National Company Law Tribunal: While dismissing the application the Division Bench of Dr. N. Venkata Ramakrishna Badrinath (Judicial Member) and Charan Singh (Technical Member), imposed cost of ₹ 5 Lakhs on the applicant to restrain him from filing such applications in future which consume lot of resources and time of tribunal for no meaningful purpose.
Factual Matrix
In the instant matter, the applicant-Operational Creditor (Trimex Industries (P) Ltd.) has preferred an application under S. 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) read with R. 11 of the NCLT Rules, 2016 seeking to set aside the ‘Letter of Intent’ dated 19-10-2022 issued by the Resolution Professional (’respondent 4’) confirming Jindal Saw Ltd. as the Successful Resolution Applicant (SRA)(‘respondent 3’). The applicant further prayed to call for fresh Resolution Plans with respect to the Corporate Debtor (‘respondent 1’)(Sathavahana Ispat Ltd.) by extending the time period for CIRP and bar Jindal Saw Limited, its sister concerns or its alter egos from participating in the fresh CIRP process.
Applicant’s Contentions
The applicant stated that the primary source of funds used to purchase the account and financial debt of the Corporate Debtor is derived from companies that are part of SRA-Jindal group. The applicant contended that the Resolution Professional didn’t disclose before this Tribunal about selection of SRA and that it would pay its repair fee as part of CIRP costs, moreover, the CoC (Sole Member/ JC Flowers) also acted in a non-transparent manner. The applicant further added that Jindal Saw does not qualify to be SRA as it does not fulfil the requirements under S. 29A of the IBC.
Respondent’s Contentions
The respondents stated that the applicant had previously prayed to restrain the CoC from even considering the Resolution Plan of SRA but the same was dismissed by this Tribunal and then preferred an appeal before the NCLAT which is currently pending. The respondents contended that rather than waiting for NCLAT’s decision, the applicant preferred the present application on the same grounds. The respondents further contended that the applicant also filed SLP before the Supreme Court through a proxy on the same ground which is dismissed by the Supreme Court. The respondents contended that the applicant time and again has failed to establish its locus standi or cause for filing these proceedings. The respondents lastly contended that the application is barred by principles of res judicata and constructive res judicata.
Court’s Observation
1. Whether purchase of financial debt by JC Flowers ARC (P) Ltd. from banks and raising of funds for completing the transaction from Hexa Securities & Finance Ltd. and Siddeshwari Tradex (P) Ld. has any angel of collusion with SRA as alleged by applicant?
NCLT observed that the allegation of the applicant is not tenable as the relationship based on which this allegation is put up is non-existent since more than 13 years and issuing debentures and subscribing to them is a very common method of raising funds in corporate world.
“If we extend our enquiry into past so many years of their antecedents and existence and delve deep into all the layers of corporate structure, we will find that most of the corporates are related/ connected to each other in one or the other way … The Companies which are in need of funds issue debentures and the Companies which have surplus funds subscribe to them to earn interest income. Further the companies generally invest in debentures of those companies whose credentials are well known to them to ensure safety of their funds.”
2. Whether appointment of Mr. Bhuwan Madan as IRP involves any conflict of interest and the act of changing the scope of repair and maintenance contract after his appointment is an act of collusion of IRP and COC with SRA?
NCLT observed that the applicant has failed to establish any of the relationship between the two Companies as group companies as stipulated by RBI, moreover, after verifying the available facts, it is clear that the whole exercise of awarding the contract was transparent and open to everyone without any collusiveness in it.
3. Whether SRA attract provision of S. 29A IBC on account of having entered an Operation, Maintenance and Management (OMM) agreement with SRP in 2019 and thus transfer of technology between SRA and Corporate Debtor?
NCLT observed that though OMM agreement was executed by both the parties but the same was not implemented, therefore, no question of applicability of S. 29A IBC against SRA arises in the present case.
NCLT observed that the applicant lacks bona-fide in approaching this Tribunal by not filing objection against inclusion of SRA as Prospective Resolution Applicant (PRA) when had opportunity thereby waiving its right to object under Regulation 36A (11) of the CIRP Regulations. NCLT observed that
“…applicant has no locus standi to file the above case and applicant needs to be put to heavy cost to restrain him from filing such applications in future which consume lot of resources and time of tribunal for no meaningful purpose.”
NCLT’s Verdict
NCLT dismissed the application by applicant-Operational Creditor seeking to set aside the letter of intent dated 19-10-2022 issued by the Resolution Professional with costs of Rs. 5,00,000/- payable to Prime Minister’s Relief Fund/ Bharat Kosh within 15 days from the date of order.
Note: The Resolution Professional had filed an application under S. 30(6) of the IBC for approval of Resolution Plan of SRA and the same is allowed by the NCLT vide order dated 31-03-2023 in Thirumala Logistics (P) Ltd. v. Sathavahana Ispat Ltd., IA (IBC) No.1198 of 2022.
[Trimex Industries (P) Ltd. v. Sathavahana Ispat Ltd., 2023 SCC OnLine NCLT 104, order dated 31-03-2023]
Advocates who appeared in this case :
Shri Avinash Desai (Senior Advocate), Ms. Mrudula Sarampally and Ms. Mahathi Reddy, Counsel for the Applicant;
Shri Alay Razvi and Shri Shashank Agarwal, Counsel for the Respondent No. 1;
Juris Corp, Counsel for the Respondent No. 2;
Shri Daizy Chawla, Counsel for the Respondent No. 3;
Shri Alay Razvi and Shri Shashank Agarwal, Counsel for the Respondent No. 4.