAN OUTLAY EXCLUDING WORKING CAPITAL INFUSION(A):	79,75,952/-

Working Capital Infusion	25,00,000/-	As and when required
TOTAL PLAN OUTLAY INCLUDING WORKING CAPITAL INFUSION (B):	1,04,75,9523/-

FINANCIAL PROPOSAL SUBMITTED WITH THE REVISED RESOLUTION PLAN ANNEXED AT PAGES 10-11 OF THE APPLICATION FOR THE APPROVAL OF THE RESOLUTION PLAN.

COMPONENTS	AMOUNT (Rs.)	TIMELINE FOR PAYMENT AND TERMS OF PAYMENT
CIRP Cost	32,00,000/- (Estimated)	Unpaid CIRP Cost at actuals will be paid from Rs. 1 crore. CIRP Cost Estimated at Rs. 32 Lacs, balance to be paid to the financial creditor after deducting the estimated CIRP as above. (Within 30 days from the receipt of

		certified copy of the order passed by the Adjudicating Authority approving the Resolution Plan.
Financial Creditor (Unrelated)	68,00,000/- (After deducting estimated CIRP cost)	After the payment of CIRP Cost, the balance left out of Rs.1 Crore will be paid to the financial creditor. (Within 60 days from the receipt of certified copy of the order passed by the Adjudicating Authority approving the Resolution Plan. To be paid in proportion to their admitted claims.)
TOTAL PLAN OUTLAY EXCLUDING WORKING CAPITAL INFUSION AS AND WHEN REQUIRED(C):	1,00,00,000/-

Working Capital to be Infused as and when required	25,00,000/-	As and when required, considering infusion to the tune of Rs. 25 Lacs.
TOTAL PLAN OUTLAY INCLUDING THE WORKING CAPITAL OUTLAY (D):	1,25,00,000/-

As such the total resolution plan outlay has increased through the submission of the revised resolution plan, which was finally approved by the CoC as under:

PARTICULARS	EXCLUDING WORKING CAPITALS	INCLUDING WORKING CAPITAL
TOTAL PLAN OUTLAY AS PER ORIGINAL PLAN	79,75,952/- (Total A)	1,04,75,952/- (Total B)
TOTAL PLAN OUTLAY AS PER REVISED PLAN	1,00,00,000/- (Total C)	1,25,00,000/- (Total D)
INCREASE IN REVISED PLAN, FINALLY	20,24,048/-	20,24,048/-

APPROVED BY THE COC

Notes to the above clarification with regards to the above tabulation:

I. CIRP Cost under the new Resolution Plan has been proposed to be paid at actuals which is currently estimated at Rs. 32 Lacs.

II. Amount payable to secured financial creditor under the revised resolution plan is Rs. 68 Lacs after deducting the estimated CIRP Cost.

III. The RA has proposed to bring in working capital from time-to-time for improving operations under the revised resolution plan which for comparison purposes has been assumed to be Rs. 25 Lacs as proposed in the original Resolution Plan.

Copy of all the valuation reports is annexed as “Annexure C” at pages 53-114 to the Supplementary Affidavit dated 05.02.2024.

Clarification by the CoC:

The first resolution plan was submitted by one Resolution Applicant namely Elite Enterprise total amounting to Rs 1,04,75,952/- wherein they have offered an amount of Rs 17,50,000/- as CIRP cost payable within 30 days from the NCLT approval date, Rs 62,25,952/- to be paid to Financial Creditors payable within 60 days from receipt of certified copy of NCLT approval and Rs 25,00,000/- as Working Capital for improving operations as and when required. Thereafter negotiation was going on with the Resolution Applicant with an object to increase the plan value. Accordingly, the Resolution Applicant submitted a revised resolution plan offering a total amount of Rs 1.00 Cr wherein the entire payment of Rs 1.00 Cr would go to the Financial Creditors after deduction of CIRP cost at actuals. Further taking into account that the probable CIRP cost would not increase beyond Rs 30 Lakhs thus the secured creditors voted for the plan with lesser value wherein the Financial Creditors would receive a higher amount. In the meantime, the Demand draft submitted by the resolution applicant as EMD had expired. Thus, COC along with RP requested the resolution applicant for submission of a revised resolution plan along with a fresh Demand Draft. The plan value of the revised resolution plan was Rs. 1 Crore which is evident from the minutes of the 13^th CoC held on 20.01.2022. This, it may be noted that although the total plan value has decreased from Rs. 1.04 Crore to Rs. 1 Crore but the payment to the Financial Creditors has increased from Rs. 62 Lakh to Rs. 70 Lakh.

Clarification by SRA:

It is a matter of facts and record that RA has submitted the Resolution plan through email on 18.06.2021 and also submitted the original copy of the same to the RP on 03.09.2021 with the value of Rs 79,75,952.00 with an additional infusion of amount of Rs. 25,00,000 as working capital as and when required for the better revival of the corporate debtor. The same was reviewed by the RP and accordingly placed before the COC for their kind consideration. Based on the discussion held in the COC, the RA was asked to revise their resolution plan by increasing the value proposed for the corporate debtor. Considering the same, the RA has submitted the Revised Resolution plan on 01.02.2022 with the full and final proposal of Rs. 1 Crore with an additional infusion of any sum as working capital as and when required for the better revival of the corporate debtor. It is a matter of fact that, a sum of Rs. 20,24,048.00 has been enhanced pursuant to the request of the COC. It is clear from the revised Resolution plan that no specific amount for the working capital has been mentioned in comparison to the original resolution plan and further it was made clear that apart from the proposed value of Rs. 1 crore, the RA shall infuse any amount for the working capital as and when required. The same revised Resolution plan was duly approved by the COC and accordingly the RP has filed the instant application for the approval of the resolution plan.

Second observation of us vide order dated 01.08.2023:

b. According to the Resolution Plan, Rs.11,62,378.43 was claimed by the Operational Creditors but the Resolution Professional did not admit any of the claims, but in Form H this information has not been given, rather under the head of Operational Creditors, the Resolution Professional has stated that there was NIL amount claim under the said headed “Amount claimed” and under the header “Amount Admitted” and amount of Rs.96,51,89,583/- has been admitted. We are unable to come to a conclusion on what is the correct amount claimed and admitted due to such discrepancy.

Clarification by the RP:

Clarification by the CoC:

Clarification by the SRA:

Third Observation of us vide Order dated 01.08.2023:

Clarified by the RP:

Clarified by CoC:

Clarified by SRA:

Fourth observation of us vide order dated 01.08.2024:

d. What is the approximate CIRP cost?

Clarification by the RP:

Clarified by CoC:

Clarified by SRA:

Fifth observation of us vide order dated 01.08.2023:

e. Clause e at Page 10 of the Resolution Plan (page 18 of the I.A.) is incomplete.

Clarification by the RP:

Clarified by CoC:

Clarified by SRA:

Sixth observation of us vide order dated 01.08.2023:

f. The point related to regulation 38(2) (d) of the CIRP Regulations is to be given.

Clarification by the RA:

Clarified by the CoC:

Clarified by the SRA:

Appointment of the Registered Valuers and the valuation of the Corporate Debtor

Analysis and Findings:

“b. According to the Resolution Plan, Rs.11,62,378.43 was claimed by the Operational Creditors but the Resolution Professional did not admit any of the claims, but in Form H this information has not been given, rather under the head of Operational Creditors, the Resolution Professional has stated that there was NIL amount claim under the said headed “Amount claimed” and under the header “Amount Admitted” and amount of Rs.96,51,89,583/- has been admitted. We are unable to come to a conclusion on what is the correct amount claimed and admitted due to such discrepancy.

Concerning the admitted claim of the Government (CGST):

“Tax to be first charge on property.— Notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payable by a taxable person or any other person on account of tax, interest or penalty which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such person.”

“52.

If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan.

53.

In other words, if a company is unable to pay its debts, which should include its statutory dues to the Government and/or other authorities and there is no plan which contemplates dissipation of those debts in a phased manner, uniform proportional reduction, the company would necessarily have to be liquidated and its assets sold and distributed in the manner stipulated in Section 53 of the IBC.

54.

In our considered view, the Committee of Creditors, which might include financial institutions and other financial creditors, cannot secure their own dues at the cost of statutory dues owed to any Government or Governmental Authority or for that matter, any other dues.

xxx

xxx

xxx

56.

Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, are to rank equally with other specified debts including debts on account of workman’s dues for a period of 24 months preceding the liquidation commencement date.

57.

As observed above, the State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.

Concerning the admitted claim of the other Operational Creditor(s):

“80.

*When it comes to the validity of the substitution of Section 30(2)(b) by Section 6 of the Amending Act of 2019, it is clear that the substituted Section 30(2)(b) gives operational creditors something more than was given earlier as it is the higher of the figures mentioned in sub-clauses (i) and (ii) of Sub-clause (b) that is now to be paid as a minimum amount to operational creditors. *The same goes for the latter part of Sub-clause (b) which refers to dissentient financial creditors. Mrs. Madhavi Divan is correct in her argument that Section 30(2)(b) is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of Clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cramdown unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in Sub-section (2). Mrs. Madhavi Divan is also correct in stating that the order of priority of payment of creditors mentioned in Section 53 is not engrafted in Sub-section (2)(b) as amended. Section 53 is only referred to in order that a certain minimum figure be paid to different classes of operational and financial creditors. It is only for this purpose that Section 53(1) is to be looked at as it is clear that it is the commercial wisdom of the Committee of Creditors that is free to determine what amounts be paid to different classes and sub-classes of creditors in accordance with the provisions of the Code and the Regulations made thereunder.”

“Whether Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 20161, as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest?”

“44.

We would, for the above reasons, reject the submission on behalf of the Respondents that Section 30(2)(b)(ii) is unworkable because it involves deeming fiction relating to liquidation, which is inapplicable during the CIRP period. This would be contrary to the legislative intent and is unacceptable.”

“45.

Respondent No. 2 - CoC has submitted that the Appellant has dissented because it did not approve the manner of distribution of the proceeds under the resolution plan. The Appellant did not dispute the resolution plan itself. Accordingly, Section 30(2)(b)(ii) is not applicable. The argument is fallacious and must be rejected. Section 30(2)(b)(ii) relates to the proportion of the proceeds mentioned in the resolution plan or the amount which the dissenting financial creditor would be entitled to in terms of the waterfall mechanism provided in Section 53(1), if the corporate debtor goes into liquidation. The dissenting financial creditor does not have any say when the resolution plan is approved by a two-third majority of the CoC. The resolution plan will be accepted when approved by the specified majority in the CoC. The dissenting financial creditor cannot object to the resolution plan, but can object to the distribution of the proceeds under the resolution plan, when the proceeds are less than what the dissenting financial creditor would be entitled to in terms of Section 53(1) if the corporate debtor had gone into liquidation. This is the statutory option or choice given by law to the dissenting financial creditor. The option/choice should be respected.”

“46.

Respondent No. 2 - CoC had referred to the objections referred to in the CoC meetings dated 15.04.2019 and 23.04.2019. We are of the view that the objections raised by the Appellant relate to the distribution of the proceeds in terms of the liquidation plan. According to them, they were entitled to money of value not less than the amount that they would have received Under Section 53(1) of the Code.

“47.

It is also argued that the NCLAT had rejected the first appeal on the ground that the Appellant had only challenged the distribution of the pay-out under the plan inter se the financial creditors of the corporate debtor and not the resolution plan. Accordingly, the amendment to Section 30(2)(b) vide the Amendment Act of 2019 was not applicable. We have already rejected this argument, for the reasons set out above. In our opinion, the contention that the Appellant is not the dissenting financial creditor is to be rejected.

“48.

The contention on behalf of the Respondent that there is conflict between Sub-section (4), as amended in 2019, and the amended Clause (b) to Sub-section (2) to Section 30 of the Code does not merit a different ratio and conclusion. Section 30(4) states that the CoC may approve the resolution plan by a vote not less than 66% of the voting share of the financial creditor. It states that the CoC shall consider the feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors Under Sub-section (1) to Section 53, including the priority and value of the security interest of the secured creditors, and other requirements as may be specified by the Board. These are the aspects that the CoC has to consider. It is not necessary for the CoC to provide each assenting party with liquidation value. However, a secured creditor not satisfied with the proposed pay-out can vote against the resolution plan or the distribution of proceeds, in which case it is entitled to full liquidation value of the security payable in terms of Section 53(1) on liquidation of the corporate debtor. The conflict with Sub-clause (ii) to Clause (b) to Sub-section (2) to Section 30 does not arise as it relates to the minimum payment which is to be made to an operational creditor or a dissenting financial creditor. A dissenting financial creditor does not vote in favour of the scheme. Operational creditors do not have the right to vote.

“49.

In view of the aforesaid discussion, and as we are taking a different view and ratio from India Resurgence ARC Private Limited (supra) on interpretation of Section 30(2)(b)(ii) of the IBC, we feel that it would be appropriate and proper if the question framed at the beginning of this judgment is referred to a larger Bench. The matter be, accordingly placed before the Hon’ble the Chief Justice for appropriate orders.

“53.

On careful examination of Section 30(2)(b) of the I&B Code, 2016 in our view, two legal propositions emerge:

53.1.

Reference to Section 53(1) of the I&B Code is only for the purpose of calculating the amount payable to operational creditors and dissenting financial creditors. Otherwise, there is no place for Section 53 (1) when it comes to the resolution of a corporate debtor under the CIR Process.’

“53.2.

The provision of some amount should be made for operational creditors as well as dissenting financial creditors, and the amount so provided cannot be NIL.”

“54.

This being a beneficial amendment as observed by the Hon’ble Apex Court, **in our view code contemplates a scenario where a provision made to an operational creditor or dissenting financial creditor in a Resolution Plan could be lesser than what they would have got in the event of liquidation in terms liquidation value as per section 53(1). In such a situation the code provides for provision as per liquidation value.’

“55.

In fact, in the case of operational creditors the code says that they will have to be paid as per the value provided to them as per the resolution plan, or liquidation value or the amount that would have been paid to them in the plan as if the resolution plan value had been distributed in accordance with the order of priority mentioned in sub-section (1) of Section 53 whichever is higher.

“56.

Therefore, we are of the view, that is the reason for the word “not less than” used in Section 30(2)(b). If the legislature wanted to restrict the amount payable to them to liquidation value at the most, then the words “not more than liquidation value” would have been used.

“57.

In view of the above analysis, we are of the view that the code contemplates mandatory allocation to dissenting financial creditors and to operational creditors and the allocation would be the amount provided in the plan or liquidation value whichever is higher and the contention that such creditors can be paid NIL value because liquidation value for them is NIL, would defeat the very purpose of the beneficial amendment made in Section 30(2) of the I&B Code. Such contention made by Ld. Senior Counsels, in our view, will not be correct proposition in a CIRP proceedings, though the same would be correct in a liquidation proceeding under Section 53(1) of the I&B Code.”

“After careful examination and interpretation of the statutory provisions enshrined in the I&B Code, 2016 along with the leading judgments discussed above, we are of the considered view that:

33.1.

Section 30(2)(b) of the Code envisages that the Resolution Professional shall examine the plan received by him to confirm that the resolution plan allocates the payment of debts of Financial Creditors either secured or unsecured in such manner as may be specified by the Board which shall not be less than the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher.

33.2.

Thus, the Committee of Creditors cannot turn volta face by allocating "No" payment towards the "Unsecured Financial Creditor" who is "not related party", against its admitted claim by quoting a reason that the total admitted claims of the Secured Financial Creditors is more than the Liquidation Value of the Corporate Debtor and therefore, in the case of liquidation of the Corporate Debtor, the Applicant herein being an Unsecured Financial Creditor as per Section 53 of the Code, shall be entitled to NIL value."

Concerning the aspect of “Commercial Wisdom” of the CoC:

“(e) Operational Creditors & Right to Property

21.

In a free country where every individual citizen is endowed with the fundamental right to do any lawful business under Article 19(1)(g) of the Constitution, all those who engage in different businesses are free to make their commercial decisions. Some succeed and some fail, and hence loss in business is an inevitable consequence attached to the vagaries of commerce. When misfortune strikes like a hurricane it lands some businesses in bankruptcy. And, every time a debtor loses, his or its creditors also lose.

22.1

The object of the IBC evidently is to minimize the loss of various categories of creditors even as it attempts to salvage the corporate debtor from its commercial extinction. Appreciable it is, but it may not be let to gloss over the fact that every claim of the operational creditors involves a right to their property under Article 300 A of the Constitution, which the Supreme Court now reads it as a facet of human right and as integral to the right to life under Article 21 of the Constitution vide the ratio in Lalaram Vs Jaipur Development Authority [(2016) 11 SCC 31] read alongside the ratio in Tukaram Kana Joshi Vs MIDC [(2013)1 SCC 353], and approved in Vidya Devi Vs State of H.P., [(2020)2 SCC 569]. This is the major premise.

22.2

Every right to property has its adjunct rights shadowing it. Kolkata Municipal Corporation Vs Bimal Kumar Shah [2024 SCC OnLine SC 968]

“26... The binary reading of the constitutional right to property must give way to more meaningful renditions, where the larger right to property is seen as comprising intersecting sub-rights, each with a distinct character but interconnected to constitute the whole. These sub-rights weave themselves into each other, and as a consequence, State action or the legislation that results in the deprivation of private property must be measured against this constitutional net as a whole, and not just one or many of its strands.” This necessarily includes the right to enforce or secure the right to property, which we commonly understand as right of action. Ordinarily, a person with a claim has the right of action to enforce the claim before a neutral arbiter, be it the Court or a tribunal, both of which are positioned equidistantly from opposing claims. This is the minor premise.” xxx xxx xxx

“(k) Duty of the Adjudicating Authority

46.

From the Essar Steel case to the Rainbow Papers case and other decisions, the Adjudicating Authority has been told that its duty is limited to satisfying itself of the due compliance of Sec.30(2) requirement by the CoC when the latter approved the resolution plan. The Essar Steel in particular has held that the Adjudicating Authority shall not substitute its sense of fairness and equity to replace the commercial wisdom of the CoC. The Rajagopalan effect, it must be stated, does not stop with bringing in clarity in understanding the expression ‘commercial wisdom’ of the CoC, but also has interfered to realign the understanding of the duty of the Adjudicating Authority. Therefore, even though the Adjudicating Authority may not sit in appeal over the commercial wisdom of the CoC, still it is required to exercise a jurisdiction, akin to a revisional jurisdiction, to ascertain the correctness of what has been done before and by the CoC. And, this may have to be appreciated in the backdrop of the Constitutional need to constitute the Adjudicating Authority as a neutral tribunal to save IBC from facing embarrassing moments in view of the law declared in the Madras bar Association case. Set on this plane and based on the discussion hereinabove made, it could be now derived that the Adjudicating Authority may refuse to give his approval to a resolution plan as approved by the CoC in the following circumstances:

a)

if the information which forms the basis for the CoC for according its assent to a resolution plan is incomplete and exhibits lack of due diligence on the part of the RP to collect and collate information. This includes failure of the suspended Board of the Corporate debtor to make full disclosure of its affairs, which the IRP or the RP could have discovered with due diligence;

b)

where there is lack of transparency vis-a vis the correctness of the information to the knowledge of the operational creditors;

c)

where the CoC does not provide for the minimum payment which the operational creditors would have received in case of liquidation of the corporate debtor;

d)

where despite providing for the minimum, the operational creditors are not fairly and equitably treated in terms of Explanation I to Sec.30(2), such as where fairness and equity might have permitted payments above the minimum. To repeat, the Adjudicating Authority may not substitute the commercial wisdom of the CoC with its sense of equity and fairness, but can always refuse his assent to a resolution plan for breach of Explanation I to Sec.30(2) of the IBC.”

(b) The Resolution Plan Value is far less than the Liquidation Value:

“26.

No provision in the Code or Regulations has been brought to our notice under which the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This point has been dealt with in the case of Essar Steel (supra). We have quoted above the relevant passages from this judgment.” (Emphasis Added)

“27.

It appears to us that the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority Under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of Sub-sections (2) and (4) of Section 30 thereof. We, per se, do not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan.” (Emphasis Added)

(d) The Resolution Plan at hand does not conform with the requirements of Section 31(1):

Section 31: Approval of resolution plan.

Section 31 (1):

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.

[Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.]

Section 31 (2):

Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

“147.

In terms of Regulation 39(4), the RP shall endeavour to submit the resolution plan approved by the CoC before the adjudicating authority for its approval Under Section 31 IBC, at least fifteen days before the maximum period for completion of CIRP. Section 31(1) provides that the adjudicating authority shall approve the resolution plan if it is satisfied that it complies with the requirements set out Under Section 30(2) IBC. Essentially, the adjudicating authority functions as a check on the role of the RP to ensure compliance with Section 30(2) IBC and satisfies itself that the plan approved by the CoC can be effectively implemented as provided under the proviso to Section 31(1) IBC. Once the resolution plan is approved by the adjudicating authority, it becomes binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan...’

157.

[...] the Adjudicating Authority Under Section 31(2) of the IBC can only examine the validity of the plan on the anvil of the grounds stipulated in Section 30(2) and either approve or reject the plan. The Adjudicating Authority cannot compel a CoC to negotiate further with a successful Resolution Applicant. A rejection by the Adjudicating Authority is followed by a direction of mandatory liquidation Under Section 33. Section 30(2) does not envisage setting aside of the Resolution Plan because the Resolution Applicant is unwilling to execute it, based on terms of its own Resolution Plan.” (Emphasis Added)

41.

Section 31 of the IBC which provides for approval of a Resolution Plan by the Adjudicating Authority makes it clear that the Adjudicating Authority can approve the Resolution Plan only upon satisfaction that the Resolution Plan, as approved by the Committee of Creditors (CoC), meets the requirements of Section 30(2) of the IBC. When the Resolution Plan does not meet the requirements of Section 30(2), the same cannot be approved. xxx xxx xxx

43.

The learned Solicitor General rightly argued that when a grievance was made before the Adjudicating Authority with regard to a Resolution Plan, the Adjudicating Authority was required to examine if the Resolution Plan met the requirements of Section 30(2) of the IBC. The word "satisfied" used in Section 31(1) contemplates a duty on the Adjudicating Authority to examine the Resolution Plan - The Resolution Plan cannot be approved by way of an empty formality. xxx xxx xxx

45.

As rightly argued by the learned Solicitor General, there can be no question of acceptance of a Resolution Plan that is not in conformity with the statutory provisions of Section 31(2) of the IBC. Section 30(2) (b) of the IBC, casts an obligation on the Resolution Professional to examine each resolution plan received by him and to confirm that such resolution plan provides for the payment of dues of operational creditors, as specified by the Board, which shall not be less than the amount to be paid to such creditors, in the event of liquidation of the Corporate Debtor Under Section 53, or the amount that would have been paid to such operational creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Sub-section 2 of Section 53, whichever was higher, and provided for the payment of debts of financial creditors, who did not vote in favour of the resolution plan, in such manner as might be specified by the Board.

46.

Under Section 31 of the IBC, a resolution plan as approved by the Committee of Creditors Under Sub-section (4) of Section 30 might be approved by the Adjudicating Authority only if the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors meets the requirements as referred to in Sub-section (2) of Section 30 of the IBC. The condition precedent for approval of a resolution plan is that the resolution plan should meet the requirements of Sub-section (2) of Section 30 of the IBC. xxx xxx xxx

48.

A resolution plan which does not meet the requirements of Sub-section (2) of Section 30 of the IBC, would be invalid and not binding on the Central Government, any State Government, any statutory or other authority, any financial creditor, or other creditor to whom a debt in respect of dues arising under any law for the time being in force is owed. Such a resolution plan would not bind the State when there are outstanding statutory dues of a Corporate Debtor.

49.

Section 31(1) of the IBC which empowers the Adjudicating Authority to approve a Resolution Plan uses the expression "it shall by order approve the resolution plan which shall be binding..." subject to the condition that the Resolution Plan meets the requirements of Sub-section (2) of Section 30. If a Resolution Plan meets the requirements, the Adjudicating Authority is mandatorily required to approve the Resolution Plan. On the other hand, Sub-section (2) of Section 31, which enables the Adjudicating Authority to reject a Resolution Plan which does not conform to the requirements referred to in Sub-section (1) of Section 31, uses the expression "may".

50.

Ordinarily, the use of the word "shall" connote a mandate/binding direction, while use of the expression "may" connotes discretion. If statute says, a person may do a thing, he may also not do that thing. Even if Section 31(2) is construed to confer discretionary power on the Adjudicating Authority to reject a Resolution Plan, it has to be kept in mind that discretionary power cannot be exercised arbitrarily, whimsically or without proper application of mind to the facts and circumstances which require discretion to be exercised one way or the other.

51.

If the established facts and circumstances require discretion to be exercised in a particular way, discretion has to be exercised in that way. If a Resolution Plan is ex facie not in conformity with law and/or the provisions of IBC and/or the Rules and Regulations framed thereunder, the Resolution would have to be rejected. It is also a well settled principle of interpretation that the expression "may", if circumstances so demand can be construed as "Shall".

52.

If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan."

(Emphasis added)

'64. It could thus be seen, that the legislature has given paramount importance to the commercial wisdom of CoC and the scope of judicial review by adjudicating authority is limited to the extent provided Under Section 31 of the I&B Code and of the appellate authority is limited to the extent provided Under Sub-section (3) of Section 61 of the I&B Code, is no more res integra.

65.

Bare reading of Section 31 of the I&B Code would also make it abundantly clear that once the resolution plan is approved by the adjudicating authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in Sub-section (2) of Section 30, it shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the I&B Code is revival of the corporate debtor and to make it a running concern.

66.

The resolution plan submitted by the successful resolution applicant is required to contain various provisions viz. provision for payment of insolvency resolution process costs, provision for payment of debts of operational creditors, which shall not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor Under Section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Sub-section (1) of Section 53, whichever is higher. The resolution plan is also required to provide for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, which also shall not be less than the amount to be paid to such creditors in accordance with Sub-section (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1 to Clause (b) of Sub-section (2) of Section 30 of the I&B Code clarifies for the removal of doubts that a distribution in accordance with the provisions of the said Clause shall be fair and equitable to such creditors. The resolution plan is also required to provide for the management of the affairs of the corporate debtor after approval of the resolution plan and also the implementation and supervision of the resolution plan. Clause (e) of Sub-section (2) of Section 30 of the I&B Code also casts a duty on RP to examine that the resolution plan does not contravene any of the provisions of the law for the time being in force.”

(Emphasis Added)

(Emphasis Added)

“157.

[...] the Adjudicating Authority Under Section 31(2) of the IBC can only examine the validity of the plan on the anvil of the grounds stipulated in Section 30(2) and either approve or reject the plan. The Adjudicating Authority cannot compel a CoC to negotiate further with a successful Resolution Applicant. A rejection by the Adjudicating Authority is followed by a direction of mandatory liquidation Under Section 33. Section 30(2) does not envisage setting aside of the Resolution Plan because the Resolution Applicant is unwilling to execute it, based on terms of its own Resolution Plan.”

(Emphasis Added)

To summarize:

Conclusion:

On PUFE Application: