'Liquidation Last Resort', NCLT Directs COC To Re-Consider The Rejected Resolution Plan: NCLT Mumbai

Background Facts

Edelweiss Asset Reconstruction Co. Ltd. ("Financial Creditor/Edelweiss") had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before NCLT, Mumbai Bench, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Octaga Green Power and Sugar Company Ltd. ("Corporate Debtor") and the Corporate Debtor was admitted into CIRP. Mr. Gaurav Ashok Adukia is the Resolution Professional.

The Committee of Creditors ("CoC") comprised of Edelweiss and State Bank of India having 52.40% and 47.60% of voting share respectively.

Mr. Basab Paul and one another ("Applicants") had submitted a Resolution Plan for the Corporate Debtor which was approved by Edelweiss and rejected by State Bank of India. Hence the statutory threshold of 66% for approval of plan could not be met. No reason was assigned by State Bank of India for rejecting the Resolution Plan and the same was done without application of mind.

Subsequently, the CoC had filed an application before Adjudicating Authority seeking liquidation of the Corporate Debtor which is pending adjudication. The Applicants filed an application before Adjudicating Authority challenging the rejection of their resolution plan by the CoC.

Contentions Of The Applicant

The Applicants submitted that the Resolution Plan was for payment of Rs. 21,00,00,000/- which was far in excess of the Liquidation value of Rs. 18,00,00,000/-. Further, the Applicants had also paid a Bank Guarantee towards Earnest Money Deposit with the Resolution Plan and had revised the Plan several times to improve it.

Contentions Of Respondents

The State Bank of India argued that the Resolution Applicant has no vested right to have the Resolution Plan approved from CoC members. The Applicants were given multiple opportunities to clarify queries on the source of funds, past conduct of the Resolution Applicant, inflated land value etc. but the same were not satisfactorily clarified. The Applicants failed to demonstrate the implementation of the Plan and had various gaps and issues.

Decision Of NCLT

The Bench observed that the prime objective of IBC is to rescue the Corporate Debtor in distress and to revive it. Every attempt has to be first made to revive the concern and make it a going concern and liquidation being the last resort. The Bench opined that the Corporate Debtor is a going concern with 125 workmen and employees whose livelihood would be affected in the event of liquidation.

The Bench has directed the CoC to re-examine/reconsider the Resolution Plan fairly, reasonably and in accordance with IBC. Time period of four days was granted for re-consideration and the Resolution Professional has been directed to update the status thereafter.

Case Title: Edelweiss Asset Reconstruction Co. Ltd. v Octaga Green Power and Sugar Company Limited.

Case No.: CP (IB) 2987/MB/C-II/2018

Counsel For the Applicant: Mr. Gaurav Joshi, Senior Advocate

Counsel For Resolution Professional: Mr. Dhiraj Mhetre, Advocate

Counsel For the CoC – SBI : Mr. Rishi Thakur, Advocate

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