27 Jan 2023 11:30 AM GMT
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Hem Singh Bharana v M/s Pawan Doot Estate Pvt. Ltd. & Ors., has held that once the Committee of Creditors approve a resolution plan, no withdrawal application under Section 12A...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Hem Singh Bharana v M/s Pawan Doot Estate Pvt. Ltd. & Ors., has held that once the Committee of Creditors approve a resolution plan, no withdrawal application under Section 12A of IBC can be entertained. Approval of a Resolution Plan by the CoC prohibits the Resolution Applicant to modify or withdraw from the Plan, the same embargo is placed on CoC from changing its stand.
On 10.05.2019, Pawan Doot Estate Pvt. Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the Adjudicating Authority.
M/s Mehar Footwear Pvt. Ltd. (“Successful Resolution Applicant/SRA”) submitted a Resolution Plan for the Corporate Debtor, which was approved by the Committee of Creditors (“CoC”) on 17.01.2020. On 18.01.2020, the Resolution Professional issued a Letter of Intent to the SRA and the same was unconditionally accepted by the latter.
The Resolution Professional filed an application before the Adjudicating Authority for approval of the Resolution Plan on 04.02.2020. Subsequently, on 11.08.2022 Mr. Hem Singh Bharana (Ex-Promoter of Corporate Debtor) submitted a Settlement Proposal under Section 12A of IBC before the Financial Creditors. Further, the Ex-Promoter filed an application before the Adjudicating Authority praying that the application for approval of resolution plan be kept in abeyance.
The Adjudicating Authority rejected the application of the Ex-Promoter vide an Order dated 23.11.2022, which was challenged by the Ex-Promoter before NCLAT. It was contended that approval of a Resolution Plan by CoC is no impediment in acceptance of a Settlement Proposal under Section 12A by the CoC. The CoC in its commercial wisdom can accept the Settlement Proposal, which is a better financial proposal as compared to the approved Resolution Plan.
Whether after approval of Resolution Plan by CoC and filing of an Application before the Adjudicating Authority for its approval, any Settlement Proposal under Section 12A (filed by Ex-Promoter) can be entertained while deferring consideration of approval of Resolution Plan by the Adjudicating Authority?
Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
“30 A. Withdrawal of application –
(1) An application for withdrawal under section 12A may be made to the Adjudicating Authority –
(a) before the constitution of the committee, by the applicant through the interim resolution professional; (b) after the constitution of the committee, by the applicant through the interim resolution professional or the resolution professional, as the case may be:
Provided that where the application is made under clause (b) after the issue of invitation for expression of interest under regulation 36A, the applicant shall state the reasons justifying withdrawal after issue of such invitation.
(2) The application under sub-regulation (1) shall be made in Form FA of the 68[Schedule-I ]accompanied by a bank guarantee-
(a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of sub-regulation (1); or
(b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of sub-regulation (1)……”
The Bench observed that under Regulation 30A of CIRP Regulations, an application for withdrawal under Section 12A can be made after issuance of ‘Expression of Interest’ only when sufficient reasons exist to justify the withdrawal.
If Section 12A application was contemplated to be filed even after approval of the Resolution Plan by the CoC, then Regulations 30A(2)(a) and 30A(2)(b) ought to have included the expenses both under Regulations 33 and 34. Non-mention of Resolution Professional costs in Regulation 30A(2) supports the contention that Section 12A Application cannot be filed after approval of Resolution Plan by the CoC.
Reliance was placed on the Supreme Court judgment in Ebix Singapore Pvt. Ltd. vs. Committee of Creditors of Educomp Solutions Limited and Anr., Civil Appeal No.3224 of 2020 and it was observed as under:
“The Hon’ble Supreme Court in the Ebix itself has laid down timelines provided in the Code have to be adhered to. In event, the submission of the Appellant is accepted that even after the approval of the Plan by the CoC, the CoC be given power to entertain a Settlement Proposal by the Ex-Promoter, the timelines for the different process and its finality shall be breached. Approval by the CoC of a Resolution Plan has to be in accordance with its commercial wisdom and when CoC approves a Plan and the Resolution Applicant is prohibited to modify or withdraw from the Plan, same embargo has to be accepted on CoC also from changing its stand. The judgment of the Hon’ble Supreme Court in Ebix Singapore lays down that after approval by the CoC of a Resolution Plan, CoC itself is bound by its decision and cannot be allowed to go back from its decision and pass any other resolution..”
Since the Adjudicating Authority found no adequate reason to keep the plan approval application in abeyance, no error was committed in rejection of the Ex-Promoter’s Application.
The Bench upheld the decision of Adjudicating Authority and dismissed the appeal.
Case Title: Hem Singh Bharana v M/s Pawan Doot Estate Pvt. Ltd. & Ors.
Case No.: Company Appeal (AT) (Insolvency) No.1481 of 2022.
Counsel for Appellant: Mr. Arun Kathpalia, Sr. Advocate with Mr. Abhijeet Sinha and Mr. Manav Goyal, Advocates.
Counsel for Respondents: Mr. Krishnendu Datta, Sr. Advocate, Mr. IPS Oberoi, Ms. Neha Agarwal, Advocates for SRA Mr. Sanjay Bhatt, Ms. Renuka Iyer and Mr. Aditya Vashisth, Ms. Himanshi Rajput, Advocates for R-3. Mr. Ashish Rana, Mr. Anurag Singh, Debasmita Goswami, Mr. Nilesh Mudhil, Advocates for R-5.
Click Here To Read/Download the Order