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Introduction to Case
Rajputana Properties raised the issue if courts or tribunals are allowed to intervene in functions of committee of creditors and change their decisions. The resolution plan of Binani Cement Limited (corporate debtor) had gone through various stages of resolution plan. It is the subsidiary of Binani Industries ltd. and the issue of appellant was that the adjudicating authority must pass positive directions for them to meet there bidders. The main question that arises out of the above case is whether the courts or tribunals are allowed to intervene in the functions of the committee of creditors and change their decisions relating to resolution plans. This case of Rajputana Properties Pvt. Ltd. V. Ultratech Cement Ltd. [1]deals with the problem that in various cases, committee of creditors expand their scope of powers under section 31 of the Code and in examining resolution plans and also to deal with the remedies upon creditors whose interests have been affected.
Facts of the Case
In CIRP against Binani Cement Limited (Corporate Debtor) representing the Braj Binani Group had the grievance that adjudicating authority should have passed positive direction and allowed the appellant to meet the bidders or financial creditors or other stakeholders from time to time and also adjudicating authority decline the plea of the appellant that he will pay the financial creditors and the resolution plan must be closed.
Rajputana private ltd. (Creditor) had preferred company appeal against the order passed by the adjudicating authority whereby liberty was granted to the committee of creditors to consider the settlement plan proposed by the Binani Industries ltd.
The resolution professional Mr. Vijay Kumar Iyer filed an application under section 30 and 31 of Insolvency and bankruptcy code 2016 read with Regulation 39 of CIRP 2016 for approval of resolution plan for Binani Industries ltd. which was given by Rajputana private ltd.
To which it was noticed that many objections were filed by Binani Industries limited, Ultratech cement limited and others for approval of that resolution plan which was submitted by Rajputana private ltd. It was also noticed that resolution plan which was submitted by the Ultratech Cement ltd. was not considered properly by the committee of creditors for the wrong reasons or due to the discriminatory reasons. The plan was approved by majority of committee of creditors but 10.53% of the committee of creditors were forced to approve the plan who then recorded the protest notes alleging that they have not dealt with equity when compared with other financial creditors. And they were corporate guarantee beneficiaries of corporate debtors.
The NCLT noted that Rajputana Properties Private Limited in its resolution plan had discriminated between financial creditors who are equally important, and it did not even balance the interest of stakeholders such as operational creditors. The adjudicating authority then rejected the resolution plan given by Rajputana private ltd. and direct the committee of creditors to consider other resolution plans given by other creditors including Ultratech cement limited.
The discriminatory behaviour in approving the plan was clearly seen. The NCLT held that the plan of Rajputana Properties was discriminatory, and it is against the scheme of the Code and it is against the provision of the code.
Counsel on behalf of Rajputana private ltd. assailed the order given by the adjudicating authority on the basis that it was approved by the majority of committee of creditors. To deal with this issue the object of insolvency and bankruptcy code is to be taken into consideration. Also, the NCLT stated that if the discriminatory resolution plan is accepted by committee of creditors it does not mean that it must be accepted by the adjudicating authority.
Issues in the Case
- Whether Committee of creditors has discriminated between the resolution applicants while considering the resolution plan of Rajputana properties Pvt. Ltd.
- Who shall be involved in the committee of creditors and does adjudicating authority can interfere in their power to liquidate the company?
Contention or Arguments from Both the Parties
The counsel from the committee of creditors stated that that UltraTech’s bid was backed by 100 percent of secured creditors, 100 percent of unsecured creditors and 100 percent of operational creditors.
The counsel on behalf of the Rajputana properties states that this was against the object of the insolvency law and that UltraTech’s could not have revised its bid after being aware of the competitor’s bid.
Summary of Court Decision and Judgement
Having perused the judgments of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) and after hearing learned counsel for all the parties, the Hon’ble Supreme Court was of the opinion that there is no infirmity in the order passed by the NCLAT.
Hence, the appeal was accordingly dismissed.
The judgement came in favour of UltraTech Cement Ltd, the Supreme Court upheld an order of the National Company Law Appellate Tribunal (NCLAT) approving its revised ₹ 7,900 crore bid to buy debt laden Binani Cement Ltd. A two-member bench of NCLAT had dismissed an appeal by Rajputana Properties, saying it offer for Binani Cement was “discriminatory” against several financial creditors.
The tribunal stated the objective of the Insolvency and Bankruptcy Code that the purpose of the resolution is for maximization of the value of assets of the debtor. In its order, NCLAT had stated that the resolution process under Insolvency and bankruptcy code should also consider the interests of those creditors, who are not part of the resolution process, like operational creditors, who also maintain the ability of the targeted company in continuing as a going concern.
Analysis
The NCLAT takes in to account the financial terms of the plans to confirm that committee of creditors has discriminated between the other resolution applicants, which was evident from the fact that the proposal for negotiation and better bid offered by the Ultratech Cement were never considered.
It also pointed out that the resolution professional and the Committee of creditor are duty bound to ensure the maximization of value within the time frame prescribed under the Code and observed that the object in ascertaining a resolution applicant who can offer maximum amount so as to safeguard the interest of all stakeholders of the corporate debtor is lacking from the Committee of creditors.
The resolution plan by Rajputana properties private limited was discriminatory.
31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, 3[including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] creditors, guarantors and other stakeholders involved in the resolution plan.
Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.
(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.”
2[(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later.
Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.[2]
Amendments:
1. Proviso to sub- section (1) of section 31 inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (w.e.f. 06.06.2018).
2. Sub-section (4) of section 31 inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (w.e.f. 06.06.2018).
3. Inserted by Insolvency & Bankruptcy Code (Amendment) Act, 2019 (w.e.f. 16-8-2019).[3]
Also, the object of Insolvency and bankruptcy code is to be taken into consideration. First object is resolution, and second object is maximisation of value of assets of the corporate debtor and third object is to promote entrepreneurship which means the availability of credit and balancing the interest.
The committee of creditors is made with a specific purpose to keep the entity going and liquidated and the operational creditors are not willing to take the risks, so creditors of committee should be restricted to financial creditors only for the fast and efficient process. By this it is clear that all the stakeholders and creditors who have ability to restructure their liability must be the part of the committee of creditors. Though liability of each creditor must be taken into consideration whether they are part of committee of creditors or not.
The main issue of this case that whether Rajputana private limited has discriminated in their resolution plan so it is evident from as other financial creditors has been provided with 100% of the verified claim Discrimination was based on the ground that some financial creditors are have no protection for corporate debtor or some are those to whom corporate debtors are guarantors.
The counsel of Rajputana private limited in case stated that they do not have the opportunity to analyse the commercial state successfully.
But the two-resolution plan which was presented, and it is clear that resolution plan has been discriminated. As some of the financial creditor has been discriminated who are equally situated and balanced Therefore it was rightly stated by the adjudicating authority that resolution plan submitted by the Rajputana private limited was discriminatory.
Conclusion
The case of Binani Cements makes it clear that the approval of the adjudicating authority is not a mere requirement, even the adjudicating authority is not permitted to change the terms of the plan. The ultimate authority to approve or reject a plan rely with the adjudicating authority and it must comply with the provisions of the code that whether the resolution plan is according to Section 30(2) of the IBC, 2016. The resolution is free from discrimination and is fair and equitable and also it must fulfil the object of the code which is to maximise the asset and balance the interest of stakeholders.
Also, in the conclusion of case the counsel for committee of creditors, resolution professional and all resolution applicant have to abide by the by the process of document under Section 25(2)(h) of the I&B code.
The adjudicating authority must give its permission for approving resolution plan if these conditions are fulfilled otherwise it can reject the plea.
The adjudicating authority has rightly given the judgement and the special petition was also disposed of as it was evident from the statistics that Ultratech private limited has given better terms to maximize the asset and to give resolution. Through which all the objectives of Insolvency and bankruptcy code was fulfilled. But Rajputana private limited has passed their resolution plan given by other creditors.
References:
[1] [2018] ibclaw.in 20 SC
[2] Insolvency and bankruptcy code, 2016
[3] https://ibclaw.in/
