Mr Rajnish Jain Vs Manoj Kumar Singh – I.R.P. (NCLAT, Delhi)
Resolution Professional or Committee of Creditors cannot reclassify status of a creditor from Financial to Operational Creditor
NCLAT held that during CIRP, the IRP is authorised to collate the claims, and based on that he is empowered to constitute the Committee of Creditors. We hold that the Resolution Professional may add to existing claims of claimants already received, or admit or reject further Claims and update list of Creditors. But after categorisation of a claim by the IRP/Resolution Professional we hold that they cannot change the status of a Creditor. For example, if the Resolution Professional has accepted a claim as a Financial Debt and Creditor as a Financial Creditor, then he cannot review or change that position in the name of updation of Claim. It is also to be clarified that while updating list of Claims the Resolution Professional, can accept or reject claims which are further received and update list.
Based on the above discussion, we are of the considered opinion that the decision of the Adjudicating Authority to treat BVN Traders as a ‘Financial Creditor’ needs no interference, and thus, Appeal is disposed of with Reasons, Findings and Directions as recorded in this judgment. No orders as to costs.
FULL TEXT OF ORDER OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL
This Appeal emanates from the Order dated 23rd January 2020 passed by the Adjudicating Authority/National Company Law Tribunal, Allahabad Bench, Allahabad in CA No.142/ALD/2019 in Company Petition (IB) No. 422/ALD/2018, whereby the Adjudicating Authority had rejected the Application filed by Appellant under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short ‘I&B Code’) and declared ‘BVN Traders’, Respondent No.3, as a ‘Financial Creditor’ under Sec 5(7) of the Code and ‘Debt’ as ‘Financial Debt’ under Sec 5(8)(f) of the Code. The parties are represented by their original status in the Company Petition for the sake of convenience.
2. The brief facts of the case are as follows:
The Appellant filed Company Application No.142/2019, under subsection (5) of Section 60 of the I&B Code, 2016 read with Rule 11 of NCLT Rules, 2016, in Company Petition No.422/ALD/2018, for a declaration that ‘BVN Traders’ is not a ‘Financial Creditor’ in connection with the loan extended to the corporate debtor ‘Jain Mfg (India) Private Limited’. The Resolution Professional Mr Anupam Tiwari filed its Reply (Annexure A5) to the Company Application No.142 of 2019 on 21st July 2019, with its opinion that the M/s ‘BVN Traders’ is not a Financial Creditor”. After submission of reply by the Resolution Professional, the Adjudicating Authority passed an order dated 19th August 2019 (Annexure A6) stating that:
“… It is brought to our notice that earlier IRP recognised Claim of the BVN Traders as a Financial Creditor, but subsequently after the filing of application by the MD of suspended Board of Director of the Corporate Debtor, RP has sought advice from two professionals on the Claim, but that advice was not placed before the COC and the RP has changed his view without informing to the COC. Under such circumstances, let the RP explain why the matter has not been placed before the COC when he received such an advice and come directly to Adjudicating Authority seeking approval of COC.”
(verbatim copy)
3. Purporting to act in view of Order of the Adjudicating Authority, the Resolution Professional called the Meeting of ‘Committee of Creditors’ the Corporate Debtor M/s Jain Mfg. (India) Private Limited. The ‘Committee of Creditors’ (in short ‘CoC’) in its fourth meeting held on 30th August 2019 passed the Resolution (Annexure A7-page 99) ‘that M/s BVN Traders be treated as ‘Financial Creditor’.
4. After that, the Adjudicating Authority by its Order dated 23rd January 2020 (Annexure A1-Page 40) rejected the Company Application No. 142/ALD/2019. The relevant part of the Order of the Adjudicating Authority is as under:
“Para 11. In view of provisions and the fact stated, this adjudicating Authority is of the view that as the COC has voted in majority in favour of BVN Traders as “financial creditor” and thus Suspended Management as well as Resolution Professional has no locus to challenge the commercial wisdom and decision of Committee of Creditors with regard to determination of Respondent as financial Creditor.
Para 12. Therefore, this adjudicating Authority declares “BVN Traders” as “financial creditor” as per Sec 5(7) of IBC, 2016 and the loan amount given by BVN Traders to Corporate Debtor is declared as “financial debt” under Sec 5(7)(f) of the IBC, 2016.
Para 13. Accordingly, CA No. 142/ALD/2019 is rejected and hereby dismissed.”
(verbatim copy with emphasis supplied)
5. Surprisingly, the ‘CoC’ in its 7th meeting held on 14th February 2020 again discussed the proposed Resolution of RP, for not considering M/s BVN Traders as a ‘Financial Creditor’. The Committee of Creditors accepted the proposed Resolution (Annexure A8-Page 116 r/w Page 125) and passed with its majority that ‘M/s BVN Traders is not a ‘Financial Creditor’.
6. After that The ‘Committee of Creditors’ in its 8th meeting held on 18th February 2020 further passed a Resolution (Annexure A9-Page 142) ‘to eliminate the name of M/s BVN Traders from the list of ‘Committee of Creditors’.
7. Thereafter, the Appellant has challenged the impugned Order on the ground that the Adjudicating Authority has erred in facts and law in holding that ‘M/s BVN Traders is a ‘Financial Creditor’, which is mainly based on decision of the Committee of Creditors, though it was not empowered to decide that ‘BVN Traders is a Financial or Operational Creditor (Appeal ground 9(V)).
8. In response to the above the Respondent No 3, M/s BVN Traders, contends that Mr Dilip Kapoor, a partner of the firm, used to infuse funds to the Corporate Debtor M/s Jain Manufacturing (India) Private Limited for its working capital requirement which extended a loan of Rs.80,00,000/-lacs with interest @ 18% per annum, against the deposit of title deed. A petition was filed against the Corporate Debtor under Section 9 of the Code by one Operational Creditor-Vikas Tiwari which was admitted by order of the Adjudicating Authority dated 22nd February 2019. Mr Manoj Kumar Singh was appointed as ‘Interim Resolution Professional’ (in short ‘IRP’) who made a public announcement on 24th December 2019. In response to the public announcement Respondent, No.3 M/s BVN Traders submitted its Claim in ‘Form-C’ on 07th March 2019 as a ‘Financial Creditor’.
9. The Respondent No 3 further contends that IRP Mr Manoj Kumar Singh admitted the Claim of Respondent No.3 as ‘Financial Creditor’ and included the Respondent No.3’s name in the list of ‘Committee of Creditors’. But the Appellant in connivance and collusion with RP and certain other ‘Financial Creditor’s hatched a conspiracy to oust ‘BVN Traders’, Respondent No.3, from ‘CoC’. After that, at the instance of the Appellant, the ‘BVN Traders’ status was changed from ‘Financial Creditor’ to ‘Operational Creditor’.
10. It is contended by the Respondent No 3 that the IRP had earlier recognised the Claim of the ‘BVN Traders’ as a ‘Financial Creditor’ and resolved that M/S BVN Traders is a ‘Financial Creditor’. But ignoring the earlier action and even Order of the Adjudicating Authority, dated 23rd January 2020, the Resolution Professional conducted the seventh and eighth Meeting of ‘Committee of Creditors’ with the ulterior motive to oust ‘M/s BVN Traders’ from the ‘Committee of Creditors’.
11. The Resolution Professional/Respondent No.2 had filed his Reply before the Adjudicating Authority stating that he has re-verified the Claim ‘Form-C’, submitted by M/s BVN Traders and found that M/s BVN Traders falls in the category ‘Operational Creditor’ instead of ‘Financial Creditor’. The RP further submits that it had sought the opinion of two experts on the question of determination of M/s BVN Traders as ‘Financial’ or ‘Operational’ Creditor.
12. The Resolution Professional further submits that in compliance of IBBI Circular dated 01st March 2019 and Regulation 13 and 14 of CIRP Regulations, it is the duty of IRP/RP to maintain an updated list of claims including its verification and determination. The determination of one Creditor as ‘Operational’ or ‘Financial’ is not dependent on the voting of ‘Committee of Creditors’. Accordingly, he did not opt ‘Committee of Creditors’ to vote upon this issue.
13. The issues that arise for our Consideration are as under:
i) Whether the Committee of Creditors constituted under Section21 of the I&B Code, 2016, could determine that M/s BVN Traders’ is a ‘Financial’ or ‘Operational’ Creditor?
ii) Whether the Resolution Professional could reclassify the status of a creditor from ‘Financial’ to ‘Operational Creditor’ based on the expert opinion despite that the Adjudicating Authority had taken a contrary view?
iii) Whether the Order of the Adjudicating Authority in upholding that ‘ BVN Traders’ is a Financial Creditor based on the majority decision of Committee of Creditors is valid?
14. We have heard the arguments of the Learned Counsel for the parties and perused the records. Before starting a discussion, it is essential to go through the statutory provisions, which are as under:
Section 18. Duties of interim Resolution professional
18. Duties of interim Resolution Professional.—
(1) The interim Resolution professional shall perform the following duties, namely—
(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to—
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the Committee of creditors;
(e) file information collected with the information utility, if necessary; and
(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including—
(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate debtor;
(v) tangible assets, whether movable or immovable;
(vi) intangible assets including intellectual property;
(vii) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;
(viii) assets subject to the determination of ownership by a court or authority;
(g) to perform such other duties as may be specified by the Board.
Explanation.— For the purposes of this 1[section], the term “assets” shall not include the following, namely—
(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.
(Emphasis supplied)
20. Management of operations of corporate debtor as going concern.—
(1) The interim Resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.
(2) For the purposes of sub-section (1), the interim Resolution professional shall have the authority—
(a) to appoint accountants, legal or other professionals as may be necessary;
(b) to enter into contracts on behalf of the corporate debtor or to amend or modify the contracts or transactions which were entered into before the commencement of corporate insolvency resolution process;
(c) to raise interim finance provided that no security interest shall be created over any encumbered property of the corporate debtor without the prior consent of the creditors whose debt is secured over such encumbered property:
Provided that no prior consent of the Creditor shall be required where the value of such property is not less than the amount equivalent to twice the amount of the debt.
(d) to issue instructions to personnel of the corporate debtor as may be necessary for keeping the corporate debtor as a going concern; and
(e) to take all such actions as are necessary to keep the corporate debtor as a going concern.
Section 21. Committee of creditors
21. Committee of creditors.—
(1) The interim Resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors.
(2) The Committee of creditors shall comprise all financial creditors of the corporate debtor:
Provided that a [financial creditor or the authorised representative of the financial Creditor referred to in subsection (6) or sub-section (6A) or sub-section (5) of Section 24, if it is a related party of the corporate debtor,] shall not have any right of representation, participation or voting in a meeting of the Committee of creditors:
[Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares 3[or completion of such transactions as may be prescribed], prior to the insolvency commencement date.]
(3) [Subject to sub-sections (6) and (6A), where] the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial Creditor shall be part of the Committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them.
(4) Where any person is a financial creditor as well as an operational creditor,—
(a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the Committee of creditors, with voting share proportionate to the extent of financial debts owed to such Creditor;
(b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such Creditor.
(5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer.
(6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility 4[* * *] provide for a single trustee or agent to act for all financial creditors, each financial Creditor may—
(a) authorise the trustee or agent to act on his behalf in the Committee of creditors to the extent of his voting share;
(b) represent himself in the Committee of creditors to the extent of his voting share;
(c) appoint an insolvency professional (other than the Resolution professional) at his own cost to represent himself in the Committee of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally.
[(6-A) Where a financial debt—
(a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under Clause (a) or sub-section (6), the interim Resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim Resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first Meeting of the Committee of Creditors;
(c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors, and such authorised representative under Clause (a) or Clause (b) or Clause (c) shall attend the meetings of the Committee of creditors, and vote on behalf of each financial Creditor to the extent of his voting share.
(6-B) The remuneration payable to the authorised representative—
(i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and Company Appeal (AT) (Insolvency) No. 519 of 2020 12 of 54
(ii) under Clause (b) of sub-section (6A) shall be as specified which shall form part of the insolvency resolution process costs.]
[(7) The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6A).
(8) Save as otherwise provided in this Code, all decisions of the Committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors:
Provided that where a corporate debtor does not have any financial creditors, the Committee of Creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified.]
(9) The Committee of creditors shall have the right to require the Resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process.
(10) The Resolution professional shall make available any financial information so required by the Committee of creditors under sub-section (9) within a period of seven days of such requisition.
24. Meeting of Committee of creditors.—
(1) The members of the Committee of creditors may meet in person or by such electronic means as may be specified.
(2) All meetings of the Committee of creditors shall be conducted by the Resolution professional.
(3) The Resolution professional shall give notice of each Meeting of the Committee of creditors to—
(a) members of 1[Committee of creditors, including the authorised representatives referred to in subsections (6) and (6A) of Section 21 and sub-section (5)];
(b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be;
(c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt.
(4) The directors, partners and one representative of operational creditors, as referred to in sub-section (3), may attend the meetings of Committee of creditors, but shall not have any right to vote in such meetings:
Provided that the absence of any such director, partner or representative of operational creditors, as the case may be, shall not invalidate proceedings of such meeting.
(5) [Subject to sub-sections (6), (6A) and (6B) of Section 21, any creditor] who is a member of the Committee of creditors may appoint an insolvency professional other than the Resolution professional to represent such Creditor in a meeting of the Committee of creditors:
Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such Creditor.
(6) Each Creditor shall vote in accordance with the voting share assigned to him based on the financial debts owed to such Creditor.
(7) The Resolution professional shall determine the voting share to be assigned to each Creditor in the manner specified by the Board.
(8) The meetings of the Committee of creditors shall be conducted in such manner as may be specified.
27. Replacement of Resolution professional by Committee of creditors.—
(1) Where, at any time during the corporate insolvency resolution process, the Committee of creditors is of the opinion that a resolution professional appointed under Section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section.
[(2) The Committee of creditors may, at a meeting, by a vote of sixty-six per cent. of voting shares, resolve to replace the Resolution professional appointed under Section 22 with another resolution professional, subject to a written consent from the proposed Resolution professional in the specified form.]
(3) The Committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.
(4) The Adjudicating Authority shall forward the name of the proposed Resolution professional to the Board for its confirmation and a resolution professional shall be appointed in the same manner as laid down in Section 16.
(5) Where any disciplinary proceedings are pending against the proposed Resolution professional under subsection (3), the Resolution professional appointed under Section 22 shall continue till the appointment of another resolution professional under this section.
28. Approval of Committee of creditors for certain actions.—
(1) Notwithstanding anything contained in any other law for the time being in force, the Resolution professional, during the corporate insolvency resolution process, shall not take any of the following actions without the prior approval of the Committee of creditors namely—
(a) raise any interim finance in excess of the amount as may be decided by the Committee of creditors in their meeting;
(b) create any security interest over the assets of the corporate debtor;
(c) change the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case the corporate debtor is a company;
(d) record any change in the ownership interest of the corporate debtor;
(e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the Committee of creditors in their meeting;
(f) undertake any related party transaction;
(g) amend any constitutional documents of the corporate debtor;
(h) delegate its authority to any other person;
(i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties;
(j) make any change in the Management of the corporate debtor or its subsidiary;
(k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business;
(l) make changes in the appointment or terms of contract of such personnel as specified by the Committee of creditors; or
(m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor.
(2) The Resolution professional shall convene a meeting of the Committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub-section (1).
(3) No action under sub-section (1) shall be approved by the Committee of creditors unless approved by a vote of [sixty-six] per cent of the voting shares.
(4) Where any action under sub-section (1) is taken by the Resolution professional without seeking the approval of the Committee of creditors in the manner as required in this section, such action shall be void.
(5) The Committee of creditors may report the actions of the Resolution professional under sub-section (4) to the Board for taking necessary actions against him under this Code.
Section 30. Submission of resolution plan
30. Submission of resolution plan.— (1) A resolution applicant may submit a resolution plan 2 [along with an affidavit stating that he is eligible under Section 29-A] 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 3 [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 paid 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.
Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this Clause shall be fair and equitable to such creditors.
Explanation 2.—For the purposes 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 a resolution 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 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 Act or 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 subsection (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, 8[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 29-A 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 29-A, 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 29-A:
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 within the period specified in that sub-section.]
[Provided also that the eligibility criteria in Section 29-A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 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 (Ord. 6 of 2018).]
(5) The resolution applicant may attend the Meeting of the Committee of creditors in which the resolution 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.
Section 31. Approval of resolution plan
31. Approval of resolution plan.—
(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by Order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 3 [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan:
[Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this Company Appeal (AT) (Insolvency) No. 519 of 2020 22 of 54 sub-section, satisfy that the resolution plan has provisions for its effective implementation.]
(3) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.
(2) After the Order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and
(b) the Resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.
[(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under subsection (1) or within such period as provided for in such law, whichever is later:
Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the Committee of creditors.]
Issue No 1&2;
15. It appears that the Adjudicating Authority passed an order dated 19th August 2019 (Annexure A6) when it was noticed from the Reply to CA 142/2019 where the Resolution Professional took the changed stand. The relevant part of the order is as under;
“It is brought to our notice that earlier IRP recognised Claim of the BVN Traders as a Financial Creditor, but subsequently after the filing of application by the MD of Suspended Board of Director of the corporate debtor, RP has sought advice from two professionals on the Claim, but that advice was not placed before the COC and the RP has changed his view without informing to the COC. Under such circumstances, let the RP explain why the matter has not been placed before the COC when he received such as advice and come directly to Adjudicating Authority seeking approval of COC.”
16. With regard to the above order, the Resolution Professional submits that the IBBI vide their Circular no. Facilitation/002/2019 dated 1st March 2019, under the charter of responsibilities of IRP/RP and ‘Committee of Creditors’ in a CIRP, and under Section 25(2)(e) of the Code read with Regulation 13 & 14, it is the duties of Resolution Professional maintain an updated list of claims, including verification and determination. The voting of ‘Committee of Creditors’ regarding the determination of a Creditor as ‘Financial’ or ‘Operational’ is not applicable under law. Therefore, he did not opt ‘Committee of Creditors’ to vote upon the issue in the 3rd Meeting of ‘Committee of Creditors’.
17. On perusal of the statutory provision of the Code, it appears that the Interim Resolution Professional constitutes a Committee of Creditors under Section 18(1)(c) of the Code. Under Section 18(1)(b) the IRP is to receive and collate all the claims submitted by creditors to him, in response to the public announcement.
18. Section 28 of the Code provides the occasions when Resolution Professional requires for approval of the Committee of Creditors for specific actions. It provides that the Resolution Professional during CIRP shall not take specific actions as enumerated in sub-clauses (a) to (m) of sub-section (1) of Section 28 of the Code, without prior approval of the Committee of Creditors and for such approval, sub-section (2) of Section 28 mandates to convene a meeting of Committee of Creditors. Sub-section (3) of Section 28 mandates that unless Committee approves the actions enumerated in Clause (a) to (m) of sub-section (1) of Section 28 of the Code by voting share of 66% the action stated shall not be treated as approved.
19. Thus, it is evident that certain matters specifically provided in subsection (1) of Section 28 requires prior approval of the Committee of Creditors with a minimum 66% vote share. The Code is complete in itself, and it specifies what the Committee of Creditors is empowered to decide. For example, Section 27 provides that if the Committee of Creditors thinks that Resolution Professional appointed under Section 22 is required to be replaced, it may at a meeting by a vote of 66% resolve to replace the Resolution Professional. Section 20 of the Code deals with the Management of operation of Corporate Debtor as a going concern by Resolution Professional.
20. It is pertinent to mention that Clauses (a) to (m) of sub-section (1) of Section 28 deals with the stages where the Resolution Professional has to obtain approval of the Committee of Creditors during Corporate Insolvency Resolution Process. The action of the Resolution Professional for referring the matter to the Committee of Creditors to determine whether the claim of ‘M/s BVN Traders’ falls in the category ‘Operational Debt’ or ‘Financial Debt’ is not covered under clauses (a) to (m) of sub-section (1) of Section 28 of the Code.
21. In the instant case, the chronology of events with date in a chart form depicting the actions taken by the IRP, RP, the Committee of Creditors and the Adjudicating Authority at different stages during CIRP are under:
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