Kalinga Allied Industries India Pvt Ltd vs Hindustan Coils Ltd & Ors

Having Its Registered Office at: CCC/23, Civil Township, Rourkela Sundargarh, Orissa-769004 ...Appellant

Versus

1. Hindustan Coils Ltd.

Having Its Registered Office at: Plot No. 19-20, Phase-I, Siltara Industrial Area, Raipur (Chhattisgarh) - 492001 ...Respondent No. 1

2. Bindals Sponnge Industries Ltd. (Under CIRP)

Through Mr. Dinesh Sood (Resolution Professional) Having Its Office at: C/o Yogakshem Insolvency Professionals LLP, UGF, 1/15 Tilak Nagar, New Delhi - 110018 ... Respondent No. 2

3. Committee of Creditors

Through Mr. Dinesh Sood (Resolution Professional) Having Its Office at: C/o Yogakshem Insolvency Professionals LLP, UGF, 1/15 Tilak Nagar, New Delhi - 110018 ... Respondent No. 3

Present:

For Appellant: Mr. Abhijeet Sinha, Mr. Rakesh Wadhwa and Mr. Sanwal Tiberwal, Advocates.

For Respondents: Mr. Virender Ganda, Sr. Advocate with Mr. Vipul Ganda, Mr. Vishal Ganda, Mr. Ayandeb Mitra and Ms. Shelly Khanna, Advocates.

Company Appeal (AT) (Insolvency) No. 518 of 2020 2

Mr. IPS Oberoi, Advocate for R-2 with Mr. Dinesh Sood, RP.

JUDGMENT

Jarat Kumar Jain, J:

The Appellant, Kalinga Allied Industries India Pvt. Ltd. filed this

Appeal against the impugned order dated 27.02.2020 passed by Ld.

Adjudicating Authority (National Company Law Tribunal) Special Bench,

New Delhi. Whereby allowed the Interlocutory Application No. 1513 (PB) of

2020 filed by M/s Hindustan Coils Ltd. (respondent No. 1) and directed that

the application along with the proposed plan of respondent No. 1 be placed

before committee of creditors (in short, COC) for consideration.

2. Brief facts of this case are that pursuant to the expression of interest

issued by RP on 24.08.2018, the Appellant submitted a Resolution Plan in

time. After several rounds of deliberations by the COC revised Resolution

Plan was submitted by the Appellant on 19.12.2018. The same was

approved by the COC by requisite majority in the 13th meeting on

28.12.2018. Thereafter, the RP filed an Application under Section 30(6) of

the Insolvency & Bankruptcy Code (In short I&B Code) for approval of

Resolution Plan in the month of January, 2019. Thereafter, various

objections were filed before the Adjudicating Authority which were heard

and disposed of. Sometime in the month of February 2020, the Respondent

No. 1 filed an application I.A. No. 1513 (PB) of 2020 seeking direction for

Company Appeal (AT) (Insolvency) No. 518 of 2020 3

consideration of its Resolution Plan which is 12% more than the offer of the

successful Resolution Applicant (Appellant herein).

3. Learned Adjudicating Authority after hearing the parties held that the

Respondent No.1 offers to pay Rs. 50.01 Crore which is Rs. 4.9 Crore more

than offered by the successful resolution applicant (Appellant). It is also held

that the object of the I&B code encourages maximization of the value of

assets of the corporate debtor, which is also advantageous to all the

stakeholders. Therefore, it is directed that the proposed plan of the

Respondent No. 1 be placed before the COC for consideration. Being

aggrieved with this order, the Appellant has filed this Appeal.

4. Learned Counsel for the Appellant submitted that Ld. Adjudicating

Authority has no Jurisdiction to entertain any Application from a person

who has not participated in Corporate Insolvency Resolution Process (In

short CIRP) for consideration of a purported better plan or a plan with a

better value ignoring the statutory time lines under Section 12 of the I&B

Code and even assuming jurisdiction, there was no occasion for the Ld.

Adjudicating authority to pass a direction to the COC to consider the plan of

Respondent No. 1. The Adjudicating authority cannot suo motu direct the

COC to consider new resolution plan and reconsider already approved

resolution plan. For this purpose, placed reliance on the Judgment of this

Appellate Tribunal in the case of Chhatisgarh Distilleries Ltd. Vs. Dushyant

Dave & Ors. C. A. (AT) (Ins) No. 461 of 2019. The Respondent No. 1 never

underwent to rigors of compliance before the COC by submitting the

Company Appeal (AT) (Insolvency) No. 518 of 2020 4

expression of interest with other prospective Resolution Applicants. It is

further submitted that from the order dated 27.02.2020, it is clear that the

Respondent No. 1 was well aware of the Resolution Plan amount offered by

the Appellant and accordingly the Respondent No. 1 has enhanced its offer

before the Ld. Adjudicating Authority in the guise of maximization of

realization. Once the Resolution Plan has been opened and the

Fundamentals and Financials of the plan and offer made therein were

disclosed to all the participants, including RP. After this, no further fresh

bid or offer could have been accepted or considered. For this purpose,

placed reliance on the Judgment of this Appellate Tribunal in the Case of

Kotak Investment Advisors Ltd. Vs. Mr. Krishna Dharamshi &Ors. C.A. (AT)

(Ins) No. 344 -345 of 2020. (See para 23)

5. It is also submitted that the Appellant's plan was approved by the

COC and the Application for approval of plan under Section 31 of the I&B

Code, was pending before the Adjudicating Authority. Meanwhile, the

Respondent No. 1 has filed the Application which is beyond the period of

330 days. Therefore, the Application was not maintainable.

6. Learned Counsel for the Appellant further submitted that once the

plan is approved by the COC, the statutory mandate on the Adjudicating

Authority under Section 31(1) of the I&B Code is to ascertain that a

Resolution Plan meets the requirements of Sub Section (2) of Section 30

thereof. The Adjudicating Authority has a very limited power to judicial

scrutiny and statutory provision does not permit the Adjudicating Authority

Company Appeal (AT) (Insolvency) No. 518 of 2020 5

to interfere with the commercial wisdom of the COC. Even for maximization

of value of the assets of the Corporate Debtor, the Adjudicating Authority is

not entitled to overturn the business decisions of the COC. For this

proposition, placed reliance on the decision of this Appellate Tribunal in the

case of Sharvan Kr. Agarwal Consortium Vs. Ritu Raj Steel Pvt. Ltd. &Ors.

Company Appeal (AT) (Ins) No. 1490 of 2019.

7. Learned Counsel for the Appellant submitted that in the impugned

order it is inadvertently mentioned that Learned Counsel for the Resolution

Professional raised no specific objection in regard to the Application filed by

the Respondent No. 1. For correction of this fact, RP has already filed an

Application before the Adjudicating Authority, otherwise also there can be

no estopple against the law and the Appellant can very well maintain this

Appeal. The Impugned Order is erroneous and prejudicial to the interest of

the Appellant. Therefore, it may be set aside.

8. Per Contra Learned Counsel for the Respondent No. 1 submitted that

the Appellant has made mis-representation in the Appeal and tried to mis-

guide this Appellate Tribunal. On 22.10.2019 a new Application C.A. No.

1545(PB)/2019 was listed and heard wherein 3rd party stranger Applicant

namely Kalinga Enterprise Pvt. Ltd. seeking direction from the Adjudicating

Authority to direct the COC to consider the Resolution Plan. Kalinga

Enterprises Pvt. Ltd. is a related party of the Appellant as defined under

Section 5(24) (d) of the I&B Code and Section 2(76) of the Companies Act,

2013 and this fact has been admitted by the Appellant in his rejoinder. The

Company Appeal (AT) (Insolvency) No. 518 of 2020 6

Appellant and the Kalinga Enterprises Pvt. Ltd. being a common director

and part of the consortium.

9. Learned Counsel for the Respondent No. 1 further submitted that the

impugned order grants an opportunity for COC to evaluate better Resolution

Plan. The Appellant has itself delayed the CIRP of the Corporate Debtor. The

Appellant dragged the CIRP by two years by abusing its position as the only

Resolution Applicant.

10. It is further submitted that the impugned order was dictated in the

open Court in the presence of all the parties, however, none of the parties

objected it. The object of the I&B Code is maximization of the value of the

assets of the Corporate Debtor. Keeping in view that the offer of the

Respondent No. 1 is around 12% more than the offer of the successful

Resolution Applicant. Therefore, the order does not call for any interference

by this Appellate Tribunal. The Tribunal while passing the order followed the

settled principle enumerated in the Judgment of Hon'ble Supreme Court in

the case of Binani Industries Ltd. Vs. Bank of Baroda C.A. (AT) (Ins) No. 82

of 2018 and Swiss Ribbon Pvt. Ltd. Vs. Union of India 2019 (4) SCC 17

(paragraph 26 and 27). The Appeal is pre-mature as the COC has not yet

deliberated and rejected the Appellant's plan. There will be no prejudice to

the Appellant since the Resolution Plan of the Appellant has not yet attained

finality. Thus, the Appeal is liable to be dismissed.

11. After hearing Learned Counsels for the parties we have perused the

record following issues are crop up for our consideration.

Company Appeal (AT) (Insolvency) No. 518 of 2020 7

i. What are the powers of the Adjudicating Authority under Section 31 of the I&B Code?

ii. Whether the Adjudicating Authority can direct the COC to consider the Resolution Plan of a person who was not part of CIRP?

iii. Whether the conduct of the Appellant during the pendency of the CIRP can be considered in this Appeal?

Issue No. 1

12. The Hon'ble Supreme Court in the matter of Maharashtra

Seamless Limited vs Padmanabhan Venkatesh & Ors. Civil Appeal No. 4242

of 2019 held that once the Resolution Plan is approved by the COC, the

statutory mandate on the Adjudicating Authority under Section 31(1) of the

I&B Code is just to test the Resolution Plan with reference to provisions of

Section 30 (2). This Appellate Tribunal in the Case of Sharvan Kumar

Agarwal Consortium (Supra) held that once the Plan is approved by the COC,

the statutory mandate on the Adjudicating Authority under Section 31(1) of

the I&B Code is to ascertain that the Resolution Plan meets the requirement

of sub-Section (2) & (4) of Section 30 thereof. The Adjudicating Authority has

a very limited power to judicial scrutiny and statutory provision does not

permit the Adjudicating Authority to interfere with the commercial wisdom of

the COC. Even for maximization of value of assets of the Corporate Debtor.

The Adjudicating Authority is not entitled to overturn business decision of

the COC.

Company Appeal (AT) (Insolvency) No. 518 of 2020 8

13. With the aforesaid, we are of the considered view that the Adjudicating

Authority has a very limited power of judicial scrutiny under Section 31 of

the I&B Code and the statutory provision does not permit the Adjudicating

Authority to interfere with the commercial wisdom of the COC. Even for

maximization of value of assets of the Corporate Debtor. In the impugned

order Ld. Adjudicating Authority erroneously assumed that it is the duty of

the Adjudicating Authority to satisfy itself that the price offer is reasonable

and adequate. For this purpose, considered the liquidation value and fair

value of the Corporate Debtor and price offered by successful Resolution

Applicant and reached a conclusion that the Respondent No. 1's offer is

around 12% more than the offer of successful Resolution Applicant.

14. We are of the considered view that Ld. Adjudicating Authority has

exceeded his jurisdiction and indulge in quantitative analysis which is not

permissible under Section 31 of the I&B Code.

Issue No. 2.

15. In pursuant to the expression of interest issued by RP on 24.08.2018

the Appellant submitted a Resolution Plan. After several rounds of

deliberation by the COC revised Resolution Plan was submitted by the

Appellant on 19.12.2018. The same was approved on 28.12.2018 by the

COC in the 13th meeting by requisite majority. Thereafter, the RP filed an

Application under Section 30 (6) of the I&B Code for approval of Resolution

Plan in the month of January, 2019 and sometime in the month of February,

2020 the Respondent No. 1 filed an Application seeking direction for

Company Appeal (AT) (Insolvency) No. 518 of 2020 9

consideration of its Resolution Plan. Admittedly the Respondent No. 1 has

not submitted any Resolution Plan pursuant to the expression of interest

issued by the RP. Thus, the Respondent No. 1 is not part of CIRP. The

Respondent No. 1 has filed Application directly before the Adjudicating

Authority. The Adjudicating Authority in the guise of maximization of the

value of assets of the Corporate Debtor directed that the Respondent No. 1's

Application and Resolution Plan be put up before the COC for consideration.

There is no provision in the code or regulation which provides that while

exercising the power under Section 31 of the I&B Code the Adjudicating

Authority can direct the COC to consider the Resolution Plan of such person

who has not been part of CIRP. Otherwise also if such procedure is adopted

then the CIRP will be frustrated. Once the Resolution Plan has been opened

and fundamentals and financials of the Plan and offer made therein were

disclosed to all the participants including RP. Then anyone can enhance its

offer before the Adjudicating Authority in the guise of maximization of

realisation. Therefore, no further fresh bid or offer could have been accepted

or considered as held by this Appellate Tribunal in the case of Kotak

Investment Advisors Ltd. (Supra) (See Para 23).

16. This Appellate Tribunal in the case of Chhatisgarh Distilleries Ltd.

Vs. Dushyant Dave & Ors. Company Appeal (AT) (Ins) No. 461 of 2019 in

the light of the pronouncement of Hon'ble Supreme Court in the case of

Committee of Creditors Essar Steel India Ltd. Vs. Satish Gupta & Ors. 2019

SCC Online SC1478 held that:

Company Appeal (AT) (Insolvency) No. 518 of 2020 10

"In the light of the above pronouncement of Hon'ble Supreme Court, we have examined the issues raised in these Appeals. Admittedly, the A-1 filed its resolution plan before the Adjudicating Authority on 13.02.2019 whereas, the last date for submission of Resolution Plan before RP was 15.10.2018. Resolution plan of successful Resolution Applicant i.e. Dera Finvest Pvt. Ltd. (R2) was approved by 98.72 % of the Committee of Creditor in e-voting conducted on 01.11.2018 and 02.11.2018. When the Resolution Plan is filed before the Adjudicating Authority then the Authority has to satisfy that the Resolution Plan approved by the Committee of Creditor fulfils the requirements as specified in Sub-Section 2 of Section

30. However, the Adjudicating Authority cannot direct the CoC to consider the second Resolution plan submitted before the Authority although the second Resolution Applicant is ready to invest more amount in comparison to first Resolution Applicant. Learned Adjudicating Authority has rightly held that Adjudicating Authority cannot suomotu direct the CoC to consider new resolution plan and reconsider already approved Resolution plan. The Hon'ble Supreme Court in the above referred judgment held that under Section 30(2) of I&B Code, decision of Committee of Creditor is purely Commercial and cannot be adjudicated by the Adjudicating Authority. Thus, we are of the view that Adjudicating Authority is well within its jurisdiction while rejecting the application of A-1."

17. With the aforesaid, we are of the considered view that Ld. Adjudicating

Authority has erroneously entertained the Application and Resolution Plan of

the Respondent No. 1 and directed the RP to put up the same before the

COC for consideration.

Issue No. 3

18. Learned Senior Counsel for the Respondent No. 1 has raised the

objection that the Appellant mis-represented in the Appeal and mis-guided

this Appellate Tribunal. Admittedly, a new Application C.A. No.

1545/PB/2019 was filed by Kalinga Enterprises Ltd. (In short 'KEL') as a

Company Appeal (AT) (Insolvency) No. 518 of 2020 11

third party and seeking direction from the Adjudicating Authority to direct

the COC to Consider its Resolution Plan. KEL is a related party to the

Appellant. The Adjudicating Authority vide order dated 22.10.2019 directed

the RP to place Resolution Plan of the Applicant KEL before the COC. KEL

and the Appellant have a common Director and part of same consortium.

The Learned Counsel for the Appellant submitted that the objection raised

by the Respondent No. 1 has no force on following grounds:

i. The I&B Code defines under Section 5(24) (d) related party with reference to a Corporate Debtor and not with reference to Resolution Applicant.

ii. KEL and the Appellant were a part of consortium, this fact was disclosed in the Application filed by KEL.

19. We have considered the aforesaid objection raised by Learned Counsel

for the Respondent No. 1 we are of the view that the order passed by the

Adjudicating Authority on 22.10.2019 has no relevance with this Appeal.

Therefore, we find no force in the objection raised by Learned Counsel for the

Respondent No. 1.

20. With the aforesaid, we are of the view that when the Application for

approval of Resolution Plan is pending before the Adjudicating Authority at

that time the Adjudicating Authority cannot entertain an Application of a

person who has not participated in CIRP even when such person is ready to

pay more amount in comparison to the successful Resolution Applicant. If a

Resolution Plan is considered beyond the time limit then it will make a

Company Appeal (AT) (Insolvency) No. 518 of 2020 12

never-ending process. Thus, impugned order is not sustainable in law as

well as in fact. The impugned order is hereby set aside.

21. The Adjudicating Authority is directed to proceed with the Application

filed by the RP for approval of Resolution Plan as per law.

The Appeal is allowed. However, no order as to costs.

[Justice Bansi Lal Bhat] The Acting Chairperson

[Justice Jarat Kumar Jain] Member (Judicial)

[ShreeshaMerla] Member (Technical)

New Delhi, 11th January, 2021 SC.

Company Appeal (AT) (Insolvency) No. 518 of 2020