What made NCLAT set aside Twin Star Technologies resolution plan for Videocon group of companies

The National Company Law Appellate Tribunal (NCLAT) has in a landmark judgement has set aside an order of the Mumbai bench of the National Company Law Tribunal (NCLT) approving the resolution plan submitted by the Twin Star Technologies Ltd for taking over the Videocon group companies through a corporate insolvency resolution process.

The NCLAT not only set aside its 8 June 2021 order it also send the matter back to CoC for completion of the process relating to CIRP in accordance with the provisions of the Code.

The appellate tribunal in its order said that the resolution plan (approved by the NCLT) was not complying with Section 30(2)(b) of the Code read with Section 31 of the Code. Hence, it can be remanded back to the CoC.

“We have come to the conclusion that Section 30 (2)(b) of the Code has not been complied with and hence, the approval of the Resolution Plan is not in accordance with Section 31 of the Code. Accordingly, the approval of Resolution Plan by the CoC as well as Adjudicating Authority is set aside and the matter is remitted back to CoC for completion of the process relating to CIRP in accordance with the provisions of the Code,” the tribunal said in its order.

It said that the impugned order of the Adjudicating Authority dated 08 June 2021 reflects that the Adjudicating Authority has made certain observations and require reconsideration by the CoC so the resolution plan should have gone for a review to the CoC as it fails to meet the criteria of Section 30(2)(b) r/w Section 31 of the Code.

The appellate tribunal was also of the opinion that the Adjudicating Authority failed to consider the contentions of the Appellants – dissenting financial creditors — as a result of which the impugned order is ex facie illegal, bad in law and contrary to the settled provisions of the Code and the Regulations framed thereunder.

Appellant’s contention

The appellant’s in this case — Bank of Maharashtra (BOM) being the Appellant herein, holding 1.97% voting share in CoC; IFCI Limited (IFCI), holding 1.03% voting share in CoC; Small industries Development Bank of India (SIDBI), holding 0.053% voting share in CoC; and ABG Shipyard Limited, holding 0.024% voting share in CoC – had argued that the resolution plan had violated the Section 30(2)(b) of the Code which requires Resolution Professional to confirm that the ‘Dissenting Financial Creditor’ will get an amount, which shall not be less than the amount to be paid to such creditors in the event of liquidation under Section 53 of the Code.

The amount allocated to dissenting financial creditors was Rs 105 crore. Twin Star Technologies in its resolution plan had offered Rs Rs.2962.02 crore to the creditors of Videocon group of companies.

The dissenting FCs had also contented that the ‘Resolution Plan’ clearly reflects that the payment will also be made by way of NCD and ‘there is no whisper of cash’, but the Adjudicating Authority had in its order asked the Resolution applicant to pay the dissenting FCs in cash. The dissenting FCs argued that NCLT has no power to change the plan, and that it should have sent back the plan to be reviewed by the CoC.

They had also contented that the resolution plan had provision for no priority payment to ‘Dissenting Creditors’ as these NCD are getting redeemed one day prior to the NCD redemption of ‘Assenting Financial Creditor’. This, they believed, was in violation of the scheme and the Code.

Respondent’s argument

Respondents in the case, which include Resolution Professional Abhijit Guha Thakurta appearing on behalf of corporate debtor –Videocon group of companies –Committee of Creditors of Videocon group of companies and the successful resolution applicant Twin Star Technologies Ltd, had contended that it is the commercial wisdom of the CoC to provide the hair cut of 95.05% and it is not available to judicial review.

The successful resolution applicant also argued that CoC becomes functus[1]officio once it approves the ‘Resolution Plan’ and hence once they approve the ‘Resolution Plan’ then it cannot be sent back to them for their review.

However, the NCLAT in its order said that the CoC is not functus –officio on the approval of the Resolution plan and accordingly, the judicial precedents clearly established that the Adjudicating Authority and this Tribunal is competent to send back the Resolution plan to the CoC for reconsideration.

On the contention that resolution plan once approved by the CoC and adjudication authority is not available for review, the appellate tribunal opined that the power to reconsider any decision is within the domain of CoC and even Apex Court in Catena of judgment held that the commercial wisdom of the CoCs is non justifiable and hence, it is in the domain of CoC, particularly, if at a later stage, it finds in public interest and the amount of loss which the public exchequer is to bear with such unprecedented haircut in such a large fund employment, it is in the fitness of thing that the proposal can be remanded back to the CoC, particularly, in view of their own affidavit to review their decision.

Also read: Former promoter moves NCLAT against Twinstar’s bid for Videocon