M/S. Nirmal Ujjwal Credit Co-Operative ... vs Ravi Sethia

(Arising out of the Order dated 09.04.2024 passed by the National Company Law Tribunal, Mumbai Bench-I in I.A. No. 880 of 2025 in C.P. (IB) No. 1318/MB/2022)

IN THE MATTER OF:

M/s. Nirmal Ujjwal Credit Co-operative Society Ltd., 193, Nandanvan Main Road, Nagpur - 440 009 Email ID: nirmalujjwal@gmail.com ...Appellant

Versus

1. Ravi Sethia Resolution Professional for Morarjee Textile Ltd. KPMG Restructuring Service LLP, Building No.10, Tower C 8th Floor, DLF Cyber City, Phase II, Gurgaon, Haryana ,122002 Email ID: cirpmorarjee@kpmg.com, ravisethia@kpmg.com ...Respondent No. 1

2. Shriniwas Spintex Industries Pvt Ltd Through Mr. Govind Rathi H. No. 9, Gandhi Ward, Hinganghat, Maharashtra, - 442301. E-mail - shriniwasginning@gmail.com ...Respondent No. 2

3. Committee of Creditors Of M/s. Morarjee Textiles Limited Having Registered Office: 242, Floor -G-1, New Mahalaxmi Silk Mill, Harishchandra L Nagoankar Marg, Mathuradas Mills Compound, Lower Parel , Mumbai, Maharashtra, India - 400013 ...Respondent No. 3 Comp. App. (AT) (Ins.) No. 790 OF 2025

Present

For Appellant: Mr Arun Kathpalia ,Sr. Advocate along with Mr. Akash Agarwalla, Mr Kanishk Khullar, Ms. Pooja Singh, Ms. Honey Satpal, Mr. Aniruth Purushothaman, Advocates.

For Respondents: Mr Abhijeet Sinha, Sr. Advocate along with Mr. J. Rajesh, Mr. Dhrupad Vaghani, Mr. Yash Wardhan Agarwal & Mr. Md. Arsalan Ahmed.

Mr Saiket Sarkar, Ms. Prachi Johri, Mr Sharad Agnihotri for Intervenor IA. 3867/25.

Mr Krishnendu Datta, Sr. Advocate along with Mr. Jatin Kumar, Mr. Pashray Chaudhary & Mr. Yash Tandon for SRA.

Mr. Gopal Jain, Sr. Advocate along with Mr. Rajesh Kumar Gautam, Ms. Likivi K Jakhalu, Mr. Deepanjal Choudhary & Mr. Dinesh Sharma, for CoC.

JUDGEMENT

( 21.08.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e. Nirmal Ujjwal

Credit Co-Operative Society Limited under Section 61 of the Insolvency and

Bankruptcy Code, 2016 ('Code') against the Impugned Order dated 09.04.2025

passed by the National Company Law Tribunal, Mumbai Bench ('Adjudicating

Authority'), in I.A. No. 880 of 2025 in C.P.(IB) No. 1318 (MB)/2022.

Page 2 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

2. Ravi Sethia, who is the Resolution Professional for Morarjee Textile Ltd,

is the Respondent No.1No.1 herein.

Shriniwas Spintex Industries Pvt. Ltd. who is the Successful Resolution

Applicant is the Respondent No.2 herein.

Committee of Creditors (CoC) is the Respondent No.3 herein.

3. The Appellant submitted that it is a Cooperative Society registered under

the Multi-State Cooperative Societies Act, 2002 (the "2002 Act"), established as

a 'body corporate' under Section 9 thereof, constituting a separate legal entity.

The Appellant submits that one of its verticals of permitted business for profit is

the textile business, operated under the name and style of 'Nirmal Textiles'.

4. The Appellant submitted that the Corporate Insolvency Resolution Process

('CIRP') of M/s. Morarjee Textiles Limited (the "Corporate Debtor")

commenced on 09.02.2024, and the Appellant, meeting the eligibility criteria

with a net worth exceeding Rs. 123.29 Crores (against the minimum Rs. 25

Crores), submitted its Expression of Interest ('EoI') on 18.05.2024. The

Appellant was included in the provisional list of Prospective Resolution

Applicants ('PRAs') on 23.06.2024 and the final list on 02.07.2024. The

Appellant submitted its Resolution Plan, participated in CoC meetings (including

the 13th CoC on 12.11.2024, 16th CoC on 09.12.2024, and 18th CoC on

03.01.2025), and improved its offer to Rs. 170 Crores, which is higher than the

next offer of Rs. 156 Crores, thereby maximizing stakeholder value.

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Comp. App. (AT) (Ins.) No. 790 OF 2025

5. The Appellant contended that the Resolution Professional (RP)

erroneously rejected its eligibility on 10.02.2025 citing: (a) disqualification of

Director Mr. Pramod Manmode under Section 164(2) of the Companies Act,

2013; (b) restrictions under Section 64 of the Multi-State Cooperative Societies

Act, 2002 (the "2002 Act"); and (c) Bye-Law 52 (incorrectly referred to as 53) of

the Appellant. The Appellant submitted that Adjudicating Authority rightly

resolved Issue No. I in the Appellant's favor, holding no disqualification under

Section 29A of the Code read with Section 164(2)(a) of the Companies Act, 2013,

as the disqualification ceased on 28.11.2023. The Appellant submits that the

impugned order however erred on Issue II by wrongly holding the Appellant

incapable of investing in the Corporate Debtor due to misinterpretation of the

2002 Act and the Appellant's Bye-Laws.

6. The Appellant submitted that the impugned order wrongly held that no

general body resolution was placed on record to promote the Corporate Debtor as

a subsidiary. The Appellant contends that its General Body, at the 35th Annual

General Meeting on 23.09.2024, passed a resolution authorizing participation in

the CIRP. Further, the Appellant's Resolution Plan expressly states the intent to

make the Corporate Debtor a subsidiary, which can be effected through

amendable Bye-Laws under Section 11 of the 2002 Act and Clause 28(M) of the

Appellant's bye-laws. The Appellant asserts that no separate resolution is

mandatorily required at the Resolution Plan stage, and the impugned order's

Page 4 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

presumption of non-amendment is unfounded, as there is no denial by the

Appellant to amend its Bye-Laws.

7. The Appellant contends that the impugned incorrectly interpreted Section

64(d) with Section 19 of the 2002 Act. The Appellant submits that Section 64(d)

permits investment in shares, securities, or assets of a "subsidiary institution or

any other institution in the same line of business as the multi-state cooperative

society." The words "any other institution" expansively cover institutions

registered under any law in force, including companies under the Companies Act,

2013, and not merely subsidiaries or financial institutions as narrowly construed.

The Appellant asserts that Section 19 allows promotion of subsidiaries registered

under any law, rendering the Corporate Debtor (engaged in cotton and man-made

fabrics, akin to the Appellant's agro-based cotton processing) eligible for

investment. The impugned order's isolation of Section 64 from Section 19 adopts

a narrow interpretation, omitting the broader spectrum intended by "any other

institution.

8. The Appellant submits that the impugned order erroneously interpreted

Clause 5(s) of its bye-laws as restrictive, limiting the Appellant to agro-products

only. The Appellant contends that Clause 5(s) is an enabling provision

empowering the Appellant to purchase, distribute, and process agro-products,

without restricting investments in textiles. The Appellant asserts that the

Corporate Debtor's business in cotton fabrics qualifies as agro-based, as

recognized in judicial precedents like Shree Meenakshi Mills Ltd. v. Union of

Page 5 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

India (1974) 1 SCC 468 (holding textiles include cotton yarn and cloth) and the

Maharashtra Textile Policy 2018-23 (classifying cotton ginning/pressing as agro-

based, distinct from but within textiles). The impugned order's distinction

between agro-based cotton and man-made fibers ignores this classification and

fails to conclude that the Appellant is barred from non-agro businesses.

9. The Appellant submitted that Section 11 of the 2002 Act and Clause 28(M)

of its Bye-Laws permit amendments to align with business requirements,

including making the Corporate Debtor a subsidiary. Such amendments do not

violate the 2002 Act, and the Appellant's express intent in the Resolution Plan

suffices. The impugned order's deprivation of this right infringes the Appellant's

fundamental right to trade under Article 19(1)(g) of the Constitution of India.

10. The Appellant submitted that the RP's decision dated 10.02.2025 was

premised on Clause 52 of the Appellant's bylaws not aligning with Section 64(d)

of the 2002 Act, as Section 64 uses the phrase 'any other institution', which Clause

52 purportedly lacked.

11. The Appellant contended that the CoC took no decision on the Appellant's

eligibility in its 21st or 22nd meetings, leaving the issue open before the CoC.

The Appellant submits that the RP's unilateral decision is bad in law.

12. The Appellant contended that it runs its textile business under 'Nirmal

Textile' based on 100% cotton as raw material and has a Spinning Unit. The

Appellant submitted that it is within the Resolution Applicant's purview to decide

the nature of business in the Corporate Debtor to maintain it as a going concern.

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Comp. App. (AT) (Ins.) No. 790 OF 2025

The Appellant relies on this Appellate Tribunal's judgment in the matter of Next

Orbit Ventures Fund v. Print House India Pvt. Ltd. & Ors., passed in Company

Appeal (AT) (Insolvency) No. 417 of 2020, holding that nothing in the Code

prevents a Resolution Applicant from changing the line of business to add value,

create synergy, or convert obsolete business to viable and feasible operations,

13. The Appellant contended that it submitted Resolution Plan and reflected

its intent to make the Corporate Debtor as its subsidiary of the Appellant upon

approval, i.e., by acquiring majority shareholding. The Appellant submitted that

Appellant explanation to Section 19 of the 2002 Act clarifies that control of

management, board of directors, or governing body deems an entity a subsidiary

institution.

14. The Appellant submitted that the Adjudicating Authority erred in

interpreting Section 64(d) of the 2002 Act by omitting the phrase "or any other

institution" following "subsidiary institution." Section 64(d) of 2002 Act, allows

investment in shares, securities, or assets of any other institution in the same line

of business, and this broader language cannot be ignored.

15. The Appellant contended that the RP/CoC are not empowered to adjudicate

business eligibility or interpret legal constraints beyond the Code's scope, as held

by the Hon'ble Supreme Court in the matter of Arcelormittal India Pvt. Ltd. v.

Satish Kumar Gupta & Ors., [(2019) 2 SCC 1].

16. The Appellant submitted that Section 64(d) of the 2002 Act is an enabling

provision allowing investment in "shares, securities or assets of a subsidiary

Page 7 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

institution or any other institution" in the same line of business. The Appellant

further contended that Section 19 of the 2002 Act allows cooperative societies to

promote subsidiary institutions registered under any law, including the

Companies Act, 2013.

17. The Appellant submitted that it approached the Adjudicating Authority

challenging the RP's decision dated 10.02.2025, prior to CoC approval of the

SRA's Resolution Plan. The Appellant contended that the RP's unilateral side

lining of the Appellant post-negotiation and highest bid constitutes material

irregularity. The Appellant submitted that it relies on the Hon'ble Supreme Court

in the matter of Ngaitlang Dhar v. Panna Pragati Infrastructure Private Limited

passed in Civil Appeal Nos. 3742-3743 of 2020, holding that 'material

irregularities' relate to procedural defects and decision-making manner.

18. The Appellant contended that M.K. Rajagopalan v. S. Rajendran, RP

Vasan Health Care Pvt. Ltd. and Anr., passed in IA No. 215 of 2023 in Company

Appeal (AT) (CH) (INS) No. 58 of 2023 does not apply here, as Section 61(3)(ii)

of the Code provides 'material irregularity' as a ground for challenge. The

Appellant submitted that, with no CoC decision and irregular RP procedure, the

CoC cannot retroactively claim a decision via submissions before this Appellate

Tribunal, as held in the matter of Mohinder Singh Gill v. Chief Election

Commissioner passed in Civil Appeal No. 1297 of 1977.

19. The Appellant submitted that, as few developments occurred post-

reservation of the matter for orders by this Appellate Tribunal on 15.07.2025, the

Page 8 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Appellant filed an Interlocutory Application with E-Filing number

9910138/06622/2025 on 21.07.2025 to bring new facts and documents on record,

but this Appellate Tribunal did not allow same during mentioning by the

Appellant on 22.07.2025. The Appellant submitted that it relied on the judgment

of the Hon'ble Supreme Court in State Bank of India & Ors. v. S.N. Goyal, Appeal

(Civil) 4243-4244 of 2004, holding that a quasi-judicial authority becomes

functus officio only when its order is pronounced, published/notified, or

communicated to the party concerned.

20. Concluding his arguments, the Appellant requested this Appellate Tribunal

to set aside the Impugned Order and to allow the appeals.

21. Per contra, the Respondent No.1denied all averments made by the

Appellants as misleading and baseless.

22. The Respondent No.1 contended that, in accordance with the Code and the

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for

Corporate Persons) Regulations, 2016 ("CIRP Regulations"), Form G was

published on 1st May 2024, with the last date for submission of Expression of

Interest (EoI) as 22nd May 2024. Thereafter, in consultation with the CoC, Form

G was amended on 23rd May 2024, extending the EoI submission deadline to 12th

June 2024 and the resolution plan submission to 19th July 2024.

23. The Respondent No.1 submitted that, in accordance with Regulation 36A

of the CIRP Regulations and based on documents submitted by the Appellant, a

provisional list of Prospective Resolution Applicants (PRAs) was issued on 23rd

Page 9 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

June 2024, including the Appellant. In the absence of objections, the Appellant

was included in the final list on 2nd July 2024, as per Regulation 36A(10) and

(12) of CIRP Regulations.

24. The Respondent No.1 submitted that the Appellant submitted its initial

resolution plan on 27th August 2024, in accordance with the Request for

Resolution Plan (RFRP). The Respondent No.1 further submitted that, during the

10th CoC meeting on 1st October 2024. Axis Bank Limited raised concerns about

the Appellant's eligibility as a financial institution governed by the 2002 Act.

Vide email dated 11th November 2024, the Respondent No.1 sought clarification

on the Appellant's eligibility and status of cases against its promoter/director

under Section 29A of the Code, with a follow up on 17 th November 2024. The

Respondent No.1 contended that, after persistent follow-ups, the Appellant

responded on 18th November 2024 and 26th November 2024, stating it could

participate as a cooperative society. The Respondent No.1 further stated that the

CoC called for revised plans by 11th November 2024, and the Appellant submitted

a revised plan while participating, despite unconfirmed eligibility.

25. The Respondent No.1 submitted that he reviewed the Resolution Plan of

the Appellant under Section 30(2) of the Code read with Regulations 38 and 39

of the CIRP Regulations and vide email dated 27th November 2024, he shared a

compliance checklist raising eligibility concerns and seeking pending documents

under the RFRP, with follow-ups. The Respondent No.1 stated that PRAs,

Page 10 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

including the Appellant, submitted final plans by 2nd January 2025, with the

Appellant providing a legal opinion on eligibility on that date.

26. The Respondent No.1 contended that Clause 52 of the Appellant's bylaws

limits investments to: Cooperative Banks; Securities under Section 20 of the

Indian Trust Act, 1882; Shares and Securities of other Cooperative

Societies/Subsidiary institutions; and any other Scheduled Bank/Nationalised

Bank. Further, the Respondent No.1 submitted that Clause 5(s) of the bylaws

specifies the Appellant's main objectives as purchasing, producing, and

distributing agro products, and making modern techniques available for

processing agro products. The Respondent No.1 contended that the bylaws do not

permit investment in the Corporate Debtor, a textile company, rendering the

Appellant ineligible. The 2002 Act limits investments to specified institutions,

excluding the textile industry, not in the same line as the Appellant's business.

The Respondent No.1 contended that Section 9 of the 2002 Act constitutes the

Appellant as a body corporate to do things necessary for its purpose, but the

bylaws and Section 64 of 2002 Act prohibit the Appellant to make investment in

textiles business of the Corporate Debtor.

27. The Respondent No.1 contended that the Appellant's eligibility as a

cooperative society under the 2002 Act was discussed in the 14th, 15th, 16th, and

21st CoC meetings. The Respondent No.1 contended that the CoC decided on

eligibility in the 22nd meeting on 4th February 2025, where RP and CoC counsel

analyzed bylaws and applicable laws, concluding ineligibility due to non-

Page 11 of 48

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permission for acquisition, contravening compliance with laws. The Respondent

No.1 submitted that the CoC decision relied on compliance reports from RP and

CoC counsel noting ineligibility under bylaws and 2002 Act. The Respondent

No.1 contended that the CoC, after declaring ineligibility, approved Shrinivas

Spintex Industries Private Limited's plan in the 22nd meeting, authorizing the RP

to file IA/Plan/45/2025 for Adjudicating Authority approval.

28. The Respondent No.1 contended that the Appellant's intent to amend

bylaws would misuse process, as eligibility is to be checked at plan submission

stage as held by the Hon'ble Supreme Court of India in Bank of Baroda & Anr.

v. MBL Infrastructure Limited & Ors., holding subsequent ineligibility governs

if continuing till approval. The Respondent No.1 submitted that the Resolution

Plan submitted by the Appellant contravenes Section 30(2)(e) of the Code, as the

Appellant lacked authority. The Respondent No.1 further contended that

amending bylaws would ratify an ultra vires act, not permissible. The RP's duty

is to opine on compliance, and the CoC decides eligibility as per the Hon'ble

Supreme Court in Arcelormittal India Private Limited (Supra).

29. The Respondent No.1 submitted that Section 64(d) of the 2002 Act allows

investment in subsidiary or other institutions in the same line, but the Appellant

is ineligible on both. The Respondent No.1 contended that the Impugned Order

read "any other institution" as subsidiary, as "institution" conjoins with

"financial" or "subsidiary". The Respondent No.1submitted that the Appellant

failed to demonstrate its involvement in textiles business as of the Corporate

Page 12 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Debtor and the Corporate Debtor handles cotton and man-made fabrics, beyond

raw cotton conversion, including synthetic processes. The Respondent No. 1

stated that textile industry is not exclusively agro-based.

30. Concluding his arguments, the Respondent No.1 requested this Appellate

Tribunal to dismiss the appeal.

31. The Respondent No. 2 submitted that upon passing of the Impugned

Order, the Resolution Professional issued a Letter of Intent dated 09.04.2025 in

favour of the Respondent No. 2, declaring it the Successful Resolution Applicant,

as its resolution plan secured 75.61% affirmative votes of the CoC. The

Respondent No. 2 tendered a Performance Bank Guarantee of Rs. 20 Crores to

the RP, in accordance with the RFRP and CIRP Regulations.

32. The Respondent No. 2 contended that in view of the CoC's approval of its

resolution plan, the Company Appeal does not survive, as it effectively challenges

the CoC's decision, which is impermissible under law, relying on M.K.

Rajagopalan (Supra), where this Appellate Tribunal held that an unsuccessful

Resolution Applicant lacks locus to assail a Resolution Plan or its

implementation, not being a stakeholder under Section 31(1) of the Code or an

aggrieved person under Section 61(1) of the Code.

33. The Respondent No. 2 submitted that even pending approval under Section

31 of the Code, the approved resolution plan is binding on all stakeholders,

relying on Ebix Singapore Private Limited v. Committee of Creditors of

Educomp Solutions Limited & Anr., passed in Civil Appeal No. 3224 of 2020,

Page 13 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

where the Hon'ble Supreme Court held that a Resolution Plan is binding inter se

the CoC and successful Resolution Applicant prior to Adjudicating Authority

approval, not construable as a mere contract under the Contract Act, but

producing binding effects under the IBC framework.

34. The Respondent No. 2 submitted that Clause 5(s) of the Appellant's bylaws

limits its purpose to: "To purchase, produce, procure, distribute the agro products

for the processing of product and by product. It is also proposed to make available

to members modern technique used in processing of agro products and other

activities in processing sector." The Respondent No. 2 contended that this clause

limits the Appellant to activities directly related to agricultural products and their

processing, precluding endeavors outside "agro products."

35. The Respondent No. 2 submitted that the Corporate Debtor produces

cotton and man-made fibers such as Viscose with activities including Yarn

Manufacturing (Spinning), Fabric Manufacturing (cotton, modal, viscose),

Dyeing, Printing, Processing and Finishing, and Design and Product

Development. The Respondent No. 2 contended that significant portions of the

Corporate Debtor's activities, involving man-made fibers and processing into

fabric, are not agro-based but industrial manufacturing of synthetic and blended

textiles and the Corporate Debtor's industry does not align with Clause 5(s) of the

Appellant's bylaws.

36. The Respondent No. 2 contended that due to the mismatch between the

Appellant's bylaw-mandated scope and the Corporate Debtor's operations, the

Page 14 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Resolution Professional correctly determined the Appellant legally constrained

from tendering a resolution plan, and its disqualification from the CIRP is devoid

of legal infirmity.

37. The Respondent No. 2 contended that the Appellant's admission in its

Appeal of intending to amend bylaws to acquire the Corporate Debtor as a

subsidiary confirms the current bylaws prohibit such acquisition, validating

disqualification at the time of EoI and plan submission. The Respondent No. 2

submitted that the said admission by the Appellant implies the amendment

process under Section 11 of the 2002 Act could cripple the CIRP and

implementation, as current bylaws prohibit investment in the Corporate Debtor.

The Respondent No. 2 contended that Section 11 of the 2002 Act timelines

include: 15 clear days' notice for general meeting; resolution by two-thirds

majority; application to Central Registrar within 60 days; disposal by Central

Registrar within 3 months; forwarding of registered amendment within 1 month,

potentially taking 195 days.

38. The Respondent No. 2 submitted that amending bylaws requires two-thirds

majority at a general meeting, challenging given the Appellant's thousands of

members in Vidarbha Region and Maharashtra, consuming weeks or months. The

Respondent No. 2 contended that even with majority vote, validity is subject to

Central Registrar's discretionary approval under Section 11(7) of the 2002 Act,

assessing compliance with the Act, cooperative principles, and members'

economic interests. The Respondent No. 2 submitted that rejection by members

Page 15 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

or Central Registrar would render the plan unimplementable, leading to

liquidation, defeating the Code's objective of resolution over liquidation.

39. The Respondent No. 2 contended that the Adjudicating Authority observed

the Appellant failed to submit any resolution complying with Section 19(1) of the

2002 Act, rendering the plan in contravention of law. Even in the Company

Appeal, no such resolution pre-dating plan submission is on record. The

Respondent No. 2 submitted that such resolution is prerequisite for acquiring or

promoting the Corporate Debtor as a subsidiary under the Code.

40. The Respondent No. 2 submits that the Appellant is a multi-state

cooperative society under the 2002 Act, with Mr. Pramod Manmode as promoter.

It is submitted that Mr. Manmode is accused in multiple FIRs across Nagpur

police stations. The Respondent No. 2 submitted that a Show Cause Notice dated

13/09/2023 from the Central Registrar alleges financial irregularities, fund

diversion, violations of the 2002 Act, and failure to submit annual filings,

impacting the Appellant's feasibility and viability to implement a plan. The

Respondent No. 2 submitted that outstanding issues regarding Mr. Manmode and

the Appellant's financial probity raise questions about trustworthiness and

execution capacity, justifying exclusion to safeguard stakeholders and ensure

effective resolution.

41. Concluding his arguments, the Respondent No.2 submitted that the

Impugned Order is just, fair and legal and therefore this appeal deserves to be

dismissed.

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42. The Respondent No. 3 contended that the Adjudicating Authority's order,

upholding the RP's decision communicated as per the CoC's resolution in the

22nd CoC Meeting on 04.02.2025, is well-reasoned and merits no interference.

The Respondent No. 3 submits that the Adjudicating Authority, in paragraph

4.3.3, held that the CoC must consider the implications of legal cases against the

Appellant and its members on the Resolution Plan's feasibility and viability, and

that the Appellant's bylaws lack clarity to expand its agro-based scope to promote

a subsidiary institution, rendering the CoC's eligibility decision non-justiciable.

43. The Respondent No. 3 submitted that the Appellant's claim of eligibility

to submit the Resolution Plan is without merit, as the CoC's decision, based on

legal opinions and CoC own discussions is non-justiciable, per the Hon'ble

Supreme Court in K. Sashidhar v. Indian Overseas Bank [(2019) 12 SCC 150],

which held that the CoC's commercial wisdom in rejecting a Resolution Plan is

non-justiciable, and the Adjudicating Authority lacks jurisdiction to evaluate such

decisions.

44. The Respondent No. 3 submitted that even if the Appellant were eligible,

the CoC's majority decision in the 21st (21.01.2025) and 22nd (04.02.2025 and

05.02.20250 CoC meetings, finding the Appellant's Resolution Plan not feasible

and viable, is non-justiciable under Section 30(4) of the Code, as the Adjudicating

Authority correctly declined interference. The Respondent No. 3 submitted that

under Section 30(2)(e) of the Code, the RP and CoC are obligated to ensure

Resolution Plans comply with applicable laws.

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45. The Respondent No. 3 submitted that the Appellant's admission in

paragraph 4.2.6 of the impugned order, intending to acquire and run the Corporate

Debtor for profit, confirms the Corporate Debtor is not currently a subsidiary,

violating Clause 52 of the By-laws. The Respondent No. 3 contends that Sections

65-68 of the 2002 Act restrict transactions with non-members, and as the

Corporate Debtor is not a member, the Appellant is barred from investing in the

shares of the Corporate Debtor.

46. The Respondent No. 3 submitted that the Appellant's reliance on Section

64(d) of the 2002 Act, allowing investment in shares, securities, or assets of a

subsidiary or other institution in the same line of business, is misplaced, as Clause

52 of the Bylaws does not incorporate this provision. The Appellant cannot rely

on Section 64(d) of the 2002 Act without amending Clause 52 of the Bylaws,

approved by the Central Registrar, and even then, the Corporate Debtor's textile

business does not align with the Appellant's credit society operations.

47. The Respondent No. 3 contended that the Appellant's admission of intent

to amend bylaws to make the Corporate Debtor a subsidiary, acknowledges

current bylaws prohibit such investment, rendering the Resolution Plan non-

compliant with Section 30(2)(e) of the Code.

48. The Respondent No. 3 submitted that the 22nd CoC Meeting on 04-

05.02.2025 noted the RP's and CoC's Legal Counsel's opinions that the

Appellant's Resolution Plan does not comply with the Code. The CoC decided

the plan was non-compliant and discussed forfeiture of the Appellant's EMD.

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The Respondent No. 3 submitted that the CoC's decision in the 22nd Meeting,

finding the Appellant's plan non-compliant, is unassailable, and the Adjudicating

Authority rightly upheld the RP's communication dated 10.02.2025. The

Respondent No. 3 contended that under Section 30(4) of the Code, the CoC is

duty-bound to assess the feasibility and viability of compliant plans. The

Appellant's plan, being non-compliant, was correctly excluded from voting.

49. Concluding his arguments, the Respondent No.3 requested this Appellate

Tribunal to dismiss the appeal.

Findings

50. We have already noted the facts of the case while recording the

submissions made by the parties herein above. Based on the pleadings before us,

as well as submissions made by the various parties, the following issues emerge

which are required to be determined in order to decide the present appeal.

Issue No. I Whether, the Appellant was entitled to be treated as eligible

resolution applicant to submit its EoI/ RFRP.

Issue No. II Whether the Appellant's bye-laws restricted its activities to

agro based activities.

Issue No. III Whether the Appellant bye-laws restricted the Appellant to

invest in the Corporate Debtor.

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Issue No. IV Whether, the Appellant was in the same line of business as of

Corporate Debtor in order to make the Appellant eligible to submit the Resolution

Plan.

Issue No. V Whether, the bye-laws of the Appellant as available at the

time of submission of the Resolution Plan, entitled the Appellant to submit the

Resolution Plan in accordance with 2002 Act and bye-laws of the Appellant.

Issue No. VI Whether, the CoC can exercise commercial wisdom in

deciding eligibility of the Appellant to submit the Resolution Plan.

Issue No. VII Whether, the Adjudicating Authority has wrongly interpreted

Section 64(d) of 2002 Act.

Issue No. VIII Whether the Adjudicating Authority has misinterpreted and

mis applied the Appellant bye-laws in declaring the Appellant as non-suited for

submitting the Resolution Plan.

Issue No. IX Whether the Adjudicating Authority ignored the Appellant

intention to make the Corporate Debtor its subsidiary and its intent to amend its

bye- laws and thus ignored eligibility of the Appellant to submit Resolution Plan.

51. Since, all these issues are inter-dependent, inter-connected and inter-

related, we shall deal these issues in conjoint and combined manner in the

following discussions. At the outset, we note that all such points arise out of

eligibility/ ineligibility of the Appellant as valid Resolution Applicant entitling

itself to submit the Resolution Plan.

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52. It is the case of the Appellant that CIRP of the Corporate Debtor i.e., M/s

Morarji Textile Limited commenced vide order dated 09.02.2024 and

subsequently Resolution Professional invited EoI from prospective Resolution

Applicant in terms of Section 25(2) (h) of the Code and the Appellant being

eligible submitted its EoI on 18.05.2024. The Appellant stated that according to

eligibility criteria of EoI, the minimum consolidated networth of Rs. 25 Crores at

group level was required wherein the Appellant had networth of Rs. 123.29

Crores at relevant period, hence, the Appellant met the required criteria. The

appellant brought to our notice that RP circulated provisional list PRAs on

23.06.2024, which included Appellants name and RP issued final list of PRAs on

02.07.2024, in which again the name of the Appellant was correctly included.

53. The Appellant submitted that in its 35th Annual General Meeting held on

23.09.2024, members of the Appellant deliberated and passed a resolution

authorising the Appellant to participate in the CIRP, based on which, the

Appellant submitted its Resolution Plan. It is the case of the Appellant that it

was invited and therefore, participated in various CoC Meetings including 13th

CoC Meeting held on 12.11.2024, 16th CoC on 09.12.2024 & 18th CoC Meeting

on 03.01.2024, wherein the Appellant was requested to improve the offer which

he did. The Appellant assailed the conduct of the RP who vide e-mail dated

10.02.2025, communicated the Appellant about its ineligibility citing three

reasons. We note these three reasons as per Appellant are following :-

Page 21 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

(a) Alleged disqualification of Mr Pramod Manmode who held the position of

the Director in the Appellant under Section 164 (2) of the Companies Act, 2013.

(b) The Appellant was found ineligible based on Section 64 2002 Act.

(c) The Appellant was treated as ineligible in terms of clause 52 of bye-laws

clause of the Appellant, which according to RP restricted the Appellant's

investment avenues to specified limited options, which significantly excluded the

Appellant to invest in the Corporate Debtor.

54. We note that the Appellant has challenged its rejection by the RP being

PRA vide IA No. 880 of 2025 before the Adjudicating Authority and the

Adjudicating Authority rejected the same vide Impugned Order dated

09.04.2025. We observe that while Adjudicating Authority vide Impugned Order

as rejected the RP's contentions regarding alleged eligibility of the Applicant

under Section 29A of the Code, however, the Impugned Order declared Appellant

to be ineligible to invest in Corporate Debtor in terms of bye- laws of the

Appellant and 2002 Act.

55. Since, the Appellant has been found to be ineligible in terms of relevant

sections of 2002 Act, we would like to take into consideration these relevant

Sections which reads as under :-

"Section 11- Amendment of bye-laws of a multi-State co- operative society.--

(1) No amendment of any bye-law of a multi-State co-

operative society shall be valid, unless such amendment has been registered under this Act.

Page 22 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

(2) The amendment to the bye-laws of a multi-State co-

operative society shall be made by a resolution passed by a two-third majority of the members present and voting at general meeting of the society.

(3) No such resolution shall be valid unless fifteen clear days' notice of the proposed amendment has been given to the members.

(4) In every case in which a multi-State co-operative society proposes to amend its bye-laws, an application to register such amendments shall be made to the Central Registrar together with--

(a) a copy of the resolution referred to in sub-section (2);

(b) a statement containing the particulars indicating--

(i) the date of the general meeting at which the amendments to the bye-laws were made;

(ii) the number of days' notice given to convene the general meeting;

(iii) the total number of members of the multi-State co- operative society; (iv) the quorum required for such meeting;

(v) the number of members present at the meeting;

(vi) the number of members who voted in such meeting;

(vii) the number of members who voted in favour of such amendments to bye-laws;

(c) a copy of the relevant bye-laws in force with the amendment proposed to be made together with reasons justifying such amendments;

(d) four copies of the text of the bye-laws incorporating therein the proposed amendments signed by the officer duly authorised in this behalf by the general body;

Page 23 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

(e) a copy of the notice given to the members and the proposal to amend the bye-laws;

(f) a certificate signed by the person who presided at the general meeting certifying that the procedure specified in sub-sections (2) and (3) and the bye-laws had been followed;

(g) any other particular which may be required by the Central Registrar in this behalf.

(5) Every such application shall be made within sixty days from the date of the general meeting at which such amendment to the bye-laws was passed.

(6) The procedure given in sub-sections (2) to (5) of this section shall apply to the amendment of the bye-laws of a co- operative society desiring to convert itself into a multi-State co-operative society as per the provisions of section 22. (7) If, on receipt of application under sub-section (5), the Central Registrar is satisfied that the proposed amendment--

(a) is not contrary to the provisions of this Act or of the rules;

(b) does not conflict with co-operative principles; and

(c) will promote the economic interests of the members of the multi-State co-operative society, he may register the amendment within a period of three months from the date of receipt thereof by him.

(8) The Central Registrar shall forward to the multi-State co- operative society a copy of the registered amendment together with a certificate signed by him within a period of one month from the date of registration thereof and such certificate shall be conclusive evidence that the amendment has been duly registered.

Page 24 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

(9) Where the Central Registrar refuses to register an amendment of the bye-laws of a multi-State co-operative society, he shall communicate the order of refusal together with the reasons therefore to the Chief Executive of the society in the manner prescribed within fifteen days from the date of such refusal:

Provided that if the application for registration is not disposed of within a period of three months specified in sub- section (7) or the Central Registrar fails to communicate the order of refusal within that period, the application shall be deemed to have been accepted for registration and the Central Registrar shall issue registration certificate in accordance with the provisions of this Act. Section 19. Promotion of subsidiary institution.--

(1) Any multi-State co-operative society may, by a resolution passed at general meeting by a majority of members present and voting, promote one or more subsidiary institutions, which may be registered under any law for the time being in force, for the furtherance of its stated objects. (2) Any subsidiary institution promoted under sub-section (1) shall exist only as long as general body of the multi-State co-operative society deems its existence necessary: Provided that a multi-State co-operative society while promoting such a subsidiary institution, shall not transfer or assign its substantive part of business or activities undertaken in furtherance of its stated objects.

Explanation.--For the purposes of this section,--

(a) an institution shall be deemed to be a subsidiary institution if the multi-State co-operative society--

Page 25 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

(i) controls the management or board of directors or members of governing body of such institution; or

(ii) holds more than half in nominal value of equity shares of such institutions; 2*** 3* * * * *

(b) a subsidiary institution shall not include a partnership firm.

(3) The annual reports and accounts of any such subsidiary institution shall be placed each year before general meeting of the promoting multi-State co-operative society Section 64. Investment of funds.--A multi-State co-

operative society may invest or deposit its funds--

(a) in a co-operative bank, State co-operative bank, co- operative land development bank or Central co-operative bank; or [(b) in any of the securities issued by the Central Government, State Government, Government Corporations, Government Companies, Authorities, Public Sector Undertakings or any other securities ensured by Government guarantees;]

(c) in the shares or securities of any other multi-State co- operative society or any co-operative society; or

(d) in the shares, securities or assets of a subsidiary institution or any other institution; [in the same line of business as the multi-State co-operative society] or [(e) with any other scheduled or nationalised bank.

Explanation.--For the purposes of this clause, the expression,--

Page 26 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

(i) "scheduled bank" shall have the same meaning as assigned to it in clause (e) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934); and

(ii) (ii) "nationalised bank" means a corresponding new bank constituted under sub-section (1) of section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980); or

(iii) (f) in such other manner as may be determined by the Central Government.]

65. Restriction on contribution No multi-state cooperative society shall make a contribution, either in money or in kind, whether directly or indirectly, to an institution which has an object of furtherance of the interest of a political party.

66. Restriction on loans (1) A multi-state cooperative society, other than a cooperative bank, shall not make a loan to a member on the security of his share or on the security of a non member. (2) Notwithstanding anything contained in sub-section (1), a multi-state cooperative society may make a loan to a depositor on the security of this deposit.

67. Restrictions on borrowing (1) A multi-state cooperative society may receive deposits, raise loans and receive grants from external sources to such

Page 27 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

extent and under such conditions as may be specified in the bye-laws:

Provided that the total amount of deposits and loans received during any financial year shall not exceed ten times of the sum of subscribed share capital and accumulated reserves:

Provided further that while calculating the total sum of subscribed share capital and accumulated reserves, the accumulated losses shall be deducted.

(2) Subject to provisions of sub-section (1), a multi-state cooperative society may accept funds or borrow funds f or the fulfilment of its objects all such terms and conditions as are mutually contracted upon.

(3) A multi-state cooperative society may Issue nonconvertible debentures or other instruments subject to the provisions of any law for the time being in force to raise resources f or the fulfilment of its objectives to the extent of twenty-five per cent of its paid-up share capital.

68. Restrictions on other transactions with non-members Save as provided in sections 66 and 67, the transaction of a multi-state cooperative society with any person other than a member, shall be subject to such prohibitions and restrictions, if any, as may be specified in the bye-laws."

(Emphasis Supplied)

56. We note that the Adjudicating Authority in the Impugned Order has

recorded that the 2002 Act does not define the word "institution", however,

Section 19 of the 2002 Act provide for "promotion of subsidiary institution". The

Page 28 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Adjudicating Authority interpreted with the word "institution" is required to be

read in conjunction with the word " financial" or "subsidiary". The Adjudicating

Authority accordingly interpreted that the word any other institution is further

required to be understood to mean a subsidiary institution of any other society in

terms of Section 11 of the Code only and do not cover Corporate Debtor as its

intended subsidiary. On this aspect, it is the case of the Appellant that the words

"any other institution" as mentioned in Section 64 of the 2002 Act covers broader

spectrum of institutions which are not restricted to co-operative societies under

2002 Act, but also cover any body corporate registered under any other laws for

the time being. It is further the case of the Appellant that Section 64(d) of the

2002 Act clearly stipulate that investment of fund can be done in the shares,

security or assets in any subsidiary institution or any other institution, therefore,

the intention of Section 64(d) of 2002 Act is expansive of covering in other

institution registered under other laws like the Corporate Debtor, which is

registered under Companies Act, 2013. The Appellant also pleaded that the

Adjudicating Authority erred in interpreting Section 64 of the 2002 Act in

isolation of provision of Section 19 of the 2002 Act which allows the co-operative

society to permit the subsidiary institution to be registered under any law for the

time being in course. The Appellant emphasised that the Adjudicating Authority

has taken very narrow interpretation of the word "any other institution".

57. We note that according to the Appellant, Section 64(d) of the 2002 Act

empowers the Appellant to invest its fund in the shares, security or assets of its

Page 29 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

own subsidiary institution or in any other institution, thus the Appellant was

entitled to invest in the shares of the Corporate Debtor. The Appellant further

argued that the Adjudicating Authority has given wrong finding about

interpretation to Section 65 to 68 of the 2002 Act as the Section 65 of the 2002

Act merely to be restrictive on the co-operative society not to make contribution

to an institution having objective for furtherance of the political party. Similarly,

Section 66 of the 2002 Act only restricts the co-operative society from making

loan to member on security of his shares and Section 67 of the 2002 Act put

restriction on the borrowing of the co-operative society. Section 68 mentions

prohibitions and restrictions which are not applicable in the present case. Thus,

according to the Appellant, it was competent to invest in the Corporate Debtor.

58. We need to understand that Appellant is the co-operative society registered

under 2002 Act and registered as body corporate which carries permitted business

activities for profit and the net profit is distributed to its member for furtherance

member's interest and in accordance with the bye laws. It is a fact that the

Appellant has one of the vertical which permitted its business for agro based

textile under the name and style of 'Nirmal Textile'.

59. We note that Section 64 of 2002 Act describe investment of fund which

can be made by the co-operative society and according to this Section, co-

operative society like Appellant herein may invest or deposit its funds in co-

operative bank, state co-operative bank, co-operative land development bank or

central co-operative or any other security issued by Central Government, State

Page 30 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Government and the Government Co-operative, Government companies,

authorised, PSUs or such similar entities or in the shares or securities of any other

Multi-State Cooperative Societies Act, 2002 or any other co-operative society or

in the shares and security or assets of subsidiary institution or any other institution

in the same line of business as Multi-State Cooperative Societies Act, 2002 or

with any other schedule nationalised banks.

60. Thus, the crucial words which touches the core of the present appeal before

us lies in Section 64 (d) of the 2002 Act which reads as under :-

"64(d) In the shares, securities or assets of subsidiary institution or any other institution (in the same line of business as the Multi State Corporative Society) ."

(Emphasis Supplied)

61. We observe that although the co-operative society is allowed to invest its

funds or deposit in the shares, security or assets of the subsidiary institution or

any other institution, this is qualified with the words i.e., it has to be in the same

line of business as a multi state co-operative society like the Appellant herein.

This implies that Section 64(d) of 2002 Act entitles as well as restricts the co-

operative society to invest its fund only in subsidiary institution or an institution

in the same line of the business or the multi state co-operative society.

62. It is an undisputed fact that the Corporate Debtor was not a subsidiary

institution as of date of the submission of the Resolution Plan. We have also

Page 31 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

noted that the Appellant was indeed in business of agro based textile under the

name and style of 'Nirmal Textiles', however, the business of the Corporate

Debtor was man-made fibre/ viscos which Resolution Professional, CoC and

Adjudicating Authority differentiated with business of the Appellant as Agro

based textile processing.

63. We find logic as contained in the Impugned Order that the Appellant was

not in the same line of the business and therefore was not entitled to invest in

fund of the Corporate Debtor to acquire the business as a going concern. We

further note that the objective and functions of the Appellant as of society have

been clearly mentioned in Clause (5). We are conscious that Clause 5(s) of the

bye-laws entitles the Appellant society to purchase, produce, procure, distribute

like agro product for processing of product and by product and further entitles to

make available to its member modern technique used in processing agro products

and other activity in processing. Thus, we find that the objectives of the Appellant

are clearly relative to agro based project which is different from business of the

Corporate Debtor.

64. In this context, we need to decide whether the investment in shares,

security or assets or subsidiary institution in terms of Section 64 of the 2002 Act

should be on the date of the relevant date of making investment decision by the

Appellant in existing subsidiary or in the same line of business or it can be made

in institution, which such Appellant Society intend to make its subsidiary later.

We are of the opinion that such subsidiary should be in existence, where the co-

Page 32 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

operative society wants to invest. Further it can be looked into from another

perspective that as to how CoC will determine the eligibility of the PRA if such

PRA intend to modify or make subsidiary after investment. This will create

uncertainties and opaqueness which is not commercial prudent. We find that the

CoC in exercise of its commercial wisdom has taken the legal opinions including

independent legal opinion before coming to conclusion that Appellant was not

eligible to submit the Resolution Plan, in view of the relevant Sections of the

2002 Act as well as the restrictions on the Appellant by its own bye-laws, which

we have already discussed at length in our earlier discussions.

65. Further the word "in the same line of business" as multi state corporative

society word were later inserted in Section 64 (d) of the 2002 Act. We find merit

in the argument that the legislative intent, wherein this amendment was made was

to make investment of the co-operative society restrictive to the investment which

such co-operative society could make. The words "in such other mode as may be

provided by the bye-laws" in Section 64(f) of the 2002 Act were substituted with

the words "in such other manner as may be determined by the Central

Government," which makes it clear that only bye-laws permitting the investment

in a particular line of business are insufficient. In other words, the Appellant's

submission that the bye-laws could be amended to permit investment in the textile

business may not be correct as the bye-law of the Appellant would conflict with

Section 64(d) of the 2002 Act.

Page 33 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

The legislative intent behind such an amendment was recorded in the Joint

Parliamentary Committee Report ("JPC Report") on the amendment. The JPC

Report recorded that the earlier expression 'any other institution' is too broad and

prone to misuse by some Multi-State Cooperative Societies. It seems that the

legislative intent was to restrict investment of Multi-State Cooperative Societies

Act to entities that operate within the same line of business as the multi-state co-

operative society, whose primary business is to provide financial services to its

members.

66. The judgment relied upon by the Appellant, Next Orbit Ventures Fund v

Print House India Pvt. Ltd. & Ors. passed in Comp App (AT)(Ins) No. 417 of

2020, is law for the proposition that a plan cannot be rendered as not feasible

because it proposes a change in the business of the Corporate Debtor. However,

this Judgement cannot be relied on, to permit an Multi-State Cooperative

Societies like the Appellant to invest in institutions outside the same line of

business as required by Section 64(d) of 2002 Act. Even otherwise, Next Orbit

(Supra) is a judgment on feasibility and viability at the time of approval of the

plan by the Adjudicating Authority and not on eligibility.

67. Thus, based on above, we find that the Appellant was not eligible in

accordance with 2002 Act, to submit its Resolution Plan and same was correctly

not approved by the CoC as well as the Adjudicating Authority in its Impugned

Order.

Page 34 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

68. Now, we would also look into the relevant bye -laws of the Appellant

society which according to the Resolution Professional and CoC as well as the

Adjudicating Authority prohibited the Appellant to submit its Resolution Plan.

The relevant bye-laws reads as under :-

Page 35 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

69. We note that the Adjudicating Authority has analyzed clause-5(s) of bye-

laws of the Appellant Society which describes the objectives and functions of the

society. According to these objectives, the Appellant could purchase or distribute

agro products and further make available its members modern techniques used in

processing of agro product only. The Adjudicating Authority further concluded

that the business of the Appellant is in field of cotton and its processing till

conversion of raw cotton into fabric and therefore Appellant falls into category

of agro based industry as per Clause 5(s) of the bye-laws of the Appellant Society.

70. We observe that the Adjudicating Authority has differentiated between the

business of the Appellant i.e., agro based vis-a-vis with the business of the

Corporate Debtor which is engaged in the business of cotton and man made

fabrics. We also take into consideration that the Impugned Order referred to

textile policy 2018-23 of Maharashtra Government and Impugned Order stated

that the said policy recognized the distinction between agro based textile product

of cotton ginning and pressing of the Appellant's on one hand v/s man made fibre

i.e., manufacturing viscos filament on the other hand of the Corporate Debtor.

Page 36 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

71. It is the case of the Appellant that the Adjudicating Authority

misinterpreted Clause 5(s) of the bye-laws of Appellant Society as restrictive

provisions and further erred in stating that Clause 5(28) of bye-laws of the

Appellant restricted it from investing or making Corporate Debtor its subsidiary.

It is the case of the Appellant that 5(28) of the bye-laws of the Appellant is rather

an enabling provisions which empowers the Appellant to make investment in agro

based industry and nowhere restricted Appellant from investing in textile

business of the Corporate Debtor. The Appellant further argued that while the

Impugned Order incorrectly dismissed the Appellant I.A. No. 880/2025,

however, the Adjudicating Authority has not given any conclusion that the

Appellant cannot deal with any product or any business other than agro products.

72. We further note the contention of the Appellant that the Appellant could

have amended the bye-laws in accordance with the Act any time and thus, it could

invest in the Corporate Debtor. The Appellant pleaded that the Adjudicating

Authority has failed to consider that Section 11 of the Act r/w Clause 28(m) of

bye-laws of the Appellant allows the Appellant to amend its bye-laws as per

business requirement and further Section 19 of the 2002 Act allows Appellant to

promote a subsidiary registered under any law. The broad meaning of "under any

law" which according to the Appellant, includes any other body corporate like

Corporate Debtor registered under Companies Act, 2013. In the appeal paper

book before us as well as during pleadings, it was conceded by the Appellant that

Page 37 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

as on date of submission of Resolution Plan, the Appellant did not amend the

same.

73. We observe that the Appellant was indeed included in the provisional list

of PRA as well as final list of the PRAs, however, during the subsequent CoC's

meeting, the legal advise was taken by the Resolution Professional /CoC and

legal advise, of the Counsels of the Resolution Professional as well as

independent legal advise came to conclusion that Appellant was not found to be

eligible to submit its Resolution Plan.

74. We also note that the eligibility of the Appellant was discussed in 14, 15,

16 and 21's CoC Meeting and more documents were sought from the Appellant.

We note that in 22nd Meeting of CoC held on 4th and 5th Feb, 2025, the CoC

considered the Independent legal opinions and CoC Counsels opinion and finally

concluded that Appellant is bye-laws did not permit the Appellant for the

acquisition of Corporate Debtor's textile business and declared Appellant

ineligible to submit Resolution Plan. We take into consideration that Resolution

Professional filed an IA/ Plan/ 45/2025 for approval of Resolution Plan submitted

by Shrinivas Spintex Private Limited which is pending before the Adjudicating

Authority.

75. We take into consideration the pleadings of the Appellant that it intended

to acquire 100% shares of the Corporate Debtor and thus the Corporate Debtor

would have become the subsidiary of the Appellant society and as such, it falls

well within its rights to invest in Corporate Debtor through Resolution Plan.

Page 38 of 48

Comp. App. (AT) (Ins.) No. 790 OF 2025

However, this argument ignores the fact that the subsidiary is required to be in

existence on the crucial debt i.e., while submitting the Resolution Plan and cannot

be a future probable event. This principal is squarely covered under the ratio of

the judgment delivered by the Hon'ble Supreme Court of India in the matter of

Arcelormittal India Private Limited (Supra) and Phoenix ARC Private Limited

v. Spade Financial Services Ltd. and Ors. [(2021) 3 SCC 475], where it was held

that disqualification applied in the praesenti and eligibility must be assessed at

the time of submission of Resolution Plan.

76. We would also like to touch upon the aspect whether the Appellant which

is primarily a Co-operative Society involved primarily in finance functions and

is normally involved in banking and financial services. We also note that the

vertical of Nirmal Textile is indeed involved in the agro based textile, can be

treated as the same line of business of the Corporate Debtor. However, during

pleadings before us, the Respondent No. 1 has brought to our notice that Nirmal

Textile is only small vertical of the Appellant and not a separate body corporate

and except GST certificate the Appellant has not provided any document to

substantiate that the main line of the business of the Appellant is to manufacture

textile. During submissions, Respondent No. 1 also referred to the Profit and

Loss Account of the Appellant for the year ended 31.03.2024, which detailed the

revenue of the Appellant, wherein the interest earned from the banking business

was Rs. 194.27 Cr., however the income from Agro based textile vertical in the

name and style of Nirmal Textiles showed a loss of Rs. 3.37 Cr. Thus, it can

Page 39 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

argued that the Appellant is predominantly is involved in the financial business

and not in the textile business.

77. We consciously observe that the Appellant has admitted at page 51 & 52

of the Appeal Paper Book that the bye-laws as on the date of the submission of

the resolution plan have not been amended, and do not permit the Appellant to

submit a resolution plan for the Corporate Debtor.

The Appellant, however, contended that the amendment could be done post

the approval of the resolution plan within one year as per Section 31(4) of the

Code, by issuing a fifteen-day notice of the proposed amendment as per Section

11 of the 2002 Act. However, the Appellant's submission may not be correct

because Section 31(4) of the Code applies to 'approvals' and not the issue of

eligibility. Even if the bye-law is approved in terms of Section 11 of the 2002

Act, it would only apply prospectively, as has been provided in Section 12 of the

2002 Act. Post-facto approval of the amendment to the bye-laws cannot cure the

defect of ineligibility at the time of submission of the resolution plan.

78. We note the submission of the Respondents that the Appellant submitted

its Resolution Plan on 27.08.2024 without a board resolution. The Board

Resolution dated 23.09.2024, purportedly approving the decision to participate in

the CIRP, was passed during the 34th Annual General Meeting of the Appellant,

after the submission of the resolution plan. It is therefore the case of the

Respondents that in view of the above, the Appellant was ineligible in terms of

the provisions of the 2002 Act, its own bye-laws and the decision of the CoC in

Page 40 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

its 22nd meeting communicated by Respondent No. 1 vide email dated

10.02.2025, which was correctly upheld by the judgement of the Adjudicating

Authority dated 09.04.2025. We find logic in the arguments.

79. It has been pleaded before us that there is a fundamental mismatch between

the Appellant's bylaw mandated scope of activities and the Corporate Debtor's

diverse industrial operations. Consequently, the Resolution Professional

determined that the Appellant was legally constrained by its own bylaws from

tendering a resolution plan for the Corporate Debtor. We have already observed

that the Appellant's Appeal explicitly states its intention to amend its bylaws to

acquire the Corporate Debtor as a subsidiary, confirming that the Appellant

Society the then prevailing bylaws do not permit such an involvement in shares

of Corporate Debtor. Thus, at the stage EoI and Resolution Plan, the Appellant

was ineligible to bid for the Corporate Debtor as per relevant rules.

80. It is observed that the Appellant is admittedly a "Credit Cooperative

Society" registered under 2002 Act and Clause 5 (s) of its own bye laws under

the heading Objective and Functions reads as under:

"OJBECTIVES AND FUNCTIONS 5(s) To purchase, produce, procure; distribute the agro products for the processing of the product and byproduct. It is also proposed to make available to members modern technique used in processing of agro products and other activities in processing sector. "

Page 41 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

The Object and Functions of the Appellant, as seen from above Bye Laws,

reveals that the Appellant Society can purchase, produce, procure, distribute the

Agro Products for the processing of the Product and by product and to make

available to the members of modem techniques used in processing of Agro

Products and other activities in processing sector. The Adjudicating Authority in

para 4.2.1 of the Impugned Order dated 09.04.2025, has recorded that the

Corporate Debtor is engaged in the business of Cotton and Man-made Fabrics.

The Adjudicating Authority has also rejected the reliance placed by the Appellant

Society in the Textile Policy 2018-2023 of Maharashtra Government in support

of the argument of the Appellant Society that "Textile Industry to be within the

purview of Agro Based Industry", for the reason that the said Textile Policy

recognizes the distinction between Agro based products i.e. Cotton, Ginning and

Pressing ( 4.1 of Policy) and Man-made Fibre i.e. manufacturing Viscose

Filament Yam I Viscose Staple Fibre ( 4.15 of Policy). Therefore, the

Adjudicating Authority held that since the Corporate Debtor is in the business of

"Cotton and Man-made Fabrics" whereas, the Appellant Society as per its Bye-

Laws i.e. Section 5(s) can purchase, produce, procure and distribute only the Agro

Products for the processing of product and by product and accordingly as per the

Bye-Laws of the Appellant Society, the Appellant Society cannot get into the

business of Cotton and Man-made Fabrics.

81. We take into consideration the appeal paper book wherein the Appellant

categorically stated that it intend to modify its bye-laws. This implies that the

Page 42 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

relevant date and it did not have enabling provisions in its bye-laws. The relevant

para of the appeal is reproduced as under :-

"7.16 Further, the Appellant in its Resolution plan has expressly cleared its intention to make the Corporate Debtor its subsidiary, which can be done by making necessary amendments in its bye-laws and doing that will not violate any statutory laws

7. 18 The impugned order failed to consider the Rs.1Cr. that there is no expressed denial on the part of the Appellant not to amend its bye laws for making the corporate debtor its subsidiary. Therefore, Ld. Adjudicating Authority cannot presume that the required amendment will not be made by Applicant and the Applicant will not be able to invest in the Corporate Debtor."

(Emphasis Supplied)

82. Thus, the Appellant's Appeal explicitly states its intention to amend its

bylaws to acquire the Corporate Debtor as a subsidiary, confirming that the

Appellant Society was not meeting eligibility criteria as per the then prevailing

bye-laws while submitting its Resolution Plan.

83. Based on above discussion, we find merit that at the time of submission of

Resolution Plan, the Appellant was not in sync with its own bye-laws and thus

was correctly held ineligible by CoC as well as Adjudicating Authority. We have

gone through Impugned Order on this issue and do not find any error in the

Page 43 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Impugned Order. Thus, we are unable to accept pleadings of the Appellant on

this aspect.

84. We heard the parties at length and reserved the matter for orders on

15.07.2025 and subsequent to this, the Appellant is stated to have filed an IA

through e-filing No. 9910138/06622/2025 on 21.07.2025 to bring some new facts

and documents and the Appellant wanted to reopen the hearing of the case,

however, this was not allowed by this Appellate Tribunal during mentioning on

22.07.2025. In this regard, it is a standard norm that once the matter is fully heard

and reserved for the orders, no further documents or facts should to be entertained

otherwise it will be unending process. As such we have not taken into

consideration any purported new facts or documents which were not brought to

our notice or discussed during pleadings or even mentioned in the appeal book,

before reserving the order on 05.07.2025.

85. In this connection, we would refer to one judgement passed by this

Appellate Tribunal earlier in the matter of Loramitra Rath vs JM Financial Asset

Reconstruction Company Ltd. passed in Company Appeal (AT)(Insolvency) No.

1359 & 1360 of 2023, where the relevant portion of our earlier order reads as

under :-

"13. It is a well settled proposition of law that the two stages of reserving of judgment and pronouncement of judgment are in a continuum with no hiatus or gap as such in the two stages. That being the well accepted and time-tested practice in court proceedings, subsequent pleadings filed by way of an

Page 44 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

I.A. after the judgement is reserved is normally not entertained for reasons of procedural propriety. The Adjudicating Authority while dismissing the I.A. has applied the same settled position of law that when a matter is reserved for orders, there is no scope for entertaining application from parties to re-hear the matter. The Adjudicating Authority has relied on the judgment of the Hon'ble Supreme Court in Arjun Singh v. Mohindra Kumar & Ors. 1964 5 SCR 946 and Hon'ble Rajasthan High Court in Rajasthan Financial Corporation v. Pukhraj Jain & Ors. in AIR 2001 Raj 71 to hold that no application could be moved after the final arguments were heard and the case was closed for judgment. Hence, we find that the Adjudicating Authority had committed no error in not entertaining the I.A. particularly so when the I.A. contained facts which were already in existence at the time of filing of reply and at the time of making pleadings in the main company petition. Neither do we find any cogent grounds having been cited to explain what had impeded the Appellant from flagging these issues during the hearing of the main company petition. It also does not stand to any logical reasoning as to why the issues raised in the I.A. could not have been raised in the main company petition. Raising such technical issues and that too after detailed hearing in the main petition was concluded clearly shows that the Appellant was merely trying to raise feeble grounds in the I.A. to somehow delay and derail the admission of CIRP. Hence in our considered opinion, the Adjudicating Authority had rightly rejected the I.A.

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253/2023."

(Emphasis Supplied)

86. We note that in the above quoted earlier judgement, this Appellate

Tribunal, made reference to judgements of the Hon'ble Supreme Court of India,

which discourages such tendency of any party to try to reopen the closed for order

matters. We are bound by our own earlier orders as well as the Supreme Court's

judgment. As such, we have ignored the contentions of the Appellant submitted

on this aspect.

87. The Appellant further castigated the role and conducted of both Resolution

Professional as well as CoC for wrong and restrictive interpretation of appellant

capabilities to do any other textile business other than agro based textiles. The

Appellant further submitted that there is no role of Resolution Professional to any

such decision making and the commercial wisdom of the CoC is to maximise the

value of the Corporate Debtor and definitely the Appellant gave the better offer

than the SRA. The Appellant stated that non-suiting the Appellant was not within

the domain of commercial wisdom of the CoC.

However, we feel that it is the RP/ CoC, who are duty bound to examine

that Resolution Plan does not contravene any of the provision of law for the time

being in force, as stipulated under Section 30(2)(e) of the Code.

In terms of Section 30(2)(e) of the Code, the Resolution Plan need to be

complied with all laws. Section 30(2)(e) Code reads as under :-

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Comp. App. (AT) (Ins.) No. 790 OF 2025

"Section 30(2)(e) Does not contravene any of the provisions

of the law for the time being in force."

(Emphasis Supplied)

88. The Adjudicating Authority has also examined this aspect in detail and has

come to the conclusion correctly that the Appellant Resolution Plan would be in

violation of 2002 Act and thus will hit Section 30(2)(e) of the Code.

89. As regard, commercial wisdom of CoC is concerned, w.r.t. determining

eligibility of the Resolution Plan, it is well settled principal that the CoC are

within its jurisdiction to decide such suitability. We need to understand that the

eligibility criterial are left to decided by the CoC, in accordance with the Code

and the Regulation, and assessing suitability as well as compliance/ non-

compliance of the same is also responsibility of the CoC. Thus, it cannot be

argued that there is no role of the Resolution Professional or the CoC in declaring

any particular PRA as not eligible. Thus, we are of the opinion that deciding

eligibility or otherwise of any PRA lies within commercial domain of the CoC.

We hold that in terms of K. Sashidhar (Supra), the determining suitability

of any PRA to submit Resolution Plan lies within the commercial wisdom of the

CoC. We also find that CoC, indeed had done its due diligence, after obtaining

various legal opinion in holding that Appellant was not found eligible to submit

Resolution Plan. Thus, we do not find any error on this issue.

90. Based on above detailed analysis, we are of the opinion that the Appellant

was not eligible to submit its Resolution Plan. We do not find any error in the

Page 47 of 48 Comp. App. (AT) (Ins.) No. 790 OF 2025

Impugned Order. The Appeal devoid of any merit stand rejected. No cost. I.A.,

if any, are closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Justice Mohammad Faiz Alam Khan] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim

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