Settlement Plan U/S 12A Of IBC Cannot Be Considered By CoC After Approval Of Resolution Plan: NCLAT
The NCLAT New Delhi Bench of Justices Ashok Bhushan and Barun Mitra affirmed that a settlement proposal under Section 12A of the IBC cannot be put before the CoC after the CoC has approved the resolution plan. The tribunal further observed that with the approval of the resolution plan by the CoC, the plan becomes inter se binding between the CoC and the SRA and hence no settlement...
The NCLAT New Delhi Bench of Justices Ashok Bhushan and Barun Mitra affirmed that a settlement proposal under Section 12A of the IBC cannot be put before the CoC after the CoC has approved the resolution plan. The tribunal further observed that with the approval of the resolution plan by the CoC, the plan becomes inter se binding between the CoC and the SRA and hence no settlement proposal of the suspended management can be considered thereafter.
Brief Facts
The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 28.02.2024 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench-II) I.A. No. 188 of 2024 in CP (IB) No. 995 of 2018.
By the impugned order, the Adjudicating Authority has dismissed IA No. 188 of 2024 filed by the Appellant seeking to place a settlement proposal under Section 12A of IBC before the Committee of Creditors (“CoC” in short) and to permit withdrawal and suspension of the Corporate Insolvency Resolution Process (“CIRP” in short) of the Corporate Debtor. Aggrieved by the impugned order, the present appeal has been preferred by the Appellant who is the suspended director of the Corporate Debtor.
Contentions
The appellant submitted that Section 12A of IBC read with CIRP Regulation 30A provides scope for submission of multiple settlement proposals particularly when the resolution plan of the SRA has not attained finality.
- Reliance has been placed on the judgment of this Tribunal in Shaji Purushothaman Vs Union Bank of India & Ors.(2019) ('Shaji' in short) wherein, according to the Appellant, it was held by this Tribunal that the settlement proposal given by the suspended director under Section 12A of IBC can be examined by the CoC to find whether the settlement proposal is better than resolution plan.
- That the Adjudicating Authority failed to appreciate that the commercial wisdom of the CoC is supreme and therefore the CoC can accept a settlement proposal even after approval of resolution plan by the CoC. There is no cap on the number of times a settlement proposal can be placed or at what stage a CIRP proposal can be submitted.
- That the RP has one-sidedly permitted the SRA to revise its plan several times even after its approval by the CoC which is impermissible in law. On the other hand, the Appellant was not afforded opportunity to submit their settlement proposal.
Per contra, the respondents submitted that the RP had issued EOIs thrice in Form-G. The resolution plan of the SRA had been approved by the CoC on 06.02.2020 with majority vote share.
- That upon approval of resolution plan by the CoC, it could not have considered a settlement proposal in view of the decision of this Tribunal in Hem Singh Bharana Vs Pawan Doot Estate Pvt. Ltd. in CA(AT)(Ins) No. 1481 of 2022 ('Hem Singh Bharana' in short) which decision has been subsequently upheld by the Hon'ble Supreme Court in Civil Appeal No. 443 of 2023.
- That with the approval of the resolution plan by the CoC, the plan became inter se binding between the CoC and the SRA and hence no settlement proposal of the suspended management could have been considered at this stage and the motive behind submitting the Section 12A proposal was not to satisfy the dues of the creditors but to wriggle out of all statutory dues, litigations, delay charges and penalties. Such reliefs and concessions are not contemplated under Section 12A of IBC.
NCLAT's Analysis
At the outset, the tribunal referred to its own judgment in Hem Singh Bharana wherein the effect of the substituted notification of 2019 on regulation 30A was discussed.
In that case, the tribunal held that the intendment of the proviso is that there has to be special reason for making Application under section 30A(1)(b), when it is filed after publication of invitation for Expression of Interest. The Regulation clearly indicate that when Expression of Interest' is issued inviting Resolution Plan, there has to be sufficient reason justifying withdrawal.
The tribunal in the above case further observed that had it intended that 12A Application can be entertained even after Resolution Plan is approved by the CoC, the proviso would not have confined to issue invitation for Expression of Interest, rather, it could have been conveniently mentioned that after approval of Resolution Plan Applicant should justify withdrawal. It was never intended that after approval of Resolution Plan by CoC, Application under Section 12A can be entertained. Hence, the Regulation is framed in that manner.
The tribunal further rejected the argument of the appellant that regulation 30A was directory as held by the Supreme Court in Brilliant Alloys Pvt. Ltd. Vs S. Rajagopal and Ors. (2022) and observed that the decision of this Tribunal in Hem Singh Bharana judgement has been subsequently upheld by the Hon'ble Supreme Court in Civil Appeal No. 443 of 2023.
While applying the above ratio to the facts of the present case, the tribunal further noted that the same ratio of Hem Singh Bharana judgement supra was echoed by this Tribunal in Nehru Place Hotels and Real Estates Pvt. Ltd. Vs Sanjeev Mahajan & Ors. in CA(AT)(Ins) No. 1715-1716 of 2023 that a settlement proposal under Section 12A cannot be put before the CoC after they have approved the resolution plan. Even this judgment has also been upheld by Hon'ble Supreme Court in Civil Appeal No. 602-603 of 2024.
The tribunal further observed that when both Hem Singh Bharana and Nehru Place Hotels judgement have been upheld by Hon'ble Supreme Court, the Appellant's contention of inconsistency of these two judgements with Brilliant Alloys (supra) does not have any merit especially because the latter judgement had been pronounced on 14.12.2018 which date is anterior to the substituted Regulation 30A notification of 25.07.2019. The Appellant has therefore clearly misconstrued and misapplied the ratio of Hem Singh Bharana.
The tribunal while focusing on the primacy of the commercial wisdom of the CoC observed that In the present facts of the case, we notice that the CoC in its deliberations in the 8th and 9th CoC meetings had already put their stamp of approval on the resolution plan. Such opinion expressed by the CoC after due deliberations in the meetings through voting represents collective business decision and constitutes an expression of the CoC's commercial wisdom. And it is here that primacy of the commercial wisdom of the CoC comes into play.
The tribunal while emphasising the speedy resolution of the corporate debtor concluded that when a resolution plan has already been received by the CoC and the CoC in the exercise of its commercial wisdom has decided to only consider this plan and has also rejected with majority voting the settlement plan given by the Appellant, no error has been committed by the Adjudicating Authority in disallowing further opportunity to the Appellant to submit a Section 12A proposal.
Accordingly, the present appeal was dismissed.
Case Title: Pratham Expofab Private Limited v. Mr. Anil Matta, Resolution Professional and Ors.
Citation: Company Appeal (AT) (Insolvency) No. 1803 of 202
Judgment Date: 05/11/2024