THE KARAD URBAN COOPERATIVE BANK LTD. versus SWWAPNIL BHINGARDEVAY & ORS. on 4 September 2020

[2020] 13 S.C.R. 465

THE KARAD URBAN COOPERATIVE BANK LTD.

V.

SWWAPNIL BHINGARDEVAY & ORS.

(Civil Appeal No. 2955 of 2020)

SEPTEMBER 04, 2020

[S. A. BOBDE, CJI, A. S. BOPANNA ANDV. RAMASUBRAMANIAN, JJ.]

Insolvency and Bankruptcy Code, 2016: Appellant financialcreditor filed s.7 application before NCLT against corporate debtor– Committee of Creditors (CoC) resolved to approve the ResolutionPlan submitted by one M/s Sai Agro – On the basis of approval ofResolution Plan, Resolution Professional moved an applicationbefore NCLT – At this stage, the Director/Promoter of corporatedebtor also came up with an application seeking permission to fileResolution Plan – NCLT rejected the application of corporate debtorand approved Resolution Plan submitted by M/s Sai Agro – Thus,M/s Sai Agro became Successful Resolution Applicant (SRA) –Director/Promoter of corporate debtor filed appeal before NCLATagainst the approval of the Resolution Plan of SRA – NCLAT allowedthe appeal and remanded the matter back to NCLT with direction tosend back the Resolution Plan to the CoC – Order of NCLT waschallenged on the ground inter alia that the Resolution Plan sufferedfrom issues of viability and feasibility and that the Resolution Plandid not take note of important fact that the ethanol plant andmachinery shown as part of the assets of the corporate debtor,actually belonged to another company by name, SarvadnyaIndustries Private Ltd. (SIPL) and that a bank by name, JanataSahkari Bank Ltd. had taken possession of the same under theSARFAESI Act – Financial creditor and Resolution Professional bothfiled separate appeals respectively – Held: It is not the case ofcorporate debtor or its promoter/Director or anyone else that someof the factors which were crucial for taking a decision regardingviability and feasibility were not placed before the CoC or theResolution Professional – The only basis for the corporate debtorto raise the issue of viability and feasibility was that the ownershipand possession of the ethanol plant and machinery was the subject

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Amatter of another dispute and that the Resolution Plan did not takecare of the contingency where the said plant and machinery maynot eventually be available to SRA – However, records very clearlyshow that SRA, Resolution Professional and financial creditor werefully aware of the said issue – The order passed by the NCLATshowed that the possession of the ethanol plant and machinery wasBrestored to SIPL, in the appeal to which SRA was also a party – SRAalso appeared to have offered to Janata Sahkari Bank to purchasethe said plant and machinery – In the appeal before the NCLAT outof which these appeals arose, SIPL which claimed ownership of the ethanol plant and machinery, was also a party – In any case, theCResolution Professional took a specific plea in his grounds of appealbefore this Court, that SRA was itself into the ethanol manufacturingbusiness and that they had sufficient ethanol production capacityrequired to fulfil their Resolution Plan – Therefore, the fact thatthere was an issue with regard to the ethanol plant and machinery,had been taken note of by Resolution Professional, CoC and SRA –DSince all these three parties took note of the said fact and took aconscious decision to go ahead with the Resolution Plan, it cannotbe stated that the question of viability and feasibility was notexamined in the proper perspective – Therefore, the main groundon which NCLAT interfered with the decision of the NCLT to approveEthe Resolution Plan, was wholly untenable, misconceived andunjustified.

Allowing the appeals, the Court

Conclusion

Allowing the appeals, the Court

HELD: 1.1 If all the factors that need to be taken intoaccount for determining whether or not the corporate debtor canFbe kept running as a going concern have been placed before theCommittee of Creditors and the CoC has taken a consciousdecision to approve the resolution plan, then the adjudicatingauthority will have to switch over to the hands off mode. It is notthe case of the corporate debtor or its promoter/Director orGanyone else that some of the factors which are crucial for takinga decision regarding the viability and feasibility, were not placedbefore the CoC or the Resolution Professional. The only basisfor the corporate debtor to raise the issue of viability and feasibility is that the ownership and possession of the ethanolplant and machinery is the subject matter of another dispute andthat the resolution plan does not take care of the contingencywhere the said plant and machinery may not eventually be availableto the Successful Resolution Applicant. [Para 13][477-C-E]

1.2 The records very clearly show that the SuccessfulResolution Applicant, the Resolution Professional and thefinancial creditor were fully aware of the said issue. The orderpassed by the NCLAT passed on 16.12.2019 shows that thepossession of the ethanol plant and machinery was restored toSarvadnya Industries Pvt. Ltd., in the appeal to which theSuccessful Resolution Applicant was also a party. The SuccessfulResolution Applicant also appears to have offered to JanataSahkari Bank to purchase the said plant and machinery. In theappeal before the NCLAT out of which the present Civil Appealsarise, Sarvadnya Industries Pvt. Ltd. which claims ownership ofthe ethanol plant and machinery, were also a party. In any case,the Resolution Professional has taken a specific plea in hisgrounds of appeal before this Court, that the SuccessfulResolution Applicant is itself into the ethanol manufacturingbusiness and that they have sufficient ethanol production capacityrequired to fulfil their Resolution Plan. Therefore, the fact thatthere was an issue with regard to the ethanol plant and machinery,had been taken note of by the Resolution Professional, theCommittee of Creditors and the Successful Resolution Applicant.Once all these three parties have taken note of the said fact andtaken a conscious decision to go ahead with the Resolution Plan,it cannot be stated that the question of viability and feasibilitywas not examined in the proper perspective. [Paras 14-17][477-F-H; 478-A-B, E-F]

2.1 The second ground on which NCLAT interfered withthe decision of the NCLT is the alleged breach of confidentiality.The contention of the Promoter/Director of the corporate debtoris that the liquidation value mentioned in the Resolution Plansubmitted by the SRA exactly tallied with the liquidation valueobtained by the Resolution Professional and that the whole A

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Asequence of events would show clearly that there was an attemptto cover up. According to the Director/Promoter of the corporatedebtor, the self-declaration signed by the Resolution Applicant,and which forms part of the Resolution Plan, bears the date 9thFebruary 2019. This document mentions the liquidation value asRs. 13.53 crores. It was the same value as obtained by theBResolution Professional. It is the contention of the Director/Promoter of the corporate debtor that the Resolution Professionalwrote an email on 07.02.2019 itself (2 days before the submissionof the Resolution Plan by the SRA), asking for clarification as tohow the liquidation value matched. This, according to the DirectorCof the corporate debtor, was proof enough to show that there wasnot merely a leakage of information, but also an attempt to cover-up. This contention cannot be accepted. The Resolution Planactually runs to 31 pages. Pages 30 and 31 contain Annexure A,which provides the business plan. Page 29 contains a self-declaration certificate signed by the partners of the SRA. JustDbelow the signatures of the partners at page 29, the date “09thFebruary 2019” is type-written. But the cover page of the entiredocument contains the date “7th February 2019” as the date ofsubmission of the Resolution Plan. The last date for submissionof the resolution plan was 08.02.2019. [Paras 27-30][480-F-H;E481-A-D]

2.2 Nowhere in the Memorandum of Appeal filed by thePromoter/Director of the corporate debtor before the NCLAT,has he claimed that the Resolution Plan was submitted by theSRA after the last date. We have perused the Memorandum of FAppeal filed by the Promoter/Director of the corporate debtorbefore the NCLAT. It was not his case at all that the ResolutionPlan was submitted by the SRA after the last date, but the samewas predated by the Resolution Professional acting in collusion.[Para 31][481-E]G2.3 It appears from the impugned order of NCLAT thatonly in the course of hearing of the appeal, the date “09th February2019” type-written at the bottom of the self-declaration (page 29of the Resolution Plan) was sought to be taken advantage of.Since this was not raised as one of the grounds in theMemorandum of Appeal but raised in the course of arguments,H

the Resolution Professional could do no more than to file theprint-out of the email correspondence between him and the SRAdated 07.02.2019. In the first email dated 07.02.2019, theResolution Professional had sought a clarification from the SRAas to how they discovered the liquidation value and the sourcefor the same. In response to this mail, the SRA sent a reply emailcontending that they undertook a due diligence to know thecurrent market value and liquidation value and that what wasquoted by them in the Resolution Plan, was something that anindependent agency provided to them. Unfortunately, NCLATrejected the print-out of the email correspondence dated07.02.2019 on the sole ground that the same was not supportedby affidavit and that it was filed after the conclusion of the oralarguments. But NCLAT failed to take note of the fact that theResolution Professional did not have any alternative except torespond in the manner that he did, to a point raised only in thecourse of arguments, but not raised in the Memorandum of Appeal.If the Promoter/Director of the corporate debtor had raised theissue of collusion or the submission of the Resolution Plan afterthe expiry of the last date, even in the Memorandum of Appeal, aduty would have been cast upon the Resolution Professional torespond in an appropriate manner. But that was not the case.[Paras 32, 33, 34][481-F-H; 482-A-C]

2.4 The fact that there was an email correspondencebetween the Resolution Professional and the SRA on 07.02.2019,touching upon one of the contents of the Resolution Plan, wouldshow (i) that the SRA had submitted the Resolution Plan beforethe last date and (ii) that the Resolution Professional had obviouslyscrutinised it, as otherwise he could not have found out theliquidation value mentioned therein matching the confidentialinformation that he had. The liquidation value mentioned in theResolution Plan of the SRA is Rs. 13.53 crores. But the actualtotal pay-out as per the Resolution Plan is Rs. 29.74 crores. Thismeant that the workers and employees of the corporate debtorwere to be paid 100% of their dues; that all statutory dues wouldbe cleared 100% and that the financial creditors who constituted AB

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Athe CoC were to be paid 60% of their dues. It offends commonsense to think that a resolution applicant who had the benefit ofleakage of information relating to liquidation value would quote afigure of Rs. 29.74 crores as the total pay-out, as against aliquidation value of Rs. 13.53 crores. The question of breach ofconfidentiality and leakage of confidential information can easilyBbe tested on the touchstone of the benefit that accrued to theparty who got the information. In the case on hand, no benefitaccrued to the SRA. [Paras 35-38][482-D-H]

2.5 It is obvious from the material on record that thePromoter/Director of the Corporate Debtor has tried to takeCadvantage of two small mistakes on the part of the SRA, one ofwhich was a typographical error mentioning the date “09thFebruary 2019” at the bottom of the self-declaration and the other,which happened as a matter of coincidence. The NCLAT appearsto have made a mountain out of a molehill and has recorded aDfinding even beyond the pleadings in the Memorandum of Appeal.Hence, the second ground on which the NCLAT was convincedto pass the impugned order, is legally and factually untenable.[Para 39][483-A-B]

3. The next ground on which NCLAT proceeded, relatedEto the ethanol plant and machinery. SRA admittedly did not makehis Resolution Plan on the strength of the ethanol plant andmachinery in question. The threat looming large over theavailability of the ethanol plant and machinery has admittedly beentaken note of by the SRA and the CoC. The Resolution Plan doesnot give an indication anywhere that without this plant andFmachinery the whole resolution plan will fail. In paragraph 8.04of the Resolution Plan, the SRA has undertaken to continue theoperations in the normal course of business. It is a commercialdecision that they have taken. The corporate debtor cannot crywolf over the said decision. Therefore, the third ground on whichGNCLAT chose to interfere, is also bound to be rejected. [Para40][483-C-E]

4.1 The last ground revolves around the advertisementissued by the Resolution Professional on 30.03.2018. NCLATholds that the advertisement was not in conformity withHRegulation 36A of The Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons)Regulations, 2016 and as per Form G of the Schedule. Regulation36A was inserted only with effect from 06.02.2018 underNotification No. IBBI/2017-18/GN/REG024 dated 06.02.2018. Itunderwent a change under Notification No. IBBI/2018-19/GN/REG031 dated 03.07.2018, with effect from 04.07.2018.Regulation 36A, as it stood during the period from 06.02.2018 to04.07.2018, did not mandate the publication of the invitation ofResolution Plans, either in Form G or otherwise, in newspapers.It is only the amended Regulation 36A, which came into effectfrom 04.07.2018, that requires the publication of Form G innewspapers. Therefore, the publication in newspapers made bythe Resolution Professional, in the case on hand, on 30.03.2018,was something that was statutorily not required of him and hencethe Promoter/Director of the corporate debtor cannot takeadvantage of the amendment that came later, to attack theadvertisement. The unamended and amended Regulation 36Aare provided in a tabular column for easy comparison andappreciation. The second meeting of the Committee of Creditorswas held on 27.03.2018. The advertisement was approved in thesaid meeting. It was the unamended Regulation 36A that was inforce at that time. This has not been appreciated by NCLAT.Therefore, the NCLAT was wrong in its approach even in thisregard. [Paras 41, 45, 46][483-E-F; 484-E-H; 487-C-D]

Committee of Creditors of Essar Steel India Limited v.Satish Kumar Gupta and others(2019) SCC OnlineSC 1478; K. Sashidhar v. Indian Overseas Bank (2019)12 SCC 150; [2010] 3 SCR 845 – relied on Case Law Reference [2010] 3 SCR 845relied onPara 10CIVIL APPELLATE JURISDICTION : Civil appeal nos. 2955of 2020

From the Judgment and Order dated 02.06.2020 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal(AT)(Ins) No. 943 of 2019.

With

Civil Appeal o. 2902 of 2020.

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ASiddhartha Dave, Jayant Bhushan, Sr. Advs., Dr. RavindraSadanand Chingale, Shikhil Suri, Shiv Kumar Suri, Ms. Shilpa Saini, Ms.Nikita Thapar, Ms. Vinishma Kaul, Ms. Madhu Suri, Ranjit BalasahebRaut, Bhushan V. Mahadik, Akshat Kumar, Advs. for the appearingparties.BThe Judgment of the Court was delivered by

V. RAMASUBRAMANIAN, J.

1. Challenging an order passed by the National Company LawAppellate Tribunal (hereinafter referred to as ‘NCLAT’) (i) setting asidethe approval granted by the National Company Law Tribunal (hereinafterCreferred to as ‘NCLT’) to a Resolution Plan and (ii) remanding the matterback to the NCLT with a direction to have the Resolution Plan re-submitted before the Committee of Creditors, the financial creditor andthe Resolution Professional have come up with these appeals.

2. We have heard learned counsel appearing on both sides.

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3. The Karad Urban Cooperative Bank Ltd., which is the financialcreditor, filed an application on 04.09.2017 under Section 7 of the IBCbefore the NCLT against M/s. Khandoba Prasanna Sakhar KarkhanaLimited, which is the corporate debtor. NCLT admitted the applicationon 01.01.2018 and an Interim Resolution Professional was appointed.EThe first meeting of the Committee of Creditors (hereinafter referred toas ‘CoC’) took place on 02.03.2018. As per the decision taken therein,one Mr. Jitendra Palande was appointed by the NCLT, by an order dated06.03.2018, as Resolution Professional.

4. Pursuant to the second meeting of the Committee of Creditorsheld on 27.03.2018, the Resolution Professional issued an advertisementFon 30.03.2018 inviting Expression of Interest. In the meantime, a Director/Promoter of the corporate debtor moved the High Court of Judicature atBombay by way of a writ petition in Writ Petition No.4746 of 2018,challenging the orders of the NCLT dated 01.01.2018 and 06.03.2018.Initially, the High Court granted stay of further proceedings before theGNCLT on 18.04.2018. However, the writ petition was eventuallydismissed on 23.08.2018.

5. Several meetings of the Committee of Creditors were heldthereafter and eventually the Committee of Creditors, in its 8th Meetingheld on 09.02.2019 resolved to approve the Resolution Plan submittedHby one M/s. Sai Agro (India) Chemicals. On the basis of the approval of the Resolution Plan by the Committee of Creditors, the ResolutionProfessional moved an application on 15.02.2019 before the NCLT,Mumbai. At this stage, the Director/Promoter of the corporate debtoralso came up with an application seeking permission to file a resolutionplan. But by a common order dated 01.08.2019, NCLT, Mumbai Bench,rejected the application filed by the Director/Promoter of the corporatedebtor and approved the Resolution Plan submitted by M/s. Sai Agro(India) Chemicals. Thus, M/s. Sai Agro (India) Chemicals, have becomethe Successful Resolution Applicant (hereinafter referred to as the‘SRA’).

6. The Director/Promoter of the corporate debtor (whounsuccessfully approached the High Court of Bombay at the earliestpoint of time), filed an appeal before the NCLAT in Company Appeal(AT) (Ins) No.943 of 2019, as against the order of the NCLT dated01.08.2019, granting approval of the Resolution Plan of the SRA.

7. By an order dated 02.06.2020, NCLAT allowed the appeal andremanded the matter back to the adjudicating authority, with a directionto send back the Resolution Plan to the Committee of Creditors. Theoperative portion of the order of NCLAT dated 02.06.2020 reads asfollows:- “The Appeal is allowed. For the above reasons, we set aside theImpugned Order and remit the matter back to the AdjudicatingAuthority with a direction to send back the Resolution Plan to theCommittee of Creditors to resubmit the Plan taking intoconsideration observations made above and after satisfying theparameters as laid down by the Hon’ble Supreme Court in theJudgment in the matter of “Essar Steel” referred (supra) and IBC.The Adjudicating Authority may give specific time period to theResolution Professional to place matter before Committee ofCreditors for resubmitting the Resolution Plan taking intoconsideration observations made above and after satisfying theparameters laid down by the Hon’ble Supreme Court and IBC.Further incidental Orders may also be passed.

On resubmission of the Resolution Plan, the Adjudicating Authoritywill deal with the same in accordance with law.

The Appeal is disposed accordingly. No costs.”

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A8. It is against the aforesaid order of remand passed by NCLATthat the financial creditor has come up with one appeal and the ResolutionProfessional has come up with another appeal.

9. It is seen from the order of the NCLAT that the AppellateTribunal was convinced to interfere with the order of NCLT grantingBapproval of the Resolution Plan, on four grounds. They are:-

(i) That the Resolution Plan suffers from issues of viabilityand feasibility;

(ii) That in as much as the liquidation value mentioned by theSuccessful Resolution Applicant in its Resolution Plan talliedCexactly with the liquidation value obtained by the ResolutionProfessional, there appears to have been a breach ofconfidentiality, violating Regulation 35(2);

(iii) That the Resolution Plan does not take note of one importantfact namely, that the ethanol plant and machinery shown asDpart of the assets of the corporate debtor, actually belongedto another company by name, Sarvadnya Industries PrivateLimited, and that a bank by name, Janata Sahkari BankLimited, Pune had taken possession of the same under theSARFAESI Act; and E(iv)That even the advertisement issued by the ResolutionProfessional on 30.03.2018 inviting Expression of Interest,was vitiated in as much as the invitation contained thereinwas for outright sale of the Company as a going concern,and was in violation of Regulation 36A.

F10. The order of the NCLAT is assailed by the appellants on theground, inter alia, (i) that the question of viability and feasibility, is to beleft to the commercial wisdom of the CoC and the same cannot belightly interfered with by the Tribunal, in view of the law laid down bythis court in Essar Steel India Ltd.[1 ]and K. Sashidhar;[2] (ii) that amere suspicion that there was breach of confidentiality cannot take theGplace of proof; (iii) that once the Successful Resolution Applicant hastaken note of the issue relating to the ethanol plant and machinery andsubmitted a resolution plan, the Director/Promoter of the corporate debtor 1 Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta andothers, (2019) SCC OnLine SC 1478H2 K. Sashidhar vs. Indian Overseas Bank, (2019) 12 SCC 150

cannot make an issue out of it, and (iv) that the advertisement issuedwas actually in tune with the regulations, including Regulation 36A.

11. Supporting the order of the NCLAT, it is contended by Mr.Jayant Bhushan, learned Senior Counsel, (i) that the Resolution Planproceeds on the basis as though the ethanol plant, owned by a thirdparty, is part and parcel of the assets of the corporate debtor and hence,the examination of the viability and feasibility on the basis of such wrongnotion stands vitiated; (ii) that the very self-declaration accompanyingthe Resolution Plan bears the date 09.02.2019, but the email exchangedbetween the Resolution Professional and the Successful ResolutionApplicant, on the question of leakage of information relating to theliquidation value is dated 07.02.2019, showing thereby that there wascollusion between the Resolution Professional and the SuccessfulResolution Applicant; (iii) that the issue relating to legal possession ofthe ethanol plant and machinery had already been left open by NCLATin a collateral proceeding between its legal owner namely, SarvadnyaIndustries Pvt. Ltd. and its banker, Janata Sahkari Bank Ltd. and hence,this machinery could not have formed part of the assets of the corporatedebtor to enable the Successful Resolution Applicant to take over thecorporate debtor as a going concern and run it; and (iv) that the veryfact that the Successful Resolution Applicant was the only person whosubmitted a bid in response to the advertisement and the fact that theResolution Plan was approved within 2-3 hours in the 8[th] meeting of theCoC in a hasty manner, would show that the Resolution Plan was tainted,and that therefore, NCLAT was justified in setting aside the approvalgranted by the NCLT to the Resolution Plan.

12. We have carefully considered the rival submissions. On thefirst question regarding the viability and feasibility of a resolution plan,the law is now well-settled. In K. Sashidhar (supra), it was held asfollows:

(i) “There is an intrinsic assumption that financial creditorsare fully informed about the viability of the corporate debtorand feasibility of the proposed resolution plan…The opinionon the subject matter expressed by them after duedeliberations in the CoC meetings through voting, as pervoting shares, is a collective business decision. Thelegislature, consciously, has not provided any ground tochallenge the “commercial wisdom” of the individual AB

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476SUPREME COURT REPORTS

Afinancial creditors or their collective decision before theadjudicating authority. That is made nonjusticiable.”(paragraph 52)

(ii) “The provisions investing jurisdiction and authority in NCLTor NCLAT as noticed earlier, have not made the commercialBdecision exercised by CoC of not approving the resolutionplan or rejecting the same, justiciable. This position isreinforced from the limited grounds specified for institutingan appeal that too against an order “approving a resolutionplan” under Section 31.” (paragraph 57)

C(iii)“Further, the jurisdiction bestowed upon the appellateauthority (NCLAT) is also expressly circumscribed. It canexamine the challenge only in relation to the groundsspecified in Section 61(3) of the I&B Code, which is limitedto matters “other than” enquiry into the autonomy orcommercial wisdom of the dissenting financial creditors.”D(paragraph 58)

(iv) “At best, the adjudicating authority (NCLT) may cause anenquiry into the “approved” resolution plan on limitedgrounds referred to in Section 30(2) read with Section 31(1)of the I&B Code. It cannot make any other inquiry nor isEcompetent to issue any direction in relation to the exerciseof commercial wisdom of the financial creditors — be itfor approving, rejecting or abstaining, as the case may be.Even the inquiry before the appellate authority (NCLAT) islimited to the grounds under Section 61(3) of the I&B Code.FIt does not postulate jurisdiction to undertake scrutiny ofthe justness of the opinion expressed by financial creditorsat the time of voting.” (paragraph 64)

Thereafter, in Essar Steel India Ltd. (supra), this Court held:

(i) “Thus, it is clear that the limited judicial review available,Gwhich can in no circumstance trespass upon a businessdecision of the majority of the Committee of Creditors, hasto be within the four corners of Section 30(2) of the Code,insofar as the Adjudicating Authority is concerned, andSection 32 read with Section 61(3) of the Code, insofar asthe Appellate Tribunal is concerned.” (paragraph 48)H

(iv) “Thus, while the Adjudicating Authority cannot interfere onmerits with the commercial decision taken by the Committeeof Creditors, the limited judicial review available is to seethat the Committee of Creditors has taken into account thefact that the corporate debtor needs to keep going as agoing concern during the insolvency resolution process; thatit needs to maximise the value of its assets; and that theinterests of all stakeholders including operational creditorshas been taken care of.” (paragraph 54)

13. The principles laid down in the aforesaid decisions, make onething very clear. If all the factors that need to be taken into account fordetermining whether or not the corporate debtor can be kept running asa going concern have been placed before the Committee of Creditorsand the CoC has taken a conscious decision to approve the resolutionplan, then the adjudicating authority will have to switch over to the handsoff mode. It is not the case of the corporate debtor or its promoter/Director or anyone else that some of the factors which are crucial fortaking a decision regarding the viability and feasibility, were not placedbefore the CoC or the Resolution Professional. The only basis for thecorporate debtor to raise the issue of viability and feasibility is that theownership and possession of the ethanol plant and machinery is the subjectmatter of another dispute and that the resolution plan does not take careof the contingency where the said plant and machinery may not eventuallybe available to the Successful Resolution Applicant.

14. But the aforesaid argument, coming as it does from thePromoter/Director of the corporate debtor is like the wolf shedding tearsfor the lamb getting drenched in rain. The records very clearly showthat the Successful Resolution Applicant, the Resolution Professionaland the financial creditor were fully aware of the said issue. The orderpassed by the NCLAT in Company Appeal (AT) (Insolvency) No.897of 2019 on 16.12.2019 shows that the possession of the ethanol plantand machinery was restored to Sarvadnya Industries Pvt. Ltd., in theappeal to which the Successful Resolution Applicant was also a party.The Successful Resolution Applicant also appears to have offered toJanata Sahkari Bank to purchase the said plant and machinery. In theappeal before the NCLAT out of which the present Civil Appeals arise,Sarvadnya Industries Pvt. Ltd. which claims ownership of the ethanolplant and machinery, were also a party.

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A15. In any case, the Resolution Professional has taken a specificplea in his grounds of appeal before this Court, that the SuccessfulResolution Applicant is itself into the ethanol manufacturing businessand that they have sufficient ethanol production capacity required tofulfil their Resolution Plan. In paragraph 4.P of -the Civil Appeal filed bythe Resolution Professional, he has stated as follows:B

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“Further, the said Ethanol Plant was functional only between April2016 and August 2016. That Respondent No. 3/SRA is itself intothe ethanol manufacturing business and has sufficient ethanolproduction capacity required to fulfil its resolution plan. Additionally,there is a provision for capital expenditure in the approved plan ofCSRA which includes the cost of a new ethanol facility, if required.Additionally, Janata Bank Pune, which holds symbolic possessionof the ethanol plant, had approached Respondent No. 3/ SuccessfulResolution Applicant for the sale of the said ethanol plant to thesaid SRA. That further the Respondent No. 3/ successfulDresolution applicant was planning to expand and integrate otherfacilities with the distillery plant of the Corporate Debtor whichwas functional since 2007;”

16. Therefore, the fact that there was an issue with regard to theethanol plant and machinery, had been taken note of by the ResolutionEProfessional, the Committee of Creditors and the Successful ResolutionApplicant. Once all these three parties have taken note of the said factand taken a conscious decision to go ahead with the Resolution Plan, itcannot be stated that the question of viability and feasibility was notexamined in the proper perspective.

F17. Therefore, the first ground and actually the main ground onwhich NCLAT interfered with the decision of the NCLT to approve theResolution Plan, is wholly untenable, misconceived and unjustified.

18. In fact, our discussion could have ended here without goinginto the other grounds, for one simple reason. Though the Director/GPromoter of the corporate debtor, who was the appellant before theNCLAT, raised other grounds apart from viability and feasibility, NCLATissued limited notice in the appeal, on 12.09.2019, only with regard toviability and feasibility. Even in the impugned order dated 02.06.2020, itis made clear in the last sentence of paragraph 1 that “this appeal on12.09.2019 was admitted to limited extent of examining viabilityHand feasibility of the Plan”.

19. It is true that in the last paragraph of the impugned order,namely paragraph 14, the Appellate Tribunal holds that the CIRP sufferedfrom material irregularities and the Resolution Plan approved suffersfrom feasibility and viability. But then the operative portion of theimpugned order does not take the findings on other issues to their logicalend. For instance, the Tribunal holds that the advertisement invitingExpression of Interest itself was defective and that there was breach ofconfidentiality in as much as the liquidation value appears to have beenleaked out. These findings should have taken the Appellate Tribunal tothe point of setting aside the entire process and directing the ResolutionProfessional to start the process all over again from the stage of issue ofa fresh advertisement. The NCLAT did not do so. In the operative portion,NCLAT merely remanded the matter back to the Adjudicating Authoritywith a direction to send back the Resolution Plan to the Committee ofCreditors to resubmit the planafter taking into consideration the lawlaid down by this Court.

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20. In other words, the reliefs that would normally flow in the lightof the findings with regard to breach of confidentiality and defectiveInvitation to Offer, were not granted by NCLAT. The Director/Promoterof the corporate debtor has not come up with any appeal against thefailure of NCLAT to grant appropriate reliefs, connectable to the aforesaidfindings. The Director/Promoter of the corporate debtor is obviouslyhappy with the limited relief, if at all it is one, granted to him for theresubmission of the Resolution Plan.

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21. It must be pointed out at this stage that the order of the NCLT,Mumbai Bench dated 01.08.2019 became the subject matter of a singleappeal before NCLAT. But it was actually a common order passed inthree applications namely, MA Nos.1509/2019, 2104/2019 and 662/2019.The details of these applications are as follows:

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(i) MA No.1509/2019 was filed by an operational creditor, byname Sarvadnya Industries Pvt. Ltd. (whose ethanol plantand machinery also became a matter of dispute). Their claimwas that they had a rental agreement with the corporateGdebtor with regard to the plant and machinery and that therewas default in payment of the rent.

(ii) MA No.2104/2019 was filed by the Director/Promoter ofthe corporate debtor seeking to submit a resolution plan.

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But it was obviously filed after 270 days and also after theapproval of the Resolution Plan by the CoC.

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(iii) The third application, MA No.662/2019, was by theResolution Professional for the approval of the ResolutionPlan which was accepted by the CoC.

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22. By its common order dated 01.08.2019, the NCLT dismissedMA Nos.1509 and 2104 of 2019, filed respectively by the operationalcreditor (lessor of the ethanol plant) and the Promoter/Director of thecorporate debtor. But the application filed by the Resolution Professionalwas allowed.

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23. But the Director/Promoter of the corporate debtor filed onlyone appeal and the Memorandum of Appeal suggests that the Director/Promoter of the corporate debtor prayed for two reliefs, namely (i) toset aside the approval of the Resolution Plan, and (ii) to consider his ownresolution plan.

D24. By the order impugned in the present Civil Appeals, the NCLATgranted only a limited relief, as can be seen from the operative portion ofthe order of NCLAT which we have extracted earlier.

25. Therefore, in the light of the above facts, the consideration ofall other issues, such as breach of confidentiality and defective InvitationEto Offer would only be academic, as NCLAT did not grant any relief tothe Promoter/Director of the corporate debtor, which could logically flowout of those other grounds.

26. But be that as it may, we will still deal with the other threegrounds also, as the same would put things in the right perspective andFclear any air of suspicion.

27. The second ground on which NCLAT interfered with thedecision of the NCLT is the alleged breach of confidentiality. Thecontention of the Promoter/Director of the corporate debtor is that theliquidation value mentioned in the Resolution Plan submitted by the SRAGexactly tallied with the liquidation value obtained by the ResolutionProfessional and that the whole sequence of events would show clearlythat there was an attempt to cover up.

28. According to the Director/Promoter of the corporate debtor,the self-declaration signed by the Resolution Applicant, and which formsHpart of the Resolution Plan, bears the date 9th February 2019. This document mentions the liquidation value as Rs. 13.53 crores. It was thesame value as obtained by the Resolution Professional. It is the contentionof the Director/ Promoter of the corporate debtor that the ResolutionProfessional wrote an email on 07.02.2019 itself (2 days before thesubmission of the Resolution Plan by the SRA), asking for clarificationas to how the liquidation value matched. This, according to the Directorof the corporate debtor, was proof enough to show that there was notmerely a leakage of information, but also an attempt to cover-up.

29. But we are unable to accept the above contention. TheResolution Plan actually runs to 31 pages. Pages 30 and 31 containAnnexure A, which provides the business plan. Page 29 contains a self-declaration certificate signed by the partners of the SRA. Just below thesignatures of the partners at page 29, the date “09th February 2019” istype-written.

30. But the cover page of the entire document contains the date“7th February 2019” as the date of submission of the Resolution Plan.The last date for submission of the resolution plan was 08.02.2019.

31. Nowhere in the Memorandum of Appeal filed by the Promoter/Director of the corporate debtor before the NCLAT, has he claimed thatthe Resolution Plan was submitted by the SRA after the last date. Wehave perused the Memorandum of Appeal filed by the Promoter/Directorof the corporate debtor before the NCLAT. It was not his case at all thatthe Resolution Plan was submitted by the SRA after the last date, butthe same was predated by the Resolution Professional acting in collusion.

32. It appears from the impugned order of NCLAT that only inthe course of hearing of the appeal, the date “09th February 2019” type-written at the bottom of the self-declaration (page 29 of the ResolutionPlan) was sought to be taken advantage of. Since this was not raised asone of the grounds in the Memorandum of Appeal but raised in thecourse of arguments, the Resolution Professional could do no more thanto file the print-out of the email correspondence between him and theSRA dated 07.02.2019. In the first email dated 07.02.2019, the ResolutionProfessional had sought a clarification from the SRA as to how theydiscovered the liquidation value and the source for the same. In responseto this mail, the SRA sent a reply email contending that they undertook adue diligence to know the current market value and liquidation value andthat what was quoted by them in the Resolution Plan, was somethingthat an independent agency provided to them.

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A33. Unfortunately, NCLAT rejected the print-out of the emailcorrespondence dated 07.02.2019 on the sole ground that the same wasnot supported by affidavit and that it was filed after the conclusion of theoral arguments.

34. But NCLAT failed to take note of the fact that the ResolutionBProfessional did not have any alternative except to respond in the mannerthat he did, to a point raised only in the course of arguments, but notraised in the Memorandum of Appeal. If the Promoter/Director of thecorporate debtor had raised the issue of collusion or the submission ofthe Resolution Plan after the expiry of the last date, even in theMemorandum of Appeal, a duty would have been cast upon the ResolutionCProfessional to respond in an appropriate manner. But that was not thecase. Therefore, we do not approve the manner in which NCLAT rejectedthe contents of the email correspondence.

35. The fact that there was an email correspondence betweenthe Resolution Professional and the SRA on 07.02.2019, touching uponDone of the contents of the Resolution Plan, would show (i) that the SRAhad submitted the Resolution Plan before the last date and (ii) that theResolution Professional had obviously scrutinised it, as otherwise he couldnot have found out the liquidation value mentioned therein matching theconfidential information that he had.

E36. In any case, the proof of the pudding is in the eating. Theliquidation value mentioned in the Resolution Plan of the SRA is Rs.13.53 crores. But the actual total pay-out as per the Resolution Plan isRs. 29.74 crores.

37. This meant that the workers and employees of the corporateFdebtor were to be paid 100% of their dues; that all statutory dues wouldbe cleared 100% and that the financial creditors who constituted theCoC were to be paid 60% of their dues.

38. It offends common sense to think that a resolution applicantwho had the benefit of leakage of information relating to liquidation valueGwould quote a figure of Rs. 29.74 crores as the total pay-out, as againsta liquidation value of Rs. 13.53 crores. The question of breach ofconfidentiality and leakage of confidential information can easily be testedon the touchstone of the benefit that accrued to the party who got theinformation. In the case on hand, no benefit accrued to the SRA.

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39. It is obvious from the material on record that the Promoter/Director of the Corporate Debtor has tried to take advantage of twosmall mistakes on the part of the SRA, one of which was a typographicalerror mentioning the date “09th February 2019” at the bottom of theself-declaration and the other, which happened as a matter of coincidence.The NCLAT appears to have made a mountain out of a molehill and hasrecorded a finding even beyond the pleadings in the Memorandum ofAppeal. Hence, the second ground on which the NCLAT was convincedto pass the impugned order, is legally and factually untenable.

40. The third ground on which NCLAT proceeded, related to theethanol plant and machinery. We have already dealt with this issue indetail, while dealing with the first issue. As stated therein, the SRAadmittedly did not make his Resolution Plan on the strength of the ethanolplant and machinery in question. The threat looming large over theavailability of the ethanol plant and machinery has admittedly been takennote of by the SRA and the CoC. The Resolution Plan does not give anindication anywhere that without this plant and machinery the wholeresolution plan will fail. In paragraph 8.04 of the Resolution Plan, theSRA has undertaken to continue the operations in the normal course ofbusiness. It is a commercial decision that they have taken. The corporatedebtor cannot cry wolf over the said decision. Therefore, the third groundon which NCLAT chose to interfere, is also bound to be rejected.

41. The last ground revolves around the advertisement issued bythe Resolution Professional on 30.03.2018. NCLAT holds that theadvertisement was not in conformity with Regulation 36A of TheInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016 and as per Form Gof the Schedule.

42. But the conclusions reached by NCLAT in this regard cannothold water for two reasons. If NCLAT was convinced that the veryprocess of inviting Expression of Interest was vitiated, NCLAT shouldhave issued a direction to start the process afresh all over again byissuing a fresh advertisement. NCLAT did not do this and the personwho raised this point is not on appeal.

43. In any case, it does not lie in the mouth of the Promoter/Director of the corporate debtor to raise any issue in this regard. It isseen from the Minutes of the 2nd Meeting of the Committee of Creditors A

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Athat the Promoter/Director of the corporate debtor attended the meetingheld on 27.03.2018. In Item No. 3 of the Agenda for the said meeting,the draft of the Invitation for Expression of Interest was approved. ThePromoter/Director did not raise any objections either on 27.03.2018 inthe meeting in which the draft was approved or at any time thereafter,until the approval of the Resolution Plan.B

44. The Promoter/Director of the corporate debtor who was theappellant before NCLAT attended the 3rd meeting of the CoC on15.09.2018, the 4th meeting of the CoC held on 12.10.2018 and the 5thmeeting of the CoC held on 26.11.2018. He did not raise any whisperabout the contents of the advertisement. Even when the very sameCPromoter/Director of the corporate debtor went before the High Courtof Judicature at Bombay by way of a writ petition challenging the ordersof NCLT dated 01.01.2018 and 06.03.2018, his focus was on his ownapplication under Section 10 of the Insolvency and Bankruptcy Code.His grievance before the High Court was that his own application underDSection 10 was dumped by the NCLT and the application of the financialcreditor was admitted thereafter. In fact the conduct of the Promoter/Director of the corporate debtor came to adverse notice before theBombay High Court.

45. Regulation 36A was inserted only with effect from 06.02.2018Eunder Notification No. IBBI/2017-18/GN/REG024 dated 06.02.2018. Itunderwent a change under Notification No. IBBI/2018-19/GN/REG031dated 03.07.2018, with effect from 04.07.2018. Regulation 36A, as itstood during the period from 06.02.2018 to 04.07.2018, did not mandatethe publication of the invitation of Resolution Plans, either in Form G orotherwise, in newspapers. It is only the amended Regulation 36A, whichFcame into effect from 04.07.2018, that requires the publication of FormG in newspapers. Therefore, the publication in newspapers made by theResolution Professional, in the case on hand, on 30.03.2018, wassomething that was statutorily not required of him and hence the Promoter/Director of the corporate debtor cannot take advantage of the amendmentGthat came later, to attack the advertisement. The unamended and amendedRegulation 36A are provided in a tabular column for easy comparisonand appreciation.

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SUPREME COURT REPORTS

[2020] 13 S.C.R.

THE KARAD URBAN COOPERATIVE BANK LTD. v. SWWAPNILBHINGARDEVAY & ORS. [V. RAMASUBRAMANIAN, J.]

46. The second meeting of the Committee of Creditors was heldon 27.03.2018. The advertisement was approved in the said meeting. Itwas the unamended Regulation 36A that was in force at that time. Thishas not been appreciated by NCLAT. Therefore, the NCLAT was wrongin its approach even in this regard.

47. Therefore, in fine, the impugned order of NCLAT is flawedand hence, liable to be set aside. Accordingly, the Civil Appeals areallowed, the impugned order of the NCLAT is set aside and the order ofthe National Company Law Tribunal, Mumbai Bench dated 01.08.2019is restored. There will be no order as to costs.

Devika Gujral

Appeals allowed

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