Bank of India Vs Vishal Ghisulal Jain & Ors. (NCLT Mumbai)
NCLT Mumbai set aside the resolution plan submitted by the respondent as Resolution Professional withhold the information of Resolution Applicant, being declared as wilful defaulter prior to submission of resolution plan, from the COC.
Facts- The present Application has been preferred by the Bank of India, one of the members of CoC with a prayer to declare the plan submitted by the suspended director of Corporate Debtor, Mr. Ankit Wadhwa (Respondent No.6) as void-ab-initio on the ground of his being ineligible in terms of Section 29A of IBC being a ‘willful defaulter’. The prayer is also made against the conduct of the RP (Respondent) attributing malafide to him and in view of the same for initiating appropriate proceedings and suspending his license.
Conclusion- Held that thus it is this date i.e. 11.11.2022 which is material so as to check the eligibility of the Resolution Applicant under Section 29A of the Code and in the present case the Resolution Professional withheld the information of the eligibility of the Resolution Applicant from the COC as the plan of the RA may not have been approved by the COC. If the factum of his having being declared as a ‘wilful defaulter’ had come to the knowledge of the COC. Hence, the requisite information was withheld from the COC.
Held that being an RP is an onerous responsibility and RP is expected to conduct himself in an unbiased and responsible manner as he is an officer of the Court but in the present case the RP during the entire proceedings was steering the COC proceedings in such a way so as to achieve the objective of getting the Plan of Respondent No. 6 approved. Thus, Resolution Plan submitted by Respondent No. 6 set aside.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. The above Interlocutory Application bearing I.A. No. 828 of 2023 is filed by Bank of India (hereinafter referred to as the “Applicant”) seeking directions against Mr. Vishal Ghisulal Jain and Ors. (hereinafter referred to as the “Respondent”) under Section 60 (5) of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) praying for following reliefs:
i. To allow this Application and declare that the Resolution Plan dated 11 November 2022 as submitted by Successful Resolution Applicant/Suspended Partner of the Corporate Debtor, Mr. Ankit Wadhwa as void ab initio as Mr. Ankit Wadhwa is a wilful defaulter and ineligible in terms Section 29A of the Code for submitting Resolution Plan;
ii. To Set-aside the decision of the Respondent No. 2 to 4, of approving the resolution plan dated 11 November 2022 as it is contrary to the provisions of the code;
iii. Declare the Resolution Plan dated 11 November 2022 as ultravires as the same is contrary to the Code and “conditional in nature”.;
iv. To replace the Resolution Professional, Mr. Vishal Ghisulal Jain and impose exemplary cost for misconduct and for prejudicing the entire CIRP and adversely affecting the rights of all stakeholders including homebuyers;
v. To replace Authorised Representative of the Homebuyers, Mr. Prabhat Jain who has acted in connivance with the Resolution Professional prior to his appointment as well as post his appointment by this Tribunal;
vi. To grant fresh period of 180 days for CIRP in interest of all stakeholders including homebuyers to be run by new appointed RP to reassess the claims correctly and reinstate correct voting rights in the COC and invite fresh Expression of Interest in view of maximization and wider participation in resolution;
vii. To direct investigation into the exorbitant CIRP cost by the newly appointed RP and/or by the COC;
viii. To direct the IBBI (Respondent No. 7) to furnish their report in furtherance to the compliance of the order dated 8 September 2021 of this Hon’ble Court;
ix. To direct IBBI (Respondent No. 7) to provide status on complaint filed twice by the Applicant against the Resolution Professional, Mr. Vishal Jain and the complaint as filed against Authorised Representative, Mr. Prabhat Jain.
x. To maintain status quo until the Resolution Professional, Mr. Vishal Jain and Authorised Representative, Mr. Prabhat Jain are replaced;
xi. Any other order which the Hon’ble NCLT may deem fit in the facts and circumstances of the case.
Brief Facts of the Case
2. The present Application has been preferred by the Bank of India, one of the members of CoC with a prayer to declare the plan submitted by the suspended director of Corporate Debtor, Mr. Ankit Wadhwa (Respondent No.6) as void-ab-initio on the ground of his being ineligible in terms of Section 29A of IBC being a ‘willful defaulter’. The prayer is also made against the conduct of the RP (Respondent No. 1) attributing malafide to him and in view of the same for initiating appropriate proceedings and suspending his license.
3. In the present Application, the Respondent No.1 is the Resolution Professional (herein after referred to as “RP”) appointed vide order dated 14 October 2020 by this Hon’ble Tribunal and is the Resolution Professional of Corporate Debtor/Wadhwa Buildcon LLP incorporated under the Limited Liability Partnership Act, 2008 (herein after referred to as “Corporate Debtor”) undergoing Corporate Insolvency Resolution Process (“CIRP”) pursuant to admission Order dated 28 July 2020 passed by this Hon’ble Tribunal.
4. The Respondent No. 2, Mr. Prabhat Jain is the Authorised Representative (“AR”) of Financial Creditor in a class of Homebuyers and CoC Member of the Corporate Debtor.
5. The Respondent No. 3 i.e., Mr. Vishal Parab, Respondent No. 4 i.e., Mr. Vishal Patil and Respondent No. 5 i.e., Capri Global Capital Limited are Unsecured Financial Creditors and CoC Members of the Corporate Debtor.
6. The Respondent No. 6 is the Suspended Partner of the Corporate Debtor who is Successful Resolution Applicant and the Respondent No.7, is the Insolvency and Bankruptcy Board of India (“IBBI”).
7. The arguments advanced by the Ld. counsel for the Applicant is primarily on the following grounds
A) That the approval of the Resolution Plan of Respondent No 6 is illegal being against the Section 29A of IBC, 2016 as on the date of the submission of the plan he was already declared ‘Willful defaulter’.
While elaborating the first contention that the Respondent No 6 i.e. SRA was ineligible being a willful defaulter on the date of the submission of the Plan, the Ld. counsel contended that the Corporate Debtor was admitted to CIRP on 28.07.2020. Respondent No. 6 submitted his Plan on 21.01.2021 which was submitted before the COC on 25.03.2021 for approval. This Plan was neither opened nor discussed or voted in any of the COC meetings. The COC did not take into consideration this plan, as substantial time had elapsed and many circumstances had changed during the pendency of this prospective Plan with respect to the claims, intrinsic value of the project, estimated cost escalation etc. etc. which directly or indirectly affected the Resolution Plan amount. Subsequently afresh/revised Resolution plan was submitted by Respondent No. 6 on 11.11.2022 on the asking of the COC and the same was opened in the 13th COC meeting on 17.12.2022. Thereafter, the RP stated that Section 29A of the Code, eligibility of Successful Resolution Applicant shall be examined and only thereafter the vetting of the Revised Plan shall be done if it is in compliance of the Code and is fit to be placed before the COC for approval. The counsel vehemently argued that the Revised Resolution Plan is in fact a new and fresh Resolution Plan and the earlier Resolution Plan had no bearing on the Same as no eligibility of the SRA was examined at that stage and neither was the plan placed before COC for consideration. The RP instead of filing the eligibility of the SRA u/s 29A of the Code submitted that the Plan shall be placed before the COC only if the same is found to be in compliance with the Code. It is pertinent to mention that at the behest of the India Bulls Housing, Resp. no. 6 the Resolution Applicant was declared as ‘willful defaulter’ on 31.10.2022 prior to the submission of the Resolution Plan. Thus, it is evident that on the date of filing of the plan by the Resolution Applicant i.e. 11.11.2022 he was not eligible u/s 29A of the Code because of his having been declared as willful defaulter on 31.10.2022.
8. The relevant provisions of the IB Code so as to reemphasis the issue are reproduced hereunder :-
“Section 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—
….
(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949);
240A. Application of this Code to micro, small and medium enterprises. –
(1) Notwithstanding anything to the contrary contained in this Code, the provisions of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in respect of corporate insolvency resolution process [or prepackaged insolvency resolution process] of any micro, small and medium enterprises…”
Thus the contention of the Ld. Counsel is that at the time of submitting the plan, SRA was ineligible in terms of Section 29(A) of the IBC as he was already declared a willful defaulter. Therefore the Plan submitted by Respondent No. 6 could not be considered for approval by COC.
9. Thus it is a clear case of dereliction of duty on the part of the Resolution Professional of not having checked the eligibility of Resolution Applicant (RA) on the submission of the Resolution Plan whereas it was incumbent upon the Respondent No.1 (RP) to Check the eligibility of the Resolution Applicant before putting up the plan for consideration before the CoC. The Respondent No. 1 (RP) never placed on record the correct facts regarding the eligibility of Respondent No. 6 before COC at the time of submission of the Resolution Plan. It is submitted that Sub section (b) of Section 29A is still applicable to Suspended Management of the Corporate Debtor even when the Corporate Debtor is a MSME. It is evident that Mr. Ankit Wadhwa, the Successful Resolution Applicant has been declared a willful defaulter by one of the Creditors and the same is reflected from the records as available on the information utility namely, CIBIL.
10. The Ld. Counsel for the Applicant while emphasizing on the ineligibility of the Resolution Applicant submitted that it is Respondent No. 6 the SRA because of whose misdeeds (Along with others) led to the admission of the CD into CIRP. Now despite being a willful defaulter he cannot be permitted to submit a resolution Plan. This otherwise would lead to extending a benefit to a wrong doer at whose behest the Corporate Debtor has suffered and is made to undergo CIRP and also the homebuyers had to suffer. The counsel referred to the judgement of the Hon’ble Apex court in the matter of ArcelorMittal India Private Limited V. Satish Kumar Gupta (Civil Appeal Nos.9402 – 9405 / 2018) wherein the Hon’ble Supreme court has held as under–
25….Concerns have been raised that persons who with their misconduct contributed to defaults of companies or are otherwise undesirable may misuse the situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process and gain or regain control of the Corporate Debtor….
26. It is in this background that the section has been construed.”
56. Since Sec. 29A (c) is a see through provision…If a person has been promoter…This ineligibility cannot be cured by paying off debts of the Corporate Debtor”
B) The conduct of the RP and the Manner in which he conducted the entire CIRP Proceedings is against the Code and the regulations; so as to grant the undue benefit to Respondent No. 6 i.e. Resolution Applicant to the prejudice of the Applicant.
11. While arguing the second contention, the Ld. Counsel submitted that in the entire process of CIRP the role of Respondent No. 1 / Resolution Professional has not been fair and he has conducted himself with the Prejudicial and biased mind so as to ensure that the plan of Respondent No. 6 is approved and the interest of the Applicant Bank is prejudiced. To elaborate the contention raised, the Ld. counsel submitted that firstly, there has been a huge delay on the part of the RP in Reconstitution of the COC. Secondly the conduct of the RP has not been in terms of the IBC and the CIRP Regulations. The Ld. counsel emphatically submitted that the mode and the manner in which the voting share of the Applicant in the COC has been reduced gradually from 100% to that of 29.57% and proportionally increasing the voting share of the home buyer and land owners from zero to 66.42% itself is questionable as immediately before every scheduled COC meeting, the fresh homebuyers were added to prejudice the interest of the Applicant and this gradual increase of the Homebuyers was to ensure that plan of Respondent No. 6 is approved with 66% mandate.
12. It is pertinent to submit that, at the time of formation of COC, share of the Applicant was 100% which by 13th COC meeting was reduced from 100% to 31.08%. The home buyers voting share was increased to 64.07% when the plan of the Resolution Applicant i.e. Respondent No. 6 was considered. While elaborating the conduct of the RP, the Ld. Counsel took us through various documents so as to prove that every time just before the CoC meeting, more Home Buyers were added so as to dilute the position/ authority of the Applicant. It was because of this mala-fide conduct of the Resolution Professional which led to reducing the voting share of the Applicant. This in turn ultimately led to passing of the Resolution plan of Respondent No. 6 in the 15th COC meeting when the homebuyers voting rights were increased to 66.42%. In addition, the Ld. counsel submitted that the fact of the Resolution Applicant having been declared a willful defaulter on 30.10.2022 i.e. much prior to the submission of the Plan was withheld from the COC. The Resolution Plan which could not be put up before the COC for consideration was got approved by concealing the fact that RA has already been declared a willful defaulter. In addition the Ld. Counsel also emphasized the fact that the Resolution Professional did not give sufficient time for voting on the Resolution Plan of Respondent No. 6. The time of only 3 days was granted for approval of the Plan which itself shows that Respondent No. 1 was in extreme hurry to ensure the approval of the Plan of Respondent no. 6. The Applicant also submitted that against the conduct of the Resolution Professional they have already filed a complaint to IBBI bearing Complaint No. IBBI/C/2021/00557.
13. To further substantiate her arguments regarding the misconduct on the Part of Respondent No. 1 i.e. the RP, Ld. counsel submitted that even regarding the appointment of Authorized Representative, the RP has failed to act in terms of IB Code. It is necessary to appreciate the relevant regulations regarding the appointment of AR i.e. Regulation 4A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Choice of authorised representative. As per this regulation, the basic criteria required to be fulfilled for an eligible AR is same as an IRP/RP i.e., the person concerned must be registered with IBBI as an IP, must be independent of the Corporate Debtor (CD) and the Resolution Professional (RP). The relevant Regulation 4A (2) is as follows:
“4A(2) For representation of creditors in a class ascertained under sub-regulation (1) in the committee, the interim resolution professional shall identify three insolvency professionals who are-
(a) not his relatives or related parties;
2[(aa) having their addresses, as registered with the Board, in the State or Union Territory, as the case may be, which has the highest number of creditors in the class as per their addresses in the records of the corporate debtor:
Provided that where such State or Union Territory does not have adequate number of insolvency professionals, the insolvency professionals having addresses in a nearby State or Union Territory, as the case may be, shall be considered;]
(b) eligible to be 3[resolution professional] under regulation 3; and
(c) willing to act as authorised representative of creditors in the class.”
In the Present case, the Ld. Counsel submitted that a list of three Insolvency Professionals was published by the Interim Resolution Professional in the public announcement dated 30.07.2020 to act as AR of Creditors in class namely Mr. Mukesh Khaturia, Mr. Vakati Balasubramaniam Reddy and Mr. Baisani Rajendra Prasad. However, the Resolution Professional instead of appointing one of the persons from the list of the Authorised Representatives of the Home Buyers chose to appoint a stranger to the proceedings, Mr. Prabhat Jain who even prior to his being appointed as an Authorised Representative was allowed to attend the CoC meetings. The Respondent No. 1 has failed to maintain the confidentiality by allowing an outsider i.e. Mr. Prabhat Jain (who had no authority to be part of COC) to attend the confidential proceedings. The fact that his name was not part of the List Published of three Insolvency Professionals to be made as Authorised Representative of the class of Creditors and was still made the AR speaks volumes about the conduct of the Respondent No. 1/RP. This itself proves that the Resolution Professional has miserably failed to comply with the IBBI regulations of the Appointment of AR and the fact that the AR was permitted to attend the COC proceedings even prior to his appointment as AR makes it evident that the RP and Authorised Representative were hand in glove and were working on the same agenda.
C) Extinguishment of personal Guarantees of Corporate Debtor to the Detriment of the Applicant.
14. The Ld. Counsel for the Applicant further emphatically argued that the Resolution Professional even failed to apprise the COC Members that the Resolution Plan as submitted by the Successful Resolution Applicant contains extinguishment of all the claims of the Secured Financial Creditors including the third party Securities. In addition the Plan also Extinguished the debt owed by Personal Guarantors and Other Guarantors along with the securities resulting withdrawal of the legal proceedings (inclusive of both civil and criminal proceedings) initiated against the Personal Guarantors and Other Guarantors. This act on the part of Respondent No. 1/RP has further caused prejudice to the rights of the Applicant. The Applicant further submitted that the Resolution Plan of the Corporate Debtor could not deal with the third-party assets as it is settled law that Chapter 3 of Part III of the Insolvency and Bankruptcy Code, 2016 has been notified specifically for initiating the resolution process against personal guarantors of the Corporate Debtor and under no circumstances, the Code envisages that upon approval of a resolution plan, even the personal guarantees shall be absolved. Further, it is submitted that the assets of the personal guarantors are not covered as part of the assets of the Corporate Debtor during an ongoing CIRP and the moratorium does not apply to the personal guarantors. This shows that the entire intent of the Code was to keep the personal guarantors out of the revival process of the Corporate Debtor and thereby the lenders are empowered under the Part III of the Code to pursue separate and independent proceedings against the personal guarantors.
15. The Ld. counsel drew the attention of the court to the relevant para from the Resolution Plan stated to be detrimental to the interest of the Applicant bank.
“ 5. Payment to Financial Creditors:
