CoC can reject any number of resolution plans, if it does not find them viable
No matter how many resolution plans have been submitted in a corporate insolvency resolution process (CIRP), if the Committee of Creditors (CoC) does not find any merit in them, the commercial wisdom of the CoC cannot be challenged.
This was the view of the National Company Law Appellate Tribunal (NCLAT) while rejecting an appeal filed against liquidation order of a corporate debtor.
The CIRP of Apex Buildsys, a Noida-based company engaged in design, engineering, fabrication and erection of the pre-engineered metal building and structures, received as many as 14 expression of interest (EoIs), out of which five applicants submitted their resolution plans. However, none of them was put to the vote before the committee of creditors (CoC), which later voted for liquidation of the company.
Thereafter, the Delhi bench of the NCLT on 9 January 2020 ordered liquidation of the company. The order was then challenged in National Company Law Appellant Tribunal (NCLAT) by the ex-promoters and employees of Apex Buildsys.
The main contention of the appellants was that despite 14 EoIs and five resolution plans, none of them was put to vote, and that they were all dismissed, based on mere discussion and deliberations. The appellants also contended that liquidation value of the company was arrived at after including the the government’s leasehold land, which led to much higher liquidation value. They contended that five resolution plans were compliant with the terms and provisions of the Insolvency and Bankruptcy Code (IBC), but the resolution applicants could not compete due to the higher valuation wrongly shown after considering the leasehold right of the corporate debtor.
The argument of the counsel of the resolution professional, who was the respondent in the appeal, was primarily based on the fact that the IBC gives primacy to CoC to evaluate the various possibilities and make a decision.
He also argued that all resolution plans received were either non-compliant or conditional. Since no viable Resolution Plan was accepted and CIRP was going to end on 14th November 2019, the RP proposed for liquidation of Corporate Debtor. The same was placed before the CoC, which approved it by 87.30% vote share.
On the issue of valuation of leased land, the respondent cited that the “amendment which came into force from 28 December 2019 and stipulates that a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, Local Authority, Sectoral Regulator or any other Authority constituted or any other law for the time being enforce, cannot be suspended or terminated on the grounds of insolvency.
The appellate tribunal observed that every resolution plan found compliant with the Code’s requirement was laid before the Committee of Creditors. “In several meetings Committee of Creditors issued directions to the Resolution Professional for further negotiating with the Resolution Applicant and direction was given for submission of revised Resolution Plan. It appears that in the 18th CoC Meeting, which held on 22nd October 2019, the Resolution for liquidation for Corporate Debtor was passed with a vote share of 87.30%,” found the NCLAT.
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The NCLAT further noted that the decision of liquidation of the Corporate Debtor is a valid order.
It cited the Supreme Court order in the case of K Sashidhar which has clearly laid down the law that upon receipt of rejected resolution plan the adjudicating authority is not expected to do anything more, but is obliged to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority with the jurisdiction or authority to evaluate the commercial decision of the CoC.
It, thus, rejected the appeal citing the fact NCLT or NCLAT has no jurisdiction to reverse to commercial wisdom of the Committee of Creditors.
