NCLT Disallows JSW To Withdraw From Status Of Successful Resolution Applicant Of Ind-Barath Energy

Background Facts

Bank of Baroda had filed an application under Section 7 of the IBC, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Ind-Barath Energy (Utkal) Ltd. ("Corporate Debtor"). The NCLT, Hyderabad Bench ("Adjudicating Authority") vide an order dated 29.08.2018 had admitted the application and CIRP was initiated. Mr. Udayraj Patwardhan was appointed as the Interim Resolution Professional and subsequently as the Resolution Professional.

M/s JSW Energy Ltd. ("Successful Resolution Applicant"/ "SRA") had submitted a Resolution Plan for the Corporate Debtor which was approved by the Committee of Creditors ("CoC") with 82.70% votes on 09.10.2019. The Resolution Professional had filed an I.A. No. 882/2019 seeking approval of Resolution Plan by the Adjudicating Authority.

During the pendency of I.A. No. 882/2019, the SRA had filed an application bearing I.A. No. 24/2021, seeking permission to withdraw its own Resolution Plan which was pending approval and dismissal of I.A. No. 882/2019. The SRA had sought withdrawal by invoking the "Material Alteration Clause (MAC)" of its Resolution Plan over the premise that the asset value of Corporate Debtor had significantly eroded due to the Resolution Professional's negligence. The Adjudicating Authority had dismissed the I.A. No. 24/2021 while relying on the Supreme Court judgment in Ebix Singapore Pvt. Ltd. v CoC of Educomp Solutions Ltd. & Anr., Civil Appeal No. 3324 of 2020, wherein it was held that the Adjudicating Authority does not have power to permit withdrawal of the Resolution Plan.

Thereafter, the SRA filed objections to its own Resolution Plan in I.A. No. 882/2019, stating that the same cannot be implemented owing to the eroded value of Corporate Debtor's assets due to delay in approval of Resolution Plan and failure of the Resolution Professional to preserve the value of assets.

Contentions Of The Resolution Professional

The Resolution Professional contended that the SRA had sought same relief in I.A. No. 24/2021 and the objections filed in I.A. No. 882/2019 and was merely finding a way to wriggle out of its own Resolution Plan by blaming the Resolution Professional for negligence. The SRA cannot object to the approval of its own Resolution Plan again and again on same facts.

Contentions Of The SRA

The SRA had submitted that under the proviso to Section 31(1) of the IBC, the Adjudicating Authority can terminate a resolution plan which is incapable of being implemented.

Issues

Whether the Adjudicating Authority can look into the issues of deterioration of assets after approval of Resolution Plan by unassailable majority of CoC Members again to decide as to whether the CoC approved resolution plan is capable of effective implementation or not?

Relevant Law

Section 31 of the IBC

"31. Approval of resolution plan –

(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan:

PROVIDED that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.

Decision Of The Adjudicating Authority

Power under Section 31(1)

The Bench observed that Section 31(1) of the IBC was incorporated to ensure that the Resolution Plan itself contains provisions for its effective implementation. The Adjudicating Authority has to look into the various provisions of the Resolution Plan to satisfy itself that once Resolution Plan is approved by it, there are sufficient checks and balances, demarcation of responsibilities and corresponding provisions in respect of the responsibilities required to be discharged with regard to statutory compliances that are to be made during the implementation of the Plan. The satisfaction of Adjudicating Authority only concerns the fact that the Resolution Plan includes provisions for its smooth implementation and there are no gaps to hinder the same.

Reliance was placed on Supreme Court judgment in Maharashtra Seamless Ltd. Padmanabhan Venkatesh & Ors., Civil Appeal No. 4242/2019, wherein it was held that "The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the Resolution Plan has provisions for its implementation."

The Bench observed that the proviso to Section 31(1) cannot be construed so as to allow the Adjudicating Authority once again to get into the questions of deterioration or revaluation of assets etc. which must be left to the commercial wisdom of the CoC. The Adjudicating Authority would not have any jurisdiction to either terminate the Resolution Plan or even send it to CoC for reconsideration.

Accordingly, the Bench held that the Adjudicating Authority cannot look into the issues of deterioration of assets after approval of the Resolution Plan by unassailable majority of CoC.

Approval of Resolution Plan

The Bench observed that the SRA through its objections was attempting to achieve the same object as in I.A. No. 24/2021 i.e. withdrawal from CIRP at present stage. While placing reliance on the Supreme Court judgment in Ebix Singapore Pvt. Ltd. v CoC of Educomp Solutions Ltd. & Anr., Civil Appeal No. 3324 of 2020, the Bench observed that the residual powers available to the Adjudicating Authority u/s 60(5) of the IBC cannot be used to create procedural remedies entailing substantive outcome on the insolvency process.

The Bench held that the Resolution Plan submitted by the SRA was in accordance with law and accordingly the Resolution Plan of JSW Energy Ltd. was approved for Ind-Barath Energy (Utkal) Ltd.

Case Title: Bank of Baroda v Ind-Barath Energy (Utkal) Ltd., CP (IB) NO. 276/7/HDB/2018

Counsel for Resolution Professional: Sr. Adv. K Venugopal, Adv. Niraj Kumar.

Counsel for Resolution Applicant: Sr. Adv. Gopal Jain, Mr. D Narendra Naik.

Counsel for Financial Creditors: Sr. Adv. Tushar Mehta (Solicitor General of India), Adv Ramakant Rai.

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