Dr. C. Bharath Chandran Vs Ms. Sabine Hospital and Research Centre Pvt. Ltd (NCLAT Chennai)
NCLAT Chennai held that CIRP plan not approved by minimum 66% of the Committee of Creditors is considered to be failed Resolution Plan and on submission of such failed Resolution Plan the Adjudicating Authority will initiate Liquidation Process.
Facts- The Trivandrum International Health Services Ltd. who was a ‘Corporate Debtor’ was a Micro, Small and Medium (MSME) company. Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (CIRP) by the Adjudicating Authority on 07.02.2020.
Dr. C. Bharath Chandran (Appellant/Resolution Applicant) was the Promoter and Erstwhile Director of the Corporate Debtor, who along with two other co-applicants had submitted a Resolution Plan for revival of the Corporate Debtor. The Resolution Plan was approved by the Committee of Creditors.
The Appellant was directed to furnish Performance Bank Guarantee of Rs. 5 Crores, which it failed to furnish. Thereafter, Appellant was given permission to replace two original co-applicants with two new Applicants. Then the Appellant was also permitted to submit a joint Resolution Plan with one another resolution applicant namely M/s Sabine Hospital and Research Centre. However, none of the Resolution Plans received the mandatory 66% votes of the CoC members.
Consequently, the Resolution Professional filed an application seeking Liquidation of the Corporate Debtor. The Adjudicating Authority allowed the application for liquidation of the Corporate Debtor on 02.06.2022. The Appellant filed an appeal before the NCLAT challenging the order of liquidation dated 02.06.2022.
Conclusion- The ‘Adjudicating Authority’ had given fair and equal chances to both the ‘Resolution Applicants’ to the extent that a ‘Resolution Plan’ in tandem and in co-operation of both the Parties could be submitted, however, both the ‘Parties’ could not do so.
Held that in the present case, since the ‘Committee of Creditors’ did not approve the plan by a vote of not less than 66% as required under Section 30(4) of the IBCode, 2016, hence, it is considered that the Resolution Plan has failed. Therefore, in such a situation if a rejected plan is placed before the ‘Adjudicating Authority’, the ‘Adjudicating Authority’ is expected to do nothing more, but to initiate `Liquidation’ process under section 33(1) of IBCode, 2016.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
The Present `Appeal’ is filed against the ‘Impugned Order’ dated 02.06.2022 passed in IA(IBC)49/(KOB)2022 in IBA/51/KOB/2021by the ‘Adjudicating Authority’ (National Company Law Tribunal, Kochi Bench), whereby, the ‘Adjudicating Authority’ dismissed the Petition filed under the Insolvency & Bankruptcy Code, 2016 (in short ‘I & B Code 2016’).
Heard the Learned Counsel for both the `Parties’ and also perused the record made available to us.
2. The ‘Trivandrum International Health Services Ltd.’ who was a ‘Corporate Debtor’ was admitted into the ‘Corporate Insolvency Resolution Process’ vide ‘Impugned Order’ dated 07.02.2020 under Section 7 of the I & B Code, 2016, passed by the ‘Adjudicating Authority’. Dr. C. Bharath Chandran is the ‘Appellant’ and was the ‘Promoter’ and ‘Erstwhile Director’ of the ‘Corporate Debtor’, who along with two other co-applicants, had submitted a ‘Resolution Plan’ for revival of the ‘Corporate Debtor’ which could not be proceeded since, the ‘Appellant’ failed to furnish the ‘Performance Bank Guarantee’, which was a pre-requisite.
3. Ms. Sabine Hospital and Research Centre Pvt. Ltd. is the 1st Respondent, who made an application to the ‘Adjudicating Authority’ for being permitted to submit a ‘Resolution Plan’ after the due date to submit an `Expression of Interest’ (`Eol’), within the time specified by the ‘Committee of Creditors’ i.e., on or before 14.11.2020. The 1st Respondent name was not included in the Provisional List or in the Final List of the `Prospective Resolution Applicants’ (`PRA’).
4. Raju Palanikkunathil Kesavan is the 2nd Respondent who was appointed as ‘Resolution Professional’ by the ‘Adjudicating Authority’ and later as the ‘Liquidator’ of the ‘Corporate Debtor’ on the recommendation of ‘Committee of Creditors’.
5. The 2nd Respondent published a Public Announcement in Newspapers in `Form A’ on 12.02.2020 and verified the `Claims’ received and also formed the `Committee of Creditors’ (`CoC’). Kerala State Financial Corporation, State Bank of India & Dhanlaxmi Bank Ltd. are respectively the 3rd, 4th & 5th Respondents in this `Appeal’ who together constitute the ‘Committee of Creditors’ of the ‘Corporate Debtor’. The 3rd Respondent held 48.11% of the `Voting Share’ and the 4th Respondent held 35.87% of the `Voting Share’ and the 5th Respondent held 16.02% of the `Voting Share’.
6. The ‘Appellant’ (along with the two co-applicants, viz. Dr. Pradeep Mahajan and Mr. Ramu Tatini) had submitted a ‘Resolution Plan’ which was approved by the ‘Committee of Creditors’ at its meeting held on 07.10.2021 and a `Letter of Intent’ was issued to the ‘Appellant’ and his two co-applicants. The `2nd Respondent’ (`Resolution Professional’) informed the ‘Appellant’ was ineligible to submit the ‘Resolution Plan’ in terms of Section 29A of I & B Code, 2016. The ‘Appellant’ however was permitted to submit the ‘Resolution Plan’ by order dated 30.06.2021 of the ‘Adjudicating Authority’, on the basis that the ‘Corporate Debtor’ was an MSME, as per notification dated 01.06.2020 of the ‘Ministry of Micro, Small and Medium Enterprises’.
7. This `Appellate Tribunal’ notes from the Para 3 of the ‘Impugned Order’ dated 02.06.2022, which reads as under:-
“Para 3….Since the Resolution Plan submitted by the Resolution Applicants were bundled with conditions and to incorporate details on feasibility and viability, and to consider a substantial increase in the financial outlay, the CoC requested the Resolution Applicants to file the modified Resolution Plan and held further meetings on 30.07.2021, 04.08.2021, 18.08.2021 and 22.09.2021 and granted a last opportunity to submit the modified plan before 30.09.2021. Accordingly, Dr. C Bharath Chandran, the Suspended Director filed a revised and final Resolution Plan on 30.09.2021 and the other Prospective Applicants refused to revise their Resolution Plans, but requested to consider the Resolution Plan they have already submitted. The 14th meeting of the CoC held on 07.10.2021 considered all the four Resolution Plans submitted by Dr. C Bharath Chandran along with Dr. Pradeep Mahajan and Mr. Ramu Tatini with 100% voting rights accepted the Resolution Plan of Dr. C Bharath Chandran and rejected all the other Resolution Plans. Further, in the same meeting of the CoC, it was resolved to liquidate the Corporate Debtor in case of failure of Resolution Plan or non-approval of Resolution Plan by the Adjudicating Authority and approved the appointment of Liquidator and the other terms and conditions to be adopted in case of Liquidation of the Company. Thereafter, the Resolution Professional issued a Letter of Intent (LOI) to Dr. C Bharath Chandran conveying the approval of the Resolution Plan on 12.10.2021and the same was unconditionally accepted by Dr. C Bharath Charndran successful Resolution Applicant, on 13.07.2021 on behalf of the consortium applicants. As per the conditions stipulated in the LoI & RFRP, the successful Resolution Applicant was to furnish a Performance Guarantee for Rs 5 Crore latest by 20.10.2021. However, the Resolution Applicant failed to execute the performance guarantee within the stipulated time, i.e., on or before 20.10.2021.”
[emphasis supplied]
8. The Learned Counsel for the Appellant stated that as per the understanding between the ‘Appellant’ and his co-applicants, the co-applicants were required to make arrangements for depositing a Performance Bank Guarantee of Rs. 5 Crore with the ‘Committee of Creditors’. However, as the co-applicants did not make the required arrangement, the ‘Appellant’ was unable to furnish the same. In view of the failure to submit the Performance Bank Guarantee, the same being a pre-requisite to file a ‘Resolution Plan’ before the ‘Adjudicating Authority’, the ‘Committee of Creditors’, in its meeting held on 21.10.2021, authorised the 2nd Respondent to file for `Liquidation’ of the ‘Corporate Debtor’.
9. The Learned Counsel for the Appellant stated that he sought permission to replace two Original Co-applicants with two new Applicants i.e. Dr. Chitra Sudeep and Dr. Sudeep Kumar and except for replacement of the co-applicants, the ‘Resolution Plan’ was retained exactly as approved by the ‘Committee of Creditors’ at its meeting held on 07.10.2021.
10. At the subsequent meeting of the ‘Committee of Creditor’ held on 30.10.2021, two of the ‘Financial Creditors’ holding 64.13% stake in the ‘Committee of Creditor’ (viz. Kerala Financial Corporation and Dhanlaxmi Bank) expressed their “No Objection” which was still short of required minimum 66% `Voting Rights’.
11. The Learned Counsel for the Appellant emphasised that the ‘Committee of Creditors’ was empowered to consider this amendment to the ‘Resolution Plan’, in as much as paragraph 9 of the ‘Request for Resolution Plan’ (‘RFRP”)’ permitted amendment to the ‘Resolution Plan’.
12(A). The Learned Counsel for the Appellant brought to the notice of this `Appellate Tribunal’ that the following three applications were filed before the ‘Adjudicating Authority’:
(I) I.A.(IBC)/180/KOB/2021 filed by the 2ndRespondent (Resolution Professional) praying for an order of Liquidation’ of the ‘Corporate Debtor’.
(II) A. (IBC)/177/KOB/2021 filed by the ‘Appellant’, inter alia, praying that the ‘Committee of Creditors’ be directed to consider and accept the amendment to the ‘Resolution Plan’ in terms of replacement of the existing co-applicants with newco-applicants.
(III) A. (IBC)/166/KOB/2021 filed by the Ms. Sabine Hospital and Research Centre Pvt. Ltd. who is the 1st Respondent praying that the 1st Respondent be permitted to file an “EoI” and to submit a ‘Resolution Plan’ for the ‘Corporate Debtor’.
12(B). The Learned Counsel for the Appellant also briefed this `Appellate Tribunal’ that all the aforesaid `Interlocutory Applications’ were heard together by the ‘Adjudicating Authority’ and the Order was passed, whereby it was held that the time for ‘Corporate Insolvency Resolution Process’ was to come to an end on 25.02.2022 by excluding the period of time taken in deciding the Interlocutory Application Nos. (IBC)/177/KOB/2021, I.A. (IBC)/166/KOB/2021 and I.A. (IBC/180/KOB/2021. It was pointed out that considering the `Suo moto Order’ of the Hon’ble Supreme Court of India, time was available till 01.01.2022, which time was insufficient to call for a fresh “EoI” in terms of Regulation 36A of the ‘Corporate Insolvency Resolution Process’ Regulation. Further, the `Appellant’ along with the new co-applicants as well as `1st Respondent’ were directed to submit their “EoI” to the `2nd Respondent’ forthwith and were also permitted to submit their ‘Resolution Plan’, before the ‘Committee of Creditors’, for its consideration.
13. The Learned Counsel for the Appellant assailed the order of the ‘Adjudicating Authority’ allowing the `1st Respondent’ at a late stage which according to the ‘Appellant’ was not advisable and permissible under I & B Code, 2016. Pursuant to this ‘Impugned Order’, the 2nd Respondent invited a fresh “EoI” from the ‘Appellant’ and the 1stRespondent has asked for the same to be submitted with the supporting documents, Affidavit and Non-Disclosure Agreement by 30.12.2021.
14. It has been brought to the notice of this Appellate Tribunal that the ‘Committee of Creditors’, evaluated the ‘Resolution Plans’ of both the parties at their 21st Meeting held on 19.02.2022 and were divided on the vote and neither plan received the 66% minimum votes required to be approved by the ‘Committee of Creditors’ with one ‘Financial Creditor’(holding 48.11% voting share) for the ‘Resolution Plan’ in favour of the ‘Appellant’ herein and the other two Financial Creditors (holding the balance 51.89% of voting share) for the ‘Resolution Plan’ submitted by the1st The ‘Committee of Creditors’ passed the resolution rejecting both the ‘Resolution Plans’.
15. The ‘Resolution Professional’ filed Interlocutory Application No. 49 of 2022 (Liquidation Application) seeking `Liquidation’ of the ‘Corporate Debtor’ and the ‘Adjudicating Authority’, passed an interim Order dated 30.03.2022, relying on the Regulation 39(3B) of the IBBI [(Insolvency Resolution Process for Corporate Persons)] Regulations, 2016, directed the ‘Committee of Creditors’ to re-vote only on the Resolution Plan which received the highest percentage of votes and extended the time for ‘Corporate Insolvency Resolution Process’ by another 20days for the said purpose and directed the2ndRespondent to file a report on the outcome.
16. The ‘Committee of Creditors’ in their 23rd meeting held on 11.04.2022, voted in divergent manner and none of the ‘Resolution Plans’ received the requisite 66% of the votes.
17. In the interim, the ‘Appellant’ herein had filed an Intervention Application of 2022 in the Liquidation Application, seeking to be heard before the matter was finally adjudicated upon and at the next hearing of the Liquidation Application at the behest of the Appellant herein, the ‘Adjudicating Authority’ gave the ‘Appellant’ one last chance to submit his resolution plan in cooperation with 1st Respondent in order to save the ‘Corporate Debtor’ from `Liquidation’, but due to failure of negotiation, no joint ‘Resolution Plan’ could be submitted by the ‘Appellant’ and 1st The ‘Adjudicating Authority’ disposed of the matter by admitting the ‘Corporate Debtor’ into Liquidation.
18. It is a case of the ‘Appellant’ that the ‘Adjudicating Authority’ gave permission to 1st Respondent wrongly to submit “EoI” after due date. It is further a case of the ‘Appellant’ that if he would have been allowed to replace original two co-applicants with new two co-applicants rather than allowing 1st Respondent also to submit a ‘Resolution Plan’, the matter would have been resolved long back. The ‘Appellant’ has also made a case that provisions of Regulations 39 of ‘Insolvency & Bankruptcy Board of India (Corporate Insolvency Resolution Process)’ Regulations, 2016, have not been complied with fully and the initial decision/commercial wisdom of ‘Committee of Creditors’ was by-passed by the ‘Adjudicating Authority’.
19. This `Appellate Tribunal’ would like to go through the provisions of relevant Section of I & B Code, 2016 along with Regulation 39 of the ‘Insolvency & Bankruptcy Board of India (Corporate Insolvency Resolution Process)’ Regulations, 2016, which reads as under:-
THE INSOLVENCY & BANKRUPTCY CODE, 2016:
“Section33: Initiation of liquidation
Where the Adjudicating Authority,—
(a)before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive are solution plan under sub-section (6) of section 30; or
(b)rejects the resolution plan under section 31 for the noncompliance of the requirements specified therein it shall-
(i)pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;
(ii)issue a public announcement stating that the corporate debtor is in liquidation; and
(iii)require such order to be sent to the authority with which the corporate debtor is registered.
(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors 1[approved by not less than sixty-six per cent. of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses
(i), (ii) and (iii) of clause (b) of sub-section (1).
Explanation.– For the purpose of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under sub-section (1) of Section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.
(3)Where the resolution plan approved by the Adjudicating Authority [under section 31 or under subsection (1) of section 54L, is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(5) Subject to section 52, when a liquidation order has been passed, no suitor other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.
(6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.
Section30: Submission of resolution plan.
(1) A resolution applicant may submit a resolution plan 1[along with an affidavit stating that he is eligible under section 29A] to the resolution professional prepared on the basis of the information memorandum.
(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan-
(a)provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the 2[payment] of other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-
(i) the amount to be paidJ1 to such creditors in the event of a liquidation of the corporate debtor under section 53; or
(ii)the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.
Explanation1. — For removal of doubts, it is here by clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.
Explanation 2. — For the purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor-
(i)where are solution plan has not been approved or rejected by the Adjudicating Authority;
(ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or
(iii)where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;]
(c)provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e)does not contravene any of the provisions of the law for the time being in force;
(f) conforms to such other requirements as may be specified by the Board.
Explanation.—For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Actor law.]
(3)The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section(2).
(4)The committee of creditors may approve a resolution plan by a vote of not less than 5[sixty-six] per cent. of voting share of the financial creditors, after considering its feasibility and viability, 6[the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor] and such other requirements as may be specified by the Board:
Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:
Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:
Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed with in the period specified in that sub-section.
Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance,2018.
(5)There solution applicant may attend the meeting of the committee of creditors in which there solution plan of the applicant is considered:
Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor.
(6)The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.”
INSOLVENCY & BANKRUPTCY BOARD OF INDIA (CORPORATE INSOLVENCY RESOLUTION PROCESS) REGULATION 2016:
“CHAPTER X RESOLUTION PLAN:
39. Approval of Resolution Plan.
[(1) A prospective resolution applicant in the final list may submit resolution plan or plans prepared in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with (a) an affidavit stating that it is eligible under section 29A to submit resolution plans;
(c) an undertaking by the prospective resolution applicant that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action under the Code.
(1A) The resolution professional may, if envisaged in the request for resolution plan-
(a) allow modification of the resolution plan received under sub-regulation (1), but not more than once; or
(b) use a challenge mechanism to enable resolution applicants to improve their plans.
(1B) The committee shall not consider any resolution plan-
(a) received after the time as specified by the committee under regulation 36B; or
(b) received from a person who does not appear in the final list of prospective resolution applicants; or
(c) does not comply with the provisions of sub-section(2) of section 30 and sub regulation (1).].
(2) [The resolution professional shall submit to the committee all resolution plans which comply with the requirements of the Code and regulations made thereunder along with the details of following transactions, if any, observed, found or determined by him: –
(a) preferential transactions under section 43;
(b) undervalued transactions under section 45;
(c) extortionate credit transactions under section 50; and
(d) fraudulent transactions under section 66,
and the orders, if any, of the adjudicating authority in respect of such transactions.]
[(3) The committee shall-
(a) evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix;
(b) record its deliberations on the feasibility and viability of each resolution plan; and
(c) vote on all such resolution plans simultaneously.
(d) Where only one resolution plan is put to vote, it shall be considered approved if it receives requisite votes.
Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the highest votes, but not less than requisite votes, shall be considered as approved:
Provided that where two or more resolution plans receive equal votes, but not less than requisite votes, the committee shall approve any one of them, as per the tie-breaker formula announced before voting:
Provided further that where none of the resolution plans receives requisite votes, the committee shall again vote on the resolution plan that received the highest votes, subject to the timelines under the Code.
Illustration. – The committee is voting on two resolution plans, namely, A and B, simultaneously. The voting outcome is as under:
