The Supreme Court on February 12, 2024 in 'Greater Noida Industrial Development Authority v. Prabhjit Singh Soni' reported in 2024 SCC Online SC 122 sent back a resolution plan to the committee of creditors ("COC") for resubmission because parameters set out under the Insolvency and Bankruptcy Code, 2016 ("IBC") were not met.
Brief Facts:
The appellant is a statutory authority which acquired land for setting up an urban and industrial township. One of the plots which were acquired by the appellant was allotted by way of lease for 90 years to a company named M/s JNC Constructions ("Corporate Debtor"). The Corporate Debtor defaulted in payment of instalments and was served with a demand notice. This was followed by a company petition being filed against the Corporate Debtor for corporate insolvency resolution process ("CIRP"), which was admitted on May 30, 2019. Consequent thereto, the appellant submitted its claim to the RP, as a financial creditor ("FC") of the Corporate Debtor, for unpaid lease instalments.
The RP treated the appellant's claim as a claim from an operational creditor and requested the appellant to file a Form B, which was not done by the appellant.
NCLT:
In the meantime, the COC and then the NCLT, approved the resolution plan. Aggrieved with the decision of the RP of treating the appellant as an operational creditor, the appellant filed an application in NCLT inter alia questioning the resolution plan and the decision of the RP to treat the appellant as an operational creditor. The NCLT rejected the application filed by the appellant on the ground that the appellant had not taken any steps for a period of seven months since the approval of the resolution plan by the NCLT, despite the fact that the appellant was aware of the CIRP.
NCLAT:
Aggrieved by the order of the NCLT, the appellant filed an appeal before the NCLAT on the grounds that (i) the appellant was a FC and ought to have been a part of the COC, which was not done, thus the resolution plan was invalid (ii) the appellant had a charge over the assets of the corporate debtor and was a secured creditor within Section 3(30) and 3(31) of the IBC and (iii) the RP had violated the principles of Section 30(2) of IBC.
The NCLAT dismissed the appeal inter alia observing that (i) appellant chose not to file a claim despite being informed by RP (ii) the Supreme Court in 'New Okhla Development v. Anand Sonbhadra' reported in (2023) 1 SCC 724 has observed that disbursement is an indispensable requirement to constitute a financial debt (iii) the resolution plan was approved by NCLT, the successful resolution applicant had informed the appellant about the plan, yet, the appellant had not been diligent in pursuing its right and lastly (iv) there was no irregularity in the approval of the resolution plan and the commercial wisdom of the COC was justifiable.
Analysis of the Hon'ble Supreme Court:
The provisions of IBC and CIRP regulations 2016 ("Regulations") make it clear that the RP is under a statutory obligation to collate data/information, which forms part of an information memorandum. Based on this, the resolution applicant(s) submit(s) plan. Once the plan is submitted by a resolution applicant, the RP examines it to confirm whether it meets the requirements of Section 30(2).
The Hon'ble Supreme Court relied on its earlier judgement in 'Jaypee Kensington v NBCC' reported in (2022) 1 SCC 401 which examined the scope of judicial review exercisable by the NCLT over a resolution plan approved by the COC. The Hon'ble Supreme Court observed that, though commercial wisdom of the COC in approving resolution plan may not be justiciable in exercise of the power of judicial review, the NCLT can always take notice of any shortcomings in the resolution plan. If any shortcoming appears [as specified in Section 30(2)of the IBC], the resolution plan may be sent back to the COC for resubmission. Similarly, the NCLAT can also interfere upon noticing shortcoming in the resolution plan while exercising its powers under Section 32 and Section 61(3) of the IBC.
In the present case, the Supreme Court held that the resolution plan did not meet the requirements of Section 30(2) of the IBC read with Regulation 37 and 38 for the following reasons:
- Once a claim is submitted with proof, it cannot be overlooked merely because it was in a different Form. A Form in which the claim is submitted is directory, and what is necessary is that the claim must have support from proof.
- The resolution plan not only failed in acknowledging the claim but also failed in mentioning the correct amount.
- The appellant's' right was affected because the appellant ought to have been served a notice of the COC meeting. Section 24(3)(c) of the IBC provides that an operation creditor with aggregate dues of note less that 10% of the debt is required to be served notice of the COC meeting.
- As per Regulation 37 and 38, a resolution plan must provide for measures as may be necessary for insolvency resolution of the corporate debtor for maximization of value of assets, including but not limited to satisfaction or modification of any security interest.
- Under Section 30(2)(b) of the IBC, distribution must be fair and equitable to each class of creditors. Non placement of the appellant in the class of secured creditors did affect its interest.
- Under Regulation 38, a resolution plan must demonstrate that it is feasible and viable. The resolution plan must have provisions for approvals from authorities and/or timeline for getting those approvals. In the present case although the resolution plan conceived utilisation of land owned by the appellant, it did not envisage whether necessary approvals have been taken by the appellant.
The Supreme Court was of the view that the resolution plan did not meet the parameters laid down in IBC and the Regulations. The Supreme Court sent back the resolution plan to the COC for re-submission after satisfying that the parameters set out under the IBC are met.
Please find attached a copy of the judgment.
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