Resolution Applicant Whose Name Was Not Included In 'Prospective Resolution Applicants' List Cannot Be Substituted At Later Stage: NCLAT, Delhi
Smita Singh
27 July 2024 12:05 PM GMT
The National Company Law Appellate Tribunal (NCLAT), Delhi bench of Justice Ashok Bhushan (Chairperson) and Mr Barun Mitra (Technical Member) held that a resolution applicant, who did not take part in the CIRP process from the beginning and was not included in the list of prospective resolution applicants, cannot be suddenly substituted as a resolution applicant to implement the plan of...
The National Company Law Appellate Tribunal (NCLAT), Delhi bench of Justice Ashok Bhushan (Chairperson) and Mr Barun Mitra (Technical Member) held that a resolution applicant, who did not take part in the CIRP process from the beginning and was not included in the list of prospective resolution applicants, cannot be suddenly substituted as a resolution applicant to implement the plan of the Corporate Debtor.
Brief Facts:
After the initiation of the corporate insolvency resolution process of the Corporate Debtor, the Resolution Professional invited applicants to submit their resolution plans. Only one of the applicants submitted the plan and another applicant requested an extension of time.
Meanwhile, the NCLT Ahmedabad (“NCLT”) directed the Committee of Creditors (“CoC”) to consider the plan submitted by an entity known as JSPL. In light of this, the CoC allowed other applicants to resubmit their resolution plans with amendments, for a fair assessment. Both JSPL and Invent Assets Securitization & Reconstruction Private Limited (“Invent Assets”) submitted their resolution plans.
These plans were evaluated by the CoC and Invent Assets' plan was approved with 72.97% votes. As a result, the Resolution Professional applied for the plan's endorsement. During the pending approval period, the RBI issued a circular which stated that 'Asset Reconstruction Companies (ARCs)' could not engage in business beyond securitization or asset reconstruction without prior RBI approval. This rendered Invent Assets ineligible as a resolution applicant without such approval.
Therefore, Invent Assets filed 2 applications before the NCLT, requesting for the substitution of its name as the resolution application with another entity called 'Westend Investment and Finance Consultancy' (“Westend Investment”). The NCLT permitted Invent Asset to make a representation before the CoC. Subsequently, the CoC approved the resolution plan with the modification to substitute Westend Investment as the resolution applicant. This modification was unanimously approved with 100% votes.
Following this, the Resolution Professional filed an affidavit to present the modified resolution plan for approval. Meanwhile, the NCLT directed the Resolution Professional to file the Request for Resolution Plan (“RFRP”) and highlight provisions allowing the change of resolution applicant after CoC approval.
The CoC re-examined the approved plan's feasibility and viability, re-approving it for the third time with 100% votes. It also resolved to amend the RFRP to include provisions for the substitution or replacement of the resolution applicant.
The Resolution Professional filed an updated Form H before the NCLT. After hearing the parties, the NCLT approved the modified resolution plan with Westend Investment as the resolution applicant. Feeling aggrieved, another resolution applicant named Swan Energy Ltd. (“Swan Energy”) filed an appeal before the NCLAT, Delhi.
Submissions of Swan Energy:
Swan Energy argued that this substitution was contrary to the IBC scheme and CIRP Regulations 2016. Once Invent Assets became ineligible, a fresh Form-G should have been issued to invite new resolution applicants, rather than substituting Westend Investment. Further, the CoC lacked the authority to modify the approved resolution plan and the Resolution Professional acted contrary to the prescribed procedures by permitting the substitution and presenting the modified plan for CoC approval. Swan Energy also pointed out that Westend Investment had neither filed any expression of interest, nor a resolution plan. Therefore, the substitution was impermissible.
Submissions of the CoC:
The CoC argued that there was no modification to the resolution plan approved on 21.10.2021 except for the substitution of the resolution applicant with Westend Investment, which is the sponsor company of Invent Assets. Further, Invent Assets could not implement the plan due to the RBI Circular and was thus entitled to nominate an entity for implementation. The plan allowed the resolution applicant to implement it through a subsidiary or special-purpose vehicle. The substitution of Westend Investment did not violate any IBC or CIRP regulations. They further argued that Swan Energy, as an unsuccessful resolution applicant, had no ground to file the appeal and challenge the CoC's commercial wisdom. Swan Energy was not an aggrieved person under Section 61 of the IBC.
Observations by the NCLAT:
The NCLAT perused Sections 61(1) and 61(3) of the IBC which provide the grounds for appeals before the appellate authority. It was held that the grounds in the current appeal were covered under the aforementioned sections. Therefore, the maintainability of the appeal considering Swan Energy as an aggrieved party was established by the NCLAT.
Further, it was observed that Swan Energy had previously filed an application to challenge the resolution plan approved by the CoC. However, that application was withdrawn. Therefore, it was held that Swan Energy was now not entitled to question the approved resolution plan. However, it was entitled to challenge the rest of the process which included the substitution.
The NCLAT further noted that there was no provision in the 'Request for Resolution Plan' (RFRP), which allowed the change in the name of the resolution applicant after the approval of the resolution plan. Reliance was placed on regulations 39(1)(B) of the CIRP Regulations, 2016 which states that a resolution plan received from a person who does not appear in the final list of prospective resolution applicants cannot be considered.
It was held that Westend Investment never submitted a resolution plan and was not included in the list of prospective resolution applicants. Therefore, the CoC wrongfully substituted its name and treated the already submitted resolution plan as the plan of Westend Investments. It was held that an applicant who has not participated in the several stages of the CIRP process, cannot be suddenly substituted as a resolution applicant to implement the plan of the Corporate Debtor.
Reliance was placed on the case of SREI Multiple Asset Investment Trust Vision Fund vs Deccan Chronicle Marketeers and Ors. [(2023) 7 SCC 295)], where it was held that the CoC does not have the power to modify an approved resolution plan. The only exception when it can do so is when the resolution plan violates any provision of Section 30(2), IBC and the CoC decides to delete the provisions which are non-compliant to make the plan compliant.
Therefore, the order of the NCLT, Ahmedabad bench which approved the amended resolution plan submitted by the CoC was set aside. The Resolution Professional and the CoC were directed to issue a fresh Form G inviting resolution applicants and thereafter complete the entire process leading to approval of the resolution plan, if any, within 90 days.
Case Title: Swan Energy Ltd. vs Chandan Prakash Jain and Ors.
Case No.: Company Appeal (AT) (Insolvency) No. 313 of 2024
Advocate for the Appellant: Mr Krishnendu Datta with Mr Kumar Anurag Singh, Mr Zain A. Khan, Mr Dev Aaryan and Ms Niharika Sharma
Advocates for the Respondents: Mr Ravi Raghunath (for R-1); Mr Abhijeet Sinha with Mr Geet Ahuja (for R-2); Mr Nikhil Nayyar with Mr Shri Venkatesh, Mr Suhael Buttan and Mr Vineet Kumar (for R-4).
