National Company Law Appellate Tribunal

National Company Law Appellate Tribunal, New Delhi: While deciding an appeal challenging the Adjudicating Authority's order restricting further auction of the Corporate Debtor, Ashok Bhushan*, J. and Barun Mitra (Technical Member) allowed the petition seeking another round of auction for the Corporate Debtor undergoing insolvency process as CoC has the power to negotiate and call for a higher bid.

“…CoC is fully empowered as per the Clauses of RFRP to further negotiate with one or more Resolution Applicants, even after completion of Challenge Mechanism on 21.12.2022 and the decision of CoC taken on 06.01.2023 to undertake an Extended Challenge Mechanism is not violative of Regulation 39(1A).”

Factual Matrix

In the instant matter, vide order dated 06-12-2021, the Adjudicating Authority initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor/Reliance Capital Ltd. after RBI superseded the Board of Directors of the Corporate Debtor and appointed Administrator. Torrent Investments Private Limited/respondent 1 had emerged as the highest bidder with a resolution plan of Rs 8,640 crore after the Administrator issued the Request for Resolution Plan (RFRP) in terms of Regn. 36B of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). However, the CoC decided to conduct a second challenge mechanism and then IndusInd International Holdings Ltd (IIHL)/ Resolution Applicant put a revised bid.

The respondent 1 challenged the second challenge mechanism before the Adjudicating Authority and the Adjudicating Authority vide order 02-02-2023, held that the Administrator and the CoC were not to allow deviation in the highest NPV financial proposal which concluded as on 21-12-2022, with the bid of Torrent Investments at Rs 8,640 crore.

Aggrieved by the impugned order dated 02-02-2023 passed by the Adjudicating Authority, the appellants (Financial Creditor/Vistra ITCL (India) Ltd. and IndusInd International Holdings Ltd./Resolution Applicant) filed two appeals before the NCLAT challenging the same.

Moot Points

  1. Whether the appellant/Vistra ITCL (India) Ltd. has no appropriate authority to pursue the present appeal and the appeal is not competent at its instance?

  2. Whether Regn. 39(1A) contains an implied prohibition on the jurisdiction of the CoC to enter any further negotiations with Resolution Applicant or to further ask a Resolution Applicant to increase its Resolution Plan value?

  3. Whether conclusion of Challenge Mechanism gave any right to respondent 1 to claim that his Resolution Plan, which had highest NPV should be put to vote?

NCLAT's Verdict

Rejecting the preliminary objection raised by respondent 1 that appellant has no appropriate authority to pursue the present appeal, the NCLAT observed that it is undisputed that the appellant/Vistra ITCL (India) Ltd. is member of the CoC and having been impleaded as Financial Creditor by the respondent 1 itself, the appellant has every right to challenge impugned order. Moreover, when the Board of Directors has authorised the filing of the appeal through authorised representative, it cannot be said that the appellant is not authorised by the shareholders.

The NCLAT observed that the object for insertion of Regn. 39(1A) was to reduce the delay, which is caused in submission of final Resolution Plan and to curtail submission of unsolicited Resolution Plan and number of revisions, which can be permitted in the Resolution Plan and the consequence of insertion is that the Resolution Professional may either permit Resolution Applicant to modify its Plan, but not more than once, or to use a ‘Challenge Mechanism' to enable Resolution Applicant to improve their Plan.

The NCLAT observed that after a Resolution Plans are received in accordance with Regn. 39(1A), the right of the CoC to negotiate with Resolution Applicants, after receipt of the Plan and/ or before the Plan is put to vote and to annul the Resolution Plan process and call for submission of new Resolution Plan from any person/ Resolution Applicant to make modification to the Plan and to submit a revised Resolution Plan or revised Resolution Bid or Combined Resolution Plan, is reserved. Moreover, the CoC is not obliged to continue the Submission Process with the Resolution Applicant, even if the best technical capabilities or highest financial plan is received.

The NCLAT referred to Jindal Stainless Ltd. v. Shailendra Ajmera, 2023 SCC OnLine NCLAT 44 where it was held that “There can be no fetter on the power of the CoC to cancel or modify any negotiation with the Resolution Applicant including a Challenge Process, but it is the wisdom of the CoC to take a decision in that regard.”

The NCLAT further observed that Clause 4.2.4 of the RFRP, which provides absolute right to CoC to “annul the Resolution Plan process and reject all Resolution Plans and/or Combined Resolution Plans and call for submission of new Resolution Plans from any Person”, is wide enough to empower the CoC to annul the Resolution Process including the Challenge Process. Therefore, in the present matter, the CoC is not denuded of its power to take action under RFRP.

The NCLAT observed that the Adjudicating Authority committed error while concluding the CoC has no power to enter negotiations with the Resolution Applicant, after the Challenge Mechanism and the exercise of the commercial wisdom is circumscribed by the framework for value maximization provided under the Code read with the Regulations.

The NCLAT observed that Regn. 39(1A) does not prohibit CoC from negotiating with Resolution Applicants or asking Resolution Applicants to further increase the Plan value.

While relying on Arcelor Mittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 where it was held that no right accrues to the highest bidder, The NCLAT observed that even if respondent 1's Plan was with highest NPV, it has no right to insist that the Plan should be put to vote by CoC, without taking any further steps by the CoC.

In the light of facts and circumstances of the case, the NCLAT opined that “even after completion of Challenge Mechanism under Regulation 39(1A)(b), the CoC retain its jurisdiction to negotiate with one or other Resolution Applicants, or to annul the Resolution Process and embark on to re-issue RFRP. Regulation 39(1A) cannot be read as a fetter on the powers of the CoC to discuss and deliberate and take further steps of negotiations with the Resolution Applicants, which resolutions are received after completion of Challenge Mechanism.”

While setting aside the impugned order passed by the Adjudicating Authority, the NCLAT held that CoC has the power to negotiate and call for a higher bid and directed the CoC to proceed to fix a date after two weeks for holding a Revised Challenge Mechanism or/and to take any steps for further negotiations with the Resolution Applicants as per the relevant Clauses of the RFRP.

[Vistra ITCL (India) Ltd. v. Torrent Investments (P) Ltd., 2023 SCC OnLine NCLAT 110, order dated 02-03-2023]

*Judgment by Justice Ashok Bhushan

Advocates who appeared in this case :

Mr. Kapil Sibal, Ms. Pooja Dhar, Mr. Piyush Mishra, Mr. Sanjeev Kumar, Mr. Anshul Sehgal, Ms. Anusha Nagrajan, Mr. Divyanshu Jain and Mr. Partul Pratap Singh, Counsel for the Appellants

Mr. Mukul Rohatgi, Mr. Ramji Srinivasan, Mr. Arun Kathpalia, Sr. Advocates with Mr. Anoop Rawat, Ms. Shally Bhasin, Mr. Vaijayant Paliwal, Mr. Rishabh Jaisani, Mr. Sagar Dhawan, Mr. Rishabh Jaiswani, Mr. Nikhil Mathur, Ms. Shruti Pandey, Mr. Harit Lakhani, Mr. Daksh Kadian, Mr. Ahkam Khan, Ms. Samidha Mathur, Mr. Udbhav Nanda and Mr. Sagar Dhawan, Counsel for the Respondent No. 1

Mr. Gopal Jain, Sr. Advocate with Mr. V.P. Singh, Ms. Anindita Roychoudhury, Mr. Bharat Makkar and Mr. Sushrat Garg, Counsel for the Respondent No. 2

Mr. Kapil Sibal, Sr. Advocate with Ms. Pooja Dhar, Mr. Piyush Mishra, Mr. Sanjeev Kumar, Mr. Anshul Sehgal, Ms. Anusha Nagrajan, Mr. Divyanshu Jain, Mr. Partul Pratap Singh, Counsel for the Respondent No. 3, 4, 5 and 6.

Mr. Dr. Abhishek Manu Singhvi, Sr. Advocate with Mr. Mahesh Agrwal, Mr. Manu Krishnan, Ms. Niyati Kohli, Mr. Pratham Vir Agarwal, Ms. Manavi Aggarwala and Mr. Anwesh, Counsel for the Respondent No. 9

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