In re UCAL Products Private Limited (NCLT Chennai)
Introduction: The National Company Law Tribunal (NCLT) Chennai recently rendered a significant judgment in the case of UCAL Products Private Limited. This ruling delves into the scope of judicial review under the Insolvency and Bankruptcy Code (IBC) and sheds light on the Adjudicating Authority’s role in light of key decisions made by the Hon’ble Supreme Court.
Subheading-wise Analysis:
1. Limited Judicial Review Under IBC: The NCLT Chennai’s ruling underscores the principle of limited judicial review available to the Adjudicating Authority under Sections 30(2) and 31 of the IBC. This implies that the Authority’s purview is confined to specific parameters, preventing it from intruding into the realm of commercial decisions made by the Committee of Creditors (CoC).
2. Adjudicating Authority and Commercial Aspects: The judgment reflects the Adjudicating Authority’s role in refraining from meddling with the commercial aspects of decisions executed by the CoC. The court emphasizes that these commercial determinations are collective choices of financial creditors based on their respective voting shares. The Adjudicating Authority’s responsibility involves ensuring that the resolution plan adheres to legal stipulations outlined in Section 30(2).
3. Upholding Asset Value Maximization: The court acknowledges that the CoC’s primary objective is to maximize the value of the corporate debtor’s assets. While the Adjudicating Authority cannot critique the CoC’s commercial wisdom, it can ascertain that the resolution plan takes into account this objective and maintains equilibrium among stakeholders, including operational creditors.
4. Judicial Review Parameters: The NCLT Chennai’s judgment underscores the Adjudicating Authority’s jurisdiction in guaranteeing that the resolution plan aligns with specific criteria prescribed in Section 30(2). These criteria encompass provisions related to insolvency resolution process costs, operational creditor debt repayment, corporate debtor management, plan implementation and oversight, and conformity with prevailing legal provisions.
5. Non-Interference in Commercial Judgement: The judgment reaffirms that the Adjudicating Authority cannot substitute its judgment for the commercial wisdom exercised by the CoC. The focus must remain on validating legal adherence and ensuring that the resolution plan is in sync with the objectives of the IBC.
6. Immediate Debtor Company Revival: Upon resolution plan endorsement, the revival of the debtor company takes instantaneous effect. The moratorium’s effect, as per Section 14 of the IBC, ceases, permitting the resolution applicant to take charge of the business.
7. Resolution Professional’s Role: The resolution professional’s role assumes significance in this process. They must relinquish all records, documents, and assets of the corporate debtor to the resolution applicant. Their obligations conclude from the date of the Adjudicating Authority’s order.
8. Key Takeaways:
There is no provision in IBC, 2016 or in the Regulations which stipulates that the bid of the Resolution Applicant has to match the Liquidation value of the Corporate Debtor
Only limited judicial review is available for the Adjudicating Authority under Section 30(2) and Section 31 of IBC, 2016 and this Adjudicating Authority cannot venture into the commercial aspects of the decisions taken by the Committee of Creditors.
Conclusion: The NCLT Chennai’s judgment in the UCAL Products Private Limited case draws upon a tapestry of Supreme Court decisions to chart a definitive course for the scope of judicial review under IBC and the Adjudicating Authority’s role. The accentuation rests on legal compliance, asset value maximization, and the harmonization of stakeholder interests while evading any intrusion in the CoC’s commercial determinations. This approach guarantees a seamless insolvency resolution process that accords deference to the unified wisdom of financial creditors, upholding the core tenets of the IBC.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
This application has been filed by Mrs. Renuka Devi Rangaswamy, Resolution Professional of the Corporate Debtor viz., M/s. UCAL Products Private Limited under Section 30(6) & 31 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) read with Regulation 39(4) of the Insolvency Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 seeking approval of the Resolution Plan as approved by the Committee of Creditors (“CoC”) in the 11th CoC meeting held on 27.01.2023 with 100% voting submitted by the Successful Resolution Applicant (“SRA”) M/s. Suja Shoei Industries Private Limited.
Brief Facts:
2. Corporate Insolvency Resolution Process (“CIRP”) in respect of the Corporate Debtor was initiated by this Tribunal vide an order dated 10.12.2021 in CP(IB)/78(CHE)2021 on an application filed by the Financial Creditor viz., M/s. Integrated Data Management Services Private Limited under Section 7 of IBC, 2016. Mr. Sambasivam Kannan was appointed as an Interim Resolution Professional (“IRP”) to conduct the CIRP. The IRP on 18.12,2021, made a public announcement in accordance with Section 15 of the Code read with Regulation 6 of Chapter III of the Insolvency and Bankruptcy Board of India (“IBBI”) (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 in the newspapers “Trinity Mirror” in English and “Makkal Kural” in Tamil on 18.12.2021 and also forwarded the same to IBBI to be published in its website. The IRP received the claims from the Operational Creditors and the Financial Creditors and accordingly, constituted the CoC.
3. During the process, it was found that M/s. UCAL Auto Private Limited was holding 40.90% of paid-up equity shares in the Corporate Debtor and was involved in spare parts supplying to the automobile sector under the brand of “UCAL”. The Associate Company UCAL Auto Private Limited was also admitted into CIRP vide an order dated 04.06.2021 in IBA/1237/2019 filed by one of the Operational Creditors i.e. M/s. Precifine Dye & Casting under Section 9 of IBC. It was found that both UCAL Auto Private Limited (“UAPL”) and UCAL Products Private Limited (“UPPL”) are closely held companies, 99% of the shareholding in both companies were held by the two family members viz., Mrs. Gayathri Sriram and Mrs. Uma Narayanan. M/s. Integrated Data Management Services Private Limited was found to be the major Financial Creditor for both the companies with voting rights of 98.99% in UAPL and 88.24% in UPPL, respectively. It was thus holding the majority voting rights in both the companies. 1st CoC meeting was held on 12.01.2022 and the CoC decided to appoint Mrs. Renuka Devi Rangaswamy, the Applicant herein as the RP of the UPPL/Corporate Debtor herein who was also the RP of UAPL, for better coordination.
4. 2nd CoC meeting was held on 14.02.2022. The application IA(IBC)/105(CHE)/2022 in CP(IB)/78(CHE)/2021 to appoint the Applicant as RP was allowed by this Tribunal vide an order dated 17.02.2022. 3rd CoC meeting was held on 28.03.2022. In the 4th CoC meeting held on 12.05.2022, it was resolved that the RP shall publish Form-G and eligibility criteria for participation in the Expression of Interest (“EOI”) by the prospective Resolution Applicant. The RP then published the invitation of EOI in Form-G in the newspapers “Trinity Mirror” in English and “Makkal Kural” in Tamil on 28.05.2022. Form-G for UCAL was also published on 28.05.2022 along with Form-G of the Corporate Debtor.
5. Pursuant to the publication of Form-G, the RP on 13.06.2022 received EOI from Suja Shoei Industries Private Limited. Pursuant to the approval by CoC in the 5th CoC meeting held on 23.06.2022, the Applicant issued a Request for Resolution Plan (“RFRP”) for UPPL and Evaluation Matrix as per Regulation 36B of IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016 to the Prospective Resolution Applicant (“PRA”). The PRA requested an extension of time to submit the Resolution Plan. In the 6th CoC meeting held on 12.07.2022, the CoC extended the time till 03.08.2022. A decision was taken to file an application for exclusion of the lockdown period due to the COVID-19 pandemic from the CIRP timeline. 7th CoC meeting was held on 06.08.2022. The PRA further sought extension of time which was extended till 16.08.2022. Again, in the 8th CoC meeting held on 20.08.2022, the PRA sought further extension of time which was allowed till 23.08.2022. The PRA submitted the Resolution Plan on 22.08.2022 which was in the nature of merger of the Corporate Debtor with M/s. Suja Shoei Industries Private Limited i.e. PRA. The plan also provided for issue of Non-Convertible Redeemable Debentures, interest @ 10% per annum with a redeemable period of 365 to 385 days by the PRA to the Financial Creditors voted in favour and to other creditors, upfront payment.
6. During scrutiny, it was found by the RP that one of the suspended Directors of the Corporate Debtor was related to the PRA. Since the Corporate Debtor was MSME unit, in terms of Section 240A of the Code, it was found to be eligible to submit the plan in view of Section 29A(c) and (h) of the Code. The Resolution Plan was submitted in the 9th CoC meeting held on 25.08.2022 for consideration. The CoC sought additional documents from the Resolution Applicant for final consideration of the Resolution Plan.
7. Revised Resolution Plan was received on 22.09.2022 which was circulated to the CoC. In the meantime, claim of M/s. Sundaram Finance Limited was admitted and M/s. Sundaram Finance Limited was included in the CoC as the Financial Creditor with 3.54% voting rights. CoC was reconstituted. Resolution Plan was revised and submitted on 05.10.2022. The RP verified the revised Resolution Plan and confirmed that it is not in contravention with any other prevailing applicable laws in India.
8. The Resolution Plan was placed before the CoC in the 10th CoC meeting held on 07.10.2022 where the feasibility and viability of the plan was discussed. The CoC deliberated on the plan and approved the plan with 96.55% voting rights. M/s. Sundaram Finance Limited holding 3.55%, however, gave the dissenting vote.
9. The RP filed the application for approval of the Resolution Plan, however, during the hearing on 16.01.2023, it was noticed that there is a difference of Rs.6,860/- (Rupees Six Thousand Eight Hundred and Sixty only) offered to the Operational Creditor in Schedule-3 dated 05.10.2022 of the 10th CoC meeting and Schedule-3 filed before this Tribunal. The Tribunal vide its order dated 16.01.2023, rejected the application with liberty to the RP to file fresh application observing as under:
“II is seen from the application that this application has been filed for approval of the Resolution Plan. Apparently, as per the application, the last CoC Meeting was held on 07/10/2022. The total amount offered in the Resolution Plan is . Rs.58,45,215/- at page no.10. of the application. The total amount as indicated under paragraph 33 is an excess. of what is mentioned in page no.10. Ld. RP states that there was one more CoC meeting held on 07/10/2022, the minutes of the meeting have not been attached. Ld.RP seeks to modi fy the present application as the application is incomplete.
The said request to modify the present application is rejected and is returned to the Applicant with a leave to file a fresh application”.
10. The Resolution Plan was once again placed before the CoC in the 11th CoC meeting held on 27.01.2023 which the CoC approved with 100% voting.
11. Time Frame:
CIRP of the Corporate Debtor was initiated on 10.12.2021. The CoC approved the Resolution Plan on 27.01.2023. This Tribunal vide following orders extended and excluded the CIRP period.
