Deccan Value Investors L.P. vs Dinkar Venkatasubramanian

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2801/2020

DECCAN VALUE INVESTORS L.P. & ANR. ..... APPELLANT(S)

VERSUS

DINKAR VENKATASUBRAMANIAN & ANR. ..... RESPONDENT(S)

WITH

CIVIL APPEAL NO. 2642/2020

CIVIL APPEAL NO. 2432/2020

O R D E R

1. This order would decide the cross-appeals under Section 62 of

the Insolvency and Bankruptcy Code, 20161 filed by the

successful resolution applicants – Deccan Value Investors L.P.

and DVI PE (Mauritius) Ltd.; the Committee of Creditors of

Metalyst Forgings Limited; and Dinkar Venkatasubramanian - the

Resolution Professional of Metalyst Forgings Limited.

2. The company in question, the corporate debtor, is Metalyst

Forgings Ltd.

3. Signature Not Verified In our opinion, the impugned judgment dated 07.02.2020 passed Digitally signed by babita pandey Date: 2024.03.19 19:01:17 IST by the National Company Law Appellate Tribunal2, New Delhi, Reason:

1 “the Code” for short 2 “NCLAT” for short 2

which upholds the order dated 27.09.2019 passed by the

National Company Law Tribunal3, Mumbai Bench, Mumbai, is

legally flawed and unsustainable in view of the judgment of

this Court in “Ebix Singapore Private Limited v. Committee of

Creditors of Educomp Solutions Limited and Another”4.

4. This Court in Ebix Singapore Private Limited (supra), has

inter alia held that the resolution applicant cannot withdraw

or modify the resolution plan, after the same is approved by

the Committee of Creditors. It is immaterial that post

approval by the Committee of Creditors, there is consideration

under Section 31(1) of the Code by the adjudicating authority

for final approval.

5. The judgment in Ebix Singapore Private Limited (supra)

elaborates and sets out several reasons why the resolution

applicant cannot be permitted to withdraw or modify the

resolution plan after approval by the Committee of Creditors,

and before an order under Section 31(1) of the Code is passed.

These reasons include delay, consequences of the delay and the

uncertainty and complexities that would arise in the Corporate

Insolvency Resolution Process, which are unacceptable and not

contemplated in law. Even the terms of the resolution plan,

will not permit withdrawal or modification in the absence of a

statutory provision, that allow withdrawal or amendment in the

resolution plan after approval by the Committee of Creditors.

The resolution plan approved by the Committee of Creditors is

3 “NCLT” or “adjudicating authority”, for short 4 (2022) 2 SCC 401 3

a creature of the Code and not a pure contract between two

consenting parties.

6. During the course of arguments, our attention was drawn to the

proviso to Section 31(1) of the Code, which postulates that

the adjudicating authority, before passing an order for

approval of the resolution plan, must satisfy itself that the

resolution plan has provisions for its effective

implementation. Ebix Singapore Private Limited (supra) did

examine this provision but rejected the argument on several

grounds, including absence of legislative mandate to direct

unwilling Committee of Creditors to re-negotiate or agree to

withdrawal of the resolution plan at the behest of the

resolution applicant. The effect of approval by the

adjudicating authority under Section 31(1) of the Code makes

the resolution plan binding on all stakeholders, even those

who are not members of the Committee of Creditors. The

scrutiny by the adjudicating authority for grant of approval

in terms of Section 31(1), read with other provisions of the

Code, is limited and restricted. It does not allow or permit

the resolution applicant to unilaterally amend/modify, or

withdraw the resolution plan post approval by the Committee of

Creditors.

7. On facts and to justify the withdrawal, it was submitted that

in the present case, the successful resolution applicants were

prevented, and were handicapped because of lack of information

or rather fraud on the part of the resolution professional. 4

Four aspects were highlighted: -

(a) It was concealed that 70 per cent of

the revenue of the corporate debtor came

from trading, and not from manufacturing.

(b) The Mott Macdonald Report dated

30.09.2016 is factually incorrect and

flawed.

(c) Misleading and false statement was

made with regard to the uninstalled imported

components of 12,500 M.T. Press, which were

stored in the land of a sister concern –

Clover Forging and Machining Pvt. Ltd.

(d) The successful resolution applicants

were misled in view of the non-reliability

of financial data. There was ongoing

financial/forensic audit.

8. The aforesaid reasons or grounds taken by the successful

resolution applicants do not qualify and cannot be treated as

a fraud on the part of the resolution professional. This is

not a case where misinformation or wrong information was given

to the resolution applicants.

9. We have been taken through the information memorandum, as well

as, the data in the virtual data room, access to which was

granted to the prospective resolution applicant(s), before

they had submitted their resolution plan(s). 5

10. We have also been taken through the documents, which would

show the manufacturing output, as well as the capacity of

realisation of the four units of the corporate debtor. The

excise returns, as well as the VAT returns etc., were

available in the virtual data room.

11. The Mott Macdonald Report was submitted by the said

consultants in September, 2016 at the behest of the erstwhile

promoters/directors of the corporate debtor. The report itself

is hedged with conditions and disclaimers. Value and worth of

the report, the data and projections were for the prospective

resolution applicants to evaluate.

12. On the aspect of 12,500 M.T. Press, it was clearly stated and

noted that the said Press after import, was stored in the shed

belonging to Clover Forging and Machining Pvt. Ltd.

13. Submission regarding the non-availability of Floor Space Index

(FSI) at the plant in Aurangabad, was made with reference to

the statement made by an employee of the corporate debtor. We

are not inclined to accept this version of the successful

resolution applicant. The corporate debtor has four units,

three units in Maharashtra and one unit in Himachal Pradesh.

False projection was not made.

14. The resolution plan submitted by the successful resolution

applicants refers to the transaction audits being undertaken

and acknowledges appropriation of the proceeds, if any

available, to the resolution professional on the recoveries

being made for prior period. The principle of “clean slate” is 6

well established and known.

15. Resolution plans are not prepared and submitted by lay

persons. They are submitted after the financial statements and

data are examined by domain and financial experts, who scan,

appraise evaluate the material as available for its

usefulness, with caution and scepticism. Inadequacies and

paltriness of data are accounted and chronicled for valuations

and the risk involved. It is rather strange to argue that the

superspecialists and financial experts were gullible and

misunderstood the details, figures or data. The assumption is

that the resolution applicant would submit the

revival/resolution plan specifying the monetary amount and

other obligations, after in-depth analysis of the fiscal and

commercial viability of the corporate debtor. Pointing out the

ambiguities or lack of specific details or data, post

acceptance of the resolution plan by the Committee of

Creditors, should be rejected, except in an egregious case

were data and facts are fudged or concealed. Absence or

ambiguity of details and particulars should put the parties to

caution, and it is for them to ascertain details, and exercise

discretion to submit or not submit resolution plan.

16. Records of corporate debtor, who are in financial distress,

may suffer from data asymmetry, debatable or even wrong data.

Thus, the provision for transactional audit etc, but this

takes time and is not necessary before information memorandum 7

or virtual data room is set up. Financial experts being aware,

do tread with caution. Information memorandum is not to be

tested applying “the true picture of risk” obligation, albeit

as observed by the NCLAT the resolution professional’s

obligation to provide information has to be understood on

“best effort” basis.

17. In view of the aforesaid position, we set aside the impugned

judgment dated 07.02.2020 passed by the NCLAT, upholding the

order passed by the NCLT, dated 27.09.2019. In other words, we

accept the present appeals and it is held that the resolution

plan, as submitted by the successful resolution applicants –

Deccan Value Investors L.P. and DVI PE (Mauritius) Ltd., is

approved.

18. To cut short the delay, parties are directed to appear before

the NCLT on 09.04.2024, when further proceedings will take

place.

19. Recording the aforesaid, the appeals are allowed in the above

terms.

20. Pending application(s), if any, shall stand disposed of.

..................J. (SANJIV KHANNA)

..................J. (DIPANKAR DATTA) NEW DELHI;

MARCH 06, 2024.

8

ITEM NO.101 COURT NO.2 SECTION XVII

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No. 2801/2020

DECCAN VALUE INVESTORS L.P. & ANR. Appellant(s)

VERSUS

DINKAR VENKATASUBRAMANIAN & ANR. Respondent(s)

(IA No. 67684/2020 - CLARIFICATION/DIRECTION IA No. 67686/2020 - EXEMPTION FROM FILING AFFIDAVIT IA No. 67685/2020 - EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT)

WITH C.A. No. 2642/2020 (XVII) (IA No. 134860/2023 - EARLY HEARING APPLICATION IA No. 56670/2020 - EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT)

C.A. No. 2432/2020 (XVII) (IA No. 58250/2020 - EARLY HEARING APPLICATION IA No. 110748/2020 - EARLY HEARING APPLICATION IA No. 50074/2020 - EXEMPTION FROM FILING AFFIDAVIT IA No. 79346/2020 - EXEMPTION FROM FILING AFFIDAVIT IA No. 66456/2020 - EXEMPTION FROM FILING AFFIDAVIT IA No. 159617/2021 - PERMISSION TO FILE ADDITIONAL DOCUMENTS/FACTS/ANNEXURES IA No. 49727/2020 - PERMISSION TO FILE ADDITIONAL DOCUMENTS/FACTS/ANNEXURES IA No. 135055/2021 - PERMISSION TO FILE ADDITIONAL DOCUMENTS/FACTS/ANNEXURES IA No. 79344/2020 - PERMISSION TO FILE ADDITIONAL DOCUMENTS/FACTS/ANNEXURES IA No. 58631/2020 - PERMISSION TO FILE ADDITIONAL DOCUMENTS/FACTS/ANNEXURES)

Date : 06-03-2024 These matters were called on for hearing today.

CORAM :

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE DIPANKAR DATTA

For Appellant(s) Dr. A. M. Singhvi, Sr. Adv.

Mr. Guru Krishna Kumar, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Rishi Agrawala, Adv.

9 Mr. Rohan Dakshni, Adv.

Ms. Nikita Mishra, Adv.

Mr. Himanshu Satija, Adv. Mr. Geetika Sharma, Adv. Mr. Nidhi Ram Sharma, Adv. Mr. Aakansha Kaul, Adv.

Mr. E. C. Agrawala, AOR

Mr. S. S. Shroff, AOR Ms. Misha, Adv.

Mr. Anoop Rawat, Adv.

Mr. Siddhant Kant, Adv.

Mr. Saurav Panda, Adv.

Mr. Nikhil Mathur, Adv.

Mr. Prithviraj Oberoi, Adv.

Mr. Shyam Divan, Sr. Adv. Ms. Anannya Ghosh, AOR Mr. Brian Henry Moses, Adv.

For Respondent(s) Dr. A.M. Singhvi, Sr. Adv.

Mr. Guru Krishna Kumar, Sr. Adv. Mr. Mahesh Agarwal, Adv. Mr. Mahesh Agarwal, Adv. Mr. Rishi Agrawala, Adv. Mr. Rohan Dakshni, Adv.

Ms. Nikita Mishra, Adv.

Mr. Himanshu Satija, Adv. Mr. Rohan Talwar, Adv.

Ms. Nidhi Ram Shrama, Adv. Ms. Geetika Sharma, Adv. Ms. Nidhi Ram Sharma, Adv. Ms. Aakansha Kaul, Adv.

Mr. E. C. Agrawala, AOR

Mr. Shyam Divan, Sr. Adv. Ms. Anannya Ghosh, AOR Mr. Brian Henry Moses, Adv.

UPON hearing the counsel, the Court made the following O R D E R

The appeals are allowed in terms of the signed order.

Pending application(s), if any, shall stand disposed of.

(BABITA PANDEY) (R.S. NARAYANAN) COURT MASTER (SH) ASSISTANT REGISTRAR (Signed order is placed on the file) 10