NCLAT Upholds Eligibility Of NTPC As A Resolution Applicant For Jhabua Power Ltd. : NCLAT Delhi

BACKGROUND FACTS

FLSmidth Private Limited had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the NCLT Kolkata ("Adjudicating Authority"), seeking initiation of CIRP against Jhabua Power Limited ("Corporate Debtor"). The Adjudicating Authority vide an order dated 27.03.2019 had initiated CIRP against the Corporate Debtor and Mr. Abhilash Lal ("Respondent No. 1") was appointed as Resolution Professional.

Avantha Holdings Limited ("Appellant") is the Promoter and Shareholder of Avanta Power and Infrastructure Limited, which in turn hold 17.9% shares of Corporate Debtor. On 03.06.2019, the Appellant had submitted a One Time Settlement ("OTS") proposal to the Resolution Professional, which was considered by CoC and was not found commercially viable. Thereafter, the Resolution Professional invited Expression of Interest ("EOI") from prospective Resolution Applicants for submission of Resolution Plan on 19.08.2019.

On 22.10.2019 NTPC Ltd. ("Respondent No.3") had submitted an affidavit certifying its eligibility under Section 29A of IBC and had informed Resolution Professional on 06.12.2019 that Ratnagiri Gas and Power Private Ltd. ("RGPPL") and Konkan LNG Private Limited ("KLL"), which were joint ventures of NTPC, have been declared Non-Performing Asset ("NPA"). The Canara Bank classified RGPPL as NPA on 21.05.2018, with effect from, 01.04.2009. Similarly, Canara Bank has classified KLL as NPA with effect from 01.04.2009. NTPC submitted its Resolution Plan on 30.12.2019 and revised the same on subsequent three occasions and had stated on affidavit that No Dues Certificates in respect of KLL has been received and with regard to RGPPL, there was no overdue amount.

On 21.12.2020, the Appellant made a proposal to the Committee of Creditors ("CoC") under Section 12A of the IBC for settlement of debt owed by the Corporate Debtor. In a meeting dated 05.03.2021 the CoC rejected the Appellant's proposal as not being economically viable.

On 16.04.2021, the NTPC submitted its revised Resolution Plan and an affidavit under Section 29A, claiming that the dues towards the lenders of KLL and RGPPL have been satisfied and lenders have provided no due certificates as on 30.03.2020 and January 2021 respectively.

On 06.06.2021, the Appellant had filed an application bearing I.A. No.537 of 2021 before the Adjudicating Authority seeking declaration that NTPC as not compliant with Section 29A of the IBC and further praying to set-aside the CoC decision's rejecting the proposal under Section 12A.

Thereafter, NTPC yet again submitted a revised Resolution Plan dated 14.06.2021, which was approved by the CoC with 100% votes. Subsequently, I.A. No.586 of 2021 was filed by the Resolution Professional before the Adjudicating Authority for approval of the Resolution Plan. The Adjudicating Authority vide an order dated 08.03.2021 rejected the I.A. No.537 of 2021 filed by the Appellant and held that the NTPC is not disqualified under Section 29A of the IBC.

The Appellant filed an appeal before the NCLAT challenging the Order dated 08.03.2021; seeking disqualification of NTPC under Section 29A of IBC; and praying to set-aside decision of the CoC rejecting the proposal of the Appellant under Section 12A of IBC.

RELEVANT LAW

Section 29A(c)

"29A. Persons not eligible to be resolution applicant.

- A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person—

(c) at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to nonperforming asset accounts before submission of resolution plan:"

CONTENTIONS OF THE APPELLANT

The Appellant argued that IBC does not contemplate submission of more than one Resolution Plan and NTPC had submitted four plans. The Appellant argued that the Canara Bank had classified RGPPL as NPA on 21.05.2018, with effect from, 01.04.2009 and had classified KLL as NPA with effect from 01.04.2009. Even if, the claim that RGPPL and KLL entered into OTS with lenders and no due certificates were issued, the payment having not been made by NTPC, the proviso to Section 29A(c) is not attracted. The payment of all overdue amounts has to be made by person, who is to submit the Resolution Plan and thus the ineligibility of NTPC cannot be said to have been removed by no due certificates granted by lenders in March 2020 and January 2021.

Further, the CoC rejected the OTS proposal of the Appellant under Section 12A with non-application of mind and over no reasonable basis of rejection.

CONTENTIONS OF THE NTPC

NTPC submitted that the Canara has classified RGPPL and KLL as NPA on 21.05.2018 and by that time period of one year from the date of commencement of CIRP has not elapsed. CIRP having commenced on 27.03.2019, disqualification under Section 29A(c) was not attracted. The NTPC was not ineligible to submit its Resolution Plan on 30.12.2019 and when it was not ineligible at the time of submission of first Resolution Plan, there is no occasion of attaching any eligibility during submission of subsequent revised Plans.

It was further submitted that entire debt of KLL was settled through OTS in March 2020 and all lenders have issued no due certificates in March 2020 and as there was no old dues in loan account of RGPPL, no due certificates were issued by the lenders of RGPPL. On the date on 16.04.2021, when 3rd Plan was submitted, which ultimately was considered and approved in its revised form by the CoC, NTPC was fully compliant of Section 29A. By clearing all overdues by virtue of proviso to Section 29A(c), the NTPC had become eligible.

CONTENTIONS OF THE COC

The CoC submitted that the Appellant has proposed upfront payment of Rs. 200 crores in its OTS proposal, which was significantly lower than the NTPC Resolution Plan, which provided upfront payment of Rs. 905 crores. The CoC did not find the Settlement Plan submitted by the Appellant as commercially viable and the commercial decision taken by CoC needs no interference. The OTS proposal could only fructify after receiving 90% votes from CoC, which it failed to achieve.

DECISION OF THE NCLAT

The NCLAT Bench observed that Section 12A does not entitle Promoters of the Corporate Debtor to submit a Settlement Plan as is claimed by the Appellant. The pre-condition of accepting any withdrawal Application under Section 12A is on approval by CoC by 90% of its voting shares. CoC having never granted its approval, Section 12A route was never open for withdrawal of CIRP. The Bench opined that Section 12A proposal cannot be forced upon the lenders.

"The Promoters, who led to insolvency process of Corporate Debtor cannot claim to submit a Resolution Plan indirectly by way of proposal under Section 12A and ask the lenders to evaluate their Resolution Plan. Something which is not permissible directly by virtue of prohibition under Section 29A for submitting Resolution Plan by the Promoters, cannot be permitted to be done indirectly. Further, the commercial wisdom of the CoC, which is reflected in its Meeting dated 05.03.2021 and 21.04.2021 is not liable to be judicially reviewed."

The Bench held that the CoC had not committed any error in rejecting the Appellant's proposal under Section 12A and the Adjudicating Authority had correctly refused to interfere with CoC's decision.

With regards to NTPC's eligibility to submit Resolution Plan, the Bench observed that Section 29A(c) is plain and clear that grace period of one year has been given and if after expiry of grace period, Resolution Applicant is unable to pay the dues and the NPA continues, the Resolution Applicant becomes ineligible.

"The purpose for statutory requirement that at least one year has elapsed from the date of such classification is to see that within a period of one year from classification, if the Resolution Applicant did not get away from NPA, it should be declared as NPA. But in case where the Resolution Applicant does not actually get the grace period whether by a backdate, which is of nine years ago, it can be denied the benefit of the expression statutory requirement of "at least period of one year has elapsed from the date of such classification". We, thus, are of the view that date of NPA classification by the Canara bank shall be treated as 21.05.2018 and it cannot be taken as on 01.04.2009, which is the backdate, as has been given by the Canara Bank, with effect from which date NPA is declared."

The Bench observed that if contention of back dated NPA is accepted, the purpose of statutory prescription under Section 29A(c) can be defeated by the Financial Institutions by declaring NPA on particular date and making it effective from back date, so that no Resolution Applicant can take the benefit of statutory provision as provided under Section 29A(c). Therefore, the Bench considered the NPA date as 21.05.2018 and held that the period of one year had not elapsed till 27.03.2019, when CIRP commenced. Since on the date of commencement of CIRP, period of one year has not elapsed, the disqualification under Section 29A(c) shall not attach to the NTPC as a Resolution Applicant and the same is held to be eligible on 30.12.2019 and in entire process of the CIRP.

NTPC being eligible, was entitled to submit Resolution Plan and was also entitled to revise its Plan from time to time as per the Scheme of the IBC. "The Plan having approved by 100% vote of CoC, we do not find any error in the decision of the Adjudicating Authority rejecting the I.A. No.537 of 2021 filed by the Appellant."

The appeal was dismissed by the NCLAT Bench.

Case Title: Avantha Holdings Limited v Mr. Abhilash Lal, Company Appeal (AT) (Insolvency) No. 304 of 2022.

Counsel For Appellants: Dr. Abhishek Manu Singhvi & Mr. K. Datta, Sr. Advocates with Mr. Prateek Kumar, Ms. Raveena Rai and Ms. Smriti Nair, Advocates.

Counsel For Respondents: Mr. Abhinav Vasisht, Sr. Advocate with Ms. Anindita Roy Chowdhury and Mr. Raghav Chadha, Advocates for R-1/RP. Mr. Arun Kathpalia, Sr. Advocate with Mr. Vaijayant Paliwal, Mr. Nikhil Mathur, Ms. Prabh Simran Kaur and Anoop Rawat, Advocates for R2/CoC. Mr. Ramji Srinivasan, Sr. Advocate with Mr. Ramakant Rai, Ms. Rajshree Chaudhary, Mr. Varun Kumar Tikmani and Mr. Somesh Srivastava, Advocates for R-3, NTPC.

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