M. K. RAJAGOPALAN versus DR. PERIASAMY PALANI GOUNDER & ANR on 3 May 2023

[2023] 9 S.C.R. 783 : 2023 INSC 486

M. K. RAJAGOPALAN

v.

DR. PERIASAMY PALANI GOUNDER & ANR.

(Civil Appeal Nos. 1682-1683 of 2022)

MAY 03, 2023

[DINESH MAHESHWARI AND VIKRAM NATH, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss. 12A, 29-A(e),30(2)(e) & 30(6) – Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons) Regulations,2016 – Regulation 36-A(2)(iii) – Disapproval of resolution plan bythe Appellate Tribunal (NCLAT) for want of presentation of finalresolution plan before CoC – Held: Is unexceptionable and callsfor no interference – When the modified resolution plan, even ifcarrying minor modification /revision was not finally approved byCoC, its presentation to the Adjudicating Authority amounts to amaterial irregularity and this defect cannot be cured – There is noand there cannot be any concept of post facto approval of anyresolution plan by CoC which had not been placed before it priorto the filing before the Adjudicating Authority – Requirement ofCIRP Regulations, particularly of placing the resolution plan in itsfinal form before the CoC, has to be scrupulously complied with –This is so for the specific reason concerning law that if the processas adopted in the present matter is approved, the very scheme of theCode and CIRP regulations would be left open-ended and wouldbe capable of inviting arbitrariness at any level – The irregularityin the process of approval by CoC and filing before AdjudicatingAuthority are not the matters of such formal nature that deviation inthat regard could be ignored or condoned – When commercialwisdom of CoC is assigned primacy, it presupposes a considereddecision on the resolution plan in its final form – The principlesunderlying the decisions of this Court respecting the commercialwisdom of CoC cannot be over-expanded to brush aside a significantshortcoming in the decision making of CoC when it had not dulytaken note of the operation of any provision of law for the timebeing in force – On facts, disapproval of the resolution plan inquestion by the Appellate Tribunal (NCLAT) in the impugned orderis not to be interfered with but, not for all the reasons which weighed

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Awith the Appellate Tribunal – The reasons and findings of theAppellate Tribunal in relation to the valuation process and allegednon-compliance of some of the procedural provisions as also theobservations against increase of fees of resolution professional arenot approved – Similarly, the Appellate Tribunal was not right inholding the resolution applicant ineligible to submit a resolutionBplan with reference to s.164(2)(b) of the Companies Act, 2013 –The disapproval by the Appellate Tribunal, with reference to thesettlement offer of promoter in terms of s.12-A of the Code, and itspurported non-consideration is also not approved and such findingsof the Appellate Tribunal are required to be set aside – Similarly,Cthe Appellate Tribunal erred in applying the principles of non-discrimination in relation to the related party – However, even whilerespecting the commercial wisdom of CoC, in the present case, theresolution plan in question could not have been approved by theAdjudicating Authority for two major reasons: one, for theineligibility of the resolution applicant; and second, for not placingDof the revised resolution plan in the CoC before seeking approvalfrom the Adjudicating Authority – So far the subsequent eventsconcerning invitation of fresh Expression of interest (EOIs) andapproval of the fresh settlement proposal of the promoter by theCoC are concerned, all the relevant aspects are kept open forconsideration of the Adjudicating Authority.E

Committee of Creditors of Essar Steel India Limitedthrough Authorised Signatory v. Satish Kumar Guptaand Ors. (2020) 8 SCC 531 : [2019] 16 SCR 275;Jaypee Kensington Boulevard Apartments WelfareAssociation and Ors. v. NBCC (India) Limited and Ors.F(2022) 1 SCC 401; Swiss Ribbons (P) Ltd. and Anr. v.Union of India and Ors. (2019) 4 SCC 17 : [2019] 3SCR 535 – relied on.

K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC150 : [2019] 3 SCR 845; Maharashtra Seamless Ltd. v.GPadmanabhan Venkatesh and Ors. (2020) 11 SCC 467: [2020] 2 SCR 1157; Phoenix ARC (P) Ltd v. SpadeFinancial Services Ltd. and Ors. (2021) 3 SCC 475; C.Raja John v. R. Raghavendran and Ors. Comp. Appl.(AT)(CH)(Ins) No. 207 of 2021; Kalpraj Dharamshi H

M. K. RAJAGOPALAN v. DR. PERIASAMY PALANIGOUNDER & ANR.

and Anr. v. Kotak Investment Advisors Limited and Anr.(2021) 10 SCC 401; EBIX Singapore Pvt. Ltd. v.Committee of Creditors of Educomp Solutions Ltd. andAnr. (2022) 2 SCC 401; Pratap Technocrats (P) Ltd.and Ors. v. Monitoring Committee of Reliance InfratelLtd and Anr. 2021 SCC OnLine SC 569; Facor AlloysLtd. v. Bhuvan Madan and Ors. Civil Appeal No. 5129of 2021; Venus Recruiters Private Limited v. Union ofIndia and Ors. 2020 SCC Online Del. 1479; Vallal RCKv. Siva Industries and Holdings Ltd. and Ors. 2022 SCCOnLine SC 717 and Brilliant Alloys (P) Ltd. v. S.Rajagopal and Ors. (2022) 2 SCC 544 – referred to.

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CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.1682-1683 of 2022.

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From the Judgment and Order dated 17.02.2022 of the NationalCompany Law Appellate Tribunal, Chennai Bench in Company Appeal(AT) (CH) (Insolvency) No.164 and 219 of 2021.

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Civil Appeal Nos.1756, 1759, 1757, 1807, 1810 And 1827 of 2022.

Dr. Abhishek Manu Singhvi, Jaideep Gupta, Sr. Advs., DevashishBharuka, Justine George, Ms. Sarvshree, Abhijeeet Singh, Advs. for theAppellant.

Tushar Mehta, SG, K. V. Vishwanathan, Vijay Narayan, Sr. Advs.,HSanjay Kapur, Ms. Megha Karnwal, Arjun Bhatia, Ms. Akshata Joshi, AMs. Shubra Kapur, Ms. Aastha Gumbr, Goutham Shivshankar, T.Ravichandran, K. V. Mohan, K. V. Balakrishnan, Ms. Niveditha, Ms.Samyuktha J., Rahul Kumar Sharma, Shreeyash U. Lalit, Ms. RaveenaLalit, Abhinav Agarwal, Mrs. Pragya Baghel, Ms. HaripriyaPadmanabhan, V. Syamohan, Ms. Astu Khandelwal, Martin G. George,Dheeraj Nair, Advs. for the Respondents.B

The Judgment of the Court was delivered by DINESH MAHESHWARI, J.

Preliminary and brief outline ..........................................2*Particulars of the proceedings and the parties ................... 7*The relevant factual and background aspects .................. 13*Initiation of CIRP ...........................................................14*CoC Meetings and ancillary proceedings ...................16*

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HEd. Note : Pagination is as per the original Judgment.

Point D2 – Increase of fees of resolution professional .... 132Point E – The matter concerning related party ................ 133Point F – NCLAT’s findings regarding settlement offer ofpromoter ........................................................................... 135Point G – Impact and effect of subsequent events .......... 138Summation ........................................................................ 142Conclusion ........................................................................ 144

Preliminary and brief outline

Preliminary and brief outline

1. These civil appeals are essentially directed against the commonjudgment and order dated 17.02.2022, as passed by the National CompanyLaw Appellate Tribunal, Chennai Bench,[1] in a batch of appeals in relationto the Corporate Insolvency Resolution Process[2] under the Insolvencyand Bankruptcy Code, 2016,[3] concerning the corporate debtor, AppuHotels Limited[4], whereby the Appellate Tribunal has reversed the orderdated 15.07.2021, as passed by the National Company Law Tribunal,Chennai[5]; and while rejecting the resolution plan in question, has remandedthe matter to the committee of creditors[6] with directions to the resolutionprofessional[7] to proceed from the stage of publication of Form ‘G’, andinvite the expression of interest[8] afresh as per the Insolvency andBankruptcy Board of India (Insolvency Resolution Process for CorporatePersons) Regulations, 2016[9].

2. In view of multiple issues raised in this batch of matters, whereseveral steps have been taken at different stages and different partiesare having different stands and interests, we may draw a brief outlinewith salient features of the factual and background aspects, in order toindicate the contours of the forthcoming discussion.

1 Hereinafter also referred to as ‘NCLAT’ / ‘the Appellate Tribunal’.

2 ‘CIRP’, for short.

3 Hereinafter also referred to as ‘IBC’ / ‘the Code’.

4 Hereinafter also referred to as ‘the corporate debtor’.

5 Hereinafter also referred to as ‘NCLT’/ ‘the Tribunal’ / ‘the Adjudicating Authority’.

6 ‘CoC’, for short.

7 ‘RP’, for short.

8 ‘EOI’, for short.

9 Hereinafter also referred to as ‘the CIRP Regulations’.

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A2.1. CIRP against the corporate debtor got initiated on 05.05.2020,with the NCLT admitting an application moved under Section 7 of theCode by one of its financial creditors, Tourism Finance Corporation ofIndia Limited[10]. In the course of proceedings, after various rounds ofCoC meetings, ultimately, the resolution plan in question was approvedwith 87.39 per cent. majority of voting share on 22.01.2021. However,Bthe CoC recommended certain changes to be made in the resolutionplan. After incorporating the changes as suggested by CoC, an applicationwas moved before the Adjudicating Authority (NCLT) under Section30(6) of IBC for approval of the resolution plan. During the proceedingsbefore NCLT, several objections were raised by various financialCcreditors, other resolution applicants and by the promoter and erstwhiledirector of corporate debtor against the resolution plan. The promoteralso stated his grievance about want of consideration of his settlementproposal in terms of Section 12-A of the Code. However, the NCLTdismissed all the objections and approved the resolution plan declaring itbinding on the corporate debtor and other stakeholders by the commonDorder dated 15.07.2021.

2.2. Challenging approval of the resolution plan, several appealswere preferred before the Appellate Tribunal (NCLAT), which weredecided in the impugned common judgment and order dated 17.02.2022.The Appellate Tribunal, while upholding several of the objections against

Ethe process of consideration of the resolution plan as also the eligibilityof the successful resolution applicant, allowed all the appeals; set asidethe aforesaid order dated 15.07.2021; rejected the resolution plan soapproved by the NCLT; declared the resolution applicant ineligible interms of Section 88 of the Indian Trusts Act, 1882[11] and disqualified inFterms of Section 164(2)(b) of the Companies Act, 2013[12]; and issueddirections to the resolution professional to proceed with CIRP from thestage of publication of Form ‘G’ while inviting EOI afresh as per theCIRP Regulations. The Appellate Tribunal also issued directions to theresolution professional to place the settlement proposal of promoter anderstwhile director of the corporate debtor for consideration before theGCoC; and if such a proposal was approved with 90 per cent. votingshare of CoC, to initiate the proceeding for withdrawal of CIRP underSection 12-A of the Code read with Regulation 30-A of the CIRP

10 ‘TFCI’, for short.

11 Hereinafter also referred to as ‘the Trusts Act’.H12 Hereinafter also referred to as ‘the Companies Act’.

Regulations. The Appellate Tribunal also directed that the claim of therelated party financial/operational creditors be not discriminated fromthat of the unrelated financial/operational creditors.

3. The aforesaid order of NCLAT dated 17.02.2022 is underchallenge before this Court by the resolution applicant as also by theresolution professional on several counts, which could be broadlysummarised thus: First, that Regulation 35 of the CIRP Regulations doesnot mandate sharing of the valuation report to the CoC and insteadmandates only sharing of liquidation value. Second, that the non-coreassets were not significant in value and the valuation was communicatedto and agreed upon by the members of the CoC on 15.12.2020. Third,that non-publication of Form G on the designated website was a mereprocedural irregularity which did not prejudice interests of any of theparties. Fourth, that the commercial wisdom of CoC was not justiciableand once the CoC had approved the resolution plan by the requisitemajority, there was very limited scope of interference by the Courts.Fifth, that the Appellate Tribunal has overstepped its jurisdiction bydeclaring the resolution applicant ineligible under Section 88 of the TrustsAct and disqualified under Section 164(2)(b) of the Companies Act.Sixth, that the claims of related party creditors cannot be treated at parwith the unrelated creditors. And seventh, that Section 12-A IBCapplication of the promoter was merely a dilatory tactic and that he wasnot entitled to file any such application. These and other grounds raisedin these appeals have been duly contested by the respondents with theirrespective stands and positions in these cases. This apart, some of thefinancial creditors have also moved the applications for impleadmentand have placed their respective viewpoints for consideration.

4. During the pendency of these appeals, this Court did not staythe operation of impugned order dated 17.02.2022; and during the courseof hearing of these appeals, on 07.03.2022, it was informed by RP thatpursuant to the order impugned, another meeting of CoC had beenconducted on 03.03.2022. It is noticed that in the said CoC meeting heldon 03.03.2022, the settlement proposal of the promoter was voted againstby 51.81% of the voting share. After conclusion of initial hearing, whilereserving judgment, this Court also took note of the fact that furthermeeting of CoC was slated for 21.03.2022; and it was provided that themeetings/proceedings of the CoC could go on but the entire processshall remain subject to the final orders to be passed in these appeals.

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A4.1. These matters were again taken on board on 20.05.2022 whenthis Court took note of the submissions made in another application movedby the resolution applicant for directions while pointing out that the freshprocess had been initiated by the RP by publication of Form G on26.04.2022, inviting fresh EOIs. Therein, the resolution applicant soughtinterim stay over the fresh process initiated by RP or in the alternative,Bto stay the operation of the impugned order as regards declaration of hisdisqualification, and to direct the RP to consider his EOI in the freshprocess so initiated. This Court, however, declined to pass any otherorder with reference to the fact that all the proceedings remain subjectto the final orders in these appeals.C

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4.2. Yet again, Civil Appeal No. 1682-1683 of 2022 was taken onthe board on 17.11.2022 and learned counsel for the parties were heardfurther, in view of an application moved on behalf of the promoter anderstwhile director of the corporate debtor (IA No. 168602 of 2022),seeking permission to bring on record subsequent events that his proposalDof settlement under Section 12-A of the Code was accepted by CoC on12.10.2022 by 100% of the voting share, i.e., unanimously; and the samehad been placed before the Adjudicating Authority for approval. Havingregard to the events aforesaid and looking to the overall circumstances,while keeping the judgment reserved, we requested the AdjudicatingAuthority to await the decision of this Court in these matters.E

Particulars of the proceedings and the parties

5. In view of the issues arising for determination in these appeals,with several parties carrying different roles, interests, and positions,worthwhile it would be to narrate at the outset, in brief, the relevantFparticulars of the proceedings leading to these appeals as also the principalparties involved herein.

6. As noticed, the CIRP against the corporate debtor got initiatedon 05.05.2020, with the NCLT admitting an application moved underSection 7 of the Code by one of its financial creditors, TFCI. ThisGapplication had been registered as IBA No. 1459 of 2019. The applicationfor approval of the resolution plan, moved before NCLT was registeredas IA No. 150/CHE/2021 in the said IBA No. 1459 of 2019. Thisapplication and several other correlated applications were consideredtogether and were dealt with in the common order dated 15.07.2021whereby, the National Company Law Tribunal, Chennai rejected the H

objections and approved the resolution plan approved by the committeeof creditors.

6.1. Four separate appeals were preferred before the NationalCompany Law Appellate Tribunal, Chennai Bench against the aforesaidorder dated 15.07.2021, being Company Appeal (AT) (CH) (Insolvency)Nos. 164, 176, 218 and 219 of 2021. The appeals bearing numbers 164of 2021 and 219 of 2021 were filed by the promoter and erstwhile directorof corporate debtor, respectively in challenge to the approval of resolutionplan and rejection of his application for consideration of a settlementproposal. On the other hand, the appeal bearing number 176 of 2021was filed by one of the creditors of the corporate debtor, whose claim asfinancial creditor as also operational creditor was declined in the approvedresolution plan, for being a related party of the corporate debtor. Theother appeal bearing number 218 of 2021 was filed by an NRI shareholderand erstwhile director of the corporate debtor, essentially being aggrievedby denial of any relief to shareholders in the approved resolution plan.As noticed, these four appeals were decided together by the NCLAT inits impugned common judgment and order dated 17.02.2022.

6.2. In the present set of appeals in this Court against the aforesaidjudgment and order dated 17.02.2022, one sub-set is of appeals preferredby the resolution applicant which could be noticed as follows:

6.2.1. The resolution applicant has questioned the orders passedin relation to the objections and claim of the promoter and erstwhiledirector of the corporate debtor (in Appeal Nos.164 of 2021 and 219 of2021 before NCLAT) by way of Civil Appeal Nos. 1682-1683 of 2022.The resolution applicant has further questioned the order passed in relationto the claim of the related party (in Appeal No. 176 of 2021 beforeNCLAT) by way of Civil Appeal No. 1827 of 2022. Yet further, theresolution applicant has questioned the order passed in relation to theclaim of the NRI shareholder (in Appeal No. 218 of 2021 before NCLAT)by way of Civil Appeal No. 1810 of 2022.

6.3. Another sub-set is of appeals preferred by the resolutionprofessional against the aforesaid judgment and order dated 17.02.2022,which are as follows:

6.3.1. The resolution professional has questioned the orders passedin relation to the objections and claim of the promoter and erstwhiledirector of the corporate debtor (in Appeal Nos.164 of 2021 and 219 of AB

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A2021 before NCLAT) by way of Civil Appeal Nos. 1756 of 2022 and1807 of 2022 respectively. The resolution professional has furtherquestioned the order passed in relation to the claim of the related party(in Appeal No. 176 of 2021 before NCLAT) by way of Civil Appeal No.1757 of 2022. Lastly, the resolution professional has questioned the orderpassed in relation to the claim of the NRI shareholder (in Appeal No.B218 of 2021 before NCLAT) by way of Civil Appeal No. 1759 of 2022.

7. Now, we may take note of the relevant particulars of theprincipal parties involved in this litigation. The parties could broadly bedivided into three categories with reference to their respective standsvis-à-vis the order of the Appellate Tribunal, the CIRP, and the resolutionCplan in question.

7.1 The first category is of the parties who are aggrieved of theorder passed by the Appellate Tribunal on several counts and are opposingthe rejection of resolution plan and remand of the matter to CoC. Theyare:D

7.1.1. Mr. M.K. Rajagopalan

He is the resolution applicant and had submitted the resolutionplan in question, which was approved by a majority of 87.39 per cent. ofthe voting share of CoC but was rejected by the Appellate Tribunal, asEbeing in contravention of Section 30(2) of the Code. He is appellant inCivil Appeal Nos. 1682-1683 of 2022, 1827 of 2022 and 1810 of 2022. Inall the civil appeals filed by the resolution professional, he is arrayed asone of the respondents.

7.1.2. Mr. Radhakrishnan Dharmarajan

F He is the resolution professional, who was appointed by the CoCin the third meeting dated 04.09.2020 and his appointment was confirmedby the NCLT in order dated 02.11.2020. He is appellant in Civil AppealNos. 1756 of 2022, 1807 of 2022, 1757 of 2022 and 1759 of 2022. In allthe civil appeals filed by the resolution applicant, he is arrayed as proformarespondent No. 2.G

7.2. The second category is of the contesting respondents in thisbatch of appeals, who are essentially supporting the order passed by theAppellate Tribunal. They could reasonably be introduced as follows:

7.2.1. Dr. Periasamy Palani Gounder[13]

He is the promoter and erstwhile director of the corporate debtor,Appu Hotels Limited. He is also the Chairman of Dharani FinanceLimited, the related party. He is respondent No. 1 in Civil Appeal Nos.1682-1683 of 2022, 1756 of 2022 and 1807 of 2022.

7.2.2. Dharani Finance Limited

The claim of this company, in its capacity as an operational creditoras also a financial creditor of the corporate debtor, was rejected byNCLT for being a related party. However, NCLAT directed the CoC tonot discriminate it from unrelated financial/operational creditors. Thiscompany is respondent No. 1 in Civil Appeal Nos. 1757 of 2022 and1827 of 2022.

7.2.3. Dr. V. Janakiraman

He is an NRI shareholder and erstwhile director of the corporatedebtor who had, along with other shareholders, invested money in thecorporate debtor. He is aggrieved of denial of the claim of shareholdersin the resolution plan in question and has raised a few other questionstoo alongwith the aforesaid promoter and director of the corporate debtor.He is respondent No. 1 in Civil Appeal Nos. 1810 of 2022 and 1759 of2022.

8. Apart from the above-mentioned parties, who are directlyimpleaded in these appeals, there are other stakeholders, standing intheir capacity as financial creditors and having their own role in CIRP inquestion. They include:

8.1. State Bank of India[14]

This financial creditor of the corporate debtor with nearly 26.41%voting share in CoC, though had earlier voted in favour of the resolutionplan in question but now, looking to the order of NCLAT relating toeligibility deficiency of the successful resolution applicant as also thedeficiency in process, is essentially supporting the rejection of resolutionplan in question and remand of matter to CoC for consideration afresh.

13 Hereinafter also referred to as ‘the promoter’.

14 ‘SBI’, for short.

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A8.2. Edelweiss Asset Reconstruction Company Limited alongwith IDBI Debentures Trusteeship Limited and Allium Finance PrivateLimited[15]

These financial creditors, with about 21.13% voting share in CoC,too had voted in favour of the resolution plan in question. They haveBraised questions on the order passed by NCLAT on various grounds.This apart, they have underscored certain other areas of concern includingthe amount deposited by the resolution applicant, and have also suggestedthat CIRP must be allowed to go on while leaving the promoter a right tobetter the resolution plan by way of a Swiss Challenge Process onlyafter depositing the matching amount in an escrow account prior to votingCon his settlement offer.

8.3. Tourism Finance Corporation of India Limited This financial institution with 5.62% of the voting share in CoCgot initiated the CIRP in question with admission of its application underDSection 7 of the Code by the NCLT on 05.05.2020 (IBA No. 1459 of2019).

The relevant factual and background aspects

9. Having taken note of the relevant particulars of the proceedingsas also the principal parties involved, we may now take note of theErelevant factual and background aspects, in brief, as infra.

10. The corporate debtor, Appu Hotels Limited, is alimited company with corporate identification numberU92490TN1983PLC009942 and registered office at PGP House, No.57,Sterling Road, Nungambakkam, Chennai - 600 034. The promoter groupFof the corporate debtor consists of around one hundred non-residentinvestors living in the United States of America, who are said to haveinvested over twenty-two million US dollars in foreign exchange in thecorporate debtor. The corporate debtor had availed project loans toconstruct ‘Le Meridian, Coimbatore’, from a consortium of bankers ledby Indian Bank. It appears that the business did not materialise as perGthe estimated projections. The promoters and directors brought in nearlyRs. 100 crore as unsecured loans over and above the cash flow to keepthe corporate debtor’s asset as standard. It further appears that thoughthe hotel was making operational profit, but the profit was insufficient to H15 ‘Edelweiss & associates’, for short and collectively.

service the loan repayment to the optimum requirement and the corporatedebtor defaulted in payment of overdues.

Initiation of CIRP

11. The default on the part of corporate debtor in payment ofoverdues led to the application under Section 7 of the Code for initiationof CIRP by one of its financial creditors, TFCI (who holds about 5% ofthe total loan amount) before the NCLT, in Application No. IBA/1459/2019. It appears that a few propositions of One Time Settlement[ 16] weremooted on behalf of the corporate debtor but without any effective result,for the corporate debtor having not been able to make payment againstthe dues of the financial creditor. The NCLT observed that there beingthe existence of a financial debt and there being a default on the part ofthe corporate debtor, the application moved by the financial creditor wasbound to be admitted and as a consequence, triggering the corporateinsolvency resolution process. Accordingly, the NCLT, by its order dated05.05.2020, admitted this application and appointed one Mr. MukeshKumar Gupta as interim resolution professional[17] with other necessarydirections in the following terms: - “12. Heard the Counsel for both the parties and perused thedocuments placed on record. It Is a fact borne on record that theCorporate Debtor is unable to repay the dues to the FinancialCreditor and as such on the garb of OTS settlement the CorporateDebtor wanted to gain time to settle of the dues to the FinancialCreditor. Further, a perusal of the record of proceedings dated04.02.2020, also shows that the Corporate Debtor was putting inefforts to settle of the dues of the Financial Creditor and uponsuch representation being made, the Corporate Debtor was grantedtime to settle the matter and the matter was finally posted to02.03.2020 for reporting settlement or to proceed with the matter.Thus, when the matter was taken up for enquiry on 02.03.2020, ithas been brought to the notice of this Tribunal by the Counsel forthe Financial Creditor that the Corporate Debtor has not paid thedues of the Financial Creditor and also the Learned Counsel forthe Financial Creditor submitted that even in the affidavit filed bythe Corporate Debtor, the outstanding debt has been admittedwhich Is owed to the Financial Creditor.

16 ‘OTS’, for short.

17 ‘IRP’ for short.

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13. Thus, we are satisfied that there is a debt and default on thepart of the Corporate Debtor and the Corporate Debtor is unableto repay its dues to the Financial Creditor. It has also beenconsistently held by the Hon’ble Supreme Court both inInnoventive Industries Ltd. -Vs- ICICI Bank and another(2018) 1 SCC 407 as well as Mobilox Innovations Pvt. Ltd ..-Vs- Kirusa Software Pvt. Ltd.(2018) 1 SCC 353 after goingthrough the Scheme of l&B Code, 2016 in depth in relation to anApplication under Section 7 filed by a Financial Creditor ascompared to the one filed under Section 9 by an OperationalCreditor, in relation to a Section 7 Application where there is anexistence of a ‘financial debt’ and when there is a default, thisTribunal is bound to admit the Application and as a consequencetrigger the Corporate Insolvency Resolution Process (CIRP) andin relation to a Section 7 Application defence of set off or counterclaim put forth by the Corporate Debtor cannot be considered asa dispute In relation to the Financial debt and default In relation toIt. In the present case, it is clear that there is a default on the partof the Corporate Debtor.

14. Thus taking into consideration the facts and circumstances ofthe case as well as the position of Law, we are of the view thatthis Application as flied by the Applicant - Financial Creditor isrequired to be admitted under Section 7 (5) of the I&B Code,2016.

15. The Financial Creditor has proposed the name of oneMUKESH KUMAR GUPTA having Registration Number[IBBI/IPA-001/IP-P00207/2017-18/10407] (Email id :-guptam11@ gmail.com) (Mob:- [REDACTED]) as InterimResolution Professional (IRP) and a written communication inthe format prescribed under Form 2 of the Insolvency andBankruptcy Board of India (Application to Adjudicating Authority)Rules, 2016 has been filed by the proposed IRP who is appointedas the IRP to take forward the process of Corporate InsolvencyResolution of the Corporate Debtor. The IRP appointed shall takein this regard such other and further steps as are required underthe Statute, more specifically in terms of Section 15,17,18 of theCode and file his report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shallstand superseded as a consequence of the initiation of the CIRProcess in relation to the Corporate Debtor in terms of theprovisions of I&B Code, 2016.

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19. Based on the above terms, the Petition stands admitted interms of Section 7 of the Code and the Moratorium shall comeinto effect as of this date. A copy of the order shall becommunicated to the Petitioner as well as to the Respondent abovenamed by the Registry. In addition, a copy of the order shall alsobe forwarded to IBBI for its records. Further, the IRP abovenamed be also furnished with copy of this order forthwith by theRegistry, who will also communicate the initiation of the CIRP inrelation to the Corporate Debtor to the Registrar of Companiesconcerned.”

CoC Meetings and ancillary proceedings

12. CIRP in relation to the corporate debtor having thus beeninitiated, various steps were taken in terms of the requirements of theCode and the CIRP Regulations, including the meetings of CoC whichultimately led to the approval of the resolution plan in question. Some ofthose steps carry their own relevance in these appeals in view of theissues raised by the parties. We may briefly take note of the relevantsteps/proceedings in their feasible chronology as follows:

12.1. Pursuant to the initiation of CIRP, IRP issued a publicannouncement in Form A on 08.05.2020 inviting claims from variousstakeholders in the corporate debtor. Further, for conducting the firstmeeting of the committee of creditors on 22.06.2020, IRP issued a noticeon 18.06.2020. The said meeting was attended by all the members ofthe CoC including the promoter and erstwhile director of the corporatedebtor.

12.2. In the second CoC meeting conducted on 06.08.2020, theproposal of IRP in relation to information memorandum and to seek EOIby publication of Form G was approved. Two sets of valuators wereengaged as registered valuators by IRP for all the three categories ofassets, being Mr. Vikas Agarwal, Mr. Anil Kumar Saxena and Mr.Anubhav Aggarwal (one set); and Future Value Advisors India (P) Ltd, A

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Aa registered valuer entity registered with the Insolvency and BankruptcyBoard of India[18]. Their fees were also approved by the CoC.

12.3. On or about 17.08.2020, the IRP published Form G underRegulation 36A of the CIRP Regulations, inviting expression of interestfrom prospective resolution applicants to submit resolution plans.B

12.4. Thereafter, in the third CoC meeting held on 04.09.2020, aresolution was adopted to appoint Mr. Radhakrishnan Dharmarajan asthe resolution professional. It was in the same meeting that the list offifteen EOIs received from the prospective resolution applicants andplaced by IRP, was approved by CoC. It was further informed to CoC inCthe said meeting by IRP that the valuation was in process and the valuersmay visit the premises of corporate debtor. On 26.09.2020, the IRPpublished the final list of prospective resolution applicants. It may beobserved in this regard that pursuant to publication of provisional list andupon preliminary scrutiny, thirteen of the EOIs received were initiallyfound eligible, of which, one had withdrawn and the other namely, SriDBalaji Vidyapeeth (of which the successful resolution applicant was themanaging trustee), was declared ineligible since a charitable trust cannotrun a profit-making entity. Hence, the final list of eleven prospectiveresolution applicants was submitted before the CoC on 26.09.2020. Finally,three resolution plans were received, from Mr. Madhav Dhir, Mr. M.K.ERajagopalan (the resolution applicant – appellant herein) and KotakSpecial Solutions.

12.5. In the fourth CoC meeting held on 12.10.2020, IRP apprisedthe members about the valuers visiting the properties of the corporatedebtor and the valuation being in process.F

12.6. On 27.10.2020, the appellant Mr. M.K. Rajagopalan submittedhis resolution plan alongwith a demand draft in the sum of Rs. 2 crore.On 02.11.2020, the Tribunal approved the appointment of Mr.Radhakrishnan Dharmarajan as the resolution professional.

12.7. In the fifth CoC meeting held on 12.11.2020, in the first itemGon the agenda, the members took note of the appointment of Mr.Radhakrishnan Dharmarajan as the resolution professional. Thereafter,on the second item, the CoC approved that the resolution professionalshall file an application before NCLT to seek extension of time period from 05.05.2020 to 31.10.2020 under Section 12(2) of the Code due toCovid-19 and lockdown. In the third agenda item as regards updatesfrom RP and to decide on the resolution plan deadline extensions/possiblereissuance of Form G, various views were expressed by variousstakeholders which culminated in the following observations andresolution: - “Since there were mixed views of CoC the process andway forward, RP declared that it is the CoC who needs to decideon the commercial viability of the Resolution Process to its bestadvantage, be it re issuance of the Form G and or extension of thetimelines and he will act as per the directions of the CoC.

CoC members further discussed on the Form G, receipt ofResolution Plans and any potential requests from any of the RA’sabout extension of time.

With the consensus of CoC members, it was decided thatno extension of timeline for submission of Resolution Planshould be done and the RP was directed to expedite thevaluation process and check the feasibility and viability ofthe Resolution Plans already submitted and present theeligible Resolution Plans before the CoC for consideration.”

12.8. In the sixth CoC meeting held on 16.12.2020, the RP apprisedthe CoC members about three resolution plans having been received outof which, the plan received from Kotak Special Solutions did not meetthe criteria laid down under the Code. The RP also informed that therehad been a revision in the claims and composition of financial creditorsand as it was mandatory to give the revised details to the two resolutionapplicants, the formal presentation and the resolution applicants couldbe called after they revise the plans. In this meeting, the RP also apprisedthe CoC members about filing of time exclusion application, which washeard on 15.12.2020 and order was reserved.

12.8.1. In the said sixth meeting, the RP also informed that he hadprovided the CoC members with the fair value and liquidation value toall those who had submitted the confidential undertaking and that thatdue to significant difference in the value of land and building submittedby the valuers appointed by IRP, he shall have to appoint third valuer inaccordance with Regulation 35 of the CIRP Regulations. It was alsonoted that valuation of non-core assets was not done earlier but, the A

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Athird valuer appointed by RP had submitted the value of non-core assetsand the same had been shared with CoC members who had submittedtheir undertaking. The RP emphasized that their value was not verysignificant, and it would not affect the liquidation value much. The relevantpart of the minutes of this sixth CoC meeting could be reproduced asunder: -B

“The RP apprised the CoC members that based on the resolutionpassed in 5th CoC meeting an exclusion application along with anurgent application was filed before the NCLT Chennai on19.11.2020. The application was listed for hearing 15.12.2020 andthe Order has been reserved.

C

The RP further apprised that he has provided the CoC memberswith the fair value and liquidation value to all those who havesubmitted the confidential undertaking. RP further apprised, thatdue to significant difference in the value of land and buildingsubmitted by the valuers appointed by IRP, the RP has to appointDthird valuer in accordance with provisions of Regulation 35 ofCIRP Regulations 2016.

After it was noted that valuation of non-core assets was not done,the third valuer appointed by RP has submitted the value of non-core assets and the same has been shared with CoC membersEwho have submitted their undertaking. The RP emphasized thattheir value is not very significant, and it will not affect the liquidationvalue much. However, second valuation for the non-core assetswill be needed in order to reach a final value. RP apprised theCoC members that the valuers appointed by IRP are based inFDelhi and they are asking much higher price for carrying thevaluation of non-core assets. Therefore, the RP will hire a localvaluer keeping the cost in mind.”

The RP agreed to try and convene the next CoC meeting beforeChristmas eve, subject to getting the revised resolution plans.

G

G12.9. In the interregnum, the Tribunal, by its order dated 23.12.2020,allowed the application moved by RP for exclusion of the period between05.05.2020 and 31.10.2020 – 179 days – while calculating the time forcompletion of CIRP of the corporate debtor; and excluded the said periodfrom the period of CIRP in terms of Section 12(2) of IBC because ofpandemic conditions, in the following words: -H

“6. Heard the submission made by the Learned Counsel for theApplicant and perused the records placed on file. In the facts ofthe present case, it is to be noted that the CIRP in relation to theCorporate Debtor was initiated only on 05.05.2020 i.e. during theperiod of lockdown and as such the Applicant has sought to excludethe period from 05.05.2020 till 31.10.2020. The Applicant placedon record the G.O. Ms. No. 482, Revenue and DisasterManagement (DM-IV) Department, Government of Tamil Nadudated 12.09.2020 and G.O. Ms. No. 447, Revenue and DisasterManagement (DM-IV) Department, Government of Tamil Nadudated 30.08.2020 in order to substantiate the during such time,where the exclusion is sought for, the lockdown was in existencein the Government of Tamil Nadu.

7. Further, it is pertinent to note here that due to Covid-19 pandemiccoupled with attendant lockdown imposed by the Central/ StateGovernment, the Regulator viz. IBBI has introduced anAmendment in the IBBI (Insolvency Resolution Process forCorporate Persons) Regulations, 2016, so as to exclude the periodof lockdown from the CIRP timeline.

Regulation 40C of the IBBI (Insolvency Resolution Process forCorporate Persons) Regulations, 2016 states as follows:

40C. Special provision relating to time-line.Notwithstanding the time-lines contained in these regulations,but subject to the provisions in the Code, the period of lockdownimposed by the Central Government in the wake of Covid-19outbreak shall not be counted for the purposes of the time-linefor any activity that could not be completed due to suchlockdown, in relation to a corporate insolvency resolutionprocess.

8. The Learned Counsel for the Applicant submitted that he soughtto exclude the period from 05.05.2020 till 31.10.2020, a total of179 days from the period of CIRP. Thus, as to the facts of thepresent case, in view of Regulation 40C of the IBBI (InsolvencyResolution Process for Corporate Persons) Regulations, 2016 theperiod from 05.05.2020 till 31.10.2020 is excluded from the periodof CIRP in terms of Section 12(2) of IBC, 2016. The Applicantshall make every endeavour to complete the CIRP in relation to ABC

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Athe Corporate Debtor within the timelines as prescribed under theCode. Accordingly, the application stands allowed.”

12.9.1. Two equity shareholders of the corporate debtor challengedthe aforesaid order of the Tribunal before the Appellate Tribunal inCompany Appeal (AT)(CH)(Ins.) Nos. 19 of 2021 and 20 of 2021 but,Bthe appeals were dismissed on 05.05.2021 with the followingobservations[19]: - “33. …..In the instant case, even though we find that Regulation30-C could have been applied for exclusion of 179 days on accountof the unprecedented situation created by the Covid 19 pandemicCand some of the Financial Creditors opined for fresh publicationof form G for the invitation of EOI. But the COC had unanimouslydecided only for seeking exclusion of 179 days, i.e. from 5 May2020 to 31 October 2020, for completion of CIRP. But the CoC,under its commercial wisdom, did not prefer for publication ofForm-G afresh to invite Expression of Interest. Therefore such aDdecision of the CoC is not justiciable.

34. In the circumstances stated above, we are of the consideredopinion that the decision taken by the Adjudicating Authority needsno interference, and both the Appeals deserves to be dismissed.”

E12.10. In the seventh CoC meeting held on 29.12.2020, the RPbriefly discussed the resolution plan submitted by Mr. M.K. Rajagopalan,resolution applicant herein, as the other successful prospective resolutionapplicant, Mr. Madhav Dhir, could not submit his resolution plan evenafter being granted extension once, whose request for further extensionwas denied by CoC and it was decided to continue with the resolutionFplan received from Mr. M.K. Rajagopalan. After discussing on theresolution plan so submitted, the resolution applicant was asked to submitthe revised resolution plan after incorporating the changes suggested bythe CoC members and he promised to do so by 30.12.2020. Further, theRP apprised the CoC that the third valuer as appointed had visited theGpremises and conducted valuation of the non-core assets and promisedto submit the draft valuation by 30.12.2020.

19 There had been other observations occurring in this judgment and order dated05.05.2021, which have been relied upon by NCLT while approving the resolutionplan in question and have formed a part of contentions in these appeals, as shall benoticed later.H

12.11. In the eighth CoC meeting held on 04.01.2021, the revisedresolution plan of the resolution applicant was presented and discussedwith CoC members. After long deliberation on various aspects of theplan, it was decided that the plan could be put to vote through CoCmeeting on 22.01.2021.

12.12. On 21.01.2021, just a day before the resolution plan was tobe put to voting, the promoter and erstwhile director of the corporatedebtor - Dr. Periasamy Palani Gounder - submitted another OTS proposalwith reference to Section 12-A of the Code to the CoC. A so-called“Term Sheet” dated 22.01.2021 issued by Deutsche Bank was relied upas a proof of funding.

12.13. However, the CoC stuck to the agenda before it and theresolution plan submitted by the resolution applicant - Mr. M.K.Rajagopalan - was put to vote in the ninth CoC meeting held on22.01.2021. Though, the said plan was approved with 87.39% of thetotal voting share of financial creditors present and voting in the meeting,the RP was required to send the resolution plan back to the resolutionapplicant as there was dissent by some of the financial creditors and interms of Section 30 (2) of the Code, the amount to be paid to dissentingfinancial creditors shall not be less than the amount paid to such creditorsin accordance with Section 53 in the event of liquidation of the corporatedebtor. Therefore, resolution applicant was asked to further revise theresolution plan. The relevant resolution on Agenda Item No. A.1. in theninth CoC meeting, having its relevance to the present matter isreproduced as under: - “Agenda Item No. A.1 – To discuss and put to vote theResolution Plan submitted by Mr. M.K. Rajagopalan.

The Resolution Professional apprised the CoC members that asdecided in the last CoC meeting the revised Resolution Plansubmitted by Mr. M.K. Rajagopalan will be put to physical votingfor approval of the CoC members. The Resolution Professionalthen asked each member of CoC present in the meeting whetherthe revised Resolution Plan have their approval or not and theresult of physical voice voting is as follows:

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SUPREME COURT REPORTS

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The revised Resolution Plan was approved with 87.39% of totalvoting share of Financial Creditors present and voted in themeeting. Since there was dissent by some of the financial creditors,the Resolution Professional will send back the Resolution Plan tothe Resolution Applicant for further revision, as Section 30 (2) ofIBC 2016, provides that the amount paid to dissenting financialcreditors shall not be less than the amount paid to such creditorsin accordance with Section 53 in the event of liquidation of theCorporate Debtor.

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Representative from Bank of India Tokyo emphasized that theyhave voted in favour considering the fact that they will be gettingFtheir full amount. Resolution Professional assured them and otherCoC members who have voted in favour of the Resolution Planthat there will not be any changes in the amount provided forassenting financial creditors. RP further apprised that the RA hasgiven an undertaking that RA will comply with Section 30(2) ofIBC and there will not be any change in the amount provided inGthe Resolution Plan for assenting creditors.”

12.14. On 25.01.2021, the resolution applicant submitted the revisedresolution plan incorporating the changes. He also submitted a bankguarantee to the tune of Rs. 25 crore to the resolution professional on01.02.2021. Thereafter, on 03.02.2021, the resolution professional H

furnished Form H Compliance Certificate, containing the details of thecompliance of the resolution plan submitted by the resolution applicant.

12.15. Though, in the chronology of events, after the aforesaidproceedings of CoC and submission of Form H by the RP, the proceedingsbefore the Adjudicating Authority are to be noticed but, there remainsone significant feature of this case that in the ninth meeting dated22.01.2021, even while approving the resolution plan, the CoC asked theresolution applicant to further revise the resolution plan, particularly inrelation to the dissenting financial creditors. The resolution applicantindeed revised the resolution plan but, such a revised plan was not placedin CoC before presenting the matter to the Adjudicating Authority forapproval. This aspect has formed a part of contentions in these appealsand, in this regard, it has been one of the contentions on the part of theresolution applicant that there had not been any material change in theplan and in any case, in the later meeting of CoC, there had been adeemed post facto approval of the revised resolution plan incorporatingthe changes earlier suggested by CoC. In view of the issues involved,apt it would be that before adverting to the decision of the AdjudicatingAuthority, we refer to the tenth meeting of CoC, which was held on15.06.2021, and where the RP’s updates on the latest developmentswere taken note of by CoC. The relevant part of the minutes of thetenth CoC meeting dated 15.06.2021 read as under: - “-Agenda Item No. A 1 Update of Resolution professionalon the latest developments.

•The Resolution Professional welcomed the CoC members andothers to the meeting •RP informed that post approval of the Resolution plan in thenineth CoC meeting held on 22.01.2021, the plan was put upfor revision to the RA to provide for liquidation value whererelevant based on voting and the revised Resolution plan wasreceived on 25/01/2021 and it was filed with the NCLT on04.02.2021

•RP confirmed that the CD has been kept on a going concernbasis from that date, however there are challenges from theadvent of severe Covid wave from the beginning of April 2021,which has dented the business and cash flows of the CD.

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A•Cash monitoring is ongoing at Chennai, Coimbatore hotels andKumbakonam Resort.

•RP updated that the current occupancy at the Coimbatore hoteldropped to 4% which is all time low. The turnover for the FY2021 is about 25 crores with a negative GOP of-20%”

B

12.16. Before proceeding further, another ancillary aspect mayalso be usefully referred to, which has also formed a part of contentionsin these appeals. It relates to another settlement proposal of the promoter.It is noticed that while the proceedings before the Adjudicating Authoritywere pending, the promoter, again, on 08.03.2021, submitted a settlementCproposal to TFCI and sought consequent withdrawal of CIRP underSection 12-A of the Code; and also submitted a ‘letter of support’ dated14.07.2021 issued by one Saveetha Institute of Medical and TechnicalSciences addressed to the CoC to demonstrate its ability and bonafide insupport of its withdrawal proposal. However, the said support wassubsequently withdrawn by Mr. Veerayan, the President of the saidDSaveetha Institute of Medical and Technical Sciences.

13. Having taken note of the basic background aspects in relationto the initiation of CIRP and CoC meetings as also the ancillary matters,we may now examine the decision of the Adjudicating Authority leadingto the approval of the resolution plan in question in necessary details.

EResolution plan approved by the Adjudicating Authority(NCLT)

14. As noticed, upon approval of the resolution plan of the resolutionapplicant – Mr. M.K. Rajagopalan - by CoC with 87.39% majority ofFthe voting share, the application bearing IA No. 150 of 2021 was filed bythe resolution professional under Section 30(6) of IBC before theAdjudicating Authority (NCLT) for approval of the resolution plan.

14.1. During the proceedings before the Adjudicating Authority,several objections were raised by the related party, the promoter, anunsuccessful potential resolution applicant and by some of the unsecuredGfinancial creditors.

14.2. One of the objectors to the resolution plan was the suspendeddirector/promoter of the resolution plan - Dr. Periasamy Palani Gounder- who filed MA No.13 of 2021 alleging procedural irregularities in theconduct of CIRP; non-compliance of Regulation 35(1)(a) of the CIRPH

Regulations, in carrying out valuation of non-core assets of corporatedebtor alongwith several other procedural errors; and for considerationof his proposal under Section 12-A of the Code with the option to modifythe same on the request of the members of CoC.

14.3. Two applications were filed by Dharani Finance Limitedseeking that resolution professional be directed to admit its claim ofRs.1,94,14,024, as operational creditor in application bearing MA No.18of 2021; and of Rs. Rs.4,81,62,175/- as financial creditor in applicationbearing MA No.48 of 2021. In both the applications, the common reliefsought for was not to be treated as a related party of the corporatedebtor and not to be discriminated in the resolution plan.

15. The Adjudicating Authority dismissed the applications andallowed the resolution plan as approved by CoC. The observations andfindings of the Adjudicating Authority in its order dated 15.07.2021 hadbeen as follows:

15.1. As regards the questions surrounding the valuation of assetsand valuation reports, the Adjudicating Authority referred to the minutesof second, third, sixth and seventh CoC meetings, taking note of theappointment of valuers and the proceedings conducting by them. TheAdjudicating Authority further extracted Regulations 27 and 35 of theCIRP Regulations and thereafter, recorded its satisfaction that RP hadarrived at a fair value and a liquidation value based on average of thethree valuers in accordance with the requirements of Regulations. TheAdjudicating Authority also referred to the order passed by NCLAT on05.05.2021 in Company Appeal (AT) (Ins) Nos. 19 and 20 of 2021 andobserved that the Appellate Tribunal had rendered finding that resolutionplan amount had been arrived at after following the prescribed procedure.Thus, the Adjudicating Authority found no error committed by IRP orRP in appointing registered valuers and further found that there was noerror in regard to the valuation submitted by those registered valuers.Accordingly, the objections in relation to valuation were overruled.

15.1.1. The relevant observations and findings of the AdjudicatingAuthority in regard to the questions pertaining to valuation and thevaluation reports, after extensive extraction of the relevant minutes ofthe meetings of CoC had been as under: - “(I) VALUATION REPORT:- ******

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80. In the present case, it is seen from the minutes extractedsupra from the 6[th] CoC meeting that RP further apprised the CoCmembers, that due to significant difference in the value of landand building submitted by the valuers appointed by IRP, the RPhad to appoint third valuer in accordance with provisions ofRegulation 35 of CIRP Regulations, 2016. Accordingly, the thirdvaluer has submitted his report before the RP and accordingly thefair value and the Liquidation value in relation to the CorporateDebtor was arrived at by the Resolution Professional.

81. Thus, it is clear that the RP has arrived at a Fair Value and theLiquidation Value based on the average of all the three valuersand the same has been done in accordance with Regulation 35 ofthe IBBI (IRPCP) Regulations 2016. Further, the valuationcertificate dated September 2019 relied on by the promoter /suspended Director of the Corporate Debtor would be of norelevance as the same was not done in accordance with theRegulations framed under the IBC, 2016. Also, the RP who is incharge of the affairs of the Company Debtor once the CIRP hasbeen triggered in relation to the Corporate Debtor, he has to actas per the provisions of the Regulations and cannot act accordingto the whims and fancies of the promoters I erstwhile directors ofthe Corporate Debtor. The valuation certificate dated September2019 relied on by the promoter I suspended Director of theCorporate Debtor was done during pre-Covid period and the samecannot be a yardstick for the valuers who have been appointedpursuant to the Regulations framed under the provisions of IBC,2016. Also, the stance of the Learned Senior Counsel for thepromoter I suspended Director of the Corporate Debtor that theCIRP was triggered during the peak of Covid would be of norelevance since at that point of time, there was no statutory barfor this Adjudicating Authority to initiate CIRP in relation to aCompany. However, it is seen that the Application for initiation ofCIRP was filed by the Financial Creditor as early as in the year2019 itself and during that point of time there was no cases ofCovid in India and the matter was heard in detail and the orderswere reserved during March 2020. While this being the fact, thecontention of the Learned Senior Counsel that only because ofCovid they were not able to settle the creditors of the CorporateDebtor, does not hold much water. Eventhough, the valuation as arrived at by the valuers may not be acceptable to the erstwhilepromoters / Directors of the Corporate Debtor, it cannot give thema right to challenge the same before this Adjudicating Authorityon ostensible grounds.

82. Further, it is also seen that as against the order of exclusion ofCIRP, passed by this Tribunal in IA/1001/IB/2020, the erstwhilepromoter or Corporate Debtor has filed an appeal before theHon’ble NCLAT and the Appellate Tribunal vide its order dated05.05.2021 in Company Appeal (AT)(Ins) No. 19 & 20 of 2021while dealing with the valuation of the Corporate Debtor in para14 and 15 has held as follows;

14. In response to the above, the Counsel for the Respondentscontended that the entire CIRP was conducted as per theprocedure prescribed by the I&B Code. The Appellant who isholding some equity shares in 3rd Respondent/CorporateDebtor has come before this Appellate Tribunal by filing thepresent Appeal only to distract and delay the InsolvencyResolution Process and to bring about a halt to the approval ofthe Resolution Plan which the Committee of Creditors hasapproved with a majority of 87.34% which is pending forapproval before the Adjudicating Authority.

15. The Appellant’s contention about the valuation of theCorporate Debtor of 1600 crores is unsupported by anyevidence. The fact remains that the Resolution Plan amounthas arrived after following the procedure prescribed under theCode and the Rules and Regulations made thereunder (emphasis supplied)

83. Thus, the Hon’ble NCLAT also has rendered a finding thatthe Resolution Plan amount has been arrived at after followingthe procedure prescribed under the Code and the Rules andRegulations made thereunder.

84. Hence for reasoning stated supra, this Adjudicating Authorityfinds that there was no error committed by the IRP / RP in so faras appointing the registered valuers in relation to the CorporateDebtor, nor there was any error on the valuation being submittedby those Registered valuers and as a consequence thereof, theobjections as raised by all the objectors in relation to the valuation A

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Aof the Corporate Debtor are overruled. Accordingly, MA/13/CHE/2021 stands dismissed.”

15.2. As regards the question of non-consideration of the proposalgiven under Section 12-A IBC by the promoter, the Adjudicating Authorityreferred to the proposition made by another erstwhile promoter of theBcorporate debtor which was considered by CoC in its ninth meeting andit was found that even the original applicant of CIRP, i.e., TFIC was kept in dark about such a proposal. It was also noticed that even theproposal with the term sheet from Deutsche Bank came with a disclaimer.The Adjudicating Authority formed the opinion that such a proposal hadonly been of dilatory tactics and was mooted only at the eleventh hour toCstall the resolution plan. Thus, the allegations of promoter about non-consideration of Section 12-A application were found meritless and wererejected. The Adjudicating Authority observed and held in this regard asunder: - “(II)ON NON-CONSIDERATION OF SEC.12ADAPPLICATION: -

85. The Learned Senior Counsel Mr. P.S. Raman, appearing onbehalf of the erstwhile Promoter I Director of the Corporate Debtorcontended that the Resolution Professional and the CoC has notconsidered the proposal as given under Section 12A of IBC, 2016.EIn this regard, it is pertinent to refer to certain communicationsthat exchanged between the parties in relation to the same. In the9[th] CoC meeting wherein the Resolution Plan was about to be putfor vote, the erstwhile promoter of the Corporate Debtor Mr. SenniMalai, requested the RP to consider an application filed underFsection 12A of IBC, 2016. The record of the minutes as found inthe 9[th] CoC meeting is extracted hereunder; “ ....... As the Resolution Plan agenda was about to be put upfor voting, Mr. Senni Malai, MD of the CD and Mr. Kaliannanrepresenting the CD, requested the RP about a Sec 12 A,Application for withdrawal request letter, prepared by themand circulated to the CoC about two hours before this meeting.RP Informed them, that discussions on that can’t be part ofthis agenda as that has not come from the Applicant and it wasnot part of the agenda for this meeting. However, the CorporateDebtor’s representative insisted that this be discussed. RP saidhe would seek the opinion of the Applicant, being TFCI in this G

H

case. Mr. Anoop Bali from TFCI said that he can’t opine onthis letter as it is addressed to the CoC, when prompted by Mr.Kaliannan, that this letter is being put up through TFCI, Mr.Anoop Bali said that this can’t be taken up as it has not comein the appropriate required form and he will not be able tocomment on this and requested the RP to carry on with theagenda for the day, that of voting on the Resolution Plan. Mr.Senni Malai requested other creditors to comment. Mr. ArunShah of Aryav Exports said that CoC can discuss this. Howeverother creditors with significant voting share such as SBI, Bankof India said that we should stick to the Agenda on hand andnot deviate from the main agenda. RP then requested therepresentatives from Corporate Debtor to allow for the agendaitems to go through as the majority of the CoC in favour of thatand no further discussions can be made on the letter sent tothe CoC.”

86. A perusal of the aforesaid minutes would show that the promoterof the Corporate Debtor has proposed for a 12A settlement onlyat the 9th CoC meeting, when the Resolution Plan of the ResolutionApplicant was about to be put to vote. Further, it is also seen thatthe Petitioning Creditor viz. Toursim Finance Corporation of India(TFCI) was also kept in dark about the 12A proposal by thepromoters and also flagged an issue stating that the letter hasbeen addressed to the CoC and not to them. However, it is seenthat the said agenda of proposal to be made under Section 12Awas not considered by the CoC and that they proceeded to votefor the Resolution Plan.

87. It is also seen that the Term Sheet relied on by the LearnedSenior Counsel for the promoter in order to substantiate that theyhave the source to settle the entire dues of the CoC, it is seen thatthe said Term Sheet dated 22.01.2021 issued by Deutsche Bankwould start of with a disclaimer as follows; “Please note that the terms set out in this Term Sheet areindicative only and do not constitute an offer to finance theFacility. The terms and conditions of the term sheet remainsubject to the diligence, internal approvals, credit committeeapproval, successful syndication, KYC and satisfactorydocumentation.”

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812SUPREME COURT REPORTS

A88. Thus, it is seen that the proposal as projected by the LearnedSenior Counsel for the promoters to be made under Section 12A,seems to be only an eye wash and a dilatory tactics to delay theprocess of CIRP in relation to the Corporate Debtor and that thefact that the proposal has been mooted only during the eleventhhour is to stall the Resolution Plan as moved by the ResolutionBApplicant. Hence, for the. aforesaid reasons, the allegations ofthe promoters that their Section 12A Application was not consideredby the RP and the CoC do not hold any merits and standsoverruled.”

15.3. As regards the alleged procedural irregularities, theCAdjudicating Authority found the objections to be of no substance wherethe objectors had failed to establish any prejudice caused to them whilealso observing that a statutory provision regulating a matter of practiceand procedure would generally be read as directory and not mandatory.The Adjudicating Authority observed that the objections in relation to the Dprocedural irregularities were not so grave as to defeat the resolutionplan. It was also observed that some of the objectors were, in fact,getting 100% of the claimed amount in the resolution plan and it raised asuspicion if the objections by them were rather motivated.

15.3.1. The Adjudicating Authority, in relation to the question ofEprocedural irregularities, observed and held as under: - “(II) PROCEDURAL IRREGULARITIES: -

89. Another major objection in relation to the Resolution Plan wasthat the IRP I RP has violated umpteen provisions of theRegulations by not adhering to the timelines framed thereunder.FIn this regard, it is to be seen that the model timelines given underthe IBBI Regulations were designed by keeping into mind theCIRP period of 180 days; however in many cases the CIRP periodhas exceeded more than 330 days and still continues. Thus, itcannot be gainsaid that the IRP or the RP as the case may be hasGto strictly adhere to the model timelines stipulated under theRegulations. For instance, an avoidance Application as found inSection 43, 45 and 50 can be filed either by the RP or by theLiquidator and the model timeline prescribed under the attendantRegulations states that the same should be filed in T+75 days. Ifthe said model timelines is construed as mandatory then the H

avoidance transactions which entitle the Liquidator to file anApplication, would be rendered as nugatory.

90. It is significant to note here that, a statutory provision regulatinga matter of practice or procedure will generally be read as directoryand not mandatory. Thus, even though the objectors to theResolution Plan have alleged many procedural irregularities inrelation to the conduct of the proceedings in relation to the CoC;however those objectors have miserably failed to establish as towhat prejudice has been caused to them in respect of the same.Further, a person who has been inducted as a member of the CoCin its 6[th] meeting cannot be allowed to question the actions takenby the CoC in the past meetings. However, in relation to theobjections raised by the Applicants in IA/181/CHE/2021 and IA/183/CHE/2021, this Tribunal is unable to comprehend theirobjections in relation to the plan, especially when they are getting100% of their claim amount to be paid by the Resolution Applicant.Hence, this raises a suspicion as to whether that these Applicationsas filed by the objectors are motivated.

91. Thus, the objections as raised by the objectors in relation tothe procedural irregularities in relation to the conduct of theCorporate Insolvency Resolution Process, are not so grave in orderto defeat the Resolution Plan as filed by the ResolutionProfessional. Hence, for the said reasons, the objections as raisedby the objectors in respect of the same are overruled. Accordingly,IA/181/CHE/2021, IA/183/CHE/2021, IA/192/CHE/2021, IA/172/CHE/2021 and IA/291/CHE/2021 stand dismissed.”

15.4. Moving on to the questions concerning the related party -Dharani Finance Limited - and the applications moved by it, theAdjudicating Authority took note of the submissions on its behalf withreference to Section 21(2) of the Code that it could not have beencategorised as related party but rejected this contention while observingas under: - “93. A bare perusal of the said provision shows that, even thoughthe Applicants viz. M/s. Dharani Finance Limited are regulatedby a financial service regulator, they have miserably failed toestablish that the debts due to them have become due solely onaccount of conversion or substitution of debt into equity shares orinstruments convertible into equity shares. Further the phrase ABCD

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A“completion of such transactions as may be prescribed” wouldalso be of no avail, since the transactions as such have not beenprescribed by the Board. In any case, this Tribunal is of theconsidered view that the Applicants in MA/18/CHE/2021 and MA/48/CHE/2021 are related party in respect of the Corporate Debtorand that the decision of the IRP / RP in categorizing the ApplicantBviz. M/s. Dharani Finance Limited as “Related Party” of CorporateDebtor is free from all legal infirmities and does not warrant anyinterference by this Adjudicating Authority. Accordingly, MA/18/CHE/2021 and MA/48/CHE/2021 stands dismissed.”

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15.4.1. The Adjudicating Authority also examined the question ofCdiscrimination in the resolution plan in respect of distribution of amountto the financial creditor-related party compared with the financial creditor-unrelated party. The Adjudicating Authority referred to the principlesstated by this Court in Committee of Creditors of Essar Steel IndiaLimited through Authorised Signatory v. Satish Kumar Gupta andDOrs.: (2020) 8 SCC 531 and rejected those contentions while observingthat in the scheme of the Code, there was no provision which mandatorilyrequires payment to the related party in parity with the unrelated party.In this regard, the Adjudicating Authority, inter alia, observed as under:- “(IV) DISCRIMINATION IN THE RESOLUTIONEPLAN:-

“(IV) DISCRIMINATION IN THE RESOLUTIONEPLAN:-

94. Another rival contention put forth by the Learned SeniorCounsel for the objectors was that there was is a discrimination inrespect of the distribution of amount to the Financial Creditor -Related Party compared with the Financial Creditor – unrelatedFParty. It was contended that no amount is paid by the ResolutionApplicant, to the Related Party of the Corporate Debtor, be itFinancial Creditor or Operational Creditor. In this regard, it is tobe noted here that the way in which the amount has to be distributedand paid, purely falls within the domain of the Resolution Applicantand further the CoC in its commercial wisdom has accepted theGsame. Further, there is no provision in the IBC, 2016 whichmandates that the Related party should be paid in parity with theunrelated party.…

95. It must be noted here that so long as the provisions of theCode and the Regulations have been met, it is the commercial H

wisdom of the requisite majority of the CoC which is to negotiateand accept a resolution plan, which may involve differentialpayment to different classes of creditors, together with negotiatingwith a prospective resolution applicant for better or different termswhich may also involve differences in distribution of amountsbetween different classes of creditors…

96. Thus, the contentions of the Learned Senior Counsel for theobjectors that differential treatment are being made to them sincethey are related party in respect of the Corporate Debtor do nothold any merit in view of the discussions made supra and also thedecisions referred in support of the same. Hence the objectionsraised by the objectors in relation to the said issues are overruled.”

15.5. The Adjudicating Authority also took note of the questionrelating to the pending avoidance application and recorded its satisfactionthat the provision had duly been made in the resolution plan as to the fateof the avoidance application and hence, the objections in that regardwere required to be eschewed.

15.6. Apart from the above, the Adjudicating Authority also dealtwith the objections raised by one of the other prospective resolutionapplicants but those aspects need not be dilated for the present purpose.

16. After recording its findings on the issues raised by the parties,the Adjudicating Authority proceeded to approve the resolution plan whilerecording its satisfaction as regards all the mandatory compliances bythe plan in the following manner: - “(V) APPROVAL OF RESOLUTION PLAN

103. Thus, after overruling all the objections raised in relation tothe Resolution Plan, this Adjudicating Authority in so far as theapproval of the Resolution Plan is concerned, section 30(6) of theIBC, 2016 cast certain duties upon this Adjudicating Authority toexamine the Resolution Plan as to whether the Plan falls withinthe contours of the said Section. Hence, a comparison of themandatory compliance as required under IBC, 2016 vis-a-vis thecompliance as made in the Resolution Plan is being tabulatedhereunder.

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A17. The Adjudicating Authority, thereafter, referred to the decisionsof this Court in the cases of Essar Steel (supra); K. Sashidhar v. IndianOverseas Bank: (2019) 12 SCC 150; Jaypee Kensington BoulevardApartments Welfare Association and Ors. v. NBCC (India) Limitedand Ors.: (2022) 1 SCC 401 and Maharashtra Seamless Ltd. v.Padmanabhan Venkatesh and Ors.: (2020) 11 SCC 467 as regardsBthe principles that the Adjudicating Authority would not be sitting in appealover the commercial wisdom of CoC and also observed that there wasno requirement that the bid of the resolution applicant has to match theliquidation value of the corporate debtor. The Adjudicating Authority alsoleft the questions of various reliefs/concessions sought for by the resolutionCapplicant to be taken up in the appropriate forum or before the appropriateauthority in accordance with law.

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17.1. With the above-mentioned observations and findings, theAdjudicating Authority concluded on the matter with approval of theresolution plan and with further directions in the following terms: - D

“113. Thus the Resolution Plan is hereby approved and is bindingon the Corporate Debtor and other stakeholders involved so thatrevival of the Debtor Company shall come into force withimmediate effect and the “Moratorium” imposed under section14 of IBC, 2016 shall not have any effect henceforth. TheEResolution Professional shall submit the records collected duringthe commencement of the Proceedings to the Insolvency &Bankruptcy Board of India for their record and also return to theResolution Applicant or New Promoters. Certified copy of thisOrder be issued on demand to the concerned parties, upon duecompliance. Liberty is hereby granted for moving anyFMiscellaneous Application, if required, in connection withimplementation of this Resolution Plan. That in respect of steppingby the New Promoters/Resolution Applicant into the shoes of theerstwhile Company and taking over the business, the provisionsof Companies Act, 2013 shall be applicable and because of thisGreason a copy of this Order is to be submitted in the Office of theRegistrar of Companies, Chennai.

114. The Resolution Professional is further directed to handoverall records, premises / documents to Resolution Applicant to finalisethe further line of action required for starting of the operation asHcontemplated under the Resolution Plan. The Resolution Applicant shall have access to all the records premises / documents throughResolution Professional to finalise the further line of action requiredfor starting of the operation. Accordingly, the Application IA/150/CHE/2021 stands allowed. All other connected Applications, asarrayed in the cause title, stands dismissed.”

Disapproval of the Appellate Tribunal (NCLAT)

18. Being aggrieved of the order dated 15.07.2021 so passed bythe Adjudicating Authority, approving the resolution plan of the resolutionapplicant and declaring it to be binding on the corporate debtor and otherstakeholders, four appeals were preferred before the Appellate Tribunal,respectively by the promoter Dr. Periasamy Palani Gounder, the relatedparty Dharani Finance Limited and the NRI shareholder Dr. V.Janakiraman, the details whereof have been noticed hereinbefore in theparticulars of proceedings and parties.

19. After considering the said appeals together, the AppellateTribunal (NCLAT) proceeded to allow the same by its impugned judgmentand order dated 17.02.2022. The Appellate Tribunal reversed the orderof the Adjudicating Authority and while rejecting the resolution plan inquestion, remanded the matter to the CoC with directions to the resolutionprofessional, inter alia, to proceed from the stage of publication of Form‘G’, and to invite the EOI afresh as per the CIRP Regulations. Havingregard to the questions raised in these appeals, it shall be apposite totake note of the observations, findings, and conclusions of the AppellateAuthority as relevant for the present matter in necessary details[20].

19.1. As regards the issue of valuation, the Appellate Tribunal,after discussing the requirements of Sections 30(2) and 61(3) of theCode and taking note of the minutes of the second CoC meeting as tothe appointment of valuators and the other legal issues concerning thevaluation of assets, held that the valuation process had been in violationof the Regulation 27 and 35 of the CIRP Regulations for the reasonsthat the appraisal of a property situated in Tamil Nadu by Delhi-basedvaluers was a point of contention during the second CoC meeting; thenon-core assets were not valuated by the registered valuers; the valuationreport was never circulated either to the promoters or to the othermembers of the CoC; and physical verification of the assets of the 20 It may be indicated that the emphasis in bold/italics/underlining in the extractionsfrom the judgment of the Appellate Tribunal are as in the copy thereof placed on recordbefore us.

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Acorporate debtor was not carried out by the two valuers appointed byCoC.

19.1.1 The observations of the NCLAT as to the issue of valuationcould be reproduced as under: - “76……Whether the approved Resolution Plan contravenesBSection 30 (2) and Sec 61(3) of the Insolvency andBankruptcy Code 2016?

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80. It is pertinent to mention that the Approval of the ResolutionCPlan by the COC is directly attributable to the fact that the COCwas not properly apprised of the actual value of the CorporateDebtor’s assets. The choices of the valuers by the IRP have beenquestionable since the 2nd COC meeting. The concern stems fromthe fact that the valuers were based in Delhi and had littleknowledge of the prevailing real estate market conditions in TamilDNadu. The circumstances were further separated by the fact thatvaluers lacked adequate experience with the hospitality industry.In this regard, it is pertinent to note the minutes of the 2nd COCmeeting, which reads as follows; “At this juncture, the COC members have raised concernsEregarding the appointment of the valuers as the appointedvaluers are Delhi-based and are not privy to the area/properties of Tamil Nadu and might also a struggle to visitthe collective sites of the corporate debtor located at TamilNadu given that travel restrains in the current period——Fthe competency of the process valuation might decrease.The COC members also requested the chairman to circulatethe profiles in a comparative chart. The members haddifficulty being faced evaluating the profile/experience ofthe appointed valuers with respect to the hospitalityindustry.”

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81. It is further evident from the minutes of the COC meetingsthat the two valuers appointed by the IRP differs significantly andtherefore warranted the appointment of a third valuer.Furthermore,the RP has also admitted in the 6th COC meeting that only the‘Core Assets’ of the Corporate Debtor were valued, and the ‘Non-HCore Assets’ has not been appropriately valued. Therefore, the

3rd Valuer was also supposed to value the Non-Core Assets. Still,the RP, as evident from the minutes of the 6th meeting of theCommittee of Creditors, made it clear that another valuer needsto be appointed to value the Company’s non-core assets, whichwas not done. Therefore, the Valuation of the non-core assets isnot in compliance with Regulation 35 (1) (a) of the Insolvencyand Bankruptcy Board of India (Insolvency Resolution Processfor Corporate Persons) Regulations, 2016.

82. It is pertinent to point out that due to lockdown, quarantineand travel restrictions, the appointed valuers could not conductthe Valuation and their agents at or near Chennai who are notregistered valuers and lacked the expertise to conduct the exerciseon their behalf. Therefore, further physical verification of theassets by the registered valuers is indispensable, and theRespondent has taken the same note before furnishing theValuation to the COC. Moreover, the details of the purported“Associates” of the ‘Registered Valuers’ have not been disclosed,and the COC has neither considered nor approved the saidAssociate Valuers. Conveniently, the valuation reports have notbeen disclosed to date, and only the Valuation is sought to beaccepted as gospel truth.Therefore, the Valuation furnished tothe COC is in utter violation of Regulation 35 (1) (a) of theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016 and contraryto Rule 8 of the Companies (Registered Valuers and Valuation)Rules, 2017.

83. Further, it is necessary to mention that many members of theCOC raised concerns relating to the Valuation. Even in the 7thmeeting of the COC, concerns were raised as to the fact that theResolution Plan values the Corporate Debtor at a rate that issignificantly lower than the already paltry Valuation arrived at bythe IRP. Moreover, the RP himself admitted the aforesaid fact inthe aforesaid meeting.

86. Based on the above discussion, it is apparent that the twovaluers appointed by IRP did not physically verify the corporatedebtor’s assets despite that Regulation 35 (1) (a) of the CIRPRegulations mandates explicitly that the estimator fair value and AB

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liquidation value shall be computed after physical verification ofthe assets of the Corporate Debtor. It is further revealed that thevaluation report was never circulated either to the Appellant or toother members of the COC. Mere production of naked valueswithout the detailed adjunct report would materially handicap thecommercial wisdom of the Committee of Creditors.

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87. Further, Regulation 27 Regulation 35 mandates that tworegistered valuers value the Corporate Debtor’s assets. It is anadmitted fact that the two registered valuers appointed by theResolution Professional did not value the non-core assets of theCorporate Debtor.However, in view of the detailed valuationCreport, no member of the COC of the Appellant herein has anyidea as to what was categorised as a ‘Non-Core Assets’ by theResolution Professional or what its value could be. These are theblatant statutory violations and irregularities committed in violationof the corporate debt assets.”

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19.2. The Appellate Tribunal also held that compliance with statutoryrequirements regulating a matter of practice and procedure weremandatory in character and the Tribunal being a creature of a statutecannot dilute the statutory compliances in the following words: -

“88. However, the learned Adjudicating Authority/NCLT’sEobservation that‘A statutory provision regulating a matterof practice or procedure will generally be read as a directoryand not mandatory is erroneous. Compliance with statutoryrequirements in regulating a matter of practice andprocedure are mandatory.’ The Tribunal is a creature of statute,Fand by interpretation, it cannot dilute the statutory compliances.”

19.3. After noticing non-compliance of Regulation 36-A(2)(iii) ofthe CIRP Regulations that mandates publication of Form-G at the earliestand not later than 75[th] day from the insolvency commencement date, theAppellate Tribunal held that the publication of Form G on the designatedwebsite was essential and failure to advertise as mandated had a directGimpact on the maximization of asset value, more so when the entireCIRP was conducted during lockdown at the time of Covid-19 pandemicwhen most of the people avoided reading the newspaper under theapprehension of infection. The relevant parts of the order of the AppellateTribunal in this regard read as under: - H

Non-Publication of Form-G As Per Regulation 36A(2) (iii) ofthe IBBI Regulations for Corporate Persons, 2016

90. As per Regulation 36A(2)(iii), the RP shall publish ‘Form-G’on the Corporate Debtors and IBBI websites. This would ensureadequate publicity to all prospective Resolution Applicants. Thiswas admittedly not done by the RP. The IRP published the Form-G only in a newspaper.

91. In fact, in the 5th CoC Meeting dated 12.11.2020, whilediscussing whether ‘Form G’ should be re-published, the presentRP points out that it was not published on the IBBI website, whichmay lead to litigation in the future. However, no steps were takento re-publish ‘Form-G’ and invite fresh bids despite this. This wasdone despite the exclusion of the period between 05.05.2020 and31.10.2020 from the period of CIRP by the Ld. Tribunal.

92. A plea regarding non-compliance of Regulation 36A of IBChas explicitly been taken by the Appellant in its Affidavit objectingto the Plan before the Ld. Tribunal. The impugned order itselfrecords that the plea of non-compliance of regulation 36A wasraised.

93. Non-publication of ‘Form-G’ violates Circular No. IP (CIRP)/006/2018 dated 23.02.2018 issued by the IBBI, which providesthe designated website for publication of ‘Form-G’, [REDACTED]. Failure to advertise as mandated to ensurethat more Resolution Applicants could come forward directlyimpacts the maximization of asset value.

94. Despite violations above about the publication of ‘Form-G’,the Learned Tribunal has approved the Resolution Plan. On pages142-144 of Vol. of Appeal, sets out a list of provisions that havebeen complied with. Regulation 36A does not even find a mentionin this.

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97. Further, it is well settled that the scope of interferenceconcerning the Successful Resolution Plan is extremely limited innature. Challenge can only be in respect of grounds as providedin Section 30 (2) or Section 61 (3) of the IBC 2016, which is A

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limited to matters “other than” the enquiry into the autonomy orcommercial wisdom of the Committee of Creditors.

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98. It is pertinent to mention that an appeal against the approvalof the Resolution Plan shall lie under Section 61 (3) of the IBC onthe ground, namely, there has been a material irregularity in exerciseBof the powers by Resolution Professional during the CorporateInsolvency Resolution period.

99. Further, it is necessary to mention that Regulation 36 A ofCIRP Regulations mandates publication of Form-G at the earliest,not later than the 75th day from the insolvency commencementCdate, from interested and eligible prospective resolution applicantsto submit Resolution Plans.

100. Non-compliance with the above regulatory provision isadmitted. It is also important to point out that this entire CIRPwas conducted during lockdown when the world faced Covid19DPandemic. At that time, most people avoided reading thenewspaper under the apprehension of Covid infection. So thepublication of ‘Form-G’ for inviting Expression of Interest wasessential. It is also important to point out that the Government ofIndia also brought some amendments in the Code considering theimpact of the Pandemic. Relevant Regulation about inviting ‘EOI’Eis given below for ready reference;”

19.4. Further, the Appellate Tribunal declared the resolutionapplicant ineligible to submit a resolution plan in terms of Section 29-A(e) of the Code on account of being disqualified as a director underSection 164(2)(b) of the Companies Act as also because of operation ofFSection 88 of the Trusts Act.

19.4.1. As regards the ineligibility in terms of the Trusts Act, itwas held that the case of resolution applicant was unambiguously fallingwithin the scope of Section 88 of the Trusts Act, rendering the resolutionplan in question as illegal because the trust ‘Sri Balaji Vidyapeeth’ wasGalready declared ineligible, of which, the resolution applicant was themanaging trustee that precluded him from acting as its alter ego duringthe execution of the resolution plan and obtaining any financial advantageor benefit as being barred under Section 88.

19.4.2. The relevant observations and findings of the AppellateHTribunal in regard to this aspect read as under: - “101. Resolution Applicants ineligibility u/s 29A(e) of theCode……….

105. The CoC was merely informed that one of the PRA[21]charitable trusts was not authorised to take up this activity.However, the rejected Trust was none other than the 2ndRespondent’s Trust, namely ‘Balaji Vidyapeeth’, which was neverdisclosed to the COC and has been deliberately suppressed. TheIRP/ Resolution Professional should have informed the CoC thatthe 2nd Respondent had presented the Resolution Plan bycompeting with the said Trust. He has used the very same ‘’Trust’to support his credentials and creditworthiness in the ResolutionPlan. The relevant portions of the Resolution Plan are extractedhereunder for ready reference:

“3.5. Sri Balaji Vidyapeeth:

Mr M.K. Rajagopalan is the founder and managing trusteeof Sri Balaji Vidyapeeth...

3.10. Financial Snapshot”

The entities under the leadership of Mr. M.K. Rajagopalanhave been growing rapidly while ensuring quality of serviceto nation and public at large...

These entities have achieved turnover of Rs.417.94 Crores inFY 2016-2017; Rs.500.03 Crores in FY 2017-2018; Rs. 679.23Crores in FY 2018-2019 and Rs.860.59 Crores (estimated)for FY 2019-2020.

The above growth is ample testimony of the credentials of theRA as a competent business leader and his capability tomanage and turn around various diverse businesses.”

106. Therefore, it is incorrect to say that the 2nd Respondent hasnot gained any advantage from the charitable Trust. The case onhand squarely falls within the ambit of Section 88 of the IndianTrusts Act, and as such, the Resolution Plan is illegal. Since thesaid ‘Sri Balaji Vidyapeeth’ has already been declared as ineligible,the 2nd Respondent cannot act as its alter ego in implementing A

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Athe Resolution Plan and attain any financial advantage or gain isbarred by Section 88 of the Indian Trusts Act.The said provisionis extracted hereunder for ready reference.[22]

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108. It is illogical and fallacious to claim that the Resolution PlanBcan be tested in terms of the provisions of IBC, 2016 and notunder Section 88 of the Indian Trusts Act. Therefore, it is submittedthat even as per the provisions of IBC, a Resolution Plan shall beby the provisions of all other statutes, and the Resolution Planmustn’t contravene the law of the land. In this regard, it is pertinentCto note Sections 30 and 61 of the Code, which reads as follows:

“Section 30. Submission of Resolution Plan. –

(2) The Resolution professional shall examine each resolutionplan received by him to confirm that each resolution plan –

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D(e) does not contravene any of the provisions of the law forthe time being in force.

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Section 61. Appeals and Appellate Authority. –E(3) An appeal against an order approving a resolution planunder section 31 may be filed on the following grounds,namely: —

(i) the approved resolution plan is in contravention of the”provisions of any law for the time being in force;.F109. The argument of the 2nd Respondent that the Trust hadsubmitted their EOIs independently and both of them were awarethat the other was submitting their EOIs is purely mischievous.Admittedly, the 2nd Respondent is the Managing Director of thesaid Trust, and the fact remains that two EOIs were submitted byG22"Section 88. Advantage gained by fiduciary. Where a trustee, executor, partner, agent,director of a company, legal adviser, or other person bound in a fiduciary character toprotect the interests of another person, by availing himself of his character, gains forhimself any pecuniary advantage, or where any person so bound enters into any dealingsunder circumstances in which his own interests are, or may be, adverse to those of suchother person and thereby gains for himself a pecuniary advantage, he must hold for theHbenefit of such other person the advantage so gained.”

the 2nd Respondent, one for himself and the other on behalf ofthe Trust.

110. However, the said facts have been suppressed from the CoC,and the CoC did not have an occasion to consider that the 2ndRespondent had submitted two EOIs. Therefore, it is also false toclaim that the 2nd Respondent had complied with the provisionsof the RFRP and the IBC. The 2nd Respondent suppressedmaterial facts and gave false declarations about his ineligibilityand the conflict of interest.

111. The argument of IInd Respondent that a conflict of interestwould arise in case the Trust were allowed to submit a ResolutionPlan is incorrect and misleading. The purported Explanation ofconflict of interest’ stated in the RFRP would not absolve the dutycast upon the IInd Respondent under Section 88 of the IndianTrusts Act. Further, it is incorrect to state that a conflict of interestcould arise only between two Resolution Applicants. Such aninterpretation is contrary to the explicit provisions of Section 88 ofthe Indian Trusts Act. Therefore, it is incorrect to say that the 2ndRespondent has not gained any advantage from the charitableTrust.

112. The case on hand squarely falls within the ambit of Section88 of the Indian Trusts Act, and as such, the Resolution Plan isillegal. Since the said ‘Sri Balaji Vidyapeeth’ has already beendeclared as ineligible, the 2nd Respondent cannot act as its alterego in implementing the Resolution Plan and attain any financialadvantage or gain is barred by Section 88 of the Indian TrustsAct.

19.4.3. As to the question of disqualification under Section164(2)(b), the Appellate Tribunal observed that Mr. M.K. Rajagopalanwas the director of International Aviation Academy Private Limited, andas seen from the audited financial statements of the said company, from2010-2011 to 2017-2018, a sum of Rs. 12,03,000/- was collected by thesaid company as ‘share application money pending allotment’. TheAppellate Tribunal further noticed that the said sum was not refundedand as such, was to be treated as ‘deposit’ in terms of Explanation (a) toRule 2(1)(c)(vii) of the Companies (Acceptance of Deposits) Rules,2014 as a consequence of which, in terms of Section 164(2)(b) of theCompanies Act, the resolution applicant stood disqualified from acting AB

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Aas a director in any company for a period of five years from the date onwhich the said International Aviation Academy Private Limited failed torepay the deposit amount. Some of the relevant observations and thefindings of the Appellate Tribunal in this regard could be noticed in thefollowing extraction: - B“117. The learned Senior Counsel for the 2nd respondent hasvehemently argued that the objection raised by the appellant wasnever raised before the Adjudicating Authority. In response tothis objection, Learned Counsel for the appellant submits noestoppel against a statute. Section 61 (3) empowers the AppellateTribunal to question irregularities and illegalities in the CIRP,Cincluding the Resolution Plan. The Resolution Plan being in rem,these questions fall within the exclusive purview of judicial review.These grounds cannot be eschewed from consideration on thesimple ground that they were never raised before NCLT, as personswho were not before NCLT are also before this court.

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118. The Ld Senior counsel for the Appellants, in response to theabove submissions of Respondent No.2, regarding thedisqualification of the 2nd Respondent, argued that the 2ndRespondent is a Director of M/s. International Aviation AcademyPrivate Limited, and it is seen from the audited financial statementsEof the said Company for the period 2010-2011 to 2017-2018 that asum of Rs.12,03,000/- has been collected as ‘share application’money pending allotment.

119. It appears that the said sum has not been refunded, and assuch, the same shall be treated as ‘deposit’ in terms of ExplanationF(a) of Rule 2(1)(c)(vii) of The Companies (Acceptance ofDeposits) Rules, 2014. In the above circumstances, given Section164 (2) (b) of the Companies Act, the 2nd Respondent has beendisqualified from acting as a Director in any Company for fiveyears from the date on which the said Ms International AviationAcademy Private Limited failed to repay the deposit amountsGcollected towards ‘share application money pending allotment’aggregating to Rs.12,03,000/.

120. Even assuming these amounts have been repaid during 2018-2019, the 2nd Respondent is disqualified from acting as a directorto date. Thus, the 2nd Respondent is not eligible to act as a H

resolution applicant as per Section 29-A(e) of the Code. Theaudited balance sheets of the said M/s. International AviationAcademy Private Limited for the years from 2011 to 2018.

121. The 2nd Respondent has suppressed the above facts andhas submitted the Resolution Plan by giving a false declarationthat he does not suffer from any disqualification. Now, the 2ndRespondent has claimed that Rs.12,03,000/- was paid by himselfto the said M/s. International Aviation Academy Private Limitedand that him being a member/ Director of the said Company, suchpayment would not amount to ‘deposit’ as per Rule 2(1)(c)(viii)of The Companies (Acceptance of Deposits) Rules, 2014 andGeneral Circular No. 5 dated 30.03.2015, issued by the Ministryof Corporate Affairs.

122. The 2nd Respondent has chosen not to file any document tosupport the above contention and has failed to discharge his burdenunder Section 106 of the Indian Evidence Act, 1872.

123. Suppose it is considered that the sum of Rs.12,03,000/- waspaid by the 2nd Respondent to the said M/s. International AviationAcademy Private Limited, the Application of Rule 2(1)(c)(viii) ofThe Companies (Acceptance of Deposits) Rules, 2014 is subjectto the conditions stipulated therein, which have not been compliedwith. Therefore, it is misleading to state that Private LimitedCompanies have been granted a specific exemption.

124. Further, even as per the General Circular No.5 dated30.03.2015, any renewal of deposit after 01.04.2014 shall be inaccordance with the Companies Act, 2013 and the rules madethereunder. It is thus patent that the said sum of Rs.12,03,000/- isa deposit, and as such, the 2nd Respondent is disqualified fromacting as a Director given Section 164(2)(b) of the CompaniesAct, 2013.

125. It is correct to say that the IRP/RP should be concerned asto whether a Resolution Application submitting his EOI is eligibleas per the provisions of Section 29-A of the Code. Apparently, inthe case on hand, the 1st Respondent has not properly verifiedthe eligibility of the 2nd Respondent and has acted solely basedupon the false declarations given by the 2nd Respondent.

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A126. However, the Appellant is well within his rights to questionthe legality of the CIRP and the Resolution Plan.

127. Based on the above discussion, it is clear that the 2ndRespondent is disqualified as a director under section 164 (2) (b),Companies Act, 2013 and consequently ineligible to submit aBResolution Plan under Sec. 29A(e) of the Insolvency andBankruptcy Code 2016.”

19.5. In relation to the assertion of the resolution professional thatthe revised resolution plan was approved in the ninth CoC meeting, theAppellate Tribunal examined the relevant minutes and observed that inCthe said meeting, the resolution plan was sent back to the resolutionapplicant for further revision based on the CoC resolution; and the revisedresolution plan submitted by the resolution applicant dated 25.01.2021,was directly filed in the NCLT for approval without being put to votebefore CoC. The Appellate Tribunal observed that as per the requirementsof Sections 30 and 31 of the Code, only the plan approved by CoC wasDto be presented before NCLT for approval. It was further held by theAppellate Tribunal that such procedural failure was that of a materialirregularity, undermining the integrity of the process and rendering theresolution plan void and non est in law. The observations of the AppellateTribunal with respect to this issue of want of approval of the revisedEresolution plan by CoC could be usefully reproduced as under: -

“130. On perusal of the minutes of 9th COC, it is clear that COCdid not finally approve the Resolution Plan on 22 January 2021. Inthis meeting, COC sent back the Resolution Plan to the ResolutionApplicant for further revision based on the CoC Resolution. ThisFrevised Resolution Plan dated 25 January 2021 was never sentfor Approval before the COC.

131. The Resolution Professional’s statement that ‘therevised Resolution Plan was approved at the 9th COCmeeting’ is incorrect. Although the Resolution Plan wasGallegedly approved on 22 January 2021, it is not the RevisedResolution Plan. Instead, the Resolution Plan was furthermodified based on the CoC resolution Dt.22.1.2021. Butthe final Revised Resolution Plan, dated 25 January 2021,was never laid before the CoC for its approval. Thus theapproval of the Resolution Plan by the Adjudicating Authority isHnot in compliance with Sec. 31(1) of the I & B Code, 2016.

132. It is pertinent to mention that after Approval of theResolution Plan by COC entire exercise for revising theResolution Plan for making a complaint with Section 30 (2)of the Code was left with the Resolution Applicant. RevisedResolution Plan dated 25 January 2021, without furtherapproval of CoC, was presented by RP before theAdjudicating Authority for approval, which was finallyapproved by the impugned Order.

133. It is also important to mention that the learned AdjudicatingAuthority/National Company Law Tribunal has stated in theimpugned order that “it is seen that the final resolution planwas put up for consideration by the COC in the 9th meetingheld on 22 January 2021 and the said resolution wasapproved with a thumping majority of 87.39%.”

134. The Adjudicating Authority failed to notice that the ResolutionPlan was not approved in the 9th COC meeting. Therefore, basedon the resolution of the 9th COC meeting, the Resolution Planwas to be sent back to the Resolution Applicant for further revision.After that, the final Revised Resolution Plan was made on 25January 2021, but it was never presented before the COC forapproval.

135. After “revision”, the revised plan is never put to the vote.Instead, it is filed to NCLT directly, without any approval from theCOC on the revised Resolution Plan. Sections 30(2), 30(4), 30(6)and Section 31 mandate that only a plan as approved by the ‘COC’can be presented to the NCLT for its approval under Section 31.Such kind of procedural failure amounts to material irregularity-and goes to the root of the matter, making the plan void and nonest in law, as it is trite law that where the law permits a thing to bedone in a particular manner if the same is not done in that manner,the same is non-est in the eyes of the law.”

19.6. As regards the issue of non-consideration of Section 12-AIBC application of the promoter of the corporate debtor, the AppellateTribunal observed that the consideration of settlement offer was essentialand that the settlement offer could not have been rejected withoutconsideration by the CoC. It was further held that CoC, in its commercialwisdom, had full liberty to either accept or reject the settlement offer AB

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Abut, consideration of the settlement offer was indispensable. In regardto this aspect, the Appellate Tribunal observed and held as under: - “140. Based on the pleadings of the parties, it is clear that theCOC meeting was not called for consideration of the 12 Aapplication. Since ‘Form FA’ has to be submitted only by theApplicant Financial Creditor after the proposal floated bythe promoters is considered, and only after the proposal has B

been accepted by 90% of the Committee of Creditors, theApplicant Financial Creditor has to file the proposal as perForm FA. Thus, it is clear that the Resolution Professionalcannot disregard the proposal for conducting a meeting ofthe CoC on such an untenable and superficial ground.

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141. It appears that based on the settlement offer, the appellantsent a letter to the Financial Creditor Tourism Finance Corporationof India that an investor has expressed its willingness to infusefunds of 350 crores to settle the secured Financial Creditors inDfull within 30 days. This amount will be deposited in the currentaccount. Regarding the claims made by other Unsecured FinancialCreditors, Operational Creditors, implies, and other stakeholders,it will be settled after discussion with them and out of the generationof funds from the company’s operation. In the circumstances, theEappellant requested to accept the settlement so that the 12 Aapplication may be submitted before the NCLT. The term sheetof the Deutsche Bank was also annexed with the settlement offer.

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142. It is also necessary to mention that when the appeal wasfiled, then on the 1st date of admission of the Appeal, i.e. 30 JulyF2021, the learned counsel for the appellant made a statement inthe court that the appellant would deposit ¹ 450 crores. Therefore,he requires 2 or 3 days. Since the total Resolution Plans amountwas 423 crores, the Appellant contended that assets of thecorporate debtor are worth over rupees for 1600 crores. It is alsocontended that the 12 A application was pending, but it was notGconsidered and voted. Considering all the situations and bona fidesof the appellant, this Appellate Tribunal granted an interim stay onimplementing the impugned order.

143. Based on the pleadings of the parties, it appears that asettlement offer was made, and a 12 A application was to besubmitted after getting the consent of 90% members of the COC.

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In the circumstances, the appellant requested to consider thesettlement proposal in the COC. However, COC was never calledto consider the settlement offer. The Resolution Professional hascontended that the COC has rejected the settlement offer in its9th meeting. This statement is also not as per the minutes of the9th COC meeting. It appears from the minutes of the 9[th] COCthat only a Resolution Plan was discussed in that meeting. Afterthat, the Resolution Plan was sent back to the resolution applicantby CoC for reconsideration and revision. In the 9 COC meetings,no discussion about the settlement offer occurred.It is essentialto mention that after admission of the petition and formation ofthe Committee of Creditors, Section 12A application for withdrawalcould only be accepted if the CoC approves the proposal with a90% vote share. It is undisputed that COC, under its commercialwisdom, had full liberty to either accept or reject the settlementoffer. But consideration of the settlement offer is essential.Atthis juncture, this tribunal “Worth recalls and recollects” thejudgement of Hon’ble 3 Member Bench of this Tribunal inCompany Appeal (AT) (Ins) No.91 of 2019 dated 6 September2019 between Shaji Purusothaman v Union Bank of India andothers (reported in MANU/NL/0438/2019) whereby andwhereunder at paragraph 9 it is observed that; “if an application u/s 12 A is filed by the Appellant, theCommittee of Creditors may decide as to whether the proposalgiven by the appellant for settlement in terms of Section 12 Ais better than the resolution plan as approved by it, and maypass appropriate order. However, as such decision is requiredto be taken by the “Committee of Creditors”, we are notexpressing any opinion on the same.”

144. In this case, CoC never considered the settlement proposalsubmitted by the Appellant. Although, after getting the settlementproposal, it was incumbent upon the resolution professional to callthe COC meeting to consider the settlement proposal. It is essentialto mention that the settlement offer could not have been rejectedwithout consideration by the COC.”

19.7. As regards the question of discrimination between the claimsof related party and unrelated party, the Appellate Tribunal, while placingreliance on the decision of this Court in Phoenix ARC (P) Ltd v. Spade ABC

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AFinancial Services Ltd. and Ors.: (2021) 3 SCC 475 observed that‘related party’ was specifically treated as a class unto itself and wasrestricted from any involvement in the CIRP in any capacity (underSection 21 IBC) and disqualified from being a resolution applicant (underSection 29-A IBC), the underlying object being that involvement of arelated party in the CIRP is seen as giving unfair benefit to the corporateBdebtor and in fact, the related party is treated in the same class as thecorporate debtor itself. Therefore, according to the Appellate Tribunal, a‘related party’ could be treated as a separate class independent of anunrelated party and ought to be equated with the promoters as equityshareholders or as partners. After discussing various decisions of NCLTCand NCLAT as also of this Court as regards the position of related partyvis-à-vis the unrelated, the Appellate Authority held that the related partyfinancial or operational creditor cannot be discriminated against underthe resolution plan, by denying their right to get payments under theresolution plan only for being a related party. The Appellate Tribunalobserved and held as under: -D

“149. Under the IBC, 2016, there is no mandate to treat unrelatedand related parties equally. On the contrary, the IBC andRegulations thereunder specifically treat ‘related party’ as a classunto itself and restrict the involvement of a ‘related party’ in anysituation where the CIRP is likely to get affected.As held by theEHon’ble Supreme Court in Phoenix ARC, the purpose is to ensurethat external creditors drive the CIRP. Following statutoryprovisions clarify that related party’ is a class in itself. Accordingly,a related party is prohibited from acting in any of thefollowing capacities in a CIRP:

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150. The underlying object is that the involvement of a relatedparty in the CIRP in any capacity is seen as giving unfair benefitto the Corporate Debtor. In short, a related party is treated in thesame class as the Corporate Debtor itself.

151. Therefore, this statutory recognition as a different class wouldapply even to a Resolution Plan when the CoC decides whether,in its commercial wisdom, it should pay to a related party at all asthis would mean paying to the same persons who are behind theCorporate Debtor.

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157. Thus, it is well-settled that a ‘related party’ can be treated asa separate class independent of an unrelated party.Such‘relatedparty’ ought to be equated with the promoters as ‘equityshareholders as partners.

162. In the instant case of approved resolution plan discriminatesbetween related party unsecured Financial Creditorand otherunsecured Financial Creditors,likewise related party operationalcreditors and other operational creditors. The appellant arguesthat its claim ought to be treated equally to an unrelated Operational/Financial Creditor given the equality clause enshrined under Article14 of the Constitution of India.

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171. It is important to mention that related parties are barred fromparticipating in the COC to avoid sabotaging the COC. Per contra,the claim filed by the related party, based on their admitted claims,would have influenced the CIRP if they had been permitted toparticipate in the COC. After completion of the CIRP and afterapproval of the Resolution Plan, if any amount is allotted to relatedparty financial or operational creditors, it would not impact theCIRP.

172. It is also necessary to point out that code is a self-contained-code. Therefore, any provision that restricts relatedparty FinancialOr Operational Creditor actions is stated in the code. Thus, theAdjudicating Authority / NCLT/NCLAT cannot further limit therights of Related Party Financial or Operational Creditors by way A

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Aof interpretation. Furthermore, restrictions on the related partyrights under CIRP under Code and Regulation are provided atdifferent places. Therefore, its scope cannot be exceeded furtherby way of interpretation.

173. Thus, it is clear that IBC treats related parties as aBseparate category for specified purposes, excluding fromthe CoC under Section 21 and disqualifying them from being Resolution Applicants under section 29A. However, theIBC does not treat Related Party as a separate class forany other purpose. Therefore, a rationale nexus must existfor any classification between the object sought to achieveCthe classification and sub-classification. Therefore, theRelated Party financial or operational creditor cannot bediscriminated against under the Resolution Plan, denyingtheir right to get payments under the Resolution Plan onlyon being a Related Party. It is also made clear that by gettingDonly payment under the Resolution Plan, related party creditors could in no way sabotage the CIRP.”

19.8. The Appellate Tribunal, while concluding on its findings andreiterating its observations on several issues including those noticed above,held that increase in RP’s fees with retrospective effect was not a prudentEdecision of CoC; the possibility of an impact on the decision of RP forsubmission of the resolution plan before the Adjudicating Authority withoutapproval of CoC cannot be ruled out. The Appellate Tribunal disapprovedthe order passed by the Adjudicating Authority for the reasons: (a)existence of a valid and accurate valuation report was a sine qua nonfor the CoC to exercise its commercial wisdom and observation of theFAdjudicating Authority that Regulation 35 of the CIRP Regulationscontemplates sharing of only fair value and liquidation value figures onobtaining confidentiality undertaking from the members of the CoC wasincorrect; (b) the compliance with statutory requirements in regulating amatter of practice and procedure was mandatory and observation ofGAdjudicating Authority that a statutory provision regulating a matter ofpractice or procedure would generally be regarded as directory and notmandatory was erroneous; (c) non-publication of notices of Form G,inviting EOI, was a material irregularity in exercise of the powers byresolution professional; (d) the resolution applicant was ineligible to submitthe resolution plan; (e) the revised resolution plan was filed before theH

Adjudicating Authority without laying it before the CoC for approvalviolating Sections 30(2) and 30(3) of the Code and thereby, vitiating theentire CIRP and rendering the resolution plan as void ab initio-; and (f)the related party financial or operational creditor could not have beendiscriminated by denying their right to get payments under the resolutionplan only on being a related party.

19.9. The Appellate Tribunal recorded its conclusions in thefollowing terms: - “CONCLUSION

174. The increase in RP fees with retrospective effect can not be’considered as CoCs prudent decision. The possibility of an impacton the decision of RP for the submission of the Resolution Planbefore the Adjudicating Authority for approval, even without theapproval of CoC, cannot be ruled out. Submission of the ResolutionPlan for Approval before the Adjudicating Authority violates thestatutory provision of Section 30(2) &(3) of the Code and hasvitiated the entire CIRP and made the Resolution Plan Void abinitio.

175. Further, Adjudicating Authority observation that Regulation35 of the IBBI (IRPCP) Regulations 2016 contemplates sharingof only fair value and liquidation value figures on obtainingconfidentiality undertaking from the members of the CoC isincorrect. Finding that Since the Promoter is not a member of theCoC, the values were shared with the Promoter and that thereare no requirements under the law for the RP to share the valuationreport is also erroneous.

176. A valuation consisting of mere naked values without a detailedreport is not valid. It is a settled proposition that the Valuationexercise is conducted to facilitate the CoC’s decision-makingprocess. Therefore, the existence of a valid and accurate valuationreport is a sine qua non for the COC to exercise its commercialwisdom. A natural sequitur to those above would be that a detailedvaluation report is necessary for the CoC to exercise its commercialwisdom objectively.

177. The Adjudicating Authority’s observation that a statutoryprovision regulating a matter of practice or procedure will AB

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generally be read as a directory and not mandatory iserroneous. Compliance with statutory requirements inregulating a matter of practice and procedure aremandatory. The Tribunal is a creature of statute, and byinterpretation, it cannot dilute the statutory compliances.

B178. Further, observation of the Adjudicating Authority thatprocedural irregularities in relation to the conduct of theproceedings in relation to the CoC will not be material when theobjectors failed to establish prejudice caused to themin respectof the same is also erroneous.

C179. Regulation 36(2) of CIRP Regulations provides the mandatorycondition for publication of ‘Form-G’ on the Corporate Debtor’swebsite and the website designated by the Board for the purpose.Non-publication of notices of Form G is a material irregularity inexercise of the powers by Resolution Professional during theCorporate Insolvency Resolution period.In the instant case, thereDhas been a material irregularity in exercising the powers byResolution Professional during the Corporate Insolvency ResolutionProcess.

180. Since the said Trust (Prospective Resolution Applicant) ‘SriBalaji Vidyapeeth’ has already been declared as ineligible, theE2nd Respondent (SRA) cannot be permitted to act as its alter egoin implementing the Resolution Plan and attain any financialadvantage or gain, which is barred by Section 88 of the IndianTrusts Act.

181. The Resolution Professional made an incorrect statementFthat the revised Resolution Plan was approved at the 9th COCmeeting. The revised Resolution Plan was not approved on 22January 2021. After 22nd January 2021, based on the COCResolution Dt.22.1.2021, the Resolution Plan was further modified,and the final Revised Resolution Plan dated 25 January 2021 wasGnever laid before the CoC for approval. Thus the approval of theResolution Plan by the Adjudicating Authority can not be treatedas valid under Sec. 31(1) of the I & B Code, 2016.

182. However, the IBC does not treat Related Party as a separateclass for any other purpose. Therefore, a rationale nexus mustexist for any classification between the object sought to achieve H

the classification and sub-classification. Therefore, Related PartyFinancial or Operational Creditor cannot be discriminated underthe Resolution Plan only on being a Related Party.

183. Based on the discussion above, it is clear that IBC treatsrelated parties as a separate category for specified purposes,excluding from the CoC under Section 21 and disqualifying themfrom being Resolution Applicants under Section 29A. However,the IBC does not treat Related Party as a separate class for anyother purpose. Therefore, a rationale nexus must exist for anyclassification between the object sought to achieve the classificationand sub-classification.

184. Therefore, the Related Party financial or operational creditorcannot be discriminated against under the Resolution Plan, denyingtheir right to get payments under the resolution Plan only on beinga Related Party. It is also made clear that by getting only paymentunder the Resolution Plan, related party creditors could in no waysabotage the CIRP.

185. Based on the above discussion, it is clear that theapproved Resolution Plan is in contravention of Section 30(2) of the Insolvency and Bankruptcy Code 2016, whichcontravenes the provision of law.”

20. Hence, the Appellate Authority set aside the resolution planapproved by the Adjudicating Authority; directed the resolutionprofessional to proceed with the CIRP from publication stage of Form Gfor inviting EOI afresh as per the CIRP Regulations and further to putup the settlement proposal of the promoter for consideration before CoC;and ordained that the claim of related party financial/operational creditorbe not discriminated from unrelated financial/operational creditors.

Proceedings in this Court

21. Aggrieved of the aforesaid judgment and order dated 17.02.2022passed by the Appellate Authority, eight appeals are filed before thisCourt. As noticed, one sub-set is of four appeals as filed by the resolutionapplicant and other sub-set is of four appeals as filed by the resolutionprofessional against the promoter and erstwhile director of the corporatedebtor, related financial and operational creditor and against the NRIshareholder and erstwhile director of the corporate debtor. The details AB

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Awhereof have been noticed hereinbefore in the particulars of proceedingsand parties.

22. It would be worthwhile to mention a few relevant aspectsfrom the record of proceedings in this Court.

22.1. On 07.03.2022, civil appeals bearing numbers 1682-1683 ofB2022, 1759 of 2022, 1756 of 2022, 1757 of 2022, 1807 of 2022 werecalled for hearing by this Court. During the hearing, counsel for theresolution applicant and counsel for contesting parties were heard butthe arguments of counsel for the resolution professional remainedinconclusive and the matter was posted to 11.03.2022 for further hearing.CIt was further pointed out during the submissions that the resolutionapplicant has filed two other civil appeals, bearing numbers 1810 of 2022and 1827 of 2022, respectively against Dr. V. Janakiraman and DharaniFinance Limited. The said appeals were ordered to be listed along withthis batch of matters on 11.03.2022. Further, learned counsel for theresolution professional also placed before this Court the minutes ofDeleventh CoC meeting held on 03.03.2022 which were ordered to befiled in the registry with appropriate affidavit. Later on, RP filed theminutes of the eleventh CoC meeting as also the tenth CoC meeting andother documents with affidavit. The details of these and other subsequentmeetings of CoC are set out in the next segment of this judgment.

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22.2. On 16.03.2022, after having heard learned counsel for therespective parties along with rejoinder submissions at length, the judgmentwas reserved and learned counsel for the parties were granted time tofile their note/additional notes on their submissions by 22.03.2022. Itwas further noted, during the course of submissions, that pursuant to theFimpugned order dated 17.02.2022 of the Appellate Authority, CoC meetinghad taken place on 03.03.2022 and that another meeting was slated for21.03.2022. As regards this submission, in the totality of circumstances,this Court deemed it appropriate to allow the meetings/proceedings ofthe CoC to continue, subject to the final orders to be passed in theseappeals.G

23. However, learned counsel for the resolution applicant filed anapplication for appropriate directions in this matter on 14.05.2022, seekingad interim direction of staying the CIRP as initiated by the resolutionprofessional by publishing Form G on 26.04.2022 pursuant to directionsof the NCLAT in its judgment dated 17.02.2022; or to stay the operationHof impugned judgment dated 17.02.2022 as regards disqualification of the resolution applicant and to direct the resolution professional to considerhis EOI in the fresh CIRP as initiated.

23.1. The aforesaid application was taken on board by this Courton 20.05.2022. Having taken note of the averments of the applicationand having regard to the order as passed on 16.03.2022, making all theproceedings subject to final outcome of these appeals, this Court did notconsider it necessary or expedient at that stage to pass any further orderor direction as regards the averment therein.

24. On 07.11.2022, Dr. Periasamy Palani Gounder - the promoterand erstwhile director of the corporate debtor, filed an application bearingIA No. 168602 of 2022 in Civil Appeal Nos. 1682 of 2022, seekingpermission to bring on record subsequent facts and documents that, duringthe pendency of these appeals, his proposal of settlement under Section12-A of the Code was accepted by CoC on 12.10.2022 by 100 per cent.majority which had been placed before the Adjudicating Authority forapproval.

24.1. In reply to the aforesaid application, it was submitted onbehalf of the resolution applicant that the very consideration of Section12-A application of the promoter by CoC was against the explicit directionof the Appellate Authority in its judgment dated 17.02.2022, which allowedonly 15 days for the CoC to examine the pending or existing Section 12-A proposal of the promoter which was rejected by the CoC on 25.03.2022and therefore, the only recourse after such a rejection available withCoC was to continue with the fresh CIRP and it had no legal authority toconsider or vote on a new application after issuance of fresh Form G.

24.2. In the wake of the applications so moved, the matter wasagain taken on board by this Court on 17.11.2022 and after having heardlearned counsel for the respective parties this Court requested theAdjudicating Authority to await the decision in these appeals whilegranting permission to learned counsel for the respective parties to filefurther submissions in relation to the said application by 21.11.2022.

The events during pendency of these appeals.

25. To piece together a timeline, it would be worthwhile to takenote of the subsequent events that took place pursuant to the orders anddirections as passed by the Appellate Authority in the order impugneddated 17.02.2022 directing the resolution professional to proceed withthe CIRP from stage of publication of Form G inviting fresh EOI and for AB

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Aconsideration of settlement proposal of the promoter under Section 12-A IBC.

26. In compliance of the impugned order dated 17.02.2022 aspassed by NCLAT, eleventh CoC meeting was held on 03.03.2022; andthe resolution professional put the settlement proposal of the promoterBto vote in the CoC, where the voting continued until 25.03.2022.Ultimately, the said settlement proposal was voted against by 51.81% ofvoting share in CoC.

26.1. In the twelfth CoC meeting held on 18.04.2022, the eligibilitycriteria and evaluation matrix for issuance of EOI was put to vote postCdiscussion at this meeting and was approved with 92.52% of total votingpower of CoC members.

26.2. In the thirteenth CoC meeting held on 23.05.2022, resolutionprofessional informed the members of CoC that EOI was published on26.04.2022 with last date of submission fixed as 15.05.2022 and 7 EOIsDhad been received. As regards the extension of time to submit EOI, theCoC resolved that the last date of submission of EOI be extended to09.06.2022 with 93.46% of the total voting powers of CoC. It was furtherresolved that nothing in the Request for Resolution Plan (RFRP) bechanged and the performance bank guarantee (PBG) amount as decidedearlier by CoC of Rs. 25 crore shall stand approved and shall remainEunchanged.

26.3. In the fourteenth CoC meeting held on 27.05.2022, it wasresolved by CoC that RP shall immediately seek extension of CIRPtimelines further by 90 days with effect from 13.05.2022 under Section12(2) IBC application to be filed with the Adjudicating Authority. Further,Fin relation to extension of time for submission of resolution plan, the CoCin its fifteenth meeting held on 19.07.2022, resolved with 92.70% voicevote to extend the timeline to 01.08.2022. As regards further extensionof time, in the sixteenth CoC meeting held on 10.08.2022, the CoCmembers with total voting power of 79.29%, resolved for RP to file anGapplication for further extension/exclusion of time before the AdjudicatingAuthority for continuing with CIRP .

26.4. In the seventeenth CoC meeting held on 26.08.2022,discussing about the compliance of resolution plans as submitted by theprospective resolution applicants, a query was raised by one of themembers of CoC that despite being declared disqualified and ineligibleH

by NCLAT, as to why the resolution plan of Mr. M.K. Rajagopalan –resolution applicant herein – was even being considered. To this, theChairperson responded that in the order dated 16.03.2022 this Courtwhile reserving the judgment clearly stated that all the meetings/proceedings of CoC shall continue subject to the final orders to be passedby the Court and this information was clearly laid down with disclaimersin the list of prospective resolution applicants as well as final list of eligibleresolution applicants and was known to everyone. He also stated that asregards this, legal advice had been sought and the CoC also gave itsconsent.

26.5. In the eighteenth CoC meeting held on 29.09.2022, afterinforming the members of CoC that 7 resolution plans have been receivedtill date and their evaluation was under process, the Chairperson apprisedthe CoC that a revised settlement proposal has been submitted by thepromoter – Dr. Periasamy Palani Gounder – under Section 12-A IBCon 19.09.2022. The members of the CoC debated on the possibilities ofconsideration of Section 12-A proposal vis-à-vis evaluation andconsideration of resolution plans as received. However, noticing that themandatory 330 days period was about to end on 12.10.2022, the CoCmembers unanimously voted and agreed for seeking exclusion/extensionof CIRP timelines and directed the RP to file suitable application underSection 12(2) IBC before the NCLT.

26.6. In the nineteenth CoC meeting held on 12.10.2022, thediscussion as regards the settlement proposal submitted by the promoter- Dr. Periasamy Palani Gounder - continued and after an extensivediscussion, the CoC decided to evaluate the 12-A proposal and put it tovote. Accordingly, the settlement proposal was put to vote and wasapproved by the CoC with 100% of the total voting powers of members.The relevant parts of the resolutions adopted in this meeting and thefinal conclusion post voting, as stated in the minutes of the nineteenthmeeting read as under: - “Resolution for Voting by the CoC

“Resolved that the settlement proposal submitted by Mr. PalaniG Periasamy (Promoter) under Section 12A of the IBC, 2016which was placed before the COC for discussion and approval inthe nineteenth COC meeting held on 12.10.2022 is herebyapproved”.

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(The above Resolution is being put to vote from 14/10/2022 12PM till 21/10/2022 11.59 PM and based on the result of this voting,the post voting minutes will be updated and sent to the CoC.)

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Result of the Resolution,Post Voting ended on 31/10/2022at 10 PM

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The above Resolution of the Promoter for settlement under Section12 A of the IBC, 2016, which was put to vote on 14.10/2022 to 31/10/2022 is approved with 100% of the Total voting powers of theCoC.

The Voting results and the approval sheet from the E-Voting isCsent to the CoC separately.”

Rival submissions

27. We have heard learned senior counsel Dr. Abhishek M. Singhviand Mr. C. Aryama Sundaram appearing for the resolution applicant;Dlearned senior counsel Mr. Vijay Narayan appearing for the resolutionprofessional; learned senior counsel, Mr. Mukul Rohatgi, Mr. K.V.Vishwanathan and Mr. Dhruv Mehta as also learned counsel Ms.Haripriya Padmanabhan appearing for the respective contesting parties.We have also heard learned senior counsel Mr. Rakesh Dwivediappearing for Edelweiss & associates and learned Solicitor General Mr.ETushar Mehta, appearing for SBI.

28. Learned senior counsel for the resolution applicant, Dr.Abhishek M. Singhvi, appearing in the lead matter has emphatically arguedagainst the impugned order while questioning the findings andobservations of the Appellate Tribunal with the following principalFsubmissions:

28.1. As regards the proposition of settlement put forward by thepromoter with reference to Section 12-A of the Code, it has beencontended that the entitlement to file for withdrawal of the applicationadmitted under Section 7 of the Code would be restricted to TFCI i.e.,Gthe applicant who had filed the application, with the approval of ninetyper cent. voting share of the CoC and such an application for withdrawalcould have only been moved through the resolution professional. In theabsence of any such move by TFCI, the promoter did not have any rightto move an application for withdrawal.

28.1.1. It has further been submitted that the letter of settlementdated 21.01.2021 was submitted without proof of funds and there wasno commitment towards funding in the proposal indicated in the DeutscheBank Indicative Term-Sheet dated 22.01.2021. Even the letter of supportfor funds dated 14.07.2021 as issued by Saveetha Institute was withdrawnby a subsequent email dated 02.09.2021. Thereafter, in the eleventhCoC meeting dated 03.03.2022 that took place after the passing of theimpugned NCLAT judgment, respondent No. 1 relied upon the settlementproposal, without placing any funds on the table in support thereof. Thissettlement proposal thus had been nothing but an attempt to delay theCIRP proceedings as rightly observed by NCLT.

28.2. As regards the questions concerning eligibility of the appellantto act as resolution applicant, it has been submitted by the learned seniorcounsel that Section 88 of the Trusts Act would not be treated as aground for disqualification of the appellant under Section 29-A of theCode. Although the trust in question was held to be ineligible at the stageof EOI, the appellant was still held to be eligible in his individual capacity.Thus, while the trust may be disqualified, the trustee, being a separateentity, cannot be disqualified and the financial capability of the appellantwas independent of the trust money.

28.2.1. Learned senior counsel would submit that the appellantcould not be held ineligible under Section 29-A(e) of the Code, as theregistrar of companies had not disqualified him under Section 164(2)(b)of the Companies Act for the alleged non-refunded deposit in the othercompany International Aviation Academy Pvt. Ltd, in which the appellantwas a director. Further, the DIN status of the appellant was “activecompliant” and NCLAT did not consider its own judgment in C. RajaJohn v. R. Raghavendran and Ors.: Comp. Appl. (AT)(CH)(Ins)No. 207 of 2021 wherein it was held that if DIN is activated, Section29-A(e) of the Code will not be applicable.

28.2.2. This apart, it has also been submitted that since the issueof ineligibility was a mixed question of fact and law, it could not havebeen raised before NCLAT for the first time, since there is no conceptof deemed disqualification under Section 164(2) of the Companies Act.

28.3. Coming to the question of valuation of assets of the corporatedebtor, learned senior counsel has submitted that the resolution plan cannotbe set aside on the basis of a contention that the valuation was lowerthan the liquidation value. Reliance has been placed on the judgment in AB

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AMaharashtra Seamless (supra) to submit that the resolution plan wouldnot be required to match the liquidation value. Learned senior counselwould submit that members of CoC were provided with liquidation andfair value; registered valuers were appointed for valuation of core andnon-core assets; and these valuers physically visited the properties forthat purpose, in compliance of Regulation 35 of the CIRP Regulations.BThereafter, the CoC approved this valuation in their commercial wisdom,following which NCLT approved it as well, which cannot be second-guessed at a subsequent stage. It has also been submitted that thequestion as to whether valuer was registered, was not required to beadjudged since it was not in question before IBBI.C

28.4. Learned senior counsel has also submitted that insofar asnon-publication of Form-G on the website is concerned, the issue wasdiscussed during the fifth CoC meeting dated 12.11.2020 and the CoCproceeded with the CIRP in its commercial wisdom after a detaileddeliberation. Moreover, the earlier judgment of NCLAT dated 05.05.2021Dapproving non-publication would act as res judicata. Placing relianceon Kalpraj Dharamshi and Anr. v. Kotak Investment AdvisorsLimited and Anr.: (2021) 10 SCC 401, it was submitted that non-publication of Form-G on the website cannot be treated as a graveirregularity.E28.5. As regards the issue of not placing the revised final resolutionplan before the CoC, it has been submitted that the appellant had alreadycomplied with the requirement of allocating the eligible amount todissenting financial creditors in the event of liquidation, as per the revisedplan and there was no need to seek further approval of the CoC. Moreover,in the tenth meeting, the CoC had granted a ‘deemed post facto approval’Fto the revised plan and had not objected to any of its portions in theaffidavit filed before NCLAT dated 09.09.2021. Therefore, it cannot besaid that the procedure adopted in the present case amounted to a materialirregularity.

28.6. Coming to the application filed by SBI for impleadment,Glearned senior counsel would submit that SBI attended all meetings andvoted in favour of the resolution plan, did not raise any objection beforethe NCLT or NCLAT and is receiving 100% of its dues under theresolution plan. Learned senior counsel has also referred to the judgmentin EBIX Singapore Pvt. Ltd. v. Committee of Creditors of EducompHSolutions Ltd. and Anr.: (2022) 2 SCC 401 to submit that the resolution plan between a successful resolution applicant and the CoC would bebinding. Thus, being a part of CoC, SBI cannot subsequently raise acontrary stand to the stand taken by the CoC.

28.7. On the aspect of commercial wisdom of the CoC, emphaticreliance has been placed on the decisions of this Court in K. Sashidhar,Maharashtra Seamless, Essar Steel, Jaypee Kensington, KalprajDharamshi (supra); and Pratap Technocrats (P) Ltd. and Ors. v.Monitoring Committee of Reliance Infratel Ltd and Anr.: 2021 SCCOnLine SC 569 to submit that scope of interference in mattersconcerning the successful resolution plan is extremely narrow, and thechallenge is only limited to matters ‘other than’ enquiry into the autonomyor commercial wisdom of the CoC as under Section 30(2) or 61(3) ofthe IBC. In the case at hand, since the resolution plan had been approvedby the CoC there would be no case for any interference.

28.8. It has also been submitted on behalf of the resolutionapplicant that the CIRP had reached an advanced stage, resolutionapplicant had given a bank guarantee of Rs. 25 crore on 01.02.2021 inpursuance of approved resolution plan, the initial amount of Rs. 150crore, which was required to be remitted within 45 days of the approvalof the resolution plan, was deposited within 15 days and the resolutionapplicant has always been ready with the remaining funds. It has alsobeen vehemently submitted that deliberate dilatory tactics have beenadopted by the promoter to frustrate the process of CIRP, with substantialamount of time having been lost on account of the delays.

28.9. As regards the application bearing IA No. 168602 of 2022 inCivil Appeal Nos. 1682-1683 of 2022 filed by the promoter and erstwhiledirector of the corporate debtor - seeking permission to bring on recordsubsequent facts that during the pendency of these appeals his proposalof settlement under Section 12-A of the Code was passed by CoC in itsnineteenth meeting held on 12.10.2022 by 100% voting power of members- learned counsel for resolution applicant has submitted that the veryconsideration of Section 12-A application of the promoter by CoC hadbeen against the explicit direction of the Appellate Tribunal in the orderdated 17.02.2022, whereby only 15 days’ time was allowed to the CoCto examine the pending or existing Section12-A proposal of the promoter;and such a proposal was indeed rejected by the CoC on 25.03.2022.Therefore, the only course available with CoC after such rejection wasto continue with the fresh CIRP; and the CoC had no legal authority to AB

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Aconsider or vote on a new settlement proposal of the promoter afterissuance of fresh Form G. Learned counsel would submit that the directionof the Appellate Tribunal as regards consideration of Section 12-Aproposal of the promoter was exhausted when the settlement proposalwas rejected by CoC in its eleventh meeting on 25.03.2022 and a freshSection 12-A application could not have been entertained by the CoC inBany case.

29. On another aspect, in CA No. 1827 of 2022, learned seniorcounsel for the appellant, Mr. C. Aryama Sundaram, appearing againstDharani Finance (the related party), has relied on various decisions ofthis Court including those in Phoenix ARC, Pratap Technocrats, andCKalpraj Dharamshi (supra) as also in Facor Alloys Ltd. v. BhuvanMadan and Ors.: Civil Appeal No. 5129 of 2021 to submit that eventhough the resolution applicant has admitted certain dues towards relatedparties, the final resolution plan did not provide for any payment and theplan was upheld by this Court in these cases. On previous occasions,Dthis Court as well as other fora had differentiated between related andnon-related parties under resolution plans. Learned senior counsel wouldargue against the proposition that a related party could be part of theCoC when it is a financial creditor. Further, it has been submitted thatArticle 14 of the Constitution in stricto sensu would not be applicable tothe decision of the CoC, as it is not a ‘State’ as defined under Article 12Eof the Constitution.

30. Learned senior counsel Mr. Vijay Narayan appearing on behalfof the resolution professional has mainly questioned the findings andobservations in the order impugned as regards the process adopted andsteps taken by RP and has made a variety of submissions as follows:

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30.1. As regards the question of valuation, it has been submittedthat the only responsibility of RP under Regulation 35(2) of the CIRPRegulations has been to share the fair value and liquidation value withthe members of CoC after obtaining a confidentiality undertaking, whichwas done in the present case. There is no requirement to provide a copyGof the report to the CoC or any other stakeholder. On the contention ofvaluation under the Companies (Valuation) Rules of 2017, it has beensubmitted that the interim resolution professional appointed three sets ofvaluers for the three main classes of assets.

30.1.1. With respect to the physical valuation of assets, learnedHsenior counsel emphasised on agenda item No. 4 of the fourth CoC

meeting, wherein it was clearly mentioned that the valuers visited theproperty of the corporate debtor.

30.1.2. Insofar as the issue of non-core assets not being valued isconcerned, it was submitted on behalf of RP that although the value ofnon-core assets was fairly insignificant, in the seventh CoC meetingdated 29.12.2020, the RP informed that the second valuer Mr. G VaidyaRamana, visited the premises for non-core assets and had subsequentlysubmitted his report. The statement containing the said reports was placedbefore the Tribunal. It has, thus, been submitted that it was incorrect forthe Tribunal to render a finding that the valuation of non-core assets hadnot been done in the present case.

30.2. As regards non-publication of Form-G on the website, it hasbeen argued that the same was published in all leading newspapers on09.08.2020 and the then IRP had emailed IBBI to intimate them thatthere was some technical issue in uploading the said form on the website,with a request to upload the same. Thus, all the requisite steps havingbeen reasonably taken, the process that had reached an advanced stagecould not have been annulled on such a technicality.

30.3. Further, while dealing with the issue of not placing the revisedresolution plan before the CoC, reliance has been placed on the ninthCoC meeting dated 22.01.2021 with the submissions that the resolutionplan was approved with 87.39% of the total voting share and the resolutionapplicant was only required to provide for redistribution to ensure thatthe dissenting financial creditors were given their share in terms of Section30(2)(b) of the Code. Pursuant to this, the resolution applicant submittedthe modified resolution plan in which the allocation for the unsecureddissenting financial creditors was revised from 29 crore to 49.13 crore.The revised plan was then placed before the Coc in the tenth CoC meetingand no objections were raised at that time.

30.4. It has also been submitted that the settlement proposal putforth by the corporate debtor was not in consonance with the mandatespecified under Regulation 30-A of the CIRP regulations read with Section12-A of IBC.

30.5. On the issue of increase in the fee of RP which was notraised before the NCLT and was only raised before the NCLAT, it hasbeen submitted that the request for revision of fee had indeed been AB

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Amade with reasons for said revision, much prior to the date on which theresolution plan was approved by the CoC.

30.6. It has also been submitted that the issue of ineligibility of theresolution applicant was not raised before NCLT but, NCLAT in itsimpugned order, has held him ineligible. In this regard, the RP could haveBonly carried out public domain search and take into account the affidavitof compliance submitted by resolution applicant in view of Regulation 39of the CIRP Regulations.

30.7. Coming to the allegation by Dharani Finance regardingdiscriminatory treatment for being a related party creditor, it has beenCsubmitted that there is a need only to ensure that the plan provides forpayment to financial creditors (including dissenting financial creditors)entitled to vote. Placing reliance on Section 30(2)(b)(ii), Section 21 andRegulation 38(1), it has been argued that the approved plan is inaccordance with the Code and the Regulations.

D30.8. In closing, it has been argued by the learned senior counselfor the resolution professional that he has preferred applications againstthe promoter-director of the corporate debtor under Section 43 of theCode seeking avoidance of certain transactions which are preferentialin nature. The said applications are pending before the NCLT foradjudication. With regard to these avoidance applications, however,Ereliance on a judgement of the Delhi High Court in Venus RecruitersPrivate Limited v. Union of India and Ors.: 2020 SCC Online Del.1479 is of no avail as in the said case, the High Court has examined thejurisdiction of the Adjudicating Authority to entertain an application underSection 43 after the approval of the resolution plan.F31. Learned senior counsel Mr. Mukul Rohatgi appearing on behalfof Dr. Perisamy Palani Gounder (promoter and erstwhile director), hassupported the order impugned while contesting the submissions made onbehalf of the appellant.

31.1. Learned senior counsel has submitted that the CoC approvedGthe resolution plan in question without considering the settlement proposalsput forth by the promoter under the letters dated 21.01.2021 and08.03.2021, for settling with all creditors and for withdrawal of CIRPunder Section 12-A of the Code. While placing reliance on the decisionof this Court in Swiss Ribbons (P) Ltd. and Anr. v. Union of India andOrs.: (2019) 4 SCC 17, it has been submitted that the promoter’sH

proposals were not even placed as agenda items and hence, the CoChad not been given an opportunity to properly consider the corporatedebtor as a going concern; rather CIRP was converted into a mere debtrecovery process by ignoring other creditors and shareholders. It hasbeen argued that the contesting promoter has been putting forth sincereefforts to preserve the corporate debtor as a going concern but his genuineefforts were sought to be frustrated by hasty and illegally conductedCIRP and thereby, the approved resolution plan was essentially givingaway the substantial assets of the corporate debtor at a highly undervaluedprice. Thus, the decision of the Appellate Tribunal in this case is correcton law as also on facts.

31.2. It has also been vehemently argued that the resolution planin question is contrary to law, as it clearly violates the underlying principlesof Section 88 of the Trusts Act and Section 164(2)(b) of the CompaniesAct, 2013. The main plank of submissions with respect to violation ofSection 88 of the Trusts Act has been that there is a conflict of interest,as the appellant is competing in his capacity as an individual with interestsof a trust in which he was the founding managing trustee. Further, it hasalready been ruled by the resolution professional that the said trust SriBalaji Vidyapeeth was ineligible to be a resolution applicant due to itsstatus as a charitable trust and a non-profit making entity. In the face ofthese facts, the appellant simultaneously submitting a resolution plan inhis individual capacity by taking support from financial credentials of thesame trust, basically sought to achieve indirectly which he could notdirectly. Furthermore, the fact that the trust was a prospective resolutionapplicant and was found to be ineligible was a fact suppressed from theknowledge of the COC.

31.2.1. It has also been submitted that the resolution applicant’splan to convert Coimbatore property into Hospital would directly resultin a conflict of interest and breach of fiduciary duties owed by him asmanaging director of the company MGM Healthcare Private Limited.This, according to the learned counsel would be in direct violation ofSection 166(4) of the Companies Act which prohibits a director of thecompany from involving himself in a situation in which he may havedirect or indirect interest that conflicts or possibly may conflict, with theinterest of the company. For this reason too, the resolution plan in questionis contrary to law and cannot pass muster under Section 30(2)(e) of theCode.

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A31.2.2. Another argument by the learned senior counsel on behalfof promoter has been that the appellant is not eligible to submit a resolutionplan under Section 29A(e) of the Code. It has been argued that theresolution applicant has been the director of a company named‘International Aviation Academy Private Limited’; and as per the auditedfinancial statements of the said company for 2010-2011 to 2017-2018,Bthere was evidence that Rs. 12,03,000 had been collected as “shareapplication money pending allotment” and had not been refunded. Thiswould result in the same being treated as an “unrefunded deposit” withinthe meaning of the proviso to Explanation (A) of Rule 2(1)(c)(viii) of theCompanies (Acceptance of Deposits) Rules, 2014 and result inCdisqualification of the appellant-resolution applicant, from being a directorunder Section 164(2)(b) of the Companies Act and, consequently, frombeing a resolution applicant in the CIRP in question.

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31.3. It has also been submitted that the assets of the corporatedebtor were grossly undervalued in the final resolution plan whereby,Dthe assets worth more than Rs. 1600 crore were sought to be transferredonly for a sum of about Rs. 423 crore. In order to support this line ofargument, reliance has been placed on Regulation 35(1) and 35(2) of theCIRP Regulations. Regulation 35(1) provides that two registered valuersmust submit an estimate of the ‘fair value’ and ‘liquidation value’ of thecorporate debtor after physical verification to the resolution professional,Eand Regulation 35(2) requires the resolution professional to provide theaforesaid valuation to every member of the CoC.

31.3.1. It has been argued that in the present case, there was nophysical verification because the appointed registered valuers were basedin Delhi and sought to delegate the process of physical verification toFtheir associates in Tamil Nadu. Concerns regarding this were alsohighlighted in the second CoC meeting dated 06.08.2020. Further, it hasbeen submitted that the valuation of the non-core assets was carried outirregularly and not in accordance with Regulation 35 of the CIRPRegulations. In addition, only bare valuation figures were shared and theGvaluation reports were not furnished to the erstwhile directors and themembers of CoC. Thus, according to the learned senior counsel, it wasrightly noticed by NCLAT that mere production of the naked value ofassets without detailed adjoining report would handicap the commercialwisdom of the CoC. Reliance has also been placed on the seventh CoCmeeting to submit that the concern of resolution plan not reflecting trueH

value of the corporate debtor was expressed by the CoC members. Ithas also been submitted that the resolution professional under the pretextof maintaining the corporate debtor as a going concern, has allowedapproval of an illegal resolution plan that hands over assets of the CorporateDebtor at severe undervaluation.

31.3.2. Further, it has been contended that the decision inMaharashtra Seamless (supra) would not be relevant to the presentcase because it does not refer to a situation in which the determinationof fair value and liquidation value is done in an illegal manner and in away that grossly undervalues the assets of the corporate debtor. In thepresent case, the total debt of the corporate debtor is much lower thanthe liquidation value of its assets. This apart, according to the learnedcounsel, the proposition concerning the application of principles of resjudicata remains wholly misplaced since the said proceedings in NCLATwere at the instance of a different party and the principal issue in theprevious litigation had nothing to do with the resolution plan, or statutoryviolations in the CIRP.

31.4. Dealing with the issue of non-publication of Form G on thewebsite, it has been submitted that Regulation 36A(2)(iii) of the CIRPRegulations, which mandates the publication on the website of IBBI andthe website of corporate debtor has been violated as it has been anadmitted position that the same was not done by the resolutionprofessional. The actions of the resolution professional, therefore, hadbeen in violation of Regulation 36A and Circular Bearing No. IP (CIRP)/006/2018 dated 23.02.2018. The resolution professional has claimed thatthe form could not be uploaded for technical reasons but has failed toexplain the steps taken to rectify this deficiency in the CIRP.

31.5. Coming to the issue of not placing the final resolution planbefore the CoC, it has been submitted, with reference to the minutes ofthe ninth CoC meeting dated 22.01.2021, that when the resolution planwas put to vote, there was a requirement for the resolution professionalto send the plan back to the resolution applicant to comply with Section30(2) IBC. However, after this, the revised plan was directly placedbefore the NCLT and not before the CoC which stands in violation ofSections 30(2), 30(4), 30(6) and 31 of the Code. Further, it has also beencontended that Section 31 of the Code does not envisage any post factoratification of a resolution plan.

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A31.6. With reference to the application to bring on record thesubsequent event of acceptance of his settlement proposal under Section12-A IBC by CoC with 100% voting powers of the members in itsnineteenth meeting, placing reliance on Section 12-A and Regulation 30-A of CIRP Regulations, learned counsel has submitted that there is neitherany bar on the submission of multiple settlement proposals for withdrawalBunder the said Section nor a cut-off date within which the proposal hasto be made during the CIRP. He would also argue that the applicationunder Section 12-A styled as ‘withdrawal’ also calls into play the principlethat the creditors are dominus litis in an insolvency proceeding and theyhave the right to withdraw a proceeding subject to approval by theCAdjudicating Authority.

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31.7. Learned counsel for promoter would also contend that theresolution applicant has no vested right to have his plan accepted andimplemented under the provisions of the Code. In response to theargument of the resolution applicant that resolution applicant had depositedDRs. 150 crore which has not been returned, learned counsel for thepromoter has submitted that during the eleventh CoC meeting, on thequestion of the promoter, the resolution professional replied that theprocess was between him and the resolution applicant and someprocedural issues were to be addressed whereafter, the deposited moneywould be returned. E

32. Learned senior counsel Mr. K.V. Vishwanathan, also appearingfor the promoter, has re-emphasised that the revised plan was never putto vote and that there was duty of valuers to physically valuate the assetswhich they did not carry out. This apart, it has also been argued that theshareholders would not have the requisite locus to intervene in the CIRPFprocess, by placing reliance on the decision of this Court in JaypeeKensington (supra).

33. Mr. Dhruv Mehta, learned senior counsel appearing for theother promoter and erstwhile director Dr. V. Janakiraman has madelargely the similar submissions, relying on the minutes of the ninth CoCGmeeting that there was a violation of Section 30(4) and 30(6) of IBC.Learned senior counsel has further referred to the judgment in EssarSteel (supra) to emphasise on the point that the revised resolution planwas never placed before the CoC and hence, the entire process standsvitiated.

34. Learned counsel for Dharani Finance, Ms. HaripriyaPadmanabhan has primarily argued against the treatment of relatedparties as a separate class for payment of dues under the resolutionplan. It has been submitted that Dharani Finance is a non-banking financialinstitution, listed in Bombay Stock Exchange. In this case, it is a financialcreditor and an operational creditor of the corporate debtor and eventhough its claims of Rs. 1,94,14,024 and Rs. 4,81,62,175, of operationaldebt and financial debt respectively, were duly admitted, it was not paidanything under the resolution plan for being a related party. While placingreliance on the judgment in Phoenix ARC (supra), it has been arguedthat this Court has laid down the reasons for treating related parties as aseparate class, and held that related parties should be excluded from theCoC so that they do not interfere with the resolution process. The rationalebehind this has been achieved by not allowing related parties to presentthe resolution plans or to become a part of the CoC. However, there isno reason for them to be treated as a separate class when it comes topayment of dues under the approved resolution plan. Further, it has beencontended that the resolution professional in this case undertook a hastyprocess, without adjudicating on all the claims received by it.

34.1. Relying on the seventh and eighth CoC meetings, it hasbeen submitted that there was a certain amount set apart for relatedparties, however, in the final resolution plan, there was no amount statedto be paid to the related parties and there had not been any discussion inthe CoC in this regard. Thus, for Dharani Finance being an operationaland a financial creditor, the failure to provide for discharge of its debt inthe final resolution plan, is in violation of Sections 30(2)(b), (e) and (f) ofthe Code. It has been strenuously argued that at the very least, CoCmust discuss whether Dharani Finance is to be repaid, which has notbeen done.

35. Learned Solicitor General of India Mr. Tushar Mehta, appearingfor SBI, has submitted that this financial creditor has a voting share ofabout 26% in the CoC with an admitted claim of Rs. 102.88 crore. As amatter of record, it has been accepted that SBI approved the resolutionplan of Rs. 423 crore submitted by the resolution applicant within 87.39%of the voting share in CoC. It is submitted that the topmost priority ofSBI is that the CIRP be decided in a definite time frame given thatnearly 2 years have elapsed and further delay would cause deteriorationin the asset value. Since the CoC had already taken steps in furtherance AB

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Aof the impugned order dated 17.02.2022, it has been prayed that theCoC be allowed to continue with the CIRP from the stage of freshissuance of Form G; consideration of proposal under Section 12-A ofthe Code and also determine eligibility of appellant, on independent footing,uninfluenced by the observations of the NCLAT.B35.1. In regard to the fresh proceedings during the pendency ofthese appeals (as noticed above), it has been submitted on behalf of SBIthat after being given further opportunity, the promoter re-submitted thesettlement proposal under Section 12-A IBC with deposit of upfrontamount of Rs. 105 crore and a Bank Guarantee of Rs. 325 crore; and onbeing put to vote, this settlement proposal was approved by 100% votingCshare in the CoC which deserves to be taken forward. Learned SG hasrelied on the decisions of this Court in Vallal RCK v. Siva Industriesand Holdings Ltd. and Ors.: 2022 SCC OnLine SC 717 and BrilliantAlloys (P) Ltd. v. S. Rajagopal and Ors.: (2022) 2 SCC 544.

36. Appearing for Edelweiss and associates, learned senior counselDMr. Rakesh Dwivedi has submitted that these financial creditors of thecorporate debtor with total of about 21.13% voting share in CoC, toohad voted in favour of the resolution plan in question; and the plan soapproved with 87.39% of the voting share in CoC could not have beenlightly interfered with. The learned counsel has contended that merelyEfor non-consideration of revised resolution plan, which was revised atthe instance of CoC itself, the approval could not have been set asideoverriding the commercial wisdom of CoC. It has also been submittedthat the promoters’ earlier proposition with reference to Section 12-A ofthe Code was wholly ambiguous and could not have been countenancedin the manner presented before CoC or even before NCLAT. WhileFreferring to certain other areas of concern including the amount depositedby the resolution applicant, it has been suggested on behalf of thesefinancial creditors that CIRP must be allowed to go on while leavingpromoter a right to propose a better resolution plan by way of a SwissChallenge Process; and for that purpose, he should be made to depositGat least a sum of Rs. 471.70 crore in an escrow account prior to thevoting on his settlement offer.

Points for determination

37. For what has been noticed hereinabove and looking to theoverall scenario, the following principal points arise for determination inHthis batch of appeals:

A. Whether the valuation process of the assets of the corporatedebtor had been in violation of the Regulations 27 and 35 of theCIRP Regulations and thereby, approval of the resolution planhad been in contravention of Sections 30(2) and 61(3) of the Code?

B. Whether there had been non-compliance of Regulation 36-A(2)(iii) of the CIRP Regulations for want of publication of FormG on the designated website not later than 75[th] day from theinsolvency commencement date; and failure to advertise asmandated had a direct impact on the maximization of asset value,particularly when the entire CIRP was conducted during lockdownat the time of Covid-19 pandemic?

C1. Whether the resolution applicant is ineligible to submit aresolution plan in terms of Section 29-A(e) of the Code for beingdisqualified to act as a director under Section 164(2)(b) of theCompanies Act?

C2. Whether the resolution applicant is ineligible to submit aresolution plan so as to act as alter ego of the trust “Sri BalajiVidyapeeth” that had already been declared ineligible; andsubmission of plan by resolution applicant is barred by virtue ofSection 88 of the Trusts Act?

C3. Whether the resolution plan in question leads to violation ofSection 166(4) of the Companies Act and hence, cannot beapproved in terms of Section 30(2)(e) of the Code?

D1. Whether the Appellate Tribunal has erred in holding that theresolution plan in question, which was placed before theAdjudicating Authority for approval, was void and non-est in lawbecause in the ninth CoC meeting dated 22.01.2021, the resolutionplan was sent back to the resolution applicant for further revision;and the revised resolution plan thereafter submitted by theresolution applicant on 25.01.2021 was directly filed before theAdjudicating Authority without being put to vote before CoC?

D2. Whether the Appellate Tribunal has erred in makingobservations against increase of the fees of the resolutionprofessional and assuming the possibility of its impact on hisdecision to submit the resolution plan before the AdjudicatingAuthority without approval of CoC?

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E. Whether the Appellate Tribunal has erred in applying theprinciples of non-discrimination in relation to related party ofcorporate debtor and thereby holding against the resolution planin question for want of provision for related party?

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F. Whether the Appellate Tribunal has erred in holding thatBsettlement offer of the promoter in terms of Section 12-A of theCode was not placed for consideration of CoC; and as to whethernon-consideration of such a proposal has any bearing on thequestion of approval of the resolution plan in question?

G. What is the impact and effect of the subsequent events,Cparticularly of the approval of settlement offer of the promoter bythe CoC in its nineteenth meeting held on 12.10.2022 by 100%majority of the voting share?

Relevant statutory provisions

38. We have taken note of the parties and their respective positions;Dthe relevant factual and background aspects that have led to the presentset of appeals, including various meetings of the CoC and other eventsthat occurred during the CIRP; the impugned orders of the NCLT andNCLAT dated 15.07.2021 and 17.02.2022 respectively; and the principalpoints to be determined in these appeals. Before proceeding further,Eworthwhile it would be to take note of the statutory provisions, whichare relevant to the contentions urged in these appeals[23].

38.1. We may also take note of some of the other relevant statutoryprovisions of the IBC including Section 12-A which provides forwithdrawal of application admitted under Sections 7, 9 or 10; Section 21Fin regard to constitution and composition of the CoC; Section 24 whichspecifies about meetings of the CoC; Section 25 which lays down theduties of the resolution professional in respect to the corporate debtor;Section 29-A which provides that certain persons may be ineligible to beresolution applicants; Section 30 relating to submission of resolution plan;Section 31 which provides for approval of the resolution plan; Section 32Gwhich provides for appeal from order approving resolution plan; Section61 which lays down the procedure and grounds of appeal before theAppellate Tribunal ; and Section 238 which states that the Code has anoverriding power over other laws. These provisions read as follows: - 23 It may be observed that the relevant provisions have been extracted herein as presentlyHnoticeable, while indicating, as far as possible, the amendments thereto.

“[24]Section 12A. Withdrawal of application admitted undersection 7, 9 or 10.—

The Adjudicating Authority may allow the withdrawal of applicationadmitted under section 7 or section 9 or section 10, on an applicationmade by the applicant with the approval of ninety per cent. votingshare of the committee of creditors, in such manner as may bespecified.

Section 21. Committee of creditors. -(1) The interim resolutionprofessional shall after collation of all claims received against thecorporate debtor and determination of the financial position of thecorporate debtor, constitute a committee of creditors.

(2) The committee of creditors shall comprise all financial creditorsof the corporate debtor:

Provided that a [25][financial creditor or the authorised representativeof the financial creditor referred to in sub-section (6) or sub-section(6A) or sub-section (5) of section 24, if it is a related party of thecorporate debtor,] shall not have any right of representation,participation or voting in a meeting of the committee of creditors:

26[Provided further that the first proviso shall not apply to afinancial creditor, regulated by a financial sector regulator, if it is arelated party of the corporate debtor solely on account ofconversion or substitution of debt into equity shares or instrumentsconvertible into equity shares [27][or completion of such transactionsas may be prescribed], prior to the insolvency commencementdate.]

(3) [28][Subject to sub-sections (6) and (6A), where] the corporatedebtor owes financial debts to two or more financial creditors aspart of a consortium or agreement, each such financial creditorshall be part of the committee of creditors and their voting shareshall be determined on the basis of the financial debts owed tothem.

24 Ins. by Act 26 of 2018, sec. 9 (w.r.e.f. 6-6-2018).

25 Subs. by Act 26 of 2018, sec. 15(i)(a), for “related party to whom a corporate debtorowes a financial debt” (w.r.e.f. 6-6-2018).

26 Ins. by Act 26 of 2018, sec. 15(i)(b) (w.r.e.f. 6-6-2018).

27 Ins. by Act 1 of 2020, sec. 7 (w.r.e.f. 28-12-2019).

28 Subs. by Act 26 of 2018, sec. 15(ii), for “Where” (w.r.e.f. 6-6-2018).

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A(4) Where any person is a financial creditor as well as anoperational creditor, - (a) such person shall be a financial creditor to the extent of thefinancial debt owed by the corporate debtor, and shall be includedin the committee of creditors, with voting share proportionate toBthe extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditorto the extent of the operational debt owed by the corporate debtorto such creditor.

(5) Where an operational creditor has assigned or legallyCtransferred any operational debt to a financial creditor, theassignee or transferee shall be considered as an operational creditorto the extent of such assignment or legal transfer.

(6) Where the terms of the financial debt extended as part of aconsortium arrangement or syndicated facility [29][***] provide forDa single trustee or agent to act for all financial creditors, eachfinancial creditor may- (a) authorise the trustee or agent to act on his behalf in thecommittee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extentEof his voting share;

(c) appoint an insolvency professional (other than the resolutionprofessional) at his own cost to represent himself in the committeeof creditors to the extent of his voting share; or F(d) exercise his right to vote to the extent of his voting share withone or more financial creditors jointly or severally.30[(6A) Where a financial debt—

(a) is in the form of securities or deposits and the terms of thefinancial debt provide for appointment of a trustee or agent to actGas authorised representative for all the financial creditors, suchtrustee or agent shall act on behalf of such financial creditors;

29 The words “or issued as securities” omitted by Act. No 26 of 2018, sec. 15(iii)(w.r.e.f. 6-6-2018).30 Ins. by Act 26 of 2018, sec. 15(iv) (w.r.e.f. 6-6-2018).H

(b) is owed to a class of creditors exceeding the number as maybe specified, other than the creditors covered under clause (a) orsub-section (6), the interim resolution professional shall make anapplication to the Adjudicating Authority along with the list of allfinancial creditors, containing the name of an insolvencyprofessional, other than the interim resolution professional, to actas their authorised representative who shall be appointed by theAdjudicating Authority prior to the first meeting of the committeeof creditors;

(c) is represented by a guardian, executor or administrator, suchperson shall act as authorised representative on behalf of suchfinancial creditors, and such authorised representative under clause (a) or clause (b)or clause (c) shall attend the meetings of the committee ofcreditors, and vote on behalf of each financial creditor to the extentof his voting share.

(6B) The remuneration payable to the authorised representative-

(i) under clauses (a) and (c) of sub-section (6A), if any, shall beas per the terms of the financial debt or the relevant documentation;and

(ii) under clause (b) of sub-section (6A) shall be as specified whichshall be form part of the insolvency resolution process costs.]

31[(7) The Board may specify the manner of voting and thedetermining of the voting share in respect of financial debts coveredunder sub-sections (6) and (6A).

(8) Save as otherwise provided in this Code, all decisions of thecommittee of creditors shall be taken by a vote of not less thanfifty-one per cent. of voting share of the financial creditors:

Provided that where a corporate debtor does not have any financialcreditors, the committee of creditors shall be constituted and shallcomprise of such persons to exercise such functions in suchmanner as may be specified.]

(9) The committee of creditors shall have the right to require theresolution professional to furnish any financial information in relation 31 Subs. by Act 26 of 2018, sec. 15(v), for sub-sections (7) and (8) (w.r.e.f. 6-6-2018).

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Ato the corporate debtor at any time during the corporate insolvencyresolution process.

10) The resolution professional shall make available any financialinformation so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition.B

Section 24. Meeting of committee of creditors. - (1) Themembers of the committee of creditors may meet in person or bysuch electronic means as may be specified.

(2) All meetings of the committee of creditors shall be conductedby the resolution professional.

C(3) The resolution professional shall give notice of each meetingof the committee of creditors to- (a) members of [32][committee of creditors, including the authorisedrepresentatives referred to in sub-sections (6) and (6A) of sectionD21 and sub-section (5)]; (b) members of the suspended Board of Directors or the partnersof the corporate persons, as the case may be;

(c) operational creditors or their representatives if the amount oftheir aggregate dues is not less than ten per cent of the debt.E(4) The directors, partners and one representative of operationalcreditors, as referred to in sub-section (3), may attend the meetingsof committee of creditors, but shall not have any right to vote insuch meetings:

Provided that the absence of any such director, partner orFrepresentative of operational creditors, as the case may be, shallnot invalidate proceedings of such meeting.

(5) [33][Subject to sub-sections (6), (6A) and (6B) of section 21,any creditor] who is a member of the committee of creditors mayappoint an insolvency professional other than the resolutionGprofessional to represent such creditor in a meeting of thecommittee of creditors:

32 Subs. by Act 26 of 2018, sec. 18(i), for “Committee of creditors” (w.r.e.f. 6-6-2018).

H33 Subs. by Act 26 of 2018, sec. 18 (ii), for “Any creditor” (w.r.e.f. 6-6-2018).

Provided that the fees payable to such insolvency professionalrepresenting any individual creditor will be borne by such creditor.

(6) Each creditor shall vote in accordance with the voting shareassigned to him based on the financial debts owed to such creditor.

(7) The resolution professional shall determine the voting share tobe assigned to each creditor in the manner specified by the Board.

(8) The meetings of the committee of creditors shall be conductedin such manner as may be specified.

Section 25. Duties of resolution professional.- (1) It shall bethe duty of the resolution professional to preserve and protect theassets of the corporate debtor, including the continued businessoperations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professionalshall undertake the following actions, namely:—

(a) take immediate custody and control of all the assets of thecorporate debtor, including the business records of the corporatedebtor; (b) represent and act on behalf of the corporate debtor with thirdparties, exercise rights for the benefit of the corporate debtor injudicial, quasi-judicial or arbitration proceedings;

(c) raise interim finances subject to the approval of the committeeof creditors under section 28; (d) appoint accountants, legal or other professionals in the manneras specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance withsection 29; 34[(h) invite prospective resolution applicants, who fulfil suchcriteria as may be laid down by him with the approval of committeeof creditors, having regard to the complexity and scale of operationsof the business of the corporate debtor and such other conditions 34 Subs. by Act 8 of 2018, sec. 4, for clause (h) (w.r.e.f. 23-11-2017).

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as may be specified by the Board, to submit a resolution plan orplans.]

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(i) present all resolution plans at the meetings of the committee ofcreditors; (j) file application for avoidance of transactions in accordancewith Chapter III, if any; and B

(k) such other actions as may be specified by the Board.

35[Section 29A. Persons not eligible to be resolutionapplicant.– A person shall not be eligible to submit a resolutionplan, if such person, or any other person acting jointly or in concertwith such person,- C

(a) is an undischarged insolvent;

(b) is a wilful defaulter in accordance with the guidelines of theReserve Bank of India issued under the Banking Regulation Act,D1949 (10 of 1949);

(c) [36][at the time of submission of the resolution plan has anaccount,] or an account of a corporate debtor under themanagement or control of such person or of whom such person isa promoter, classified as non-performing asset in accordance withEthe guidelines of the Reserve Bank of India issued under theBanking Regulation Act, 1949 (10 of 1949) [37][or the guidelines of a financial sector regulator issued under any other law for thetime being in force,] and at least a period of one year has lapsedfrom the date of such classification till the date of commencementof the corporate insolvency resolution process of the corporateFdebtor:

Provided that the person shall be eligible to submit a resolutionplan if such person makes payment of all overdue amounts withinterest thereon and charges relating to non-performing assetaccounts before submission of resolution plan:

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35 Ins. by Act 8 of 2018, sec. 5 (w.r.e.f. 23-11-2017).

36 Subs. by Act 26 of 2018, sec. 22(i)(A), for “has an account,” (w.r.e.f. 6-6-2018).

37 Ins. by Act 26 of 2018, sec. 22(i)(B) (w.r.e.f. 6-6-2018).

H38 Ins. by Act 26 of 2018, sec. 22(i)(C) (w.r.e.f. 6-6-2018).

38[Provided further that nothing in this clause shall apply to aresolution applicant where such applicant is a financial entity andis not a related party to the corporate debtor.

Explanation. I.-For the purposes of this proviso, the expression“related party” shall not include a financial entity, regulated by afinancial sector regulator, if it is a financial creditor of the corporatedebtor and is a related party of the corporate debtor solely onaccount of conversion or substitution of debt into equity shares orinstruments convertible into equity shares [39][or completion of suchtransactions as may be prescribed], prior to the insolvencycommencement date.

Explanation. II.-For the purposes of this clause, where aresolution applicant has an account, or an account of a corporatedebtor under the management or control of such person or ofwhom such person is a promoter, classified as non-performingasset and such account was acquired pursuant to a prior resolutionplan approved under this Code, then, the provisions of this clauseshall not apply to such resolution applicant for a period of threeyears from the date of approval of such resolution plan by theAdjudicating Authority under this Code;]

40[(d) has been convicted for any offence punishable withimprisonment—

(i) for two years or more under any Act specified under the TwelfthSchedule; or

(ii) for seven years or more under any other law for the timebeing in force:

Provided that this clause shall not apply to a person after theexpiry of a period of two years from the date of his release fromimprisonment:

Provided further that this clause shall not apply in relation to aconnected person referred to in clause (iii) of Explanation I;]

(e) is disqualified to act as a director under the Companies Act,2013 (18 of 2013):

39 Ins. by Act 1 of 2020, sec. 9(i) (w.r.e.f. 28-12-2019).

40 Subs. by Act 26 of 2018, sec. 22(ii), for clause (d) (w.r.e.f. 6-6-2018).

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A41[Provided that this clause shall not apply in relation to a connectedperson referred to in clause (iii) of Explanation I;]

(f) is prohibited by the Securities and Exchange Board of Indiafrom trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of aBcorporate debtor in which a preferential transaction, undervaluedtransaction, extortionate credit transaction or fraudulent transactionhas taken place and in respect of which an order has been madeby the Adjudicating Authority under this Code:

42[Provided that this clause shall not apply if a preferentialCtransaction, undervalued transaction, extortionate credittransaction or fraudulent transaction has taken place prior to theacquisition of the corporate debtor by the resolution applicantpursuant to a resolution plan approved under this Code or pursuantto a scheme or plan approved by a financial sector regulator or aDcourt, and such resolution applicant has not otherwise contributedto the preferential transaction, undervalued transaction,extortionate credit transaction or fraudulent transaction;]

(h) has executed [43][a guarantee] in favour of a creditor in respectof a corporate debtor against which an application for insolvencyEresolution made by such creditor has been admitted under thisCode [44][and such guarantee has been invoked by the creditor andremains unpaid in full or part];

(i) [45][is] subject to any disability, corresponding to clauses (a) to(h), under any law in a jurisdiction outside India; or F(j) has a connected person not eligible under clauses (a) to (i)

46[Explanation. I]. — For the purposes of this clause, theexpression “connected person” means—

41 Ins. by Act 26 of 2018, sec. 22(iii) (w.r.e.f. 6-6-2018).G42 Ins. by Act 26 of 2018, sec. 22(iv) (w.r.e.f. 6-6-2018).43 Subs. by Act 26 of 2018, sec. 22(v)(A), for “an enforceable guarantee” (w.r.e.f. 6-6-2018).

44 Ins. by Act 26 of 2018, sec. 22(v)(B) (w.r.e.f. 6-6-2018).

45 Subs. by Act 26 of 2018, sec. 22(vi), for “has been” (w.r.e.f. 6-6-2018).

46 Explanation renumbered as Explanation I thereof by Act 26 of 2018, sec. 22(vii)H(w.r.e.f. 6-6-2018).

(i) any person who is the promoter or in the management or controlof the resolution applicant; or

(ii) any person who shall be the promoter or in management orcontrol of the business of the corporate debtor during theimplementation of the resolution plan; or

(iii) the holding company, subsidiary company, associate companyor related party of a person referred to in clauses (i) and (ii).

47[Provided that nothing in clause (iii) of Explanation I shall applyto a resolution applicant where such applicant is a financial entityand is not a related party of the corporate debtor:

Provided further that the expression “related party” shall notinclude a financial entity, regulated by a financial sector regulator,if it is a financial creditor of the corporate debtor and is a relatedparty of the corporate debtor solely on account of conversion orsubstitution of debt into equity shares or instruments convertibleinto equity shares [48][or completion of such transactions as maybe prescribed], prior to the insolvency commencement date;]

49[Explanation. II.—For the purposes of this section, “financialentity” shall mean the following entities which meet such criteriaor conditions as the Central Government may, in consultation withthe financial sector regulator, notify in this behalf, namely:—

(a) a scheduled bank;

(b) any entity regulated by a foreign central bank or a securitiesmarket regulator or other financial sector regulator of a jurisdictionoutside India which jurisdiction is compliant with the FinancialAction Task Force Standards and is a signatory to the InternationalOrganisation of Securities Commissions Multilateral Memorandumof Understanding;

(c) any investment vehicle, registered foreign institutional investor,registered foreign portfolio investor or a foreign venture capitalinvestor, where the terms shall have the meaning assigned to themin regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India)

47 Subs. by Act 26 of 2018, sec. 22(vii), for proviso (w.r.e.f. 6-6-2018).

48 Ins. by Act 1 of 2020, sec. 9(ii) (w.r.e.f. 28-12-2019).

49 Ins. by Act 26 of 2018, sec. 22(viii) (w.r.e.f. 6-6-2018).

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ARegulations, 2017 made under the Foreign Exchange ManagementAct, 1999 (42 of 1999); (d) an asset reconstruction company registered with the ReserveBank of India under section 3 of the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityBInterest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered with the Securitiesand Exchange Board of India; (f) such categories of persons as may be notified by the CentralGovernment.]]

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Section 30. Submission of resolution plan.-(1) A resolutionapplicant may submit a resolution plan [50][along with an affidavitstating that he is eligible under section 29A] to the resolutionprofessional prepared on the basis of the information memorandum.

D(2) The resolution professional shall examine each resolution planreceived by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costsin a manner specified by the Board in priority to the [51][payment]of other debts of the corporate debtor; E52[(b) provides for the payment of debts of operational creditorsin such manner as may be specified by the Board which shall notbe less than—

(i) the amount to be paid to such creditors in the event of a liquidationof the corporate debtor under section 53; or F(ii) the amount that would have been paid to such creditors, if theamount to be distributed under the resolution plan had beendistributed in accordance with the order of priority in sub-section(1) of section 53, whichever is higher, and provides for the paymentof debts of financial creditors, who do not vote in favour of theGresolution plan, in such manner as may be specified by the Board,which shall not be less than the amount to be paid to such creditors 50 Ins. by Act 26 of 2018, sec. 23(i) (w.r.e.f. 6-6-2018)

51 Subs. by Act 26 of 2018, sec. 23(ii)(A) for “repayment” (w.r.e.f. 6-6-2018)

52 Subs. by Act 26 of 2019, sec. 6(a), for clause (b) [w.e.f. 16-8-2019, vide S.O.

H2953(E), dated 16[th] August, 2019].

in accordance with sub-section (1) of section 53 in the event of aliquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarifiedthat a distribution in accordance with the provisions of this clauseshall be fair and equitable to such creditors.

Explanation 2.— For the purposes of this clause, it is herebydeclared that on and from the date of commencement of theInsolvency and Bankruptcy Code (Amendment) Act, 2019, theprovisions of this clause shall also apply to the corporate insolvencyresolution process of a corporate debtor—

(i) where a resolution plan has not been approved or rejected bythe Adjudicating Authority;

(ii) where an appeal has been preferred under section 61 or section62 or such an appeal is not time barred under any provision of lawfor the time being in force; or

(iii) where a legal proceeding has been initiated in any court againstthe decision of the Adjudicating Authority in respect of a resolutionplan;]

(c) provides for the management of the affairs of the Corporatedebtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for thetime being in force; (f) conforms to such other requirements as may be specified bythe Board.

53[Explanation.— For the purposes of clause (e), if any approvalof shareholders is required under the Companies Act, 2013 (18 of2013) or any other law for the time being in force for theimplementation of actions under the resolution plan, such approvalshall be deemed to have been given and it shall not be acontravention of that Act or law.]

(3) The resolution professional shall present to the committee ofcreditors for its approval such resolution plans which confirm theconditions referred to in sub-section (2).

53 Ins. by Act 26 of 2018, sec. 23(ii)(B) (w.r.e.f. 6-6-2018)

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A54[(4) The committee of creditors may approve a resolution planby a vote of not less than [55][sixty-six] per cent. of voting share ofthe financial creditors, after considering its feasibility andviability, [56][the manner of distribution proposed, which may takeinto account the order of priority amongst creditors as laid downin sub-section (1) of section 53, including the priority and value ofBthe security interest of a secured creditor] and such otherrequirements as may be specified by the Board:

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Provided that the committee of creditors shall not approve aresolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance,C2017(Ord. 7 of 2017), where the resolution applicant is ineligibleunder section 29A and may require the resolution professional toinvite a fresh resolution plan where no other resolution plan isavailable with it:

Provided further that where the resolution applicant referred to inDthe first proviso is ineligible under clause (c) of section 29A, theresolution applicant shall be allowed by the committee of creditorssuch period, not exceeding thirty days, to make payment of overdueamounts in accordance with the proviso to clause (c) of section29A:

EProvided also that nothing in the second proviso shall be construedas extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolutionprocess shall be completed within the period specified in that sub-section.]

F57[Provided also that the eligibility criteria in section 29A asamended by the Insolvency and Bankruptcy Code (Amendment)Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolutionapplicant who has not submitted resolution plan as on the date ofcommencement of the Insolvency and Bankruptcy CodeG(Amendment) Ordinance, 2018 (Ord. 6 of 2018).]

54 Subs. by Act 8 of 2018, sec. 6, for sub-section (4) (w.r.e.f. 23-11-2017).

55 Subs. by Act 26 of 2018, sec. 23(iii)(a) for “seventy-five” (w.r.e.f. 6-6-2018)56 Ins. by Act 26 of 2019, sec. 6(b) [w.e.f 16-8-2019, vide S.O. 2953(E) dated 16thAugust, 2019).

H57 Ins. by Act 26 of 2018, sec. 23(iii)(b) (w.r.e.f. 6-6-2018).

(5) The resolution applicant may attend the meeting of thecommittee of creditors in which the resolution plan of the applicantis considered:

Provided that the resolution applicant shall not have a right to voteat the meeting of the committee of creditors unless such resolutionapplicant is also a financial creditor.

(6) The resolution professional shall submit the resolution plan asapproved by the committee of creditors to the AdjudicatingAuthority.

Section 31. Approval of resolution plan.-

(1) If the Adjudicating Authority is satisfied that the resolutionplan 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 resolutionplan which shall be binding on the corporate debtor and itsemployees, members, creditors, [58][including the CentralGovernment, any State Government or any local authority to whoma debt in respect of the payment of dues arising under any law forthe time being in force, such as authorities to whom statutorydues are owed,] guarantors and other stakeholders involved inthe resolution plan:

59[Provided that the Adjudicating Authority shall, before passingan order for approval of resolution plan under this sub-section,satisfy that the resolution plan has provisions for its effectiveimplementation.]

(2) Where the Adjudicating Authority is satisfied that the resolutionplan 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 Authorityunder section 14 shall cease to have effect; and 58 Ins. By Act 26 of 2019, sec. 7 [w.e.f 16-8-2019, vide S.O. 2953(E), dated 16th August,2019].

59 Ins. by Act 26 of 2018, sec. 24(a) (w.r.e.f. 6-6-2018).

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A(b) the resolution professional shall forward all records relating tothe conduct of the corporate insolvency resolution process andthe resolution plan to the Board to be recorded on its database.

60[(4) The resolution applicant shall, pursuant to the resolutionplan approved under sub-section (1), obtain the necessary approvalBrequired under any law for the time being in force within a periodof one year from the date of approval of the resolution plan by theAdjudicating Authority under sub-section (1) or within such periodas provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision forCcombination, as referred to in section 5 of the Competition Act,2002 (12 of 2003), the resolution applicant shall obtain the approvalof the Competition Commission of India under that Act prior tothe approval of such resolution plan by the committee of creditors.]

Section 32. Appeal. -Any appeal from an order approving theDresolution plan shall be in the manner and on the grounds laiddown in sub-section (3) of section 61.

Section 61. Appeals and Appellate Authority.-(1)Notwithstanding anything to the contrary contained under theCompanies Act 2013 (18 of 2013), any person aggrieved by theEorder of the Adjudicating Authority under this part may prefer anappeal to the National Company Law Appellate Tribunal.

(2) Every appeal under sub-section (1) shall be filed within thirtydays before the National Company Law Appellate Tribunal:

Provided that the National Company Law Appellate Tribunal mayFallow an appeal to be filed after the expiry of the said period ofthirty days if it is satisfied that there was sufficient cause for notfiling the appeal but such period shall not exceed fifteen days.

(3) An appeal against an order approving a resolution plan undersection 31 may be filed on the following grounds, namely:

G(i) the approved resolution plan is in contravention of the provisionsof any law for the time being in force;

(ii) there has been material irregularity in exercise of the powersby the resolution professional during the corporate insolvencyresolution period;

(iii) the debts owed to operational creditors of the corporate debtorhave not been provided for in the resolution plan in the mannerspecified by the Board;

(iv) the insolvency resolution process costs have not been providedfor repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteriaspecified by the Board.

[[61](4) An appeal against a liquidation order passed under section33, or sub-section (4) of section 54L, or sub-section (4) of section54N, may be filed on grounds of material irregularity or fraudcommitted in relation to such a liquidation order.

(5) An appeal against an order for initiation of corporate insolvencyresolution process passed under sub-section (2) of section 54-O,may be filed on grounds of material irregularity or fraud committedin relation to such an order.]

Section 238. Provisions of this Code to override other laws.- The provisions of this Code shall have effect, notwithstandinganything inconsistent therewith contained in any other law for thetime being in force or any instrument having effect by virtue ofany such law.”

38.2. We may also take note of regulations in the CIRP Regulationsas are relevant to the facts of the present case as follows: - 62[27. Appointment of Professionals.- (1) The resolutionprofessional shall, within seven days of his appointment but notlater than forty-seventh day from the insolvency commencement 61 Subs. by Act 26 of 2021, sec. 9, for sub-section (4) (w.r.e.f. 4-4-2021). Sub-section

(4) before substitution, stood as under:

“(4) An appeal against a liquidation order passed under section 33 may be filedon grounds of material irregularity or fraud committed in relation to such aliquidation order.”

62 Substituted by Notification No. IBBI/2021-22/GN/REG075, dated 14th July, 2021,for regulation 27 (w.e.f. 14-7-2021). Earlier regulation 27 was substituted by NotificationNo. IBBI/2017-18/GN/REG024, dated 6[th] February, 2018 (w.e.f. 6-2-2018) and amended A

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SUPREME COURT REPORTS

Adate, appoint two registered valuers to determine the fair valueand the liquidation value of the corporate debtor in accordancewith regulation 35.

(2) The interim resolution professional or the resolutionprofessional, as the case may be, may appoint any professional, inBaddition to registered valuers under sub-regulation (1), to assisthim in discharge of his duties in conduct of the corporate insolvencyresolution process, if he is of the opinion that the services of suchprofessional are required and such services are not available withthe corporate debtor.

C(3) The interim resolution professional or the resolutionprofessional, as the case may be, shall appoint a professional underthis regulation on an arm’s length basis following an objective andtransparent process:

Provided that the following persons shall not be appointed, namely:

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(a) a relative of the resolution professional; (b) a related party of the corporate debtor;

(c) an auditor of the corporate debtor at any time during the periodof five years preceding the insolvency commencement date;E(d) a partner or director of the insolvency professional entity ofwhich the resolution professional is a partner or director.

by Notification No. IBBI/2018-19/GN/REG031, dated 3[rd] July, 2018 (w.e.f. 4-7-2018).FRegulation 27 before substitution, stood as under:

“27. Appointment of registered valuers.-The resolution professional shall withinseven days of his appointment, but not later than forty-seventh day from theinsolvency commencement date appoint two registered valuers to determinethe fair value and the liquidation value of the corporate debtor in accordancewith regulation 35:

Provided that the following persons shall not be appointed as registered valuers,Gnamely:

(a) a relative of the resolution professional; (b) a related party of the corporate debtor;

(c) an auditor of the corporate debtor to any time during the five years precedingthe insolvency commencement date; or (d) a partner or director of the insolvency professional entity of which theHresolution professional is a partner or director”.

(4) The invoice for fee and other expenses incurred by aprofessional appointed under this regulation shall be raised in thename of the professional and be paid directly into the bank accountof such professional.]

63[30A. Withdrawal of application. - (1) An application forwithdrawal under section 12A may be made to the AdjudicatingAuthority –

(a) before the constitution of the committee, by the applicantthrough the interim resolution professional;

(b) after the constitution of the committee, by the applicant throughthe interim resolution professional or the resolution professional,as the case may be:

Provided that where the application is made under clause (b) afterthe issue of invitation for expression of interest under regulation36A, the applicant shall state the reasons justifying withdrawalafter issue of such invitation.

(2) The application under sub-regulation (1) shall be made in Form-FA of the Schedule accompanied by a bank guarantee- (a) towards estimated expenses incurred on or by the interimresolution professional for purposes of regulation 33, till the dateof 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 theapplication under clause (b) of sub-regulation (1).

(3) Where an application for withdrawal is under clause (a) ofsub-regulation (1), the interim resolution professional shall submitthe application to the Adjudicating Authority on behalf of theapplicant, within three days of its receipt.

(4) Where an application for withdrawal is under clause (b) ofsub-regulation (1), the committee shall consider the application,within seven days of its receipt.

63 Subs. by Notification No. IBBI/2019-20/GN/REG048, dated 25th July, 2019 forregulation 30A (w.e.f. 25-7-2019).

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A(5) Where the application referred to in sub-regulation (4) isapproved by the committee with ninety percent voting share, theresolution professional shall submit such application along withthe approval of the committee, to the Adjudicating Authority onbehalf of the applicant, within three days of such approval.

B(6) The Adjudicating Authority may, by order, approve theapplication submitted under sub-regulation (3) or (5).

(7) Where the application is approved under sub-regulation (6),the applicant shall deposit an amount, towards the actual expensesincurred for the purposes referred to in clause (a) or clause (b) ofCsub-regulation (2) till the date of approval by the AdjudicatingAuthority, as determined by the interim resolution professional orresolution professional, as the case may be, within three days ofsuch approval, in the bank account of the corporate debtor, failingwhich the bank guarantee received under sub-regulation (2) shallbe invoked, without prejudice to any other action permissibleDagainst the applicant under the Code.]

64[35. Fair value and Liquidation value.- (1) Fair value andliquidation value shall be determined in the following manner:- (a) the two registered valuers appointed under regulation 27 shallEsubmit to the resolution professional an estimate of the fair valueand of the liquidation value computed in accordance withinternationally accepted valuation standards, after physicalverification of the inventory and fixed assets of the corporatedebtor; F (b) if in the opinion of the resolution professional, the two estimatesof a value are significantly different, he may appoint anotherregistered valuer who shall submit an estimate of the valuecomputed in the same manner; and

(c) the average of the two closest estimates of a value shall beconsidered the fair value or the liquidation value, as the case mayGbe.

(2) After the receipt of resolution plans in accordance with theCode and these regulations, the resolution professional shall provide 64 Subs. by Notification No. IBBI/2017-18/GN/REG024, dated 6th February, 2018, forHRegulation 35 (w.e.f. 6-2-2018).

the fair value and the liquidation value to every member of thecommittee in electronic form, on receiving an undertaking fromthe member to the effect that such member shall maintainconfidentiality of the fair value and the liquidation value and shallnot use such values to cause an undue gain or undue loss to itselfor any other person and comply with the requirements under sub-section (2) of section 29.

(3) The resolution professional and registered valuers shallmaintain confidentiality of the fair value and the liquidation value.”

65[36A. Invitation for expression of interest.- (1) Theresolution professional shall publish brief particulars of the invitationfor expression of interest in Form G of the Schedule at the earliest,not later than seventy-fifth day from the insolvencycommencement date, from interested and eligible prospectiveresolution applicants to submit resolution plans.

(2) The resolution professional shall publish Form G-

(i) in one English and one regional language newspaper with widecirculation at the location of the registered office and principaloffice, if any, of the corporate debtor and any other location wherein the opinion of the resolution professional, the corporate debtorconducts material business operations;

(ii) on the website, if any, of the corporate debtor;

(iii) on the website, if any, designated by the Board for the purpose;and

(iv) in any other manner as may be decided by the committee.

(3) The Form G in the Schedule shall -

(a) state where the detailed invitation for expression of interestcan be downloaded or obtained from, as the case may be; and (b) provide the last date for submission of expression of interestwhich shall not be less than fifteen days from the date of issue ofdetailed invitation.

(4) The detailed invitation referred to in sub-regulation (3) shall- 65 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, forregulation 36A (w.e.f. 4-7-2018).

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A(a) specify the criteria for prospective resolution applicants, asapproved by the committee in accordance with clause (h) of sub-section (2) of section 25; (b) state the ineligibility norms under section 29A to the extentapplicable for prospective resolution applicants;B(c) provide such basic information about the corporate debtor asmay be required by a prospective resolution applicant for expressionof interest; and (d) not require payment of any fee or any non-refundable depositfor submission of expression of interest.C66[(4A) Any modification in the invitation for expression of interestmay be made in the manner as the initial invitation for expressionof interest was made:

Provided that such modification shall not be made more than once.]

D(5) A prospective resolution applicant, who meet the requirementsof the invitation for expression of interest, may submit expressionof interest within the time specified in the invitation under clause(b) of sub-regulation (3).

(6) The expression of interest received after the time specified inEthe invitation under clause (b) of sub-regulation (3) shall berejected.

(7) An expression of interest shall be unconditional and beaccompanied by- (a) an undertaking by the prospective resolution applicant that itFmeets the criteria specified by the committee under clause (h) ofsub-section (2) of section 25; (b) relevant records in evidence of meeting the criteria under clause(a); G(c) an undertaking by the prospective resolution applicant that itdoes not suffer from any ineligibility under section 29A to theextent applicable; 66 Ins. by Notification No. IBBI/2021-22/GN/REG078, dated 30th September, 2021H(w.e.f. 30-9-2021).

(d) relevant information and records to enable an assessment ofineligibility under clause (c); (e) an undertaking by the prospective resolution applicant that itshall intimate the resolution professional forthwith if it becomesineligible at any time during the corporate insolvency resolutionprocess; (f) an undertaking by the prospective resolution applicant that everyinformation and records provided in expression of interest is trueand correct and discovery of any false information or record atany time will render the applicant ineligible to submit resolutionplan, forfeit any refundable deposit, and attract penal action underthe Code; and (g) an undertaking by the prospective resolution applicant to theeffect that it shall maintain confidentiality of the information andshall not use such information to cause an undue gain or undueloss to itself or any other person and comply with the requirementsunder sub-section (2) of section 29.

(8) The resolution professional shall conduct due diligence basedon the material on record in order to satisfy that the prospectiveresolution applicant complies with- (a) the provisions of clause (h) of sub-section (2) of section 25; (b) the applicable provisions of section 29A, and

(c) other requirements, as specified in the invitation for expressionof interest.

(9) The resolution professional may seek any clarification oradditional information or document from the prospective resolutionapplicant for conducting due diligence under sub-regulation (8).

(10) The resolution professional shall issue a provisional list ofeligible prospective resolution applicants within ten days of thelast date for submission of expression of interest to the committeeand to all prospective resolution applicants who submitted theexpression of interest.

(11) Any objection to inclusion or exclusion of a prospectiveresolution applicant in the provisional list referred to in sub- AB

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Aregulation (10) may be made with supporting documents withinfive days from the date of issue of the provisional list.

(12) On considering the objections received under sub-regulation(11), the resolution professional shall issue the final list ofprospective resolution applicants within ten days of the last dateBfor receipt of objections to the committee.]

67[37. Resolution Plan.- A resolution plan shall provide for themeasures, as may be necessary, for insolvency resolution of thecorporate debtor for maximization of value of its assets, includingbut not limited to the following: -C(a) transfer of all or part of the assets of the corporate debtor toone or more persons; (b) sale of all or part of the assets whether subject to any securityinterest or not; D68[(ba) restructuring of the corporate debtor, by way of merger,amalgamation and demerger;]

(c) the substantial acquisition of shares of the corporate debtor, orthe merger or consolidation of the corporate debtor with one ormore persons; E69[(ca) cancellation or delisting of any shares of the corporatedebtor, if applicable;]

(d) satisfaction or modification of any security interest; (e) curing or waiving of any breach of the terms of any debt duefrom the corporate debtor;F

(f) reduction in the amount payable to the creditors; (g) extension of a maturity date or a change in interest rate orother terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporateGdebtor; 67 Subs. Notification No. IBBI/2017-18/GN/REG024, dated 6th February, 2018, forregulation 37 (w.e.f. 06.02.2018).

68 Ins. by Notification No. IBBI/2019-20/GN/REG052, dated 27th November, 2019

(w.e.f. 28-11-2019).

69 Ins. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 4-H7-2018).

(i) issuance of securities of the corporate debtor, for cash, property,securities, or in exchange for claims or interests, or otherappropriate purpose; (j) change in portfolio of goods or services produced or renderedby the corporate debtor; (k) change in technology used by the corporate debtor; and

(l) obtaining necessary approvals from the Central and StateGovernments and other authorities.]

38. Mandatory contents of the resolution plan.- [70][(1) Theamount payable under a resolution plan –

(a) to the operational creditors shall be paid in priority over financialcreditors; and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolutionplan, shall be paid in priority over financial creditors who voted infavour of the plan.]

71[(1A) A resolution plan shall include a statement as to how ithas dealt with the interests of all stakeholders, including financialcreditors and operational creditors, of the corporate debtor.]

72[(1B) A resolution plan shall include a statement giving details ifthe resolution applicant or any of its related parties has failed toimplement or contributed to the failure of implementation of anyother resolution plan approved by the Adjudicating Authority atany time in the past.]

(2) A resolution plan shall provide:

(a) the term of the plan and its implementation schedule; (b) the management and control of the business of the corporatedebtor during its term; and

(c) adequate means for supervising its implementation.

70 Subs. by Notification No. IBBI/2019-20/GN/REG052, dated 27th November, 2019,for sub-regulation (1) (w.e.f. 28-11-2019).

71 Ins. by Notification No. IBBI/2017-18/GN/REG018, dated 5th October, 2017 (w.e.f.

5-10-2017).

72 Ins. by Notification No. IBBI/2019-20/GN/REG040, dated 24th January, 2019 (w.e.f.24-1-2019).

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A73[(d) provides for the manner in which proceedings in respect ofavoidance transactions, if any, under Chapter III or fraudulent orwrongful trading under Chapter VI of Part II of the Code, will bepursued after the approval of the resolution plan and the mannerin which the proceeds, if any, from such proceedings shall bedistributed:B

Provided that this clause shall not apply to any resolution plan thathas been submitted to the Adjudicating Authority under sub-section(6) of section 30 on or before the date of commencement of theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) (Second Amendment)CRegulations, 2022.]

74[(3) A resolution plan shall demonstrate that –

(a) it addresses the cause of default;

(b) it is feasible and viable;

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(c) it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline forthe same; and (e) the resolution applicant has the capability to implement theEresolution plan.]

39. Approval of resolution plan.- [75][(1) A prospective resolutionapplicant in the final list may submit resolution plan or plansprepared in accordance with the Code and these regulations tothe resolution professional electronically within the time given inFthe request for resolution plans under regulation 36B along with - (a) an affidavit stating that it is eligible under section 29A to submitresolution plans; 76[***]

G73 Ins. by Notification No. IBBI/2022-23/GN/REG084, dated 14th June, 2022 (w.e.f.14-06-2022).

74 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, forsub-regulation (3) (w.e.f. 4-7-2018).

75 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, forsub-regulation (1) (w.e.f. 4-7-2018).76 Clause (b) omitted by Notification No. IBBI/2018-19/GN/REG032, dated 5th October,H2018 (w.e.f.5-10-2018).

(c) an undertaking by the prospective resolution applicant thatevery information and records provided in connection with or inthe resolution plan is true and correct and discovery of falseinformation and record at any time will render the applicantineligible to continue in the corporate insolvency resolution process,forfeit any refundable deposit, and attract penal action under theCode.

77[(1A) The resolution professional may, if envisaged in the requestfor resolution plan- (a) allow modification of the resolution plan received under sub-regulation (1), but not more than once; or (b) use a challenge mechanism to enable resolution applicants toimprove their plans.

(1B) The committee shall not consider any resolution plan- (a) received after the time as specified by the committee underregulation 36B; or (b) received from a person who does not appear in the final list ofprospective resolution applicants; or

(c) does not comply with the provisions of sub-section (2) of section30 and sub-regulation (1).]]

78[(2) The resolution professional shall submit to the committeeall resolution plans which comply with the requirements of theCode and regulations made thereunder along with the details offollowing transactions, if any, observed, found or determined byhim - (a) preferential transactions under section 43; (b) undervalued transactions under section 45;

(c) extortionate credit transactions under section 50; and 77 Subs. by Notification No. IBBI/2021-22/GN/REG078, dated 30th September, 2021, for sub-regulation (1A) (w.e.f. 30-09-2021). Sub-regulation (1A), before substitution,stood as under: - “(1A) A resolution plan which does not comply with the provisions of sub-regulation (1) shall be rejected.”

78 Subs. by Notification No. IBBI/2017-18/GN/REG019, dated 7th November, 2017,for sub-regulation (2) (w.e.f. 7-11-2017).

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A(d) fraudulent transactions under section 66, and the orders, ifany, of the adjudicating authority in respect of such transactions.]

79 [(3) The committee shall-

(a) evaluate the resolution plans received under sub-regulation(2) as per evaluation matrix;B(b) record its deliberations on the feasibility and viability of eachresolution plan; and

(c) vote on all such resolution plans simultaneously.

(3A) Where only one resolution plan is put to vote, it shall beCconsidered approved if it receives requisite votes.

(3B) Where two or more resolution plans are put to votesimultaneously, the resolution plan, which receives the highestvotes, but not less than requisite votes, shall be considered asapproved:

DProvided that where two or more resolution plans receive equalvotes, but not less than requisite votes, the committee shall approveany one of them, as per the tie-breaker formula announced beforevoting:

Provided further that where none of the resolution plans receivesErequisite votes, the committee shall again vote on the resolutionplan that received the highest votes, subject to the timelines underthe Code.

*** *** ***]

F80[(4) The resolution professional shall endeavour to submit theresolution plan approved by the committee to the Adjudicating 79 Subs. by Notification No. IBBI/2020-21/GN/REG064, dated 7th August, 2020, forsub-regulation (3) (w.e.f. 7-8-2020). Prior to this substitution, Regulation 39(3) stoodas under:

“(3) The committee shall evaluate the resolution plans received under sub-Gregulation (1) strictly as per the evaluation matrix to identify the best resolutionplan and may approve it with such modifications as it deems fit:Provided that the committee shall record its deliberations on the feasibilityand viability of the resolution plans.

(3A) The committee shall, while approving the resolution plan under sub-section (4) of section (30), specify the amounts payable from resources underthe resolution plan for the purposesunder sub-regulation (1) of regulation 38.”H80 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, forsub-regulation (4) (w.e.f. 4-7-2018).

Authority at least fifteen days before the maximum period forcompletion of corporate insolvency resolution process under section12, along with a compliance certificate in [81][Form H of the82[Schedule-I] and the evidence of receipt of performance securityrequired under sub-regulation (4A) of regulation 36B].]

(5) The resolution professional shall forthwith send a copy of theorder of the Adjudicating Authority approving or rejecting aresolution plan to the participants and the resolution applicant.

83[(5A) The resolution professional shall, within fifteen days ofthe order of the Adjudicating Authority approving a resolution plan,intimate each claimant, the principle or formulae, as the case maybe, for payment of debts under such resolution plan:

Provided that this sub-regulation shall apply to every corporateinsolvency resolution process ongoing and commencing on or afterthe date of commencement of the Insolvency and BankruptcyBoard of India (Insolvency Resolution Process for CorporatePersons) (Fifth Amendment) Regulations, 2020;]

(6) A provision in a resolution plan which would otherwise requirethe consent of the members or partners of the corporate debtor,as the case may be, under the terms of the constitutionaldocuments of the corporate debtor, shareholders’ agreement, jointventure agreement or other document of a similar nature, shalltake effect notwithstanding that such consent has not beenobtained.

(7) No proceedings shall be initiated against the interim resolutionprofessional or the resolution professional, as the case may be,for any actions of the corporate debtor, prior to the insolvencycommencement date.

(8) A person in charge of the management or control of the businessand operations of the corporate debtor after a resolution plan is 81 Subs. by Notification No. IBBI/2019-20/GN/REG040, dated 24th January, 2019,for “Form H of the Schedule” (w.e.f. 24-1-2019).

82 Substituted by Notification No. IBBI/2022-23/GN/REG091, dated 13th September,2022 (w.e.f. 13-09-2022) BeAfore substitution the words stood as –”Schedule”.

83 Ins. by Notification No. IBBI/2020-21/GN/REG066, dated 13th November, 2020(w.e.f. 13-11-2020).

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approved by the Adjudicating Authority, may make an applicationto the Adjudicating Authority for an order seeking the assistanceof the local district administration in implementing the terms of aresolution plan.

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84[(9) A creditor, who is aggrieved by non-implementation of aBresolution plan approved under sub-section (1) of section 31, mayapply to the Adjudicating Authority for directions.]

38.3. We may further take note of Section 88 of the Trusts Actwhich essentially provides for nullifying the pecuniary advantage if gainedby a fiduciary and ordains that where a trustee, executor, partner, agent,Cdirector of a company, legal advisor, or other person bound in a fiduciarycharacter to protect the interests of another person, by availing himselfof his character, gains for himself any pecuniary advantage; or wherethe person so bound enters into any dealings under circumstances inwhich his own interests are, or may be, adverse to those of such otherperson and thereby the fiduciary gains for himself a pecuniary advantage,Dhe would hold the advantage so gained for the benefit of such otherperson. Section 88 of the Trusts Act with a few of its illustrations readas under: - “Section 88. Advantage gained by fiduciary.—Where a trustee,executor, partner, agent, director of a company, legal advisor, orEother person bound in a fiduciary character to protect the interestsof another person, by availing himself of his character, gains forhimself any pecuniary advantage, or where any person so boundenters into any dealings under circumstances in which his owninterests are, or may be, adverse to those of such other personFand thereby gains for himself a pecuniary advantage, he musthold for the benefit of such other person the advantage so gained.

Illustrations

(a) A, an executor, buys, at an under-value from B, a legatee, hisclaim under the will. B is ignorant of the value of the bequest. AGmust hold for the benefit of B the difference between the priceand value.

84 Ins. by Notification No. IBBI/2019-20/GN/REG040, dated 24th January, 2019 (w.e.f.H24-1-2019).

(b) A, a trustee, uses the trust-property for the purpose of hisown business. A holds for the benefit of his beneficiary the profitsarising from such user.

(c) A, a trustee, retires from his trust in consideration of hissuccessor paying him a sum of money. A holds such money forthe benefit of his beneficiary.

(d) A, a partner, buys land in his own name with funds belongingto the partnership. A holds such land for the benefit of thepartnership.

*** *** ***”

38.4. Apart from the above, we may also refer to Section 164 ofthe Companies Act which sets forth various disqualifications forappointment of directors. It also provides that if a person fails to repaydeposits accepted by the company of which he is a director, and failureto repay the due amount has continued for one year or more, he shall notbe eligible for reappointment as director of that company or appointed inany other company for a period of five years from the date on which thesaid company fails to do so. Moreover, in view of the submissions made,a reference to Section 166(4) of the Companies Act shall also be apposite.The relevant parts of the aforementioned provisions would read as under:- “Section 164. Disqualifications for appointment ofdirector.—

(2) No person who is or has been a director of a company which—

(a) has not filed financial statements or annual returns for anycontinuous period of three financial years; or (b) has failed to repay the deposits accepted by it or pay interestthereon or to redeem any debentures on the due date or pay interestdue thereon or pay any dividend declared and such failure to payor redeem continues for one year or more, shall be eligible to be re-appointed as a director of that companyor appointed in other company for a period of five years from thedate on which the said company fails to do so.

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“Section 166. Duties of directors.—

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(4) A director of a company shall not involve in a situation inwhich he may have a direct or indirect interest that conflicts, orCpossibly may conflict, with the interest of the company.

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Objectives and scheme of IBC: crucial role-players:

39. For dealing with the questions involved, at the outset, a briefreference to the scheme of the Code, as noticed from its Preamble andDas exposited by this Court need to be taken note of. The Preamble of theCode reads as under: - “An Act to consolidate and amend the laws relating toreorganisation and insolvency resolution of corporate persons,partnership firms and individuals in a time bound mannerEfor maximisation of value of assets of such persons, to promoteentrepreneurship, availability of credit and balance theinterests of all the stakeholders including alteration in theorder of priority of payment of Government dues and toestablish an Insolvency and Bankruptcy Board of India, andFfor matters connected therewith or incidental thereto.”

39.1. In the case of Swiss Ribbons (supra), this Court traversedthrough the historical background and scheme of the Code in sufficientdetail and while pointing out that the Code was a beneficial legislation toput the corporate debtor on its feet and not a mere recovery legislationGfor the creditors, said as under: - “27. As is discernible, the Preamble gives an insight into what issought to be achieved by the Code. The Code is first and foremost,a Code for reorganisation and insolvency resolution of corporate 85 Ins. by Act 1 of 2018, sec. 52(i) [w.e.f. 7-5-2018, vide S.O. 1833(E), dated 7th May,H2018].

debtors. Unless such reorganisation is effected in a time-boundmanner, the value of the assets of such persons will deplete.Therefore, maximisation of value of the assets of such persons sothat they are efficiently run as going concerns is another veryimportant objective of the Code. This, in turn, will promoteentrepreneurship as the persons in management of the corporatedebtor are removed and replaced by entrepreneurs. When,therefore, a resolution plan takes off and the corporatedebtor is brought back into the economic mainstream, it isable to repay its debts, which, in turn, enhances the viabilityof credit in the hands of banks and financial institutions.Above all, ultimately, the interests of all stakeholders arelooked after as the corporate debtor itself becomes abeneficiary of the resolution scheme—workers are paid,the creditors in the long run will be repaid in full, andshareholders/investors are able to maximise theirinvestment. Timely resolution of a corporate debtor who is inthe red, by an effective legal framework, would go a long way tosupport the development of credit markets. Since more investmentcan be made with funds that have come back into the economy,business then eases up, which leads, overall, to higher economicgrowth and development of the Indian economy. What is interestingto note is that the Preamble does not, in any manner, refer toliquidation, which is only availed of as a last resort if there iseither no resolution plan or the resolution plans submitted are notup to the mark. Even in liquidation, the liquidator can sell thebusiness of the corporate debtor as a going concern. (SeeArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish KumarGupta & Ors: (2019) 2 SCC 1] at para 83, fn 3)

28. It can thus be seen that the primary focus of thelegislation is to ensure revival and continuation of thecorporate debtor by protecting the corporate debtor fromits own management and from a corporate death byliquidation. The Code is thus a beneficial legislation whichputs the corporate debtor back on its feet, not being a mererecovery legislation for creditors. The interests of the corporatedebtor have, therefore, been bifurcated and separated from thatof its promoters/those who are in management. Thus, the resolution AB

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process is not adversarial to the corporate debtor but, in fact,protective of its interests…..”

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39.2. As regards to the process of insolvency resolution, whiledealing with various provisions of Chapter II of Part II of the Code, thisBCourt in the case of Essar Steel (supra) summed up the key role ofresolution professional in the following terms: - “48. The detailed provisions that have been stated hereinabovemake it clear that the resolution professional is a person who isnot only to manage the affairs of the corporate debtor as a goingCconcern from the stage of admission of an application underSections 7, 9 or 10 of the Code till a resolution plan is approved bythe Adjudicating Authority, but is also a key person who is to appointand convene meetings of the Committee of Creditors, so that theymay decide upon resolution plans that are submitted in accordanceDwith the detailed information given to resolution applicants by theresolution professional. Another very important function of theresolution professional is to collect, collate and finally admit claimsof all creditors, which must then be examined for payment, in fullor in part or not at all, by the resolution applicant and be finallynegotiated and decided by the Committee of Creditors.”

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39.3. In the case of Jaypee Kensington (supra), after takingnote of the roles and duties of the resolution professional and the resolutionapplicant, this Court underscored the crucial role of committee of creditorsin the entire CIRP with reference to several past decisions. Rather thanany other discussion, we deem it appropriate to reproduce the relevantFpassages therein as under: - “Committee of Creditors: the protagonist of CIRP

97. While in their representative roles, the resolution professionaland the resolution applicant are duty-bound to ensure that theresolution plan is prepared in conformity with the requirements ofGthe Code and the CIRP Regulations and is properly presented forconsideration, the central role in taking the decision as to whethera resolution plan be adopted or not, in the same form as presentedto it or in a modified form; and as to whether the attempt forrevival of corporate debtor be made or not, ultimately rests withHthe pivotal body, comprising of the financial creditors of the corporate debtor and termed as “Committee of Creditors”. Asnoticed from the provisions above quoted, the final decision on aresolution plan is taken by the Committee of Creditors; and, forapproval, a resolution plan is required to be voted in favour by notless than 66% of the voting share of the financial creditors, as perSection 30(4) of the Code. It is also relevant to point out thatthough the resolution professional is to run the business of thecorporate debtor as a going concern during the corporateinsolvency resolution process but, as per Section 28(3) of the Code,he cannot take certain decisions relating to the management ofthe corporate debtor without prior approval of the Committee ofCreditors by a vote of at least 66% of the voting shares[86].

97.1. It is, therefore, evident that corporate insolvency resolution,with approval of the plan of resolution, is ultimately in the exclusivedomain of the Committee of Creditors. Even during the resolutionprocess, major decisions as regards management and finances ofthe corporate debtor are in the control of the Committee ofCreditors. As per the composition delineated in Section 21 of theCode, the Committee of Creditors is comprised of all financialcreditors of the corporate debtor; and the frame of Section 21puts it beyond doubt that the voting share of each financial creditoris determined on the basis of financial debt owed to it. It is alsoclear from Section 30(4) as also Section 28(3) that the majordecisions of approval are to be taken by the Committee ofCreditors by a vote of at least 66% of the voting share of thefinancial creditors and not by a simple majority. The reasons andpurpose for assigning such a unique and decisive role in corporateinsolvency resolution to the Committee of Creditors and for thatmatter, to a substantial block of not less than 2/3rd of voting shareof the financial creditors, were extensively delineated in the reportof the Bankruptcy Law Reforms Committee of November 2015while remarking on the essential theme that the “appropriatedisposition of a defaulting firm is a business decision, andonly the creditors should make it”.

97.2. In K. Sashidhar, while setting out the relevant extracts fromthe said Report, this Court exposited on the primacy of the ABC

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commercial wisdom of the Committee of Creditors in the corporateinsolvency resolution process in the following terms: (SCC pp.183-84, paras 52-53)

“52. As aforesaid, upon receipt of a “rejected” resolution planthe adjudicating authority (NCLT) is not expected to do anythingmore; but is obligated to initiate liquidation process under Section33(1) of the I&B Code. The legislature has not endowed theadjudicating authority (NCLT) with the jurisdiction or authorityto analyse or evaluate the commercial decision of CoC muchless to enquire into the justness of the rejection of the resolutionplan by the dissenting financial creditors. From the legislativehistory and the background in which the I&B Code has beenenacted, it is noticed that a completely new approach has beenadopted for speeding up the recovery of the debt due from thedefaulting companies. In the new approach, there is a calmperiod followed by a swift resolution process to be completedwithin 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlierregime, the corporate debtor could indefinitely continue to enjoythe protection given under Section 22 of the Sick IndustrialCompanies Act, 1985 or under other such enactments whichhas now been forsaken. Besides, the commercial wisdom ofCoC has been given paramount status without any judicialintervention, for ensuring completion of the stated processeswithin the timelines prescribed by the I&B Code. There is anintrinsic assumption that financial creditors are fullyinformed about the viability of the corporate debtor andfeasibility of the proposed resolution plan. They act onthe basis of thorough examination of the proposedresolution plan and assessment made by their team ofexperts. The opinion on the subject-matter expressedby them after due deliberations in CoC meetings throughvoting, as per voting shares, is a collective businessdecision. The legislature, consciously, has not providedany ground to challenge the “commercial wisdom” ofthe individual financial creditors or their collectivedecision before the adjudicating authority. That is madenon-justiciable.

53. In the report of the Bankruptcy Law Reforms Committeeof November 2015, primacy has been given to CoC to evaluatethe various possibilities and make a decision. It has beenobserved thus:

“The key economic question in the bankruptcy processWhen a firm (referred to as the corporate debtor in the draftlaw) defaults, the question arises about what is to be done.Many possibilities can be envisioned. One possibility is totake the firm into liquidation. Another possibility is tonegotiate a debt restructuring, where the creditors accepta reduction of debt on an NPV basis, and hope that thenegotiated value exceeds the liquidation value. Anotherpossibility is to sell the firm as a going concern and usethe proceeds to pay creditors. Many hybrid structures ofthese broad categories can be envisioned.

The Committee believes that there is only one correct forumfor evaluating such possibilities, and making a decision :a creditors committee, where all financial creditors havevotes in proportion to the magnitude of debt that they hold.In the past, laws in India have brought arms of theGovernment (legislature, executive or judiciary) into thisquestion. This has been strictly avoided by the Committee.The appropriate disposition of a defaulting firm is abusiness decision, and only the creditors should make it.

(emphasis in bold supplied; emphasis in italics is in original)

(emphasis in bold supplied; emphasis in italics is in original)

97.3. In Essar Steel, a three-Judge Bench of this Court surveyedalmost all the relevant provisions concerning corporate insolvencyresolution process; and, as noticed above, explained theassignments of different role players in this process. In thatcontext, this Court again explained the primacy endowed on thecommercial wisdom of the Committee of Creditors and reasonstherefor, with a further detailed reference to the aforesaid reportof the Bankruptcy Law Reforms Committee of November 2015.Apart from the passage from the said report that was noticedin K. Sashidhar (reproduced hereinabove), the Court noticedvarious other passages from this report in Essar Steel; and onepart thereof, which further underscores the rationale for only A

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financial creditors handling the process of resolution, could beusefully reproduced as under (part of para 56 at pp. 578-79 ofSCC):

“56. … 5.3.1. Steps at the start of the IRP

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4. Creation of the creditors committee

The creditors committee will have the power to decide thefinal solution by majority vote in the negotiations. The majorityvote requires more than or equal to 75% of the creditorscommittee by weight of the total financial liabilities. Themajority vote will also involve a cram down option on anydissenting creditors once the majority vote is obtained. …

The Committee deliberated on who should be on the creditorscommittee, given the power of the creditors committee toultimately keep the entity as a going concern or liquidate it. TheCommittee reasoned that members of the creditors committeehave to be creditors both with the capability to assessviability, as well as to be willing to modify terms of existingliabilities in negotiations. Typically, operational creditorsare neither able to decide on matters regarding theinsolvency of the entity, nor willing to take the risk ofpostponing payments for better future prospects for theentity. The Committee concluded that, for the process to berapid and efficient, the Code will provide that the creditorscommittee should be restricted to only the financialcreditors.”

(emphasis in italics is in original)

97.4. In Essar Steel, the Court referred to the above-quoted andother passages from the judgment in K. Sashidhar (supra) andexplained the decisive role of the commercial wisdom of theCommittee of Creditors, inter alia, in the following passages:

“54. Since it is the commercial wisdom of the Committeeof Creditors that is to decide on whether or not torehabilitate the corporate debtor by means of acceptanceof a particular resolution plan, the provisions of the Codeand the Regulations outline in detail the importance of setting up of such Committee, and leaving decisions to bemade by the requisite majority of the members of the aforesaidCommittee in its discretion. …

59. Even though it is the resolution professional who is to runthe business of the corporate debtor as a going concern duringthe intermediate period, yet, such resolution professional cannottake certain decisions relating to management of the corporatedebtor without the prior approval of at least 66% of the votesof the Committee of Creditors. …

60. Thus, it is clear that since corporate resolution isultimately in the hands of the majority vote of theCommittee of Creditors, nothing can be done qua themanagement of the corporate debtor by the resolutionprofessional which impacts major decisions to be madein the interregnum between the taking over ofmanagement of the corporate debtor and corporateresolution by the acceptance of a resolution plan by therequisite majority of the Committee of Creditors. Mostimportantly, under Section 30(4), the Committee ofCreditors may approve a resolution plan by a vote of notless than 66% of the voting share of the financialcreditors, after considering its feasibility and viability,and various other requirements as may be prescribedby the Regulations.

64. Thus, what is left to the majority decision of the Committeeof Creditors is the “feasibility and viability” of a resolution plan,which obviously takes into account all aspects of the plan,including the manner of distribution of funds among the variousclasses of creditors. As an example, take the case of aresolution plan which does not provide for payment of electricitydues. It is certainly open to the Committee of Creditors tosuggest a modification to the prospective resolution applicantto the effect that such dues ought to be paid in full, so that thecarrying on of the business of the corporate debtor does notbecome impossible for want of a most basic and essential A

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element for the carrying on of such business, namely, electricity.This may, in turn, be accepted by the resolution applicant witha consequent modification as to distribution of funds, paymentbeing provided to a certain type of operational creditor, namely,the electricity distribution company, out of upfront paymentoffered by the proposed resolution applicant which may alsoresult in a consequent reduction of amounts payable to otherfinancial and operational creditors. What is important is thatit is the commercial wisdom of this majority of creditorswhich is to determine, through negotiation with theprospective resolution applicant, as to how and in whatmanner the corporate resolution process is to takeplace.”

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(emphasis in bold supplied)

97.5. In Maharashtra Seamless Ltd. (supra), again, a three-JudgeBench of this Court referred extensively to the enunciationsin Essar Steel and reiterated the primacy assigned to thecommercial wisdom of the Committee of Creditors in the matterof corporate insolvency resolution.

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98. For what has been noticed hereinabove, it would not be anexaggeration in terms that, in corporate insolvency resolutionEprocess, the role of Committee of Creditors is akin to that of aprotagonist, giving finality to the process (subject, of course, toapproval by the adjudicating authority), who takes the key decisionsin its commercial wisdom and also takes the consequences thereof.As noticed, the process is aimed at bringing the corporate debtorFback on its feet and it is acknowledged that appropriate dispositionof a defaulting corporate debtor and the choice of solution, tokeep the corporate debtor as a going concern or to liquidate it, isto be made by the financial creditors, who could assess the viabilityand may take decisions in modification of the terms of the existingliabilities. In other words, the decision as to whether the corporateGdebtor be resurrected or not, by acceptance of a particularresolution plan, is essentially a business decision and hence, is leftto the committee consisting of the financial creditors, that is, theCommittee of Creditors but, with the requirement that theresolution plan, for its approval, ought to muster not less than 66%votes of the voting share of the financial creditors.”

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40. Keeping the aforesaid principles and the relevant statutoryprovisions in view, we may take up the points arising for determination inthis case.

Point A – Valuation: Regulations 27 and 35

41. The Appellate Tribunal has laid great emphasis on the pointthat commercial wisdom of CoC was materially affected for want ofexistence of a valid and actual valuation report and sharing of all therelevant facts pertaining to the valuation with the members of CoC leadingto violation of Regulations 27 and 35 of the CIRP Regulations. We areunable to agree.

41.1. It has rightly been contended on behalf of the appellants thatthe members of CoC were provided with fair value and liquidation valueafter obtaining a confidentiality undertaking. We have reproducedhereinbefore all the material parts of the minutes of the meetings ofCoC and it is at once clear that the members of CoC were fully satisfiedwith and endorsed the process of valuation and even re-evaluation asundertaken by the resolution professional. Particularly, the minutes ofsecond, fourth, sixth and seventh CoC meetings stand testimony to thefact that the requirements of Regulation were scrupulously followedand complied with and there had not been any doubt in CoC as regardsthe process of valuation as also supplying of fair and liquidation value tothe members of CoC. The detailed findings of the Adjudicating Authorityin this regard (reproduced in paragraph 15.1.1. hereinabove) make itclear that the Adjudicating Authority independently applied its mind tothe process of valuation and presentation of the matter to CoC. Rejectionof all the objections in that regard by the NCLT, called for no interference.

41.2. The Appellate Tribunal appears to have unnecessarily andrather unjustifiably presumed that there had been blatant statutoryviolations and irregularities. Even if certain issues were raised in someof the meetings of CoC as regards the process of valuation, theclarifications from the resolution professional and the steps taken by himfor valuation and re-valuation had been to the satisfaction of CoC. It hasrightly been contended on behalf of the appellants with reference to thedecision in Maharashtra Seamless (supra) that resolution plan is notrequired to match the liquidation value as such.

41.3. The findings of the Appellate Tribunal in regard to the questionof valuation and thereby taking the resolution plan to be in contravention A

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Aof Sections 30(2) and 61(3) of the Code cannot be approved and arerequired to be set aside.

Point B – Publication of Form G: Regulation 36-A

42. A long deal of discussion of the Appellate Tribunal had beendiverted towards purported non-compliance of Regulation 36-A(2)(iii)Bof the CIRP Regulations for want of publication of Form G on thedesignated website with the Appellate Tribunal assuming that want ofcompliance of mandatory requirements had been of material irregularityon the part of the resolution professional. The findings of the AppellateTribunal in this regard are also difficult to be accepted.

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42.1. It has rightly been contended on behalf of the resolutionprofessional that Form G was published in all leading newspapers on09.08.2020 and then, IBBI was also informed about technical issues inuploading the Form on the website. The Adjudicating Authority has alsorightly observed that a statutory provision regulating a matter of practiceDor procedure would generally be read as directory and in the presentcase, no prejudice has been shown by anyone as regards technical non-compliance of all the requirements of publication. It has been too far-stretched on the part of the Appellate Tribunal to observe that whenCIRP was conducted during the periods of lockdown in the face ofCovid-19 pandemic, most of the people avoided reading newspapersEunder the apprehension of Covid infection. As noticed, initially as manyas 13 EOIs were received. It has also rightly been contended on behalfof the resolution professional that all the requisite steps having beenreasonably taken, the process that had reached an advanced stage couldnot have been annulled on such technicalities.

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42.2. An argument has been advanced on behalf of the appellant-resolution applicant that this issue relating to publication of Form G wasdealt with by NCLAT in the earlier order dated 05.05.2021 and thatdecision would operate as res judicata. In the relevant part of the saidorder dated 05.05.2021, the NCLAT even while dealing with the questionsGraised against time enlargement granted by NCLT, took note of variousfeatures related with the CIRP in question and in that regard, alsoobserved that it was the commercial decision of CoC not to seek extensionof time for submission of resolution plans and to issue directions to theresolution professional to expedite the process on the resolution plansalready submitted. The NCLAT had observed as under: -H

“ 23. On perusal of the minutes of the CoC, it appears that the RPapprised the CoC about the legal options available either to seekan extension of the timeline for submission of Resolution Plan orto make the decision for publication of fresh Form-G. It was theCoC’s commercial decision that “no extension of time forsubmission of Resolution Plan should be done and RP wasdirected to expedite the valuation process and check thefeasibility and viability of the Resolution Plan alreadysubmitted and present the eligible Resolution Plan before theCoC for consideration.”

42.3. The NCLAT held that the aforesaid was a commercialdecision of CoC not requiring interference of the Court. It has beenargued on behalf of the contesting respondents that, the aforesaid decisioncannot be considered res judicata for they being not the parties to thesaid appeals decided by NCLAT on 05.05.2021. In our view, even ifprinciples of res judicata are as such not applied, fact of the matterremains that at the given stage, the process as undertaken by theresolution professional had been consistently approved by CoC,Adjudicating Authority and the Appellate Tribunal. Even otherwise, asobserved hereinabove, there had not been any such illegality or materialirregularity for which the entire process would have been consideredvitiated. The findings of the Appellate Tribunal in this regard too, cannotbe approved and are required to be set aside.

Point C1 – Effect of Section 164(2)(b) Companies Act

43. A long length of argument has been advanced by the contestingparties as regards impact of Section 164(2)(b) of the Companies Actbecause of the alleged default of the company named InternationalAviation Academy Private Limited of which, the resolution applicant is adirector. It has been argued that the said company collected shareapplication money pending allotment and did not refund the same; andconsequently, in terms of Section 164(2)(b) of the Companies Act, thisdefault would disqualify the resolution applicant from acting as a directorand thereby, would render him ineligible to submit a resolution plan. Wefind it difficult to accept the submissions aforesaid and the propositionsagainst the resolution applicant on this score.

43.1. Even if there had been any possibility of the resolutionapplicant incurring such a disqualification in terms of Section 164(2)(b)

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Aof the Companies Act, because of alleged default of another company,in which he is a director, to refund the share application money, the samewould essentially be a matter of consideration of the registrar ofcompanies. Unless a categorical finding was recorded in the competentforum as regards any such default and unless specific order disqualifyingthe resolution applicant as director because of such default came intoBexistence, it could not have been taken by way of any process ofassumption that the appellant-resolution applicant was disqualified to actas a director and thereby, was ineligible to submit a resolution plan. Ithas rightly been pointed out that when DIN status of the appellant was“active compliant”, he could not have been treated as ineligible.C

43.2. Again, it has been too far-stretched on the part of theAppellate Tribunal to refer to the Rule 2(1)(c) of the Companies(Acceptance of Deposits) Rules, 2014 and then to make a declarationas if the resolution applicant was disqualified in terms of Section 164(2)(b)of the Companies Act. Although, we do not agree with the submissionsDon behalf of appellant that such an issue of eligibility could not have beenraised before NCLAT for the first time because the question of eligibilityof the resolution applicant goes to the root of the matter but, we doagree with the other part of the submission in this regard that there is noconcept of deemed disqualification under Section 164(2)(b) of theCompanies Act.E

43.3. Hence, in our view, the Appellate Tribunal had not beenright in holding the resolution applicant ineligible by virtue of Section164(2)(b) of the Companies Act. Point C1 is answered accordingly.

Point C2 – Effect of Section 88 Trusts ActF44. What has been stated hereinabove in relation to the questionof ineligibility of the resolution applicant in terms of Section 164(2)(b) ofthe Companies Act, however, does not apply in relation to the othermaterial objection as regards Section 88 of the Trusts Act.

44.1. It is not in dispute that the trust “Sri Balaji Vidyapeeth” ofGwhich the appellant-resolution applicant is the Managing Trustee, wasone of the disqualified resolution applicants on the ground that the saidentity was a charitable trust. It has been argued on behalf of the appellantthat his status as Managing Trustee of the said trust does not render himineligible while submitting the resolution plan in his individual capacity. Ithas also been argued that even if the trust may be disqualified, the appellantH

cannot be disqualified because his financial capability was independentof the trust money. In our view, this part of the matter cannot be examinedby a broad and generalised reference to the separate status of the twoentities, i.e., the trust on one hand and the resolution applicant as anindividual on the other.

44.2. Noticeable it is that the said trust was held ineligible on theground that it was a charitable trust and cannot run a profit-makingentity. The EOIs in the first place were submitted by the present appellant-resolution applicant for himself as also on behalf of the trust. The AppellateTribunal has rightly noticed that this filing of two EOIs by the resolutionapplicant, one for himself and another one on behalf of the ineligibletrust has a material bearing on the competence of the resolution plan ofthe appellant, for being directly hit by Section 88 of the Trusts Act. TheAppellate Tribunal has rightly held that the applicant-Mr. M.K.Rajagopalan, being the Managing Trustee of the said trust, cannot bepermitted to act as its alter ego in implementing the resolution plan togain financial advantage for himself. By virtue of the operation and impactof Section 88 of the Trusts Act, submission of individual resolution planby the appellant cannot be countenanced for any implementation of thesaid individual resolution plan would nevertheless be hit by the provisionscontained in the Trusts Act. We may elaborate a little.

44.3. The suggestion on the part of the resolution applicant toassert his independent standing detached from the said ineligible applicantSri Balaji Vidyapeeth carries its own shortcoming when examined in thecontext of the assertions made by him in clauses 3.5 and 3.10 of hisresolution plan which have been extracted by the Appellate Tribunal andwe are impelled to re-extract them for ready reference as under: - “3.5. Sri Balaji Vidyapeeth: Mr. M.K. Rajagopalan is the founderand managing trustee of Sri Balaji Vidyapeeth………

3.10. Financial Snapshot “The entities under the leadership of Mr.M.K. Rajagopalan have been growing rapidly while ensuringquality of service to nation and public at large……..

There entities have achieved turnover of Rs. 417.94 Crores in FY2016- 2017; Rs. 500.03 Crores in FY 2017-2018; Rs. 679.23Crores in FY 2018-2019 and Rs.860.59 Crores (estimated) forFY 2019-2020. The above growth is ample testimony of thecredentials of the RA as a competent business leader and his A

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Acapability to manage and turn around various diverse businesses.”

44.3.1. It is thus obvious that the appellant-resolution applicantadmitted his status as founder and managing trustee of said Sri BalajiVidyapeeth and then, boldly claimed that the entities under his leadershipwere growing rapidly while ensuring quality of service to nation andBpublic at large. In view of the claim made by the resolution applicanthimself, coupled with the fact that in CIRP in question, two resolution plans were submitted by this appellant, one in individual capacity andanother as managing director of the said trust, it is difficult to detach himfrom the said resolution applicant-Sri Balaji Vidyapeeth. Hence, it cannotbe said that the Appellate Tribunal committed any error in observing thatCthe appellant was attempting to act as alter ego of the said ineligibleapplicant (the trust); and the benefit from his own (individual’s) resolutionplan cannot escape the operation of Section 88 of the Trusts Act. Evenif the appellant would assert that his financial capability was independentof trust money, the fact of the matter remains that he projected theDoverall picture of his own profile while also relying on his status asManaging Trustee of the said trust, Sri Balaji Vidyapeeth. Thus, anypecuniary advantage gained by him under the resolution plan in questionwould be directly subsumed by operation of Section 88 of the TrustsAct. This would, in all practical purposes, bring about a position thatwhat could not be done directly for the said trust was sought to be doneEby the appellant by way of this indirect methodology.

44.4. Although, the aspects aforesaid did not form the part ofconsideration of CoC but, they cannot be ignored merely with referenceto the status assigned to the commercial wisdom of CoC. The principlesunderlying the decisions of this Court respecting the commercial wisdomFof CoC cannot be over-expanded to brush aside a significant shortcomingin the decision making of CoC when it had not duly taken note of theoperation of any provision of law for the time being in force.

44.5. In the given set of facts and circumstances of this case, inour view, the Appellate Tribunal has rightly held the resolution plan beingGin contravention of the provisions of law for the time being in force.Observations and findings of the Appellate Tribunal in paragraphs 106 to112 of the impugned order dated 17.02.2022 (reproduced hereinabove inparagraph 19.4.2.) deserve to be and are approved.

Point C3 – Effect of Section 166(4) Companies Act

45. For what has been discussed hereinabove, the submission ofresolution plan by the appellant-resolution applicant was directly hit bySection 88 of the Trusts Act and could not have been approved. In thisview of the matter, no other aspect appears requiring consideration asregards the question of eligibility of the resolution applicant. However,we have formulated point C3 for determination in view of the submissionsmade in this case as regards another feature of ineligibility of theresolution applicant and it appears appropriate to deal with this aspect ofthe matter too.

45.1. The status of the appellant-resolution applicant as ManagingDirector of another company MGM Healthcare Private Limited is notof any dispute. Rather, the particulars of this company and projectionsfor taking this company forward had been stated extensively by theresolution applicant in his profile submitted with the resolution plan. Asper the resolution plan, the appellant-resolution applicant had proposedto convert the Coimbatore property of the corporate debtor into a hospital.The said MGM Healthcare Private Limited is also said to be a super-speciality hospital and the company is said to be looking forward to set-up new hospitals and aspires to be a leading hospital chain in India.

45.2. In the backdrop of the aforesaid facts, noticeable it is thatSection 166(4) of the Companies Act prohibits a director of a companyfrom involving himself in a situation in which he may have a direct oreven indirect interest that conflicts, or may possibly conflict, with theinterest of the company. Given the status of the resolution applicant asManaging Director of MGM Healthcare Private Limited, his dealingwith property of the corporate debtor and converting the same into ahospital cannot be said to be having no impact on the activities of thesaid MGM Healthcare Private Limited. A direct conflict of interest beingwrit large on the face of the record, it cannot be said that the prohibitionin terms of Section 166(4) does not operate and the resolution plan doesnot stand in contravention of any of the provisions of law for the timebeing in force. For this reason too, in our view, the appellant-resolutionapplicant could not have been accepted as eligible applicant.

Point D1 – Revision of resolution plan after approval byCoC

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A46. Even when the findings of the Appellate Tribunal as regardsvaluation process and non-compliance of other procedural requirementshave not been approved by us, a material factor which otherwise mayappear to be of another procedural requirement, has its significant bearingand cannot be ignored as mere technicality. It is concerning want ofpresentation of finally revised plan to the committee of creditors beforeBbeing presented to the Adjudicating Authority.

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47. As noticed hereinbefore, commercial wisdom of CoC is givensuch a status of primacy that the same is considered rather a matternon-justiciable in any adjudicatory process, be it by the AdjudicatingAuthority or even by this Court. However, the commercial wisdom ofCCoC means a considered decision taken by CoC with reference to thecommercial interests and the interest of revival of the corporate debtorand maximization of value of its assets. This wisdom is not a matter ofrhetoric but is denoting a well-considered decision by the protagonist ofCIRP i.e., CoC. As observed by this Court in K. Sashidhar (supra), theDfinancial creditors forming CoC ‘act on the basis of thoroughexamination of the proposed resolution plan and assessment madeby their team of experts. The opinion on the subject-matter expressedby them after due deliberations in CoC meetings through voting, asper voting shares, is a collective business decision.’ This Court alsoobserved in K. Sashidhar that ‘there is an intrinsic assumption thatEfinancial creditors are fully informed about the viability of the’corporate debtor and feasibility of the proposed resolution plan.These observations read with the observations in Essar Steel (supra)with reference to the reasons stated in the report of Bankruptcy LawReforms Committee of November 2015, make it clear that commercialFwisdom of CoC is assigned primacy in CIRP for it represents collectivebusiness decision, which is arrived at after thorough examination of theproposed resolution plan and assessment made with involvement ofexperts by the body of persons who are most vitally interested in rapidand efficient decision making. It follows as a necessary corollary that tobe worth its name, the commercial wisdom of CoC would come intoGexistence and operation only when all the relevant information is availablebefore it and is duly deliberated upon by all its members, who havedirect and substantial interest in the survival of corporate debtor and inthe entire CIRP.

47.1. In light of the aforesaid position of law and its operation inrelation to the decision-making process of CoC, it needs hardly anyemphasis that each and every aspect relating to the resolution plan, andmore particularly its financial layout, has to be before the CoC before itcould be said to have arrived at a considered decision in its commercialwisdom.

48. From the facts and the proceedings pertaining to the presentcase, as noticed in detail hereinbefore, it is but clear that in the ninthCoC meeting held on 22.01.2021, the resolution plan submitted by theappellant-resolution applicant was approved with 87.39% of the totalvoting share of the financial creditors present and voting. However, thisapproval came with a significant condition that in view of the dissent bysome of the financial creditors, the plan would be sent back to thecreditors for further revision so as to make it complaint with Section30(2) of the Code which provides that the amount paid to the dissentingfinancial creditors will not be less than the amount paid to such creditorsin accordance with Section 53 of the Code in the event of the liquidationof the corporate debtor. On 25.01.2021, the appellant-resolution applicantsubmitted the revised resolution plan incorporating the changes. He alsosubmitted bank guarantee as noticed hereinbefore. However, theresolution professional did not place the revised plan in CoC meeting butdirectly presented it to the Adjudicating Authority for approval. Thisprocess has not been approved by the Appellate Tribunal, while observingthat based on the resolution in the ninth meeting of CoC, the resolutionplan was sent back for further revision and the revised plan was neverpresented to CoC for approval. Two major submissions in this regard bythe appellant-resolution applicant are: first, that the plan had alreadybeen approved by the CoC and it was only the requirement of allocatingeligible amount to the dissenting financial creditors and hence, there wasno need to seek further approval of the CoC; and secondly, that in thetenth meeting, the CoC had granted the deemed post facto approval tothe revised plan and not objected to any of its portions even in the lateraffidavits. The resolution professional would also contend that theresolution applicant was only required to provide for redistribution toensure that dissenting financial creditors were given their share. It hasalso been submitted that in the modified resolution plan the allocation forthe unsecured dissenting financial creditors was revised from Rs. 29crore to Rs. 49.13 crore.

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A48.1. On the submissions as made, at the first blush it might appearas if revision of the plan after ninth CoC meeting had been a matter offormality and consequential to the approval already given by the CoC.However, on a close look at the scheme of IBC, this irregularity of notplacing the revised plan after ninth meeting before the CoC and directlyplacing it before Adjudicating Authority cannot be ignored as a mereBtechnicality. As noticed hereinabove, each and every aspect relating tothe resolution plan, and more particularly its financial layout, has to beconsidered by the CoC before it could be said to have arrived at aconsidered decision. The fact that there had been a change in financiallayout in the resolution plan in question is not a matter of dispute. WhenCCoC applied itself and arrived at a decision in its commercial wisdomwith approval by the requisite majority, it was equally the requirementthat the resolution applicant would revise the plan. In terms of the minutesof the ninth CoC meeting, it is difficult to assume that the CoC had evenin anticipation given an approval to the plan which was to be revised. Asto what decision CoC would have taken after examination of the revisedDplan, pursuant to its decision in the ninth meeting, cannot be a matter ofguess or assumption that it was bound to be approved. As to whichaspect would have arisen for consideration of CoC after revision of theplan is again a matter of uncertainty but it cannot be said that theconditional approval in the ninth CoC meeting was to be treated as faitEaccompli. This, in our view, is not the true operation of the scheme ofthe process of corporate insolvency resolution nor could the commercialwisdom of CoC be a matter of assumption. Looking to the nature andform of decision taken by the CoC in its ninth meeting, such a conditionalapproval could not have been treated as a final approval. Whereafter,whatever be the revision, the plan was only to be presented to CoC andFcould have been presented to the Adjudicating Authority only after finalapproval of CoC by the requisite majority. In other words, when themodified resolution plan, even if carrying minor modification/revision wasnot finally approved by CoC, its presentation to the Adjudicating Authorityamounts to a material irregularity and this defect cannot be cured.G

48.2. The suggestion of post facto approval of the revisedresolution plan in the tenth CoC meeting has only been noted to berejected. There is no and there cannot be any concept of post factoapproval of any resolution plan by CoC which had not been placed beforeit prior to the filing before the Adjudicating Authority. Moreover, in theHtenth CoC meeting dated 15.06.2021, Agenda Item No. A1 only related to the updates of resolution professional where he, of course, statedabout the plan having been revised and filed with NCLT on 04.02.2021.Such updates by resolution professional, even if taken note of by CoC,could hardly be considered as of approval by requisite majority of votingshare in the CoC. In any case, prior to this meeting, the plan had alreadybeen presented to the Adjudicating Authority. That plan could not havebeen approved thereafter by the CoC.

49. We would hasten to observe that the requirement of CIRPRegulations, particularly of placing the resolution plan in its final formbefore the CoC, has to be scrupulously complied with. No alteration ormodification in the process could be countenanced. We say so for thespecific reason concerning law that if the process as adopted in thepresent matter is approved, the very scheme of the Code and CIRPregulations would be left open-ended and would be capable of invitingarbitrariness at any level. The minor procedural aspects which we haveheld to be not of material bearing hereinbefore and this aspect pertainingto approval of financial resolution plan by CoC stand at entirely differentfooting. The irregularity in the process of approval by CoC and filingbefore Adjudicating Authority are not the matters of such formal naturethat deviation in that regard could be ignored or condoned. As statedabove, when commercial wisdom of CoC is assigned primacy, itpresupposes a considered decision on the resolution plan in its final form.

50. For what has been discussed hereinabove, disapproval of theresolution plan by the Appellate Tribunal for want of presentation offinal resolution plan before CoC remains unexceptionable and calls forno interference.

Point D2 – Increase of fees of resolution professional

51. Though we have approved the findings of the Appellate Tribunalthat the resolution plan in question, which was placed before AdjudicatingAuthority for approval without having been put to vote before CoC wasvoid and non-est but, an ancillary observation of the Appellate Tribunalin correlating this material irregularity with increase of fees of resolutionprofessional is difficult to be accepted.

51.1. The CoC had precisely deliberated over the question ofincrease of fees of resolution professional and its decision in that regardcould not have been correlated with any shortcoming in the processundertaken, which might have occurred for want of an erroneous AB

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Aassumption on the part of the resolution professional in view of thecontents of minutes of ninth CoC meeting dated 22.01.2021. Though asaforesaid, when the resolution plan was to be revised so as to makeprovision for dissenting financial creditors, the financial outlay was goingto be altered and it ought to have been placed before CoC again but, it istoo far-stretched to connect this irregularity with the increase of fees ofBthe resolution professional. The findings and observations of the AppellateTribunal against resolution professional in this regard deserve to be setaside.

Point E – The matter concerning related party

C52. Another factor taken into consideration by the Appellate Tribunalhas been in relation to the so-called discrimination in the resolution planin relation to a related party of the corporate debtor.

53. Learned counsel for the appellant in Civil Appeal No.1827 of2022 has referred to several decided cases to submit that therein, evenDwhen certain dues of related parties were admitted, the resolution plansnot providing for any payment to such related parties were upheld bythis Court; and that the principles of non-discrimination would not beapplicable to the decision of CoC. It has been argued on behalf of theresolution professional that none of the statutory requirements are ofany mandate that a provision has to be made in the resolution plan forEpayment to the related parties. According to the learned counsel, theneed is, essentially, to ensure that the plan provides for payment to financialcreditors (including dissenting financial creditors) entitled to vote. Thus,the plan in question cannot be said to be standing in contravention of anymandatory requirements. Per contra, the learned counsel appearing forFthe related party would submit that even when related party is to betreated as a separate class in terms of the principles laid down by thisCourt in Phoenix ARC (supra), so as to be excluded from CoC, there isno reason that they be treated as separate class when it comes to paymentof dues under the resolution plan. It is submitted that failure to providefor discharge of debt of the related party is in violation of Section 30(2)(b),G(e) and (f) of the Code. The submissions made on behalf of the relatedparty and the observations of the Appellate Tribunal are difficult to beaccepted.

54. The lengthy discussion of Appellate Tribunal in regard to therelated party (the parts whereof have been reproduced in paragraphH

19.7 hereinabove) depict rather unsure and irreconcilable observationsof the Appellate Tribunal.

54.1. After taking note of the fact that related party is prohibitedto be a part of CoC and is further prohibited to be a resolution applicantor an authorized representative etc., the Appellate Tribunal has rightlyobserved that involvement of a related party in CIRP in any capacitywas seen as giving unfair benefit to the corporate debtor; and that thestatutory recognition of related party as a different class would applyeven to resolution plan when CoC would decide whether in its commercialwisdom it should pay to related party at all because that would meanpaying to the same persons who are behind the corporate debtor. However,thereafter the Appellate Tribunal proceeded to observe that related partywas required to be equated with the promoters as equity share-holdersand then, further made certain observations about discrimination betweenrelated party unsecured financial creditor and other unsecured financialcreditors as also between related party operational creditor and otheroperational creditors. Such far-stretched observations of the AppellateTribunal are difficult to be reconciled with the operation of the statutoryprovisions.

54.2. It has rightly been argued on behalf of the appellants andhad rightly been observed by the Adjudicating Authority (vide extractionin paragraph 15.4.1 hereinabove) that there was no provision in the Codewhich mandates that the related party should be paid in parity with theunrelated party. So long as the provisions of Code and CIRP Regulationsare met, any proposition of differential payment to different class ofcreditors in the resolution plan is, ultimately, subject to the commercialwisdom of CoC and no fault can be attached to the resolution plan merelyfor not making the provisions for related party.

54.3. On the facts of the present case, we find no reason to discussthis matter any further when it is noticed that the promoter and erstwhiledirector, the contesting respondent before us, has been holding the positionof Chairman of the said related party. Suffice it would be to observe forthe present purpose that the Appellate Tribunal has erred in applying theprinciples of non-discrimination and thereby holding against the resolutionplan in question for want of provision for related party.

AB

C

D

EF

G

H

APoint F – NCLAT’s findings regarding settlement offer ofpromoter

55. The discussion foregoing, particularly with answers to pointsC2, C3 and D1 is decisive of the matter so far as approval of the resolutionplan in question is concerned. As noticed, for want of eligibility of theBresolution applicant and for want for approval of the finally revisedresolution plan by CoC meeting, the resolution plan in question is requiredto be rejected and the process as adopted in seeking approval of theAdjudicating Authority is required to be disapproved. However, the othersegment of consideration in this case, carrying the peculiarities of itsown, relates to the settlement offer of the promoter and operation of theCprovisions of Section 12-A of the Code.

56. A comprehensive look at the factual aspects and the orderspreviously passed in the matter make it clear that right from the inceptionof CIRP in question, the promoter and erstwhile director had made severalattempts to invoke the operation of Section 12-A of the Code. At theDvery initial stage, while admitted the petition made by TFCI, the NCLTobserved in its order dated 05.05.2020 that the attempts on the part ofcorporate debtor by way OTS settlement proposal had only been to gaintime. Yet again, when the process has gone several steps ahead andwhen the resolution plans were being put to vote, just a day before voting,Ethe promoter put forth yet another settlement proposal without anyconcrete plan and without disclosing the source of funds to complete thesettlement. The CoC, after due deliberation, refused to consider the sameand thereafter voted on the resolution plan in question.

57. The Adjudicating Authority (NCLT) dealt with the matter inFsufficient detail (vide paragraph 15.2 and relevant extraction therein)while noting that even the original applicant of CIRP, i.e., TFIC, waskept in dark about such a proposal. It was also noticed that even theterm-sheet to support the proposal from Deutsche Bank came with adisclaimer. In the totality of facts and circumstances, the proposals asmade by the promoter and erstwhile director were all of eyewash and ofGdilatory tactics. However, the Appellate Tribunal (NCLAT) proceededto observe that in the ninth CoC meeting, no discussion about settlementproposal had occurred and that CoC never considered the settlementproposal submitted by the promoter and erstwhile director; and that aftergetting the settlement proposal, it was incumbent upon the resolutionH

professional to call the CoC meeting for consideration of such proposal.The observations of the Appellate Tribunal cannot be said to be inconformity with the record of proceedings.

57.1. As noticed, the proposal in question was forwarded forconsideration only at the eleventh hour, i.e., a day before CoC was tovote on the resolution plan in its ninth meeting. The CoC, in the saidmeeting, indeed, took into consideration the proposition of settlementand application for withdrawal request letter, which was circulated twohours before the meeting. The creditors with significant voting sharessuch as SBI and Bank of India were clear in their stand that they wouldstick to the agenda and would not deviate therefrom. The resolutionprofessional had to request the representatives of the corporate debtorto allow the agenda items to go through as per the wishes of the majorityof CoC and no further discussions were to be made on the letter sent toCoC. When the substantial majority of CoC was not in favour of suchdiscussion which was proposed to be thrusted on them only a few hoursbefore the meeting, their approach cannot be faulted at. In any case, anapplication for withdrawal in terms of Section 12-A of the Code couldhave been made only if CoC approved the proposal with 90% votingshare. When the creditors with substantial voting share were againstany such proposal, any consideration was clearly ruled out and therecould not have been any valid application for withdrawal.

58. Thus, the Appellate Tribunal has erred in holding that thesettlement offer of the promoter in terms of Section 12-A was not placedfor consideration of CoC. Approval of resolution plan in question couldnot have been reversed on this count. However, as noticed hereinbefore,approval of the resolution plan in question could not have been endorsedby the Appellate Tribunal because of other substantial reasons.

Point G – Impact and effect of subsequent events

59. The discussion aforesaid would have been decisive of thematter but there had been several subsequent events in this matter,particularly of fresh invitation for EOI and then, approval of the settlementoffer of the promoter by the CoC in its nineteenth meeting held on12.10.2022 by 100% majority of the voting share. Thus, the question isabout the impact and effect of such subsequent events. For dealing withthis question, we need to recapitulate the relevant background aspectsof the case and the chronology of subsequent events.

AB

C

D

E

F

G

H

AB

C

D

E

F

G

H

A60. As noticed, in the impugned judgment and order dated17.02.2022, the Appellate Tribunal had directed the CoC to reconsiderthe offer of the promoter within fifteen days from the date of its order(i.e., within fifteen days from 17.02.2022). Prior to this, twice over thepropositions of such settlement offer by the promoter had been dealtwith disfavourably. The relevant parts of proceedings in the ninth CoCBmeeting concerning such proposal have already been noticedhereinbefore. It is noticed that after approval of the resolution plan, thepromoter again submitted a settlement proposal on 08.03.2021 whichwas followed by a letter dated 14.07.2021 from one Saveetha Instituteof Medical and Technical Sciences as proof of funding, but the saidCletter was subsequently withdrawn by the said Institute. The resolutionplan was approved by the Adjudicating Authority on 15.07.2021, whichwas challenged by the promoter and the Appellate Tribunal granted stayover operation of the order dated 15.07.2021. The Appellate Tribunal,ultimately, allowed the appeal and apart from disapproving the resolutionplan in question, directed the resolution professional to call for the meetingDof CoC within 15 days from the date of judgment and to proceed withCIRP from the stage of publication of Form G and put the proposal ofpromoter before CoC for consideration. In compliance of these directionsof NCLAT, eleventh CoC meeting was held on 03.03.2022 where thesettlement proposal of the promoter was put to vote in the CoC; theEvoting continued until 25.03.2022; and ultimately, the said settlementproposal was voted against by 51.81% of the voting share.

61. After such rejection of the settlement proposal of the promoter,as we have detailed hereinabove in paragraphs 26.1 to 26.4, proceedingscontinued in CoC for invitation of fresh EOI and for that purpose, CoCFeven resolved to seek further time extension to the Adjudicating Authority.

61.1. On 29.09.2022, in the eighteenth CoC meeting, it wasinformed that seven resolution plans had been received and their evaluationwas under process but, the CoC members were informed that anothersettlement proposal was received from the promoter on 19.09.2022. AtGthat stage, again, when the mandatory 330 days’ period was about toend, the CoC members unanimously voted to seek extension of CIRPtimelines. Then, on 12.10.2022, the discussion on the settlement proposalof the promoter took place, it was put to vote and was approved by theCoC with 100% of the total voting powers.

62. The aforesaid proceedings continued with the matter remainingpending in this Court. The question is, what ought to be the way forward?At the first blush, it may appear that when the settlement proposal hasnow been approved by the CoC with 100% voting powers in theircommercial wisdom, the process thereunder may be allowed to continueas such. However, a blanket approval by this Court at this stage is fraughtwith other complications.

63. Section 12-A was introduced in the Code later and inaccordance with the Insolvency Law Report, March, 2018. This provisionwas introduced to provide for a mechanism for withdrawal uponsettlement which was missing in IBC as originally promulgated. Regulation30-A was also introduced to the CIRP Regulations. It was furtheramended with effect from 25.07.2019, providing for withdrawal of CIRPeven after issuance of expression of interest but, with the condition thatthe applicant shall state the reasons justifying withdrawal after issuanceof EOI.

64. As noticed from various events, even at the threshold stage,the NCLT noticed the settlement proposal on behalf of the corporatedebtor but then, found the same to be an eyewash which was put forwardonly to gain time. The petition was admitted, triggering CIRP. Significantly,the settlement proposal then came up from the promoter only a daybefore the received resolution plans were to be put to vote, i.e., on21.01.2021. The CoC, even when not formerly voting on it, clearly rejectedthe same for the Agenda having already set for dealing with the resolutionplan received from the resolution applicant. As noticed, after approvalof the resolution plan, the promoter again submitted a settlement proposalbut the Institute, said to be supporting the same, subsequently withdrew.After allowing of the appeal by NCLAT and in terms of those directions,the new settlement proposal was precisely put to vote and was rejected.Thereafter, fresh EOIs were invited and resolution plans were received.Significantly, the promoter moved another settlement proposal for invokingSection 12-A of the Code on 19.09.2022, only after receiving of theresolution plans from seven prospective resolution applicants. A patternin the aforesaid dealings by the promoter is quite striking. When theresolutions plans had been received at the earlier stage, only at theeleventh hour, the settlement proposal came up. This time too, thesettlement proposal came up from the promoter only after resolutionplans had been received. Prior to it, his proposal had already been AB

C

D

G

H

Arejected. It gets perforce commented that the representative of thecorporate debtor being a part of CoC, such proposer is obviously in aposition to know about the propositions in the resolution plans whenreceived in response to invitation.

65. We have pondered over various facets of this rather ticklishBpart of the matter because on one hand stands the approval of the re-submitted settlement proposal by 100% voting powers in the CoC andon the other hand, fact of the matter remains that before such settlementproposal, second time EOIs had been invited and in fact, seven resolutionplans had been received. As noticed, the earlier settlement proposal fromthe promoter came up only a day before the resolution plans were to beCput to vote, i.e., on 21.01.2021. This time again, the settlement proposalscame up from the promoter only on 19.09.2022 after receiving of sevenresolution plans from the prospective resolution applicants.

66. We are not expanding further on the matter because whenwe find that the settlement proposal of the promoter, after approval ofDCoC, for invoking the provisions of Section 12-A of the Code, is pendingbefore the Adjudicating Authority, in our view, it shall be in the fitness ofthings that all the relevant aspects of the matter are left open forconsideration of the Adjudicating Authority, including those relating tothe justification for invoking Section 12-A after issuance of fresh invitationEfor EOI and after receiving resolution plans. In other words, we wouldleave all the relevant aspects open for consideration of the AdjudicatingAuthority in accordance with law while keeping in view the observationsof this Court.

SummationF

67. For what has been discussed hereinabove, disapproval of theresolution plan in question by the Appellate Tribunal (NCLAT) in theimpugned order dated 17.02.2022 is not to be interfered with but, not forall the reasons which weighed with the Appellate Tribunal. As observedhereinabove, the reasons and findings of the Appellate Tribunal in relationGto the valuation process and alleged non-compliance of some of theprocedural provisions as also the observations against increase of feesof resolution professional (points A, B and D2) are not to be approved.Similarly, the Appellate Tribunal has not been right in holding the resolutionapplicant ineligible to submit a resolution plan with reference to Section164(2)(b) of the Companies Act, 2013 (as held in point C1). The H

H

disapproval by the Appellate Tribunal, with reference to the settlementoffer of promoter in terms of Section 12-A of the Code, and its purportednon-consideration is also not approved by us and such findings of theAppellate Tribunal are required to be set aside (as held in point F).Similarly, the Appellate Tribunal has erred in applying the principles ofnon-discrimination in relation to the related party (as held in point E).However, the other findings in relation to points C2, C3 and D1 and theconsequential order passed by the Appellate Tribunal deserve to beapproved.

67.1. Therefore, the impugned judgment and order dated17.02.2022 in relation to the issues covered by points for determinationA, B, C1, D2, E and F is not approved and findings of the AppellateTribunal in that regard are set aside. However, rejection of the resolutionplan is maintained in view of the answers to points C2, C3 and D1.

68. Putting it in different words, we are clearly of the view thateven while respecting the commercial wisdom of CoC, in the presentcase, the resolution plan in question could not have been approved bythe Adjudicating Authority for two major reasons: one, for the ineligibilityof the resolution applicant; and second, for not placing of the revisedresolution plan in the CoC before seeking approval from the AdjudicatingAuthority. Of course, on the questions relating to the valuation reports,and want of publication of Form G on the website, we are at one withthe Adjudicating Authority that these aspects were not of material bearingin the process in question and the resolution professional had takenreasonable steps as permissible in law and feasible in the circumstances.Similarly, we are not inclined to endorse the views of the Appellate Tribunalregarding the treatment of related party in the resolution plan as alsoregarding the settlement offer of the promotor; and the process in thatrelation cannot be said to be suffering from any illegality.

69. So far the subsequent events concerning invitation of freshEOIs and approval of the fresh settlement proposal of the promoter bythe CoC are concerned, all the relevant aspects are kept open forconsideration of the Adjudicating Authority.

Conclusion

70. In view of the above, these appeals are disposed of in thefollowing terms: - AB

C

D

E

F

G

H

A1. The impugned judgment and order dated 17.02.2022 is notinterfered with only insofar the Appellate Tribunal has not approved theresolution plan in question for the reasons which have been affirmed byus in points C2, C3 and D1 hereinbefore. Other findings, observationsand directions of the Appellate Tribunal are set aside.

2. The question of dealing with fresh settlement proposal of thepromoter, as approved by the CoC in its nineteenth meeting dated12.10.2022 after receiving fresh resolution plans, is left open forconsideration of the Adjudicating Authority, who shall be expected todeal with this aspect of the matter while keeping in view the law applicableand the facts of the present case as also the observations foregoing.

B

C

Bibhuti Bhushan Bose

(Assisted by : Rahul Rathi, LCRA)

Appeals disposed of.

D

E

F

G

H