Under the Insolvency and Bankruptcy Code 2016, the role of the Committee of Creditors is very important. The COC consists of Financial Creditors only and Operational Creditors have no role in the COC expect that their dues are not less than 10% of the total debt in such case the Operational Creditors will find their place in the COC. Similarly if there are no financial Creditors or all the financial Creditors are related parties of the Corporate Debtor, in such case also eighteen largest operational Creditors in value will have a place in the COC. If there are no eighteen Operational Creditors, in such case all the Operational Creditors will have a place in the COC. Financial Creditors are only included in the COC because they are having capacity and capability to take revival of the corporate debtor whereas the Operational Creditors are large in number and their claim is also small and they are interested in recovery of their debt only and not interested in revival and rehabilitation of the Corporate Debtor. Further they are not having any capacity and capability to revive the Corporate debtor hence they are not having any place in the COC. One of the important tasks of the COC is to approve the resolution plan submitted by the resolution applicant with 66% voting share if the resolution plan meets the requirements stipulated as per Section 30(2) of the Code.
The Resolution Professional in pursuance of invitation of expression of interest, receive resolution plans from the resolution applicants. The Resolution Professional has to verify all the resolution plans received and confirm as to whether the resolution plans are containing the mandatory contents stipulated under Regulation 38 of CIRP regulations. The Resolution Professional can reject those resolution plans which are not compliant with mandatory contents. The Resolution Professional can only forward those resolution plans which are complying with the mandatory contents stipulated in regulation 38 of CIRP regulations. The COC after receiving the resolution plans will have to approve the plan with requisite majority say 66% voting share approve the plan.
Once the resolution plan is approved by COC, it will be submitted to the Adjudicating Authority for their approval. Once the plan is approved by the Adjudicating Authority it will be binding on all the stake holders involved in the resolution plan. The RP has to ensure that the minimum amount to be paid to the Operational Creditors because they are not involved in the decision making process of the COC and also to ensure that an unfair treatment should not be meted out to them. Further this class of creditors are very important because they are the persons who supply goods and services to the corporate debtor. If the Resolution applicant has taken over the business of the corporate debtor under a resolution plan, it is necessary for the resolution applicant to depend on these suppliers to ensure the business of the corporate debtor on a going concern basis. Hence it is very important on the part of the Resolution applicant to pay certain minimum amount to the Operational Creditors. As per the provisions of the code, the amount payable to the Operational Creditors should be not less than the amount to be paid to them in case of liquidation of the corporate debtor and distribution of proceeds are made as per Section 53 of the Code.
Now the question is whether the Adjudicating Authority is having power to revise or modify the resolution plan.
Once the resolution plan which is approved by the COC and placed before the Adjudicating authority for approval, it will have to ensure that whether the resolution plan has met the following requirements as per Section 30(2) of the Code.
a. Approval of the COC with 66% Voting share the resolution plan
b. Whether the resolution plan is fulfilled the requirements of Section 30(2) of the Code
Section 30(2) of the Code says that the resolution plan should meet the following requirements
a. It should provide for payment of insolvency and resolution Process costs
b. It must provide for the payment of debts of Operational Creditors which should not be less than the amount to be paid as per Section 53 in case of liquidation of the corporate debtor or amount to be paid in the case of resolution of the corporate debtor.
c. It must provide for management of the affairs of the Corporate Debtor after approval of the resolution plan
d. Implementation and supervision of the resolution plan
e. It must not contravene any of the provisions of the law
f. It should confirm to the such other requirements as may be specified by the Board
There is no Provision in the Code to suggest that the Adjudicating Authority will have a power to modify or change the resolution plan without the concurrence of the COC.
Hence the Adjudicating Authority either can accept the plan or reject the plan and nothing more than that. As per Bankruptcy Law Reforms Committee report that the business decision to decide the fate of the Corporate debtor should lie on the shoulders of the Creditors because the Creditors are the one who is going to bear the loss of the insolvency. The Tribunal will control the process of resolution and ensure that during the process whether it is complying with provisions of the Code or not. If the plan is not complying with Provisions of the code, the Adjudicating Authority can reject the plan.
The Appellate Tribunal in the case of Kamineni Steel & Power India has reversed the decision of approval of resolution plan by the NCLT on the ground that the resolution plan is not supported by requisite majority of 75% of voting share of the financial Creditors constituting the COC and ordering for liquidation of the Corporate debtor in the absence of the alternate resolution plan. This is an exceptional case. Hence the Tribunal can only reject the resolution plan if it is not complying with the provisions of the Code.
The Apex court has ruled in the case of K.Sashidhar Vs Indian Overseas Bank that Adjudicating authority has no role in evaluation of the commercial decision of the Committee of Creditors to approve or reject a resolution plan and COC will have complete wisdom in this regard and held that there is no provision in the Code that empowers the resolution Professional or the Tribunal to reverse the Commercial decision of the COC unless the resolution plan is not complying with the provisions of Section 30(2) of the Code or the Resolution plan is contrary to the Provisions and objects of the Code. There is no need for the COC to record the reasons for approving or rejecting the resolution plan by the financial Creditors during the voting. Even if they do not record also it will not invalidate the final collective decision of the COC
The Apex court in the case of Swiss Ribbons Pvt ltd Vs Union of India has pointed out that the Tribunal can reverse or modify the decision of commercial wisdom of the COC only on limited grounds as stated in 30(2). The Tribunal will have a right to modify the resolution plan if the plan is not taking care of the interests of the Operational Creditors. Hence the Adjudicating authority cannot modify or change the resolution plan and also it can give directions to the COC to exercise of commercial wisdom
Hence modification of approved resolution plan by the COC without its approval is outside the scope of the provisions of the code. Modification of approved resolution plan means questioning the commercial wisdom of the financial creditors and very purpose of the constitution of COC will be defeated if the approved resolution plan is modified without the concurrence of the COC .The financial Creditors in the COC will have sufficient expertise in dealing with revival or rehabilitation of the CD. They are the persons who ultimately have to bear the burden of loss in approving or rejecting the resolution plan .Hence the Commercial wisdom of the COC cannot be reversed or modified without the consent of the COC.
If no resolution plan is received or if the resolution plan is not complying with the provisions of Section 30(2) of the code or another alternate resolution plan is not submitted by the Resolution Professional at least fifteen days before the maximum period is allowed under section 12 of the Code, in such cases the adjudicating authority will order for liquidation of the Corporate debtor under the provisions of Section 33(1) of the Code.
Can the Adjudicating Authority can go into the merits of the resolution plan?
It does not mean that Adjudicating authority has no role in COC approved resolution plan The Adjudicating authority will have a limited power to ensure that the resolution plan is complying with provisions of the code. It does not mean that adjudicating authority has no role in the resolution plan. The adjudicating authority is the ultimate authority to approve the resolution plan. If the adjudicating authority is not approving the resolution plan, it has no sanctity. Hence the approval of the adjudicating authority is required. Similarly if the COC approved the resolution plan which is not complying the provisions of the code or not achieving the objects of the code, in such case the adjudicating authority can modify or reject the plan.
In the case of Rajput Ana Properties Pvt ltd Vs Ultra Cemet ltd & ors, the Tribunal has noted that the resolution plan had discriminated between some of the financial creditors who are equally situated and did not balance the interest of all the stakeholders. The non application of mind by the COC and discriminatory behaviour in approving the resolution plan was apparent. Simply because the discriminatory plan approved by the COC was placed before the Tribunal does not mean that the adjudicating authority has to approve the same plan automatically. If the plan is not achieving the objects of the code, the Tribunal will have authority to reject the plan and in such case if the alternate resolution plan is not submitted, the Tribunal can order for liquidation of the corporate debtor in terms Section 33(1) of the Code.
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