Resolution Plan

Supreme Court: In twin appeals under Section 62 of Insolvency and Bankruptcy Code, 2016 (‘IBC’) challenging the judgment and order passed by the National Company Law Appellate Tribunal (‘NCLAT’) on 24-11-2022, Bench of Dr. DY Chandrachud, JB Pardiwala and Manoj Misra, JJ. allowed the appeal to recall the orders passed by NCLAT as well as NCLT against the provisions of IBC since the appellant’s claim was not correctly entered in terms of amount claimed, in the resolution plan and the gap was not addressed by any of the two authorities. The Court clarified that appellant filling form as a financial creditor while being categorised as an operational creditor was not a barrier since proof was submitted for the claims.

The NCLAT dismissed an appeal against the National Company Law Tribunal’s order dated 5-04-2021 which in fact dismissed two applications under Section 60(5) of IBC which sought recall of order of approval of resolution plan.

The appellant was a statutory authority constituted under Section 3 of the U.P. Industrial Area Development Act, 1976, which acquired land for setting up an urban and industrial township. On 28-10-2010, one of the acquired plots were allotted to the Corporate Debtor on lease for 90 years for a residential project by charging premium to be payable in instalments between 29-10-2012 and 29-04-2020 after initial moratorium of 24 months, subject to payment of interest as well as penal interest. The right to cancel the lease and resume the demised land was reserved. The Corporate Debtor defaulted in instalments and was thereby served with demand cum pre-cancellation notice.

A company petition led to initiating Corporate Insolvency Resolution Process (‘CIRP’), claims invited through public announcement. The appellant submitted a claim of Rs 43,40,31,951 towards premium instalments and the claim was set up by the appellant as a financial creditor. However, the Resolution Professional treated the appellant as an operational creditor and accordingly called for appellant to submit another form, which the appellant did not comply with. In the meantime, the Committee of Creditors (‘CoC’) approved a plan and presented it to NCLT, which got approved on 4-08-2020. The appellant on 6-10-2020 filed an IA questioning the resolution plan, the RP’s decision to treat the appellant as an operational creditor, all further actions, and recalling of NCLT’s order.

The appellant through two applications under Section 60(5) of IBC highlighted RP’s error in treating the appellant as an operational creditor in the absence of any adjudicatory power under Regulation 13 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016; resolution plan stating no claim by appellant when it was submitted; appellant ought to be given priority; ex parte process till the approval of plan. The said applications were rejected by NCLT, and appeal against the same was rejected by NCLAT following the decision in Noida v. Anand Sonbhadra, (2023) 1 SCC 724.

Court’s Analysis

The Court referred to IBC provisions hinting towards public announcement seeking claims against CD, whose procedure is described in CIRP Regulations 2016, and Regulation 7 deals with submission of a claim by a person claiming to be an operational creditor, while Regulation 8 is for claims from financial creditor. Regulations 12 and 13 mandates submission of proof of claim and verification of claims by Interim Resolution Professional (‘IRP’) or RP respectively. The Court highlighted the fact that the language of Regulations 7 and 8 is rooted upon the claimant’s own understanding, to be accompanied with proof, which must be verified by the IRP or RP and thereby maintain a list of creditors along with the amount claimed plus security interest, to be updated in terms of Regulation 12A. The Court concluded the essence of the procedure that the requirement of form to be submitted was directory and not mandatory, but the proof of claim was important.

It further explained that “on collation of claims received against the CD, the IRP has to constitute a COC. As per Section 21 (2) of the IBC, subject to other provisions of Section 21, the COC must comprise all financial creditors of a CD. Under Section 22 of the IBC, the COC appoints an RP in its first meeting. It may, however, resolve to appoint the IRP as the RP, subject to confirmation by the Board.” The Court also listed the duties of an RP under Section 25 of IBC as:

  1. taking immediate custody and control of all the assets of the CD, including the business records of the CD;

  2. maintaining an updated list of claims;

  3. convening and attending all meetings of the COC;

  4. preparing information memorandum in accordance with Section 29 read with Regulation 36 of the CIRP Regulations 2016;

  5. inviting prospective resolution applicants to submit a resolution plan or plans; and

  6. presenting all resolution plans at the meetings of the COC.

The Court shed light on Section 24(3) requiring RP to serve notice for COC meeting to operational creditors in case of aggregate dues not less than 10% of the debt. Regulation 19 further mandates RP to ensure serving notice to every participant, and the further requirements of resolution plan, priority amongst creditors and approval by Adjudicating Authority. The Court referred to Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 wherein, the Bench explained the CIRP scheme under IBC to express regarding RP’s obligation to collate data obtained from claims and records, so that even if a claim submitted by creditor is not in the Form specified, the same be given due consideration for conformation with Section 30(2), followed by COC considering its feasibility and viability.

The Court referred to Jaypee Kensington Boulevard Apartments Welfare Assn. v. NBCC (India) Ltd., (2022) 1 SCC 401 for scope of judicial review to express that although the commercial wisdom of COC may not be justified, the Adjudicating Authority may notice the shortcomings in terms of Section 30(2) of IBC coupled with Regulations 37 and 38 of CIRP Regulations 2016, and send back the resolution plan.

Coming back to the instant facts, the Court noted that the dues shown payable to the appellant are Rs. 13,47,40,819 while the appellant claims it to be Rs. 43,40,31,951, and the amount proposed to be paid was Rs.1,34,74,082, payable by conversion of dues into square feet of area payable on square feet basis at the time of registration of each of the units. The Cour highlighted that neither NCLT nor NCLAT rejected the appellant’s assertion of having submitted the proof of claim for amount payable towards unpaid premium.

The Court pointed towards appellant’s failure to prove to be financial creditor and refused to get into that aspect. The Court perused the provisions for insolvency resolution and liquidation for corporate persons, NCLT as adjudicating authority, inherent powers of the Tribunal under Rule 11 of NCLT Rules 2016 framed under Section 469 of Companies Act, 2013 being pari materia to Section 151 of Civil Procedure Code, 1908. Reference was made to Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal, 1961 SCC OnLine SC 17, Grindlays Bank Ltd. v. Central Govt. Industrial Tribunal, 1980 Supp SCC 420 and a catena of cases to press upon a Court’s/Tribunal’s inherent power to recall an order to secure ends of justice or prevent abuse of process in the absence of any statutory prohibition.

The Court found the grounds taken by the appellant in the two applications valid for seeking recall of order of approval of resolution plan and held the same maintainable and not time barred . It further said that the resolution plan did not meet the requirements under Section 30(2) of IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016 and held the difference of claim amounted to be vital information, and withholding the same affected the appellant’s interest of being served notice of COC meeting available to operational creditor, not placing him in secured creditor’s category and also reducing outlay being a percentage of the dues payable.

Since NCLT and NCLAT failed to take note of the aforementioned aspects, the Court allowed the instant appeals and set aside the impugned orders and directed for sending the resolution plan back to the COC for resubmission after satisfying parameters set out under IBC.

[Greater Noida Industrial Development Authority v. Prabhjit Singh Soni, 2024 SCC OnLine SC 122, decided on 12-02-2024]

Judgment authored by: Justice Manoj Misra

Know Thy Judge | Supreme Court of India: Justice Manoj Misra

Advocates who appeared in this case :

For Appellants: Senior Advocate Ravindra Kumar, Advocate on Record Binay Kumar Das, Advocate Priyanka Das, Advocate Neha Das, Advocate Shivam Saksena

For Respondents: Senior Advocate Dr. Abhishek Manu Singhvi, Senior Advocate Siddharth Bhatnagar, Advocate on Record Vardhman Kaushik, Advocate Nishant Gautam, Advocate Dhruv Joshi, Advocate Ajay Kanojia, Advocate Siddharth Seem, Advocate Mayank Sharma, Advocate Sanjana Mehrotra, Advocate Abhinav Singh, Advocate Ayush Singh, Advocate Vinay Kaushik, Advocate on Record V.M. Kannan, Advocate G.P. Madaan, Advocate Harimohana N, Advocate Aditya Madaan, Advocate Khubaib Shakeel, Senior Advocate Naresh Kaushik, Advocate Manoj Joshi, Advocate Shikha John, Advocate Anand Singh, Advocate Shubham Dwivedi, Advocate on Record Lalita Kaushik

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