Resolution Applicants Can't Revise Offers Post Approval, CoC's 'Commercial Wisdom' Can't Be Faulted: NCLAT

Brief Facts:

On 29.04.2022, the Adjudicating Authority initiated corporate insolvency resolution process (CIRP) against SKS Power Generation Chhattisgarh Ltd. (Corporate Debtor) on an application filed by Bank of Baroda under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC).

Ashish Arjunkumar Rathi (Respondent No. 1), who was the Resolution Professional (RP) published Form-G to invite Expressions of Interest (EoI) from prospective Resolution Applicants. The Appellant(s) and Sarda Energy and Minerals Ltd. (SEML) filed their Resolution Plan. The CoC conducted an inter se bidding process. The Appellants and SEML submitted revised Resolution Plans by 28.04.2023.

The CoC gave directions to the RP to seek clarification from all resolution applicants. All resolution applicants submitted clarifications in the form of an addendum to the Plan on 10.05.2023. At the 31st CoC meeting on May 16, 2023, 7 resolution plans were put to vote. SEML's Resolution Plan was approved with 100% vote share.

On 8.06.2023, the RP issued a Letter of Intent (LoI) to SEML. Pursuant to it, SEML submitted a Performance Bank Guarantee (PBG) of INR 150 crores on 12.06.2023.

Vantage Point Asset Management Pte. Ltd. later offered to increase its financial proposal. The CoC rejected this offer on 17.06.2023. On the same date, i.e. 17.06.2023, the RP filed an application before the Adjudicating Authority for approval of the Resolution Plan of SEML.

On the Application filed by the RP, the period of CIRP was extended to 24.06.2023, prior to which date, the Application for approval of the Resolution Plan was filed by the RP. The Adjudicating Authority, on 6.10. 2023 remitted the resolution plan for reconsideration to the CoC. The CoC again deliberated on all the Resolution Plans and after deliberation, reiterated its earlier decision.

Three appeals were filed challenging the 6.10.2023 order. The NCLAT on 10.05.2024 set aside the order, revived the Plan approval Application, and directed the Adjudicating Authority to dispose of the application within 60 days. The Adjudicating Authority approved the Resolution Plan filed by the RP by the impugned order dated 13.08.2024.

The unsuccessful Resolution Applicants (Vantage Point Asset Management Pte. Ltd., Torrent Power Ltd. and Jindal Power Ltd.) filed the appeals aggrieved by the impugned order.

Arguments:

By Counsel for Appellants:

• The Adjudicating Authority committed an error in treating the remand order as a restricted remand. It did not consider all contentions raised afresh.
• The RP and CoC selectively allowed SEML to modify its commercial offer after the negotiation process was concluded on 19.04.2023. No applicant was entitled to modify its commercial offer after the negotiation process. Once the Negotiation Process concluded, the commercial offer stood frozen. Thereafter, no change was permissible. Thus, SEML had deviated from the Resolution Plan.
• The CoC and the Resolution Professional have permitted the SEML to change its commercial under the garb of seeking clarification. Such similar opportunities were not made to other Resolution Applicants.
• The preferential treatment meted out to SEML by the RP/CoC enabled it to leapfrog over the other RAs. Thus, the case fell within the ambit of Section 61(3) of the IBC which permits the Tribunal to interfere, since there is material irregularity in the process.
• Vantage Point was ready to increase its offer by INR 50 Crores and had given the highest offer in the plan. Its Resolution Plan deserved to be approved as the object of CIRP is to maximise the value of the assets of the Corporate Debtor.

By Counsel for Respondent:

• The clarifications had been sought by the RP from all the Resolution Applicants. Such an act of seeking clarification was pursuant to the rights of the CoC categorically set out in the RFRP.
• The RFRP and the Process Note set out that the CoC could vote on any Resolution Plan in its commercial wisdom. The CoC is under no obligation to any of the Resolution Applicants to approve a Resolution Plan which has scored the highest. The CoC approves a Resolution Plan in its commercial wisdom by taking into account the overall feasibility and viability of the Resolution Plan.
• All Resolution Applicants got a level playing field and participated without demur till the conclusion of the process.
• Clarification was asked from SEML because the language of certain clauses of the Resolution Plan was not clear. There was no change in the commercial offer.
• Clauses of RFRP give power to the CoC/ RP to ask for any clarification from the Resolution Applicants. The clarification from the Resolution Applicants was necessary for completing assessment of feasibility and viability of each of the Resolution Plan and was for the purpose to bring clarity in the assessment.
• It is not open to the Unsuccessful Resolution Applicant to question the commercial wisdom of CoC in approving the Resolution Plan.

Observations:

The Tribunal noted that clause 2.6.2 (d) of the RFRP empowered the CoC to deliberate, discuss and/or negotiate with any one or more Resolution Applicants in any manner it deemed appropriate. Clause 2.6.2 (g) provided that on the basis of clarifications and negotiations with the Resolution Applicants, such Resolution Applicants may be required to submit a revised resolution plan. The Tribunal observed that the CoC had the right to request additional information/ documents and/or seek clarifications from Resolution Applicant(s).

Considering this, the tribunal held that the queries which had been asked by the CoC from the SRA and other Resolution Applicants were within the jurisdiction and authority of the CoC. It noted clause 4.1.8 which stated, “the CoC is under no obligation to any of the Resolution Applicants … to approve a Resolution Plan which has scored the highest as per the Evaluation Criteria and any Resolution Plan shall be approved solely on the basis of the CoC's commercial wisdom.”

The Tribunal observed that it is the 'commercial wisdom' of CoC to approve a Plan. Mere fact that Vantage had given an offer, which was the highest (INR 1815.04 crores) and Torrent second highest (INR 1810 crores) and SEML, the third highest (INR 1805 crores) could not be the reason, which obliged the CoC to approve the Resolution Plan of Vantage and Torrent, as CoC in its commercial wisdom was entitled to take its business decision.

The Tribunal observed that the clarification was necessary for a complete assessment of the feasibility, viability and commercial acceptability of the Plan. The CoC and RP were empowered to ask for any clarification from Resolution Applicant(s) as per the RFRP. Hence, the RP did not commit any irregularity within the meaning of section 61(3)(ii). The Tribunal determined that the clarification issued by SEML was consistent with the Resolution Plan. It held that clarifying the doubt raised by the RP did not change the commercial offer given by SEML.

The Tribunal held that the subsequent offer given by Vantage on 14.06.2023 to increase its bid by INR 50 crores was rightly rejected by the CoC. Once a Resolution Plan is approved, no Resolution Applicant is entitled to revise or increase their offer.

The Tribunal also observed that:

“An unsuccessful Resolution Applicant, who has not raised any objection after approval of Resolution Plan, cannot be heard in proceeding, which were initiated by other unsuccessful Resolution Applicants to raise any grievance with regard to non-approval of its Resolution Plan.”

The Tribunal then referred to the judgment of the Supreme Court with respect to the limit and extent of jurisdiction of NCLT and NCLAT while interfering with the commercial decision of the CoC in approving a Resolution Plan in the CIRP Process. In Ngaitlang Dhar v. Panna Pragati Infrastructure (P) Ltd.[(2022) 6 SCC 172], it was held that NCLT can interfere if there is perversity or material irregularity. In that case, it was held:

“under Section 61(3)(ii) IBC, an appeal would be tenable if there has been material irregularity in exercise of the powers by the RP during the corporate insolvency resolution period.”

It was also held in that case that the commercial wisdom of the CoC has been given paramount status without judicial intervention.

The Tribunal also referred to Arun Kumar Jagatramka v. Jindal Steel & Power Ltd. [(2021) 7 SCC 474], where the need for minimal judicial interference by the NLCT and NCLAT in the framework of IBC was noted.

The Tribunal dismissed the Appeals.

Case Title: Vantage Point Asset Management Pte. vs. Ashish Arjunkumar Rathi & Anr.

Case Numbers: Company Appeal (AT) (Insolvency) No. 1619 & 1620 of 2024 with Company Appeal (AT) (Insolvency) No. 1621 & 1622 of 2024 with Company Appeal (AT) (Insolvency) No. 1696 & 1697 of 2024

Counsel for the Appellants: Mr. Arvind Nayar, Sr. Advocate with Mr. Soham Mookherjee, Mr. Shahan Ulla, Mr. Varun Kalra, Mr. Akshay, Advocates for Vantage Point Asset Management Pte.

Dr. Abhishek Manu Singhvi, Mr. Niranjan Reddy, Sr. Advocates with Mr. Vaijayant Paliwal, Mr. Rishabh Jaisani, Ms. Charu Bansal, Mr. Harit Lakhani, Ms. Kirti Gupta, Ms. Priyansha Sharma, Mr. Sahil, Advocates for Torrent.

Mr. Krishnan Venugopal, Sr. Advocate with Ms. Gauri Rasgotra, Mr. Angad Sandhu, Ms. Priyashree Sharma, Mr. Shivansh Agarwal, Mr. Gaurav Gujral, Mr. Krishan Agarwal, Mr. Avinash Mathews, Ms. Ekta Gupta, Ms. Neha Maniktala, Advocates for Jindal Power Ltd.

Counsel for Respondents: Mr. Gopal Jain, Sr. Advocate with Mr. Madhav Kanoria, Ms. Srideepa Bhattacharyya, Ms. Neha Shivhare, Advocates for Committee of Creditors.

Mr. Harish Salve, Sr. Advocate, Mr. Krishnendu Datta, Sr. Advocate with Mr. Mahesh Agarwal, Mr. Manu Krishnan, Ms. Pooja Mahajan, Mr. Savar Mahajan, Ms. Geetika Sharma, Ms. Shreya Mahalwar, Advocates for SRA.

Mr. Ravi Kadam and Mr. Sunil Fernandes, Sr. Advocates with Mr. Bishwajit Dubey, Mr. Ramakant Rai, Mr. Somesh Srivastava, Mr. Rajshree Chaudhary, Ms. Diksha Dadu, Advocates for Ashish Arjunkumar Rathi (RP).

Date of Judgment: 01.10.2024