CIL Limited (hereinafter referred as 'CIL' or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connectin

CS Professional · Insolvency and Bankruptcy - Law and Practice · PYQS · December 2024
CIL Limited (hereinafter referred as 'CIL' or Corporate Debtor) is a manufacturer of precision engineering and automobile components, namely crankshafts for tractors, HCVs, LCVs as well as two-wheelers, as also connecting rods, steering knuckles and hubs. IBD Bank, one of the Financial Creditors of the Company has initiated a Corporate Insolvency Resolution Process (CIRP). The National Company Law Tribunal (NCLT) has appointed Mr. RL as the Interim Resolution Professional and subsequently, he was confirmed as the Resolution Professional (hereinafter referred to as the "RP") by the NCLT. The RP received a claim for ₹1,850 crores and after verification of claims, the RP admitted a claim of ₹1,780 crores and the balance of claims was rejected by the RP. Out of admitted claim of ₹1,780 crores, the Financial Creditors claim was ₹1,620 crores, Workmen Wages pending for a period of last 24 months is ₹18 crores, Employees pending claims for a period of last 12 months is ₹15 crores, Claims by Operational Creditors and Statutory Authorities is ₹127 crores. Going forward, the RP published an "Expression of Interest." Subsequently, it was revised on three different dates. The Resolution Applicant (hereinafter referred to as the 'RA') submitted its first Resolution Plan during April, 2019 providing to pay ₹75 crores to all the stakeholders including ₹62 crores to Financial Creditors (FCs). After a series of negotiations, the RA submitted an addendum to the Resolution Plan during May 2019 by which the RA raised the payment to Financial Creditors to ₹74 crores and at the request of the Committee of Creditors (hereinafter referred to as the "CoC". Thereafter, once again, the RA submitted a Revised Plan during June, 2019 wherein the total pay-out was ₹86 crores and the Financial Creditors were to be paid ₹75 crores. Further, the statutory requirement of the RP involving two approved valuers for giving reports, apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance. The final Resolution Plan was submitted on August, 2019, in which the financial proposal/ total pay-out was increased to ₹130 crores and the Financial Creditors were to get upfront payment of ₹81 crores towards final settlement. The total estimated liquidation cost and fee to the Resolution Professional and other connected/ incidental expenses was ₹3.30 crores. This final Resolution Plan submitted by the Resolution Applicant during August, 2019 was finally approved by the CoC by a majority of 88% votes. In terms of such approval of the Resolution Plan, the RP moved Approval Application under Sections 30(6) and 31 of the IBC, 2016 seeking approval of the Resolution Plan before the Adjudicating Authority-NCLT. In terms of the Resolution Plan, for which approval was being sought, the Corporate Debtor would be allowed the benefit of carry forward of its losses in terms of Section 79 of the Income Tax Act, 1961. The NCLT, vide its order, by which the approval of the Resolution Plan was kept in abeyance, directed the Official Liquidator (OL) to provide the exact figures/value of assets. The same was carried in appeal under Section 61 of the Code by the RA before the NCLAT which passed the impugned Judgment on 19th January, 2022, dismissing the appeal, thereby upholding the order of the NCLT. It is imperative to note that the moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the Appellant or the CoC in finally approving the resolution plan which was sent to the Adjudicating Authority-NCLT for approval. Further, the NCLT and the NCLAT did not fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated. In view of the above, the RA filed an appeal before the Supreme Court. Discuss whether RA will succeed in the appeal preferred before the Honourable Supreme Court?

Answer & Explanation:

The facts of the question are similar to the case of Ramkrishna Forgings Ltd. v. Ravindra Loonkar, RP of ACIL Ltd. and Anr. Judgement dated November, 21 2023 by Supreme Court of India. The moot question involved is the extent of the jurisdiction and powers of the Adjudicating Authority to go on the issue of revaluation in the background of the admitted and undisputed factual position that no objection was raised by any quarter with regard to any deficiency/irregularity, either by the RP or the appellant or the CoC, in finally approving the Resolution Plan which was sent to the Adjudicating Authority-NCLT for approval. Further, the statutory requirement of the RP involving two approved valuers for giving reports apropos fair market value and liquidation value was duly complied with and the figures in both reports were not at great variance. In the present case, both the NCLT and NCLAT erred to fully recognise that under the Resolution Plan, the Corporate Debtor was set to be revived and not liquidated. Thus, the minimum mandatory component in the Resolution Plan was only a reflection of the actual money, including upfront payment, which would go towards the Financial Creditors. It is worthwhile to note that the Adjudicating Authority has jurisdiction only under Section 31(2) of the Code, which gives power not to approve only when the Resolution Plan does not meet the requirement laid down under Section 31(1) of the Code, for which a reasoned order is required to be passed. The Supreme Court held that the NCLT's jurisdiction and powers as the Adjudicating Authority under the Code, flow only from the Code and the Regulations thereunder. It has been held in Jaypee Kensington Boulevard Apartments Welfare Association v NBCC (India) Limited, (2022) 1 SCC 401 as under: 'The adjudicating authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the Committee of Creditors. If, within its limited jurisdiction, the adjudicating authority finds any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court'. Supreme Court viewed that 'while certainty in law and legal principles is the obvious aim, the law is to be applied in the context of the facts. If a matter where the facts are stark comes to light, the same would have to necessarily be dealt with by the NCLT within the four corners of the Code itself, having due regard to the extant circumstances. It is for the NCLT to exercise power strictly within the domain permitted by the Code'. The decision of both NCLT and NCLAT is set aside and appeal was allowed and hence, the Resolution Applicant will succeed in his appeal with Supreme Court.

Topics: Resolution Process

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