Introduction:
In Jaypee Kensingon Boulevard Apartments Welfare Association vs. NBCC (India) Limited1, the Hon’ble Supreme Court had held that in case a resolution plan requires modification, the Adjudicating Authority must send back the resolution plan to committee of creditors (CoC) to consider the modifications, so as to afford an opportunity to resolution applicant to modify the plan, and CoC may then re-consider the plan and vote upon same. Similar understanding reflects even from the Hon’ble Supreme Court decision in Committee of Creditors of Essar Steel India Ltd vs. Satish Kumar Gupta2, wherein it had affirmed this power to remand back. Now, recently, in Bank of Maharashtra vs. Videocon Industries Ltd., the primary issue that arose for consideration before NCLAT was whether CoC can review its decision of approving the resolution plan. Below we analyse the judgment:
Facts of the case:
The dissenting financial creditor filed an appeal before NCLAT, praying that the NCLT order approving the resolution plan should be dismissed, and the plan should be remanded back to CoC. Primary contentions were as follows:
Discrepancies existed between Form-H and distribution excel sheet shared with the CoC members, and therefore, the appellant stated that non- disclosure of respective share of the liquidation value to the CoC members may have resulted in them not being able to take a proper and prudent decision on the resolution plan. Had the CoC known the correct share of the liquidation value, they would not have approved the resolution plan with a huge haircut of 95%, resulting in loss to the banks/financial institutions handling public money.
The resolution plan proposes that non-convertible debentures will be issued to the dissenting financial creditor, which shall be redeemable after five years. Therefore, the resolution plan did not provide for “upfront” payment in priority to the dissenting financial creditor, as provided in Section 30(2) of the Insolvency and Bankruptcy Code, 2016 (“Code”), and Regulations 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), 2016.
The amount to be received under the resolution plan by the dissenting financial creditor is less than the liquidation value which the dissenting financial creditor would have otherwise received, and hence, contrary to Section 30(2) of the Code.
While the resolution plan was approved by CoC, prior approval of Competition Commission of India was not obtained as per proviso to Section 31(4) of the Code.
There were significant observations regarding low value of resolution plan and haircut of high magnitude being suffered by various classes of stakeholders, including operational creditors, under the resolution plan.
Public sector banks and financial institutions etc., constituting approx. 95% of the CoC (out of 95.09% voted in favour) resolved to remand the matter back to CoC for its reconsideration, through affidavit, considering that CoC, majority of which were public sector banks and financial institutions, dealing with public money, were acting as custodian of public trust and discharging statutory role.
Precedents relied upon:
The Hon’ble Supreme Court, in Sakri Vasu vs. State of UP3, held as follows:
“It is well-settled that when a power is given to an authority to do something it includes such incidental or implied powers which would ensure the proper doing of that thing. In other words, when any power is expressly granted by the statute, there is impliedly included in the grant, even without special mention, every power and every control the denial of which would render the grant itself ineffective. Thus where an Act confers jurisdiction it impliedly also grants the power of doing all such acts or employ such means as are essentially necessary to its execution.
21. An express grant of statutory powers carries with it by necessary implication the authority to use all reasonable means to make such grant effective.”
The Hon’ble Allahabad High Court in Duli Chand vs. State of Uttar Pradesh4 held- “It is a trite law that power to do also includes the power to undo”.
Similarly, the Hon’ble Bombay High Court, in Rajesh Hansraj Chopra vs. the Competent Authority & Ors.5, held:
“Section 21 of the General Clauses Act is a general provision how to interpret provisions of an enactment regulation or rules where certain powers are conferred on certain authority to issue an order and the extent to which such power could be exercised. In doing so, such authority is conferred with power to modify, amend or to alter it”.
Relying on the same principle, Hon’ble Bombay High Court had again, in Sunil Gayaprasad Mishra vs. Rashtra Sant6, held that the approval once granted to the recommendations of the selection committee to appoint a teacher was considered to be capable of being reviewed and even withdrawn [See Also: Dhikpathy vs. Chairman Chennai Port Trust7].
Judgment:
Since the provisions of the Code were not complied with, the approval of the resolution plan was not in accordance with Section 31. Accordingly, the approval of resolution plan by the CoC as well as Adjudicating Authority was set aside and the plan was remitted back to CoC. In this regard, the following were the key observations of NCLAT:
Simply stating everywhere that it shall not be less than the amount to be paid to such creditors in accordance with Section 53 of the Code in the event of liquidation is just washing off his hands.
What is being perceived repeatedly by the Apex Court is that commercial wisdom are totally in the domain of CoC and these business decisions taken by CoCs are nonjusticiable by the Adjudicating Authority. The Adjudicating Authority does not have power to modify the plan, as held by Hon’ble Apex Court in K.Sashidhar Vs. Indian Overseas Bank8 and CoC of Essar Steel (supra). The Code under Section 31(1) read with Section 30(2) has clearly and specifically provided that the Adjudicating Authority is to see that the resolution plan as approved by the CoC meets the requirements as referred to in Section 30(2) of the Code, and if the Adjudicating Authority is satisfied that the laid down criteria are complied with in the resolution plan then they can approve the plan. If they are not, then the Adjudicating Authority can, at best, send back the resolution plan for re-consideration of the CoC.
If the CoC has power to approve the plan, it also has the power to reconsider and review its own decisions. Just like the board of directors of a company who approves a proposal may, also at a later date, review, and even annul, the approval, in case there are implementational difficulties or otherwise. Also, akin to shareholders who sometimes review their own approvals, based on board of directors’ recommendations, and if required, the approval is revoked.
Concluding Remarks:
There are several instances were a plan is approved by the CoC, however, the implementation is delayed, whether due to ongoing litigations or other reasons. In the meantime, if it is found that there has been material change in the financial position of the resolution applicant, or that it will not be able to comply with its commitments under the resolution plan, the best possible recourse for the CoC may be to withdraw its approval. While it was already well settled that that an authority who has the power to take a decision has equally the power to review the said decision, now, the CoC can also, in light of the aforementioned case, exercise the power to review its decision considering the change in circumstances.
1 2021 SCC OnLine SC 253
2 (2020) 8 SCC 53
3 (2008) 2 SCC 409
4 Writ C- No. 45851 of 2011
5 2001 SCC Online Bom 1145
6 2012 (5) AllMR 581
7 2001 SCC OnLine Mad 154
8 (2019) 12 SCC 150
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