Committee Of Creditors Of Metalyst ... vs Consortium Of Deccan Value Investors Lp ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI Company Appeal (AT) (Insolvency) No. 1276 of 2019 [ arising out of Order dated 27th September, 2019 by NCLT, Mumbai Bench, Mumbai in CP No. (IB) - 1555 (IB)/MB/2017 ]

IN THE MATTER OF: Committee of Creditors of Metalyst Forging Ltd., Through State Bank of India, State Bank of India, Stressed Asset Management Brach I, 12th Floor, Jawahar Vyapar Bhawan, 1, Tolstoy Marg, New Delhi - 110 001 ...Appellant

Versus 1. Deccan Value Investors LP, 850, New Burton Road, Suite 201, Dover, Delaware 19904 USA.

2. DVI PE (Mauritius) Ltd., SGG, Mauritius, 33, Edith Cavel Street, Port Louis - 11324.

3. Resolution Professional of Metalyst Forgings Limited, EY Restructuring LLP, Golf View Corporate Tower B, Sector - 42, Gurugram (Haryana) 122002. ...Respondents

Present: For Appellant: Mr. Arun Kathpalia, Senior Advocate with Mr. Siddhant Kant, Ms. Misha, Mr. Nikhil Mathur, Mr. Kauser Hussain, Advocates for Appellant - 'Committee of Creditors'

For Respondents: Dr. U.K. Choudhary, Senior Advocate with Mr. Mahesh Agarwal, Mr. Rajeev Kumar, Mr. Rohan Dakshini, Ms. Akansha Saxena and Dhruv Gupta, Advocates for Respondent Nos.1 and 2.

Mr. Abhinav Vashisht, Senior Advocate with Ms. Anannya Ghosha and Mr. Brian Moses, Advocates for RP. 2

With

Company Appeal (AT) (Insolvency) No. 1281 of 2019

[ arising out of Order dated 27th September, 2019 by NCLT, Mumbai Bench, Mumbai in M.A. No. 1272/2018 & M.A. No. 956/2018 in CP No. (IB) - 1555 (IB)/MB/2017 ]

IN THE MATTER OF: 1. Deccan Value Investors L.P., 850, New Burton Road, Suite 201, Dover, Delaware 19904, USA

2. DVI PE (Mauritius) Ltd., SGG Mauritius, 33, Edith Cavell Street, Port Louis 11324. ...Appellants

Versus

1. Mr. Dinkar Venkatasubramanian, Resolution Profession of Metalyst Forgings Ltd., Gate No. 614, Village Kurulikhed, Pune - 410 501.

2. State Bank of India, State Bank Bhavan, Madame Cama Road, Nariman Point, Mumbai - 400 021. ...Respondents

Present: For Appellant: Dr. U.K. Choudhary, Senior Advocate with Mr. Mahesh Agarwal, Mr. Rajeev Kumar, Mr. Rohan Dakshini, Ms. Akansha Saxena and Mr. Dhruv Gupta, Advocates.

For Respondents: Mr. Arun Kathpalia, Senior Advocate with Mr. Siddhant Kant, Ms. Misha, Mr. Nikhil Mathur Gupta, Advocates for 'Committee of Creditors'

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 3

Mr. Abhinav Vashisht, Senior Advocate with Ms. Anannya Ghosha and Mr. Brian Moses, Advocates for RP.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In the 'Corporate Insolvency Resolution Process' of Metalyst Forgings

Ltd. (Corporate Debtor) the Resolution Plan submitted on 13th April, 2018 by

'Deccan Value Investors LLP' and 'DVI PE (Mauritius) Limited' was approved

by the 'Committee of Creditors' on 28th August, 2018.

2. The Resolution Professional placed the 'Resolution Plan' before the

Adjudicating Authority (National Company Law Tribunal), Mumbai Bench,

Mumbai for its approval under Section 31 of the 'Insolvency and Bankruptcy

Code, 2016' ('I&B Code', for short).

3. In the meantime, the 'Resolution Professional' vide its letter dated 15th

October, 2018, called upon the 'Deccan Value Investors LLP' ('Deccan', for

short) to submit the performance guarantee. In reply to such demand of

Performance Guarantee, Deccan, vide its letter dated 17th October, 2018

conveyed its decision to withdraw the Resolution Plan and filed for approval

by the Adjudicating Authority.

4. Miscellaneous Application No. 956 of 2018 was filed by the Resolution

Professional for approval of the 'Resolution Plan' of Deccan. In the said case,

the Deccan also moved an application under Section 60(5) of the 'I&B Code'

in MA No. 1272/2018 for withdrawal of the plan.

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 4

5. The Adjudicating Authority taking into consideration the fact and

circumstances of the case by impugned order dated 27th September, 2019

refused to approve the resolution plan of Deccan and directed the Resolution

Professional/Committee of Creditors for inviting the fresh bid (Plans) within a

period of 21 days.

6. The Adjudicating Authority while passing such order observed that the

'Resolution Applicant' - Deccan will not be entitled to refund of the amount of

the bid bond guarantee in case fresh bid of Resolution Applicant (Deccan) is

not accepted. The Resolution Applicant did not participate in the 1st Bid

process.

7. The Committee of Creditors have challenged the order dated 27th

September, 2019, as the approval of the 'Resolution Plan' of the Deccan has

been rejected.

8. The Resolution Applicant (Deccan) has also challenged the order dated

27th September, 2019 so far it relates to clarification that the 'Resolution

Applicant (Deccan) will not be entitled to get refund of forfeiture of 'Bid Bond

Guarantee' in a case of fresh bid of Resolution Applicant is not accepted or

Resolution Applicant did not participate in fresh bidding process.

9. During the hearing of the Appeal, this Appellate Tribunal by order dated

18th November, 2019 observed that it will be open to the 'Committee of

Creditors' to go through the other 'Resolution Plan(s) and approve the same

as observed by the Adjudicating Authority. On 6th December, 2019

opportunity was given to the 'Deccan Value Investor LP' and 'DVI PE

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 5

(Mauritius) Ltd.' (Appellants) to settle the matter and bring the same to the

notice of this Appellate Tribunal.

10. The Assistant General Manager of the State Bank of India, Member of

the 'Committee of Creditors' in its affidavit has informed that the Appellant

(Deccan) sought meeting to discuss the settlement by way of e-mail dated 10th

December, 2019. The Appellant (Deccan) by another e mail dated 11th

December, 2019 provided an offer to the Respondent. It was tabled before the

'Committee of Creditors' in its 26th Meeting held on 12th December, 2019 and

after a detailed deliberation of the same, the 'Committee of Creditors' deemed

the offer placed by the Deccan as not viable and feasible. Accordingly the

offer was rejected.

11. Learned counsel for the 'Committee of Creditors' submitted that the

impugned order dated 27th September, 2019 passed by the Adjudicating

Authority is an erroneous exercise of such powers vested under the 'I&B

Code'.

STAND OF THE COMMITTEE OF CREDITORS

12. Learned counsel for the 'Committee of Creditors' submitted that the

Adjudicating Authority's powers with respect to an application filed under

Section 31 of the 'I&B Code' are circumscribed by Section 30(2) of the 'I&B

Code' and, therefore, besides the jurisdiction to either approve a 'resolution

plan' which passes the muster of the limited prescriptions prescribed under

Section 30(2) or reject a resolution plan on any of the grounds elucidated in

sub-section (a) to (e) of Section 30(2) of the 'I&B Code', the Adjudicating

Authority has no jurisdiction for entertaining / allowing an application for the

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 6

withdrawal of a resolution plan subsequent to approval of the resolution plan

by the 'Committee of Creditors'.

13. He further submits that the impugned order is also erroneous insofar

as it treads on exclusive domain of the 'Committee of Creditors' to examine

and decide on the feasibility and viability of the 'approved resolution plan'.

14. He also submits that it is a settled position of law that the Adjudicating

Authority being a creature of a statute (such as under the 'I&B Code') is bound

within the four corners of the said statue and cannot exercise its jurisdiction

beyond/outside the scope prescribed under the statute. Accordingly, it was

impermissible for the Adjudicating Authority to allow the withdrawal of the

resolution plan beyond its jurisdiction prescribed under the 'I&B Code' or

return a finding on feasibility or viability of a resolution plan. He also relied

upon the judgment of the Hon'ble Supreme Court in the case of 'Committee

of Creditors of Essar Steel Limited v. Satish Kumar Gupta & Ors.'

wherein the argument of a right being available under Section 60(5) of the

'I&B Code' to challenge the decision of the 'Committee of Creditors' to approve

a resolution plan was rejected on account of Section 60(5)(a) which only refers

to an application by or against the 'Corporate Debtor' and not by the

Successful Resolution Applicant; Section 60(5) is non-obstante only with

respect to "any other law" and not the 'I&B Code' itself and Section 60(5)(c)

is a residuary jurisdiction vested in the Adjudicating Authority to decide on

the question of law or fact with respect to the 'corporate insolvency resolution

process' and the said residual jurisdiction does not in any manner impact the

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 7

jurisdiction of the Adjudicating Authority under section 30(2) of the 'I&B

Code'.

STAND OF THE RESOLUTION APPLICANT - 'Deccan Value Investors LP'

15. On 'Deccan Value Investors LP' efforts to renegotiate with the

'Committee of Creditors' having failed, Deccan filed M.A. No. 1272 of 2018

seeking inter alia to withdraw its resolution plan. The Deccan also filed its

reply opposing C.A. No. 956 of 2018 filed by the 3rd Respondent, setting out

its case for withdrawal and raising the following issues of facts :

(i) The report furnished by the Resolution Professional in the 'Virtual

Data Room' (VDR) showed the realistic capacity to be 2.10 lac

MTPA. Consequently, the plan assumed 1.10 lac MTPA

production in the first year and increases thereafter. Admittedly

the production capacity of Metalyst is only approximately 45,000

MTPA;

(ii) The 2016 MM Report showing figures of production capacity was

made available in the VDR in response to Deccan's request for

any information on production capacity - Deccan was unaware

that the said Report even existed;

(iii) It was informed subsequently that the 12,500 ton press which

was a critical component of the resolution plan could not be

installed on Metalyst's land and needed to be installed on the land

of sister concern (undergoing CIRP);

(iv) Metalyst's historical financials were inaccurate and presented a

false picture of its operations and turnover;

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 8

(v) Reports of a transaction audit and a forensic audit revealed that

practically 39% of the sales in the review period had been made

to related parties and huge write-offs had been done during the

three year period of January 2014 to December 2016;

(vi) The Resolution Professional asserts that he only provided the

information available with him and could not be expected to verify

it. He also asserts that Deccan should have done its own due

diligence. The said submission is misplaced as the information

available with Deccan was only that on the VDR, which the

resolution applicants were entitled to rely upon. There was no

public source of information that would enable Deccan to

ascertain production capacity.

16. He further submits that under Section 60(5) of the 'I&B Code', the

Adjudicating Authority is required to consider the questions of fact raised i.e.

whether Deccan has been misled in the course of the 'Corporate Insolvency

Resolution Process', and whether the 'Corporate Insolvency Resolution

Process' had been vitiated by misrepresentation and / or mutual mistake.

The M.A. No. 1272 of 2018 filed by the Deccan was maintainable.

17. The data and material on record and the foregoing submissions clearly

show that the production capacity of the 'Corporate Debtor' and the feasibility

of the resolution plan was not accurately represented on record at the time of

'Committee of Creditors' accorded its approval to the plan; further, a critical

part of the resolution plan viz. the 12,500 ton Press was subsequently

revealed to be unavailable.

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 9

18. On the merits, Deccan successfully established that the 'Resolution

Plan' was not capable of implementation, and thus, justified their withdrawal

of the same. It is submitted that the Hon'ble Supreme Court also in the

'Corporate Insolvency Resolution Process' of 'Amtek Auto Ltd.' and by order

dated 24th September, 2019 has allowed the 'successful resolution applicant'

to withdraw its plan prior to its approval.

RELEVANT FACTS & LAW

19. The 'Resolution Professional' allowed the Deccan and other resolution

applicants to access the bid containing (i) Audited Financial Statements of the

'Corporate Debtor' for the Financial Years 2015-16 and 2016-17; and (ii)

Projections, as per the 'Corporate Debtor's' Head Office Model V.24-vdr.

However, there was no break up between the trading revenue and the

manufacturing revenue in the HO Model as uploaded in the VDR.

20. The Resolution Professional thereafter uploaded the report dated 30th

September, 2016 prepared by technical experts Mott MacDonald India ("2016

MM Report), which represented the net realistic production capacity of the

Corporate Debtor's Plant as 210,747 Metric Tonnes Per Annum (MTPA), on

the basis of their technical due diligence, of the different plants based on their

'Plate Capacity' and 'Net Realistic Capacity'.

21. '2016 MM Report' was the single most important, direct and relevant

source of information regarding the Corporate Debtor's production capacity,

prepared by the technical experts on the basis of the Corporate Debtor's

proprietary and confidential data provided to these experts. The Resolution

Applicant was not given access to the data underlying the 2016 MM Report.

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 10

22. Representatives of Deccan conducted various meeting with the

Resolution Professional and visited various plant sites of the Corporate

Debtor. It is alleged that Deccan came to know material and contradictory

information regarding production capabilities of the Corporate Debtor which

has the material impact on the viability of the resolution plan.

23. In the aforesaid background, the 'Resolution Professional' vide letter

dated 15th October, 2018 called upon Deccan to submit the guarantee and in

reply, the Deccan intimated vide letter dated 17th October, 2018 conveyed its

decision to withdraw the Resolution Plan and filed for approval by the

Adjudicating Authority.

24. As per Section 30(6), the 'Resolution Professional' is required to submit

the plan as approved by the 'Committee of Creditors' to the Adjudicating

Authority.

25. Section 31 relates to approval of the 'resolution plan' as under:

"31. Approval of resolution plan.

(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,

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 11

creditors, 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.]

(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.

(3) After the order of approval under sub-section (1),-

(a) the moratorium order passed by the

Adjudicating Authority under section 14

shall cease to have effect; and

(b) the resolution professional shall forward all

records relating to the conduct of the

corporate insolvency resolution process and

the resolution plan to the Board to be

recorded on its database.

[(4) The resolution applicant shall, pursuant to the

resolution plan approved under sub-section

(1), obtain the necessary approval required

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 12

under any law for the time being in force

within a period of one year from the date of

approval of the resolution plan by the

Adjudicating Authority under sub-section

(1) or within such period as provided for in

such law, whichever is later.]

Provided that where the resolution plan

contains a provision for combination, as

referred to in Section 5 of the Competition

Act, 2002 (12 of 2013), the resolution

applicant shall obtain the approval of the

Competition Commission of India under

that Act prior to the approval of such

resolution plan by the committee of

creditors]

26. The aforesaid provision makes it clear that the Adjudicating Authority,

if it 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, then only will approve the resolution plan. Where the Adjudicating

Authority is satisfied that the resolution plan does not confirm the

requirements of Section 30(2), by an order reject the 'resolution plan'.

27. Section 60(5) empowers the Adjudicating Authority (National Company

Law Tribunal) to dispose of all the matters as under :

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 13

"60. (1) The Adjudicating Authority, in relation to

insolvency resolution and liquidation for corporate

persons including corporate debtors and personal

guarantors thereof shall be the National Company

Law Tribunal having territorial jurisdiction over

the place where the registered office of the

corporate person is located.

(2) Without prejudice to sub-section (1) and

notwithstanding anything to the contrary

contained in this Code, where a corporate

insolvency resolution process or liquidation

proceeding of a corporate debtor is pending before

a National Company Law Tribunal, an application

relating to the insolvency resolution or bankruptcy

of a personal guarantor of such corporate debtor

shall be filed before such National Company Law

Tribunal.

(3) An insolvency resolution process or bankruptcy

proceeding of a personal guarantor of the

corporate debtor pending in any court or tribunal

shall stand transferred to the Adjudicating

Authority dealing with insolvency resolution

process or liquidation proceeding of such

corporate debtor.

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 14

(4) The National Company Law Tribunal shall be

vested with all the powers of the Debt Recovery

Tribunal as contemplated under Part III of this

Code for the purpose of sub-section (2).

(5) Notwithstanding anything to the contrary

contained in any other law for the time being in

force, the National Company Law Tribunal shall

have jurisdiction to entertain or dispose of-- (a)

any application or proceeding by or against the

corporate debtor or corporate person; (b) any claim

made by or against the corporate debtor or

corporate person, including claims by or against

any of its subsidiaries situated in India; and (c)

any question of priorities or any question of law

or facts, arising out of or in relation to the

insolvency resolution or liquidation proceedings of

the corporate debtor or corporate person under

this Code."

28. It is evident that the application under Section 60(5) of the 'I&B Code'

can be entertained by the Adjudicating Authority (National Company Law

Tribunal) both on the question of facts and law or in relation to the insolvency

resolution or liquidation proceedings of the 'Corporate Debtor'.

29. In the present case, they cannot raise the question of fact mixed with

question of law relating to resolution process. During the 'Corporate

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 15

Insolvency Resolution Process' period, the question of law involved is that in

the facts and circumstances, the approval of the 'resolution plan' will be futile

or not. If the allegation as raised by Deccan relating to net realistic capacity

of the 'Corporate Debtor' has been wrongly shown in the 'Information-

Memorandum'.

30. In 'Tata Steel Limited vs. Liberty House Group Pte. Ltd. & Ors.' -

'Company Appeal (AT) (Insolvency) No. 198 of 2018', this Appellate Tribunal

held :

"30. Further, according to him, a 'Resolution Applicant'

cannot challenge a decision of the 'Committee of

Creditors' at any stage, till the Adjudicating Authority

approves the 'Resolution Plan' under Section 31

...............

40. In this background, while we hold that this

appeal preferred by 'Tata Steel Limited' is premature,

uncalled for, in absence of any final decision taken by

the Adjudicating Authority under Section 31, this

appeal is not maintainable."

In 'Arcelor Mittal India Private Limited v. Satish Kumar Gupta & Ors.

(Civil Appeal Nos. 9402 - 9405 of 2018 etc.), the Hon'ble Supreme Court has

held:

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 16

"75. What has now to be determined is whether any

challenge can be made at various stages of the

corporate insolvency resolution process. Suppose a

resolution plan is turned down at the threshold by a

Resolution Professional under Section 30(2). At this

stage is it open to the concerned resolution applicant to

challenge the Resolution Professional's rejection? It is

settled law that a statute is designed to be workable,

and the interpretation thereof should be designed to

make it so workable........."

76. Given the timeline referred to above, and given

the fact that a resolution applicant has no vested right

that his resolution plan be considered, it is clear that

no challenge can be preferred to the Adjudicating

Authority at this stage. A writ petition under Article

226 filed before a High Court would also be turned

down on the ground that no right, much less a

fundamental right, is affected at this stage. This is also

made clear by the first proviso to Section 30(4), whereby

a Resolution Professional may only invite fresh

resolution plans if no other resolution plan has passed

muster.

xxx xxx xxx

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 17

79. Take the next stage under Section 30. A

Resolution Professional has presented a resolution plan

to the Committee of Creditors for its approval, but the

Committee of Creditors does not approve such plan after

considering its feasibility and viability, as the requisite

vote of not less than 66% of the voting share of the

financial creditors is not obtained. As has been

mentioned hereinabove, the first proviso to Section 30(4)

furnishes the answer, which is that all that can happen

at this stage is to require the Resolution Professional to

invite a fresh resolution plan within the time limits

specified where no other resolution plan is available

with him. It is clear that at this stage again no

application before the Adjudicating Authority could be

entertained as there is no vested right or fundamental

right in the resolution applicant to have its resolution

plan approved, and as no adjudication has yet taken

place.

81. If, on the other hand, a resolution plan has been

approved by the Committee of Creditors, and has

passed muster before the Adjudicating Authority, this

determination can be challenged before the Appellate

Authority under Section 61, and may further be

challenged before the Supreme Court under Section 62,

if there is a question of law arising out of such order,

within the time specified in Section 62. Section 64 also

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 18

makes it clear that the timelines that are to be adhered

to by the NCLT and NCLAT are of great importance, and

that reasons must be recorded by either the NCLT or

NCLAT if the matter is not disposed of within the time

limit specified. Section 60(5), when it speaks of the

NCLT having jurisdiction to entertain or dispose of any

application or proceeding by or against the corporate

debtor or corporate person, does not invest the NCLT

with the jurisdiction to interfere at an applicant's behest

at a stage before the quasi-judicial determination made

by the Adjudicating Authority. The non-obstante clause

in Section 60(5) is designed for a different purpose: to

ensure that the NCLT alone has jurisdiction when it

comes to applications and proceedings by or against a

corporate debtor covered by the Code, making it clear

that no other forum has jurisdiction to entertain or

dispose of such applications or proceedings."

31. On the realistic and actual basis of technical production of the capacity

of the 'Corporate Debtor', the 'Deccan' brought to the notice of the

Adjudicating Authority that the present plan was unviable or unfeasible or

unimplementable.

32. 'Deccan' has pointed out the discrepancy between the representations

made by the Resolution Professional on which Deccan formulated its

Resolution Plan and the actual undisputed production capacity of the

Corporate Debtor as under :

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 19

Corporate Debtor's Production Capacity [in MTPA]

Represented by the Projected by the Actual position Resolution Professional Applicants in Deccan in the 2016 MM Report Resolution Plan 210,747 110,000 Approx. Maximum 66,000

33. It was shown by Deccan that the financial and technical documents

and data in relation to the Corporate Debtor was discrepant and false, as the

Financial Statements for the Financial Years 2015-16 and 2016-17 and the

Provisional Financial Statements for the period April 2017 to December 2017

were provided in the VDR for the Resolution Applicants for undertaking their

due diligence. But these statements, as per the Resolution Professional and

the 'Committee of Creditors', are discrepant, unreliable and contain false

information since they are being subjected to the transaction and forensic

audit. Therefore, any reliance upon these statements is said to have vitiated

Deccan's Resolution Plan.

34. The Adjudicating Authority noticed that the income tax returns of the

company for the Financial Year 2015-16 and Financial Year 2016-17 do not

indicate trading operations. The audited financial statements of the

Corporate Debtor also, do not indicate any trading operations at all. The

Corporate Debtor was represented as a primarily manufacturing company to

the Bidders. However, as per the claims made by the Resolution Professional,

based upon the document purporting to be the "relevant excerpt of the details

of historical revenues provided to the Resolution Applicant in the "Metalyst

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 20

HO Model" under the tab Historical Financial", the obvious implications would

be that almost 70% of the revenue of the Corporate Debtor would come from

trading, and not from manufacturing, which would mean that the Corporate

Debtor's business has been misrepresented to bidder as a primarily

manufacturing company, and the size and scale of the purported revenues

from manufacturing were also misrepresented.

35. It was further noticed by the Adjudicating Authority that the meeting

held on 5th September, 2018, and, thereafter, by way of the resolution

Professional's letter dated 23rd October, 2018 it was informed that the 12.500

ton Press that was proposed to be installed as part of Deccan's Resolution

Plan, would only be installed on-premises owned by a third-party, Clover

Forgings and Machining Pvt. Ltd. ("Clover") and that is not possible to install

the 12.5k ton Press at the Aurangabad plant of the Corporate Debtor. It was

also pointed out that insolvency resolution proceedings had been admitted in

respect of Clover, by way of an Order dated 4th December, 2018 of the National

Company Law Tribunal, New Delhi Bench.

36. The Adjudicating Authority noticed the Report of the Bankruptcy Law

Reforms Committee, November 2015 which envisaged the role of the

Resolution Professionals an agent of the Adjudicating Authority. The relevant

clauses of the said report are:

"58. Clause 4.4 set out certain mandates for the

Resolution Professional, including that the Insolvency

Professional will treat the assets of the debtor with

honesty and transparency. The BLRC Report

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 21

recommends that the Resolution Professional must

provide the Information Memorandum to the entity

(based on which solution can be offered to resolve

insolvency). Further, the Information Memorandum

put out by the Resolution Professional must be with

a "degree of completeness" of the information that

the Resolution Professional is willing to certify

(Clause 5.3.2).

59. The Clause 5.3.2 regarding the role of the

Resolution Professional provides that :

"The first phase of the IRP is completed when the

creditor's committee is formed, and the window to

submit claims is closed. The creditor's committee

can apply to the Adjudicator to appoint a new RP

to replace the interim RP. The RP must be chosen

by a majority vote in the creditor's committee for

the Adjudicator to accept the application.

.............................................

The RP becomes the manager of the negotiation

between the debtor and the creditors in

assessing the viability of the entity. In this role,

she has the responsibility of managing all

information so that debtors and creditors are

equally informed about the business in the

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 22

negotiations. Finally, she is responsible for inviting

and collecting proposals of solutions to keep the

entity going. In this role, she is responsible for

managing the process through which to invite

proposals from the overall financial market, rather

than just the creditors and debtor. The Committee

discussed that this could include other potential

market participants, such as other financial

institutions, asset reconstruction companies,

foreign financiers, strategic investors, other firms

and minority shareholders in the entity. Part of the

task of the RP is to ensure as much equality of

information about the entity to all participants in

the negotiations as is possible.

Thus, the RP needs to ensure several features in the

IRP, giving priority to the need to preserve time

value and equality in negotiations in the process:

1. The RP must provide the most updated

information about the entity as

accurately as is reasonably possible to

this range of solution providers. In order

to do this, the RP has to be able to verify

claims to liabilities as well as the assets

disclosed by the entity. The RP has the

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 23

power to appoint whatever outside

resources that she may require in order

to carry out this task, including

accounting and consulting services.

2. The information collected on the entity is

used to compile an information

memorandum, which is signed off by the

debtor and the creditor's committee,

based on which solutions can be offered to

resolve the insolvency. In order for the

market to provide solutions to keep the entity

as a going concern, the information

memorandum must be made available to

potential financiers within a reasonable period

of time from her appointment to the IPR. If the

information is not comprehensive, the RP must

put out the information memorandum with a

degree of completeness of the information that

she is willing to certify. For example, as part

of the information memorandum, the RP must

clearly state the expected shortfall in the

coverage of the liabilities and assets of the

entity presented in the information

memorandum. Here, the asset and liabilities

include those that the RP can ascertain and

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 24

verify from the accounts of the entity, the

records in the information system, the

liabilities submitted at the start of the IPR, or

any other source as may be specified by the

Regulator

3. Once the information memorandum is created,

the RP must make sure that it is readily

available to whoever is interest to bid a solution

for the IPR. She has to inform the market (a)

that she is the RP in charge of this case, (b)

about a transparent mechanism through which

interested third parties can access the

information memorandum, (c) about the time

frame within which possible solutions must be

presented and (d) with a channel through

which solutions can be submitted for

evaluation. The Code does not specify details

of the manner or the mechanism in which this

should be done, but rather emphasises that it

must be done in a time-bound manner and that

it is accessible to all possible interested parties.

Finally, the RP is responsible for calling the

creditors committee to evaluate the submitted

proposals. She has a role to play in discussing and

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 25

ranking the proposals in terms of how to maximise

enterprise value. As a first stage filter, she must

ensure that all the proposals have clarity on how

the IRP costs and the liabilities of the operational

creditors will be treated and that all parts of the

proposed solutions are consistent with the relevant

laws and regulations. But she must leave the

choice of final solution to selection by the majority

vote from the creditors Committee".

37. In the aforesaid background, the Adjudicating Authority held that the

'Resolution Professional' was duty bound to provide the list updated

information about the entity as accurately as is reasonably feasible and

possible to the range of solution providers. In 'Mobilox Innovations (P) Ltd.

vs. Kirusa Software (P) Ltd.' - (2018) 1 SCC 353' while tracing the

background of the I&B Code, referred to the "Legislative Guide on Insolvency

Law of the United Nations Commission on International Trade Law" and the

following pertinent provisions/clauses thereof:

"11. An insolvency law should be transparent and

predictable. This will enable potential lenders and

creditors to understand how insolvency proceedings

operate and to assess the risk associated with their

position as a creditor in the event of insolvency. This

will promote stability in commercial relations and

foster lending and investment at lower risk

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 26

premiums. Transparency and predictability will also

enable creditors to clarify priorities, prevent disputes

by providing a backdrop against which relative rights

and risks can be assessed and help define the limits

of any discretion. Unpredictable application of the

insolvency law has the potential to undermine not

only the confidence of all participants in insolvency

proceedings, but also their willingness to make credit

and other investment decisions prior to insolvency.

As far as possible, an insolvency law should clearly

indicate all provisions of other laws that may affect

the conduct of the insolvency proceedings (e.g. labour

law; commercial and contract law; tax law; laws

affecting foreign exchange, netting and set-off and

debt for equity swaps; and even family and

matrimonial law).

12. An insolvency law should ensure that adequate

information is available in respect of the debtor's

situation, providing incentives to encourage the

debtor to reveal its positions and, where appropriate,

sanctions for failure to do so. The availability of this

information will enable those responsible for

administering and supervising insolvency

proceedings (courts or administrative agencies, the

insolvency representative) and creditors to assess

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 27

the financial situation of the debtor and determine

the most appropriate solution."

38. The Adjudicating Authority observed that the Resolution Professional's

disassociation with the '2016 MM Report', in fact, constitutes an acceptance

of the position that the '2016 MM Report' and the contents thereof are

misleading and unreliable. Having made it available on VDR is contrary to

the Resolution Professional's obligations under the I&B Code and the

Regulations thereunder. The Adjudicating Authority further observed that :

"The Applicants were entitled to rely on the data

provided in the VDR and to proceed on the basis that

the said data was accurate in its representation of the

Corporate Debtor, especially since the Applicants

were only afforded a 2-2.5 hour walk-through site

visit at the plants of the Corporate Debtor prior to

submission of the resolution plan. The said site visit

in no manner would enable the Applicants to assess

the technical capacity of the Corporate Debtor

correctly, and this visit does not give/afford any basis

to the Resolution Professional and the CoC to assert

that there was either full knowledge or awareness on

the part of the Applicants, considering that the

Resolution Professional himself states that even a six

month period was insufficient to conduct due

diligence."

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 28

39. In the aforesaid background, the Adjudicating Authority (National

Company Law Tribunal), Mumbai Bench rightly observed that the 'Insolvency

and Bankruptcy Code' do not confer any power and jurisdiction on the

Adjudicating Authority to compel specific performance of a plan by an

unwilling resolution applicant.

40. In absence of fact that there was any procedural infirmity and having

not proceeded in the manner as was required, we hold that the plan approved

was violative of Section 30(2)(e) of the 'I&B Code', having contravened the

provisions of the 'I&B Code'.

41. For the said reasons, the plan approved by the 'Committee of Creditors'

under sub-section (4) of Section 30 of the 'I&B Code' and rejected by the

Adjudicating Authority in terms of Section 31(2), no interference is called for.

42. Insofar as refund of forfeiture of the Bid Bond Guarantee is concerned,

this Appellate Tribunal is not inclined to grant any relief to the 'Deccan'. On

18th November, 2019, the 'Committee of Creditors' was allowed to go through

the other resolution plans and approve the same. As observed by the

Adjudicating Authority subsequently on 6th December, 2019, the 'Deccan' was

also allowed to settle the claim. After having received all the information

including '2016 MM Report' relating to net realistic volume production from

the existing facility of the 'Corporate Debtor', having submitted the plan,

which is not viable and feasible.

43. Non-availability of 12,500 ton press which is a critical component of the

resolution plan could not be installed on Metalyst's land and needed to be

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019 29

installed at the land of the sister concern, which is an undergoing 'corporate

insolvency resolution process'.

44. Further, during the pendency, 'Committee of Creditors' is allowed to go

through the other 'resolution plans'. No further time is allowed if it has

approved one or other plan, which may be brought to the notice of the

Adjudicating Authority for appropriate orders.

45. For the aforesaid reasons we are not inclined to interfere with the

impugned order dated 27th September, 2019 passed by the Adjudicating

Authority.

Both the appeals are dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

[Justice Venugopal M.] Member (Judicial)

New Delhi

7th February, 2020

/ns/

Company Appeal (AT) (Insolvency) Nos. 1276 & 1281 of 2019