NCLAT Nod To Roma Unicon Designex Consortium As The Successful Resolution Applicant Of Earth Infrastructure Ltd.

The appeal was filed by Mr. Bipin Sharma ("Appellant"), one of Financial Creditors of the Earth Infrastructure Ltd. ("Corporate Debtor"), under Section 61 of the IBC against the order dated 07.12.2020 ("Impugned Order") passed by the National Company Law Tribunal, New Delhi ("Adjudicating Authority") in CP No. (IB)-401 (ND)/2017, wherein it had approved the Resolution Plan submitted by the SRA in the Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor.

Relevant Law

"Section 29-A(c): Persons not eligible to be resolution applicant.

"(c) at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan;

Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor.

Explanation I– For the purposes of this proviso, the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed, prior to the insolvency commencement date."

Contentions Of The Appellant

The Appellant submitted that the authorized functionary of the SRA, Mrs. Rashmi Saxena, was a director in a company named Zillion Infra Project Pvt. Ltd. ("Zillion Infra") whose account was declared as Non Performing Asset ("NPA") on 31.01.2018. Thereafter, Mrs. Rashmi Saxena had submitted the Resolution Plan of the Corporate Debtor on behalf of SRA on 31.07.2019 and was therefore ineligible to submit it in terms of Section 29A(c). The Appellant further contended that the condition in Section 29A(c) that "a period of one year has elapsed from the date of such classification till the date of commencement of the CIRP" is a condition not necessarily to be complied. Further, the word 'and' in Section 29-A(c) of IBC should be read as 'or'.

The Appellant submitted that the purpose of IBC is rehabilitation of the Corporate Debtor through a financially sound entity, which will not be possible if the Resolution Applicant itself is operating an account which has been declared NPA due to mismanagement of operations. The Appellant claimed locus standi to file the appeal as he is a Financial Creditor who after becoming aware of the ineligibility of the SRA has attained locus standi to file the appeal.

Contentions Of Resolution Professional (Respondent No. 1)

The Erstwhile Resolution Professional ("Respondent No. 1") argued that the appeal became infructuous as the Resolution Plan stands approved by the Adjudicating Authority and is binding on all the stakeholders. It was further contended that the NCLAT has no power to substitute "and" with "or" in sub-section (c) of Section 29A of IBC in view of Supreme Court judgment in Arcelormittal India Pvt. Ltd. v Satish Kumar Gupta & Ors., (2019) 2 SCC 1. The Respondent No. 1 also relied on the provision of Section 25-A (3A) of the IBC which does not allow an individual Financial Creditor to assail the approval of Resolution Plan since the financial creditor in class of homebuyers has voted with more than 50% voting share for approval of the resolution plan. Further, reliance was also placed on Supreme Court judgment in Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v NBCC (India) Ltd. & Ors., 2021 SCC Online SC 253, where it has been held that:

"any individual homebuyer or any association of homebuyers cannot maintain a challenge to the resolution plan and cannot be treated as a dissenting financial creditor or an aggrieved person. Admittedly, the class of creditors of which Applicants are a part have already assented and approved a resolution plan and therefore, are estopped in law from preferring any objection or appeal to resolution plan which has been approved by class."

Lastly, the business decision based on commercial wisdom of CoC cannot be called in question through judicial review.

Contentions Of The Successful Resolution Applicant (Respondent No. 2)

The SRA argued that the provision of Section 29A (c) have to be satisfied in full and interpreted strictly to arrive at ineligibility of any Resolution Applicant. The Adjudicating Authority had rightly held that the statutory requirements for prohibition under Section 29A (c) to operate against the SRA had not been fulfilled since one-year period as prescribed under Section 29-A (c) had not elapsed, and therefore, the Successful Resolution Applicant was fully eligible to submit a resolution plan.

The SRA submitted that Mrs. Rashmi Saxena was not a director of Zillion Infra and the SRA was neither under the control of Zillion Infra or had any business relationship from 2018 onwards. It was pointed out that Zillion Infra's account was declared as NPA on 31.01.2018 and CIRP was initiated on 06.06.2018 and thus, the statutory period of one year as stipulated in section 29A (c) had not elapsed. Reliance was placed on the Supreme Court judgment in Swiss Ribbons Pvt. Ltd. & Anr. v Union of India & Ors., (2019) 4 SCC 17, wherein it was laid down that substandard asset should have remained NPA for a period of more than 12 months in order that a business entity associated with such a company could submit a resolution plan. Further reliance was placed on the Supreme Court judgment in Arcelor Mittal India Private Limited (Supra) wherein it was observed that "the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant." SRA also submitted that any individual homebuyer or any association cannot maintain a challenge to the Resolution Plan once it has voted as part of financial creditor in class on the resolution plan and it has been approved in such voting.

Issues

1. Whether the Appellant as a financial creditor has locus standi to file the appeal; and
2. Whether the SRA is eligible under Section 29-A to submit a Resolution Plan for the Corporate Debtor since the directors of SRA are common with the director of Zillion Infra, whose account was declared NPA on 31.01.2018 and hence the condition of Section 29-A (j) r/w Explanation – I is infringed.

Observations Made By The NCLAT

The NCLAT Bench observed that the Appellant has locus standi to file the appeal since it was aggrieved by the action of the Resolution Professional, approval of Resolution Plan by CoC and also the decision of the Adjudicating Authority.

Eligibility Under Section 29A

The Bench observed that as per the record of Ministry of Corporate Affairs, Mrs. Rashmi Saxena ceased to be a director of Zillion Infra on 02.12.2009, whereas, NPA of Zillion Infra account was declared on 31.01.2018. Moreover, the CIRP of the Corporate Debtor was initiated on 06.06.2018, over four months after the declaration of Zillion Infra account as NPA. The resolution plan for the Corporate Debtor was submitted by Mrs. Rashmi Saxena on behalf of the SRA on 31.07.2019. The Bench held that as Mrs. Rashmi Saxena seized to be a director of Zillion on 02.12.2009, therefore, her entitlement to submit the resolution plan in the CIRP of the Corporate Debtor is not hit by Section 29-A (c), wherein a period of one year should not have elapsed from the date of declaration of NPA of a company (in the present case Zillion Infra) who is in the management and control of the SRA.

The Bench relied on the Supreme Court judgments in Swiss Ribbons Pvt. Ltd. & Anr. v Union of India & Ors., Arcelormittal India Pvt. Ltd. v Satish Kumar Gupta & Ors., and Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v NBCC (India) Ltd. & Ors and held that ingredients of Section 29A(c) are not being met and the Resolution Plan being approved by Financial Creditors in class voting through their authorized representative cannot be called into question. The Impugned Order was upheld and the appeal was dismissed.

Case Title: Bipin Sharma v Earth Infrastructure Limited & Anr., Company Appeal (AT) (Insolvency) No. 1112 of 2020.

Counsel for Appellant: Adv. Kumar Mihir.

Counsel for Respondents: Adv. Ashish Makhija, Adv. Akanksha Vasudeva, Adv. Abhishek Anand and Adv. Karan Kohli.

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