Kundan Care Products Ltd vs Amit Gupta & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeal (AT) (Insolvency) No. 653 of 2020 [Arising out of Order dated 03rd July, 2020 passed by the National Company Law Tribunal, New Delhi, Special Bench, Court-II in I.A. No.1679/2019 in C.P. No.(IB)- 940(ND)/2018]

IN THE MATTER OF:

Kundan Care Products Ltd. 3, Scindia House, 2nd Floor Janpath, Connaught Place New Delhi - 110001 (Through Its Director) ...Appellant

Versus

1. Mr. Amit Gupta Resolution Professional 309, The Crescent Business Park Sakinaka Telephone Exchange Lane Sakinaka, Andheri East, Mumbai - 400072

2. Export Import Bank of India Centre One Building, Floor 21 World Trade Centre Complex Cuffe Parade, Mumbai-400005

3. Power Finance Corporation Ltd. 'Urjanidhi', 1, Barakhamba Lane, Connaught Place, New Delhi-110001

4. Astonfield Renewables Pvt. Ltd. 716, 7th Floor, Dalamal Tower Nariman Point, Mumbai-400021 ...Respondents

Present:

For Appellant: Mr. Prithu Garg and Mr. Siddharth Mehta, Advocates

For Respondents: Mr. Amit Gupta, Resolution Professional

Ms. Pooja Mahajan and Ms. Mahima Singh, Advocates for R-1.

Mr. Ashish Rana, Advocate for R-2 (CoC). 2

JUDGMENT

BANSI LAL BHAT, J.

Vide order dated 3rd July, 2020 the Adjudicating Authority, National

Company Law Tribunal, New Delhi, Special Bench Court-II rejected

IA 1679/2019 filed in IB-940(ND)/2018, inter alia, on the ground that it

would not be appropriate for the Adjudicating Authority to deal with an

issue which is already sub-judice before the Hon'ble Apex Court. Through

the medium of this Appeal the Appellant-Kundan Care Products Ltd., who

has emerged as the Successful Resolution Applicant in Insolvency

Resolution Process of M/s Astonfield Solar (Gujarat) Pvt. Ltd. ('Corporate

Debtor') assails the impugned order rejecting its Application for withdrawal

of its Resolution Plan and cancellation/ revocation/ return/ refund of the

Performance Bank Guarantee, on the ground that there is no legal basis or

justification for holding that an application for withdrawal of a Resolution

Plan post approval is not maintainable and that the matter pending

consideration before Hon'ble Apex Court viz IA No.9682/2020 in Civil

Appeal No.9241/2019 was filed by the Appellant invoking Article 142 of the

Constitution of India seeking specific relief in alternate to the relief of

withdrawal of the Plan and same had no bearing on IA No.1679/2019

pending before the Adjudicating Authority.

2. It is submitted on behalf of Appellant that there is no basis or

justification for the finding that the Adjudicating Authority under the

Insolvency and Bankruptcy Code, 2016 has no power or jurisdiction to

allow withdrawal of a Resolution Plan post approval from the Committee of

Creditors (for short 'CoC'). It is submitted that the view adopted by the

Company Appeal (AT) (Insolvency) No. 653 of 2020 3

Adjudicating Authority runs parallel to the view taken by NCLT, Mumbai

Bench in Deccan Value Investors LP case, which has been upheld by this

Appellate Tribunal in Company Appeal (AT) No.1276/2019 decided on 27th

September, 2019. It is further submitted that I&B Code does not contain

any provisions to compel specific performance of a Resolution Plan by an

unwilling Resolution Applicant and a plea for withdrawal of a plan will have

to be accepted, if the plan is found to be unviable, unfit for implementation

or is either lacking provisions for its successful implementation or is based

on incorrect assumptions. It is further submitted that the Adjudicating

Authority has to be satisfied about the feasibility and viability of the

Resolution Plan and in the event of these relevant factors found lacking the

Adjudicating Authority may reject the Resolution Plan approved by CoC or

remit the case to CoC for reconsideration. It is lastly submitted that in the

instant case the approved Resolution Plan has been rendered commercially

unviable on account of delay in conclusion of CIRP and the Appellant could

not be prevented from withdrawing the same.

3. Per contra it is argued on behalf of Respondent No.1 ('Resolution

Professional') that the Appeal is not maintainable in view of the same being

squarely covered by the judgment of this Appellate Tribunal rendered in

"Committee of Creditors of Educomp Solutions Ltd. vs. Ebix

Singapore Pte. Ltd. & Anr." wherein it was held that after approval of the

Resolution Plan by the Committee of Creditors the Adjudicating Authority

has no jurisdiction to entertain or permit the withdrawal application filed

by the Resolution Applicant and that Adjudicating Authority cannot enter

into the arena of the majority decision of the Committee of Creditors. It is

Company Appeal (AT) (Insolvency) No. 653 of 2020 4

further submitted that there is no provision in the Code which allows

withdrawal of an approved Resolution Plan and provisions in the

Regulations for submission of Performance Bank Guarantee by a

Resolution Applicant while submitting its Resolution Plan is a provision to

discourage the Resolution Applicant from withdrawing its Resolution Plan.

The business decision of the CoC, based on their commercial wisdom is not

open to judicial review before the Adjudicating Authority or even before this

Appellate Tribunal. It is lastly submitted that the Resolution Plan of

Appellant was approved in preference to two other Resolution Applicants

for maximizing the value of Corporate Debtor and the Appellant cannot be

permitted now to scuttle the Corporate Insolvency Resolution Process of

the Corporate Debtor by walking away from its Resolution Plan which will

have the effect of pushing the Corporate Debtor into liquidation.

4. On behalf of Respondent No.2 (Committee of Creditors) it is

submitted that the I&B Code does not prescribe any provision for

withdrawal of Resolution Plan by the Resolution Applicant and the

Adjudicating Authority is not bestowed with any power to allow withdrawal

of the Resolution Plan. Allowing such prayer would be without jurisdiction.

It is further submitted that once the Resolution Plan has been approved, it

becomes a binding contract between the parties and the Successful

Resolution Applicant cannot be permitted to withdraw the same which will

have the effect of sending the Corporate Debtor into liquidation.

5. Heard learned counsel for the parties and considered their verbal

and written submissions in the backdrop of facts of the case and the

circumstances in which the impugned order came to be passed. It appears

Company Appeal (AT) (Insolvency) No. 653 of 2020 5

that in terms of the impugned order the Adjudicating Authority has

rejected the prayer emanating from the Resolution Applicant seeking

withdrawal of the Resolution Plan, which had been approved by the

Committee of Creditors and in respect whereof application under Section

31 of the I&B Code filed by the Resolution Applicant was pending

consideration before the Adjudicating Authority. The Adjudicating

Authority was of the view that it had no jurisdiction to permit withdrawal of

a Resolution Plan, which had been duly approved by the Committee of

Creditors. It has also been influenced by the fact that an issue of similar

nature was sub-judice before the Hon'ble Apex Court. It is brought to our

notice by learned Counsel for Respondent No.1 that the recent decision of

this Appellate Tribunal in "Committee of Creditors of Educomp

Solutions Ltd. Vs. EBIX Singapore Pte Ltd. - Company Appeal (AT)

(Insolvency) No.203 of 2020" squarely covers the present case where an

Appeal filed against order of Adjudicating Authority permitting withdrawal

of Resolution Plan by the Resolution Applicant, which had been approved

by the Committee of Creditors on the ground of the Resolution Plan having

been rendered commercially unviable on account of lapse of substantial

time and inordinate delay in Corporate Insolvency Resolution Process was

rejected by this Appellate Tribunal holding that the Adjudicating Authority

cannot enter into the arena of the majority decision of the Committee of

Creditors and once the Resolution Applicant has accepted the conditions of

Resolution Plan, it was not open to it to make a U-turn and wriggle out of

the liabilities imposed upon it under the Resolution Plan approved by the

Committee of Creditors. Para 95 of the aforesaid judgment rendered on

Company Appeal (AT) (Insolvency) No. 653 of 2020 6

29th July, 2020 relevant for purposes of disposal of this Appeal may be

extracted as under: -

"95. In the instant case, notwithstanding the fact only

upon the approval of the 'Adjudicating Authority' the

'Resolution Plan' of the 'Resolution Applicant' would be

binding on all the parties and further that the

application for withdrawal was filed by the 1st

Respondent/'Resolution Applicant' was filed earlier to

the stage of 'Approval' by the 'Adjudicating Authority'

yet this Court comes to an cocksure conclusion that the

'Adjudicating Authority', in law cannot enter into the

arena of the majority decision of the 'Committee of

Creditors' other than the grounds mentioned in Section

32 (a to e) of the 'I&B' Code. Moreover, after due

deliberations, when the 1st Respondent/'Resolution

Applicant' had accepted the conditions of the

'Resolution Plan' especially keeping in mind the

ingredients of Section 25(2)(h) of the 'Code' to the effect

that 'no change or supplementary information to the

'Resolution Plan' shall be accepted after the submission

date of 'Resolution Plan' then it is not open to the 1st

Respondent/'Resolution Applicant' to take a 'topsy

turvy' stance and is not to be allowed to withdraw

the approved 'Resolution Plan'."

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6. Before approval of a Resolution Plan by the Committee of Creditors

the Corporate Insolvency Resolution Process passes through various

stages. After admission of the Application under Section 7, 9 or 10 of the

I&B Code, IRP is appointed, moratorium is slapped prohibiting activities

enumerated in Section 14, public announcement is made, claims are

invited, received and collated by the Interim Resolution Professional,

Committee of Creditors is constituted and after appointment of Resolution

Professional Expression of Interest is floated inviting Resolution Plans

whereafter the Resolution Professional places all Resolution Plans before

the Committee of Creditors. After preparation of Information Memorandum

and examination of each Resolution Plan conforming the conditions laid

down in Section 30(2) of the I&B Code, the Resolution Professional is

required to present such compliant Resolution Plans to the Committee of

Creditors for its approval. The Committee of Creditors may approve a

Resolution Plan by a vote of not less than 66% of voting share of the

Financial Creditors after considering its feasibility and viability, the

manner of distribution proposed and other requirements as specified by

IBBI. This process is to be concluded within 180 days and in the event of

extension granted by the Adjudicating Authority for sufficient reasons, the

CIRR period may extend to 270 days with maximum outer limit of 330 days

including the period which may have been consumed by the judicial

intervention during the CIRP process. It is manifestly clear that I&B Code

provides for insolvency resolution in a time bound manner, the object

sought to be achieved, iner alia, being maximization of value of assets of

corporate persons and balancing the interests of all stake holders. Primacy

Company Appeal (AT) (Insolvency) No. 653 of 2020 8

is given to the Committee of Creditors, who are empowered to take a

business decision in regard to feasibility and viability of a Resolution Plan

based on their commercial wisdom, which is not justiciable as by now well

settled by a catena of rulings handed down by the Hon'ble Apex Court.

Intervention by the Adjudicating Authority is limited to compliance of the

Resolution Plan approved by the Committee of Creditors to requirements of

Section 30(2) and by this Appellate Tribunal in Appeal to grounds

embodied in Section 61(3) of the I&B Code. Reference in this regard may

be made to law laid down by the Honb'le Apex Court in K Shashidhar

vs. Indian Overseas Bank and Ors. reported in (2019) SccOnline SC

257.

7. Be it seen that the CIRP process undertaken involves filing of

Expression of Interest by the prospective Resolution Applicants which may

ultimately manifest in the form of prospective Resolution Plan after

negotiations as regards improvement or revision in terms of the proposed

Resolution Plan. This process is in the nature of a bidding process where,

based on consideration of the provisions of a Resolution Plan with regard to

financial matrix, capacity of the Resolution Applicant to generate funds,

infusion of funds, upfront payment, the distribution mechanism and the

period over which the claims of various stake holders are to be satisfied

besides the feasibility and viability of the Resolution Plan, a Resolution

Applicant emerges as the highest bidder (H1) eliminating the Resolution

Plans of Resolution Applicants, which are ranked H2 and H3. The

approval of a Resolution Plan by the Committee of Creditors with requisite

majority has the effect of eliminating H2 and H3 from the arena. Though,

Company Appeal (AT) (Insolvency) No. 653 of 2020 9

such approved Resolution Plan would be binding on the Corporate Debtor

and all stake holders only after the Adjudicating Authority passes an order

under Section 31 of the I&B Code approving the Resolution Plan submitted

by Resolution Professional with the approval of Committee of Creditors in

terms of provisions of Section 30(6) of the I&B Code, it does not follow that

the Successful Resolution Applicant would be at liberty to withdraw the

Resolution Plan duly approved by the Committee of Creditors and laid

before the Adjudicating Authority for approval thereby sabotaging the

entire Corporate Insolvency Resolution Process, which is designed to

achieve an object. A Resolution Applicant whose Resolution Plan stands

approved by Committee of Creditors cannot be permitted to alter his

position to the detriment of various stake holders after pushing out all

potential rivals during the bidding process. This is fraught with disastrous

consequences for the Corporate Debtor which may be pushed into

liquidation as the CIRP period may by then be over thereby setting at

naught all possibilities of insolvency resolution and protection of a

Corporate Debtor, moreso when it is a going concern. That apart, there is

no express provision in the I&B Code allowing a Successful Resolution

Applicant to stage a U-turn and frustrate the entire exercise of Corporate

Insolvency Resolution Process. The argument advanced on behalf of the

Appellant that there is no provision in the I&B Code compelling specific

performance of Resolution Plan by the Successful Resolution Applicant has

to be repelled on four major grounds: -

Company Appeal (AT) (Insolvency) No. 653 of 2020 10

(i) There is no provision in the I&B Code entitling the

Successful Resolution Applicant to seek withdrawal after

its Resolution Plan stands approved by the Committee of

Creditors with requisite majority;

(ii) The successful Resolution Plan incorporates contractual

terms binding the Resolution Applicant but it is not a

contract of personal service which may be legally

unenforceable;

(iii) The Resolution Applicant in such case is estopped from

wriggling out of the liabilities incurred under the

approved Resolution Plan and the principle of estoppel

by conduct would apply to it;

(iv) The value of the assets of the Corporate Debtor is bound

to have depleted because of passage of time consumed in

Corporate Insolvency Resolution Process and in the

event of Successful Resolution Applicant being permitted

to walk out with impunity, the Corporate Debtor's

depleting value would leave all stake holders in a state of

devastation.

8. We are of the considered opinion that the sanctity of resolution

process has to be maintained and the Resolution Applicant whose

Resolution Plan has been approved by Committee of Creditors cannot be

permitted to withdraw its Resolution Plan. Provision for submission of a

Performance Bank Guarantee by a Resolution Applicant while submitting

Company Appeal (AT) (Insolvency) No. 653 of 2020 11

its Resolution Plan, as required under the amended provisions of IBBI

(Insolvency Resolution Process of Corporate Persons) Regulations, 2016 is

a step in this direction but may not be deterrent enough to prevent a

Successful Resolution Applicant from taking a U-turn. Reliance placed by

the Appellant on judgment rendered by this Appellate Tribunal in

"Committee of Creditors of Metalyst Forging Ltd. Vs. Deccan Value

Investors LP & Ors. - Company Appeal (AT) (Insolvency) 1276 of 2019

decided on 7th February, 2020" is of no consequence as in that case the

Resolution Plan approved by the Committee of Creditors was found to be

violative of Section 30(2)(e) of the I&B Code. It is in the context of such

infirmity that this Appellate Tribunal had observed that the Adjudicating

Authority could not compel specific performance of a plan by an unwilling

Resolution Applicant. Such observations cannot be treated as a ratio to be

followed as a precedent. The facts were entirely different and contravention

of Section 30(2)(e) was found to have been established in that case. Same

has no resemblance or comparison with the facts of the instant case where

the Resolution Plan approved by the Committee of Creditors is still

awaiting approval of the Adjudicating Authority. Therefore, no reliance can

be placed on the observations made in the aforesaid ruling. We may also

add that the approved Resolution Plan admittedly does not have a

provision which could be treated as a contract of personal service

rendering the same unenforceable or of a nature in respect of which

specific performance cannot be an appropriate remedy. This feature of the

plan also distinguishes it from the one which was the subject matter in the

aforestated Appeal decided by this Appellate Tribunal.

Company Appeal (AT) (Insolvency) No. 653 of 2020 12

9. Having regard to the forgoing discussion, we find no merit in this

Appeal. The Appellant has failed to demonstrate that the impugned order

suffers from any legal infirmity. The Appeal being devoid of merit is

dismissed. No order as to costs.

[ Justice Bansi Lal Bhat] Acting Chairperson

[ Justice Anant Bijay Singh ] Member (Judicial)

[ Dr. Ashok Kumar Mishra ] Member (Technical)

New Delhi

30th September, 2020.

Ash.

Company Appeal (AT) (Insolvency) No. 653 of 2020