JAYPEE v. NBCC: THE UNRESOLVED CONTROVERSY

Firstly, this Judgment is one of first case when Supreme Court came heavily on Real Estate Company JP

Secondly, those days Real Estate allottee were not considered as Financial Creditors because it is way before days of Pioneer Urban

Thirdly, this Judgment is Post admission stage but controversy is with regard to jurisdiction of NCLT/ NCLAT to disturb the commercial wisdom of COC and

Fourthly, Court exercised Article 142 power 3 times to extend period of CIRP

Fifthly, Concept of Statutory contract and whether Concessionaire agreement is a statutory contract or not

Sixthly, Up to what extent clauses of Resolution plan can be interpreted or modified by NCLT

Seventhly, pending Section 34 appeal by Yamuna Expressway and whether contingent liability clause can be inserted into Resolution plan

Summary of Judgment

The Govt. of UP while exercising Powers under UP Act of 1976 invited tenders for construction of 160 KM Lane known as Yamuna Expressway (Erstwhile known as Taj Expressway) and Jayprakash Associates Limited (JAL) came as bid winner and concession agreement entered between Yaumuna Expressway Industrial Development Authority (Earlier Taj) & JAL and as per agreement, JAL incorporated Jayprakash Infratech Limited (JIL) as SPV company to execute task of completion of Expressway within 36 years and commercial exploitation of concerned land for 90 years. JIL did various defaults in payment of debt and Interest to banks, etc. and also made default in giving possession to real estate allottee on due dates and as a result, Section 7 Petition IBC admitted in NCLT against JIL. Since those days Real Estate allottee were merely “other creditors” so in apprehension of losing their amount, one of Real Estate allottee went to Supreme Court (PIL Chaitra Sharma) against JAL and Apex court  turned heavily on JAL and asked them to deposit 2000 crore which JAL failed after initial submission of 750 Crore. Thereafter Matter again came back to NCLT and next case was of Mr. Anuj jain who alleged 7 transactions as preferential one which supreme decided in favor but this judgment misread by NCLT by upholding Resolution Plan that has ignored the prior encumbrance’s or charge. NCLT under Section 31 uphold some of terms of plan and modify some of terms and therefore various appeals and transfers made from NCLAT to Supreme Court and Supreme Court at length discussed the role of NCLT under Section 31 and their limited judicial review. Importantly Supreme Court touched upon ongoing contingent liability of additional compensation between Yamunna Authority & JIL. Ultimately, Supreme Court set aside the NCLT order and used Article 142 to remand it back to COC and IRP has to re-invite revised Plans from two Applicants only.

Conclusion: There is no conclusion because Supreme Court has discussed the disputes at length but did not given its assent or dissent to them and sends it back to COC again for re-consideration and therefore matter might again come to Supreme Court

 

This is some 375 pages judgment but for understanding we have divided it into 5 chapters

 

 

Chapter-1: History & who all are parties to dispute, NCLT Section 7 Petition

Chapter-2: NCLT Judgment & NCLAT Judgment

Chapter-3: Legal provisions and Scheme of IBC

Chapter-4: supreme Court observations

Chapter-5: Conclusion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER-1: HISTORY & WHO ALL ARE PARTIES TO DISPUTE

By way of a notification dated 24.04.2001, the Government of Uttar Pradesh, in exercise of its powers under Section 3 of the U.P. Act of 1976, proceeded to set up Taj Expressway Industrial Development Authority (‘TEA’) for anchoring development of Taj Expressway Project, being that of a six-lane 160 km long Super Expressway with service roads and associated facilities connecting Noida and Agra, passing through a so-called virgin area along the river Yamuna.

At the initial stages, the said Taj Expressway Industrial Development Authority invited bids for selecting the entity for execution of the project. In this process, ultimately, the company known as Jaiprakash Industries Limited came out as the successful bidder. This company,  Jaiprakash Industries Limited, is now named as Jaiprakash Associates Limited (‘JAL’).

After the said bidding process, a Concession Agreement dated 07.02.2003 was executed between the principal TEA and the successful bidder Jaiprakash Industries Limited, who came to be referred to as the “concessionaire”. Various terms and stipulations of this Concession Agreement form the subject matter of one segment of dispute in the present litigation, as discussed at the relevant stages hereafter. At the present stage, worthwhile it is to notice that under this CA, the concessionaire was to be provided land for constructing Expressway and its allied facilities; and was also to be provided other land for development. In this regard, the concessionaire was given lease of Expressway land with a right to collect toll from the users of the road for 36 years; and the land adjacent to the road was provided to the concessionaire for commercial exploitation on a lease for 90 years. As regards premium for the land being so transferred, the stipulations in the CA had been to the effect that such premium shall be equivalent to acquisition cost plus a lease rent of INR 100 per hectare per year.

In Clause 18.1 of CA, it was also agreed to between the parties that in case the concessionaire and TEA would consider it necessary to transfer the rights and obligations of concessionaire to a special purpose vehicle (‘SPV’), the concessionaire would do so in a reasonable time for which, documents as may be required shall be executed amongst the 28 concessionaire, the TEA and the SPV. For accomplishment of the project, the Government of Uttar Pradesh proceeded to acquire land for laying of the Expressway; and also proceeded to acquire additional land along the road for development of the same for commercial, amusement, industrial, institutional and residential purposes.

Coming on the heels of this project and in terms of the said Clause 18.1 of CA, the corporate debtor Jaypee Infratech Limited (‘JIL’) was set up as a special purpose vehicle by the concessionaire and thereafter, the rights and obligations under CA were transferred to JIL by way of an assignment agreement dated 19.10.2007 and deed of agreement dated 27.11.2007. In this manner, the corporate debtor JIL came to be accepted as the concessionaire.

Later on, by way of a notification dated 11.07.2008, Taj Expressway Industrial Development Authority was renamed as Yamuna Expressway Industrial Development Authority (‘YEIDA’). The net result of the dealings aforesaid has been that the rights and obligations under the said Concession Agreement dated 07.02.2003 now relate to the corporate debtor JIL as the concessionaire and YEIDA as the land providing agency.

The corporate debtor JIL was set up as the SPV by the original concessionaire JAL; and JAL had approximately 71.64% equity shareholding in JIL as on 31.03.2017. Admittedly, JAL had been the holding company of JIL. When JIL was set up as an SPV for the purpose of execution of the project/s under the said CA, finances were obtained from a consortium of banks against the partial mortgage of land acquired and a pledge of 51% of the shareholding held by JAL.

Accordingly, JIL took up those two projects; the Expressway was laid and JIL also started developing real estate projects in two locations of the land acquired, one in Wish Town, Noida and another in Mirzapur.

However, JIL defaulted in several of its obligations, including those in completion of the real estate projects as proposed and in payment of dues of the lender financial institution

The default on the part of JIL in payment of its dues led the lender bank, IDBI Bank Limited, instituting a petition under Section 7 of the Code before the NCLT, for initiation of the corporate insolvency resolution process against JIL. The applicant bank alleged that JIL had committed a default in repayment of its dues to the tune of INR 526.11 crores. JIL filed its objections to the petition but later on, withdrew the objections and furnished its consent for resolution plan under the provisions of the Code.

On 09.08.2017, NCLT initiated the CIRP in respect of JIL. An order of moratorium was issued under Section 14 of the Code by which, the institution of suits and continuation of pending proceedings, including execution proceedings, were prohibited and an Interim Resolution Professional was appointed. On 14.08.2017, IRP called for submissions of claims by financial creditors in Form-C, by operational creditors in Form-B, by the workmen and employees in Form-E and by other creditors in Form-F. On 30 16.08.2017, the Insolvency and Bankruptcy Board of India made an amendment to its Regulations whereby, Regulation 9(a) was inserted to include the claims by other creditors; and then, on 18.08.2017, the Board released a press note that the homebuyers could fill in Form-F, as they could not be treated at par with financial and operational creditors

This led to filling of PIL name Chaitra Sharma because home buyer were under apprehension that if company gets into liquidation then they will a haircut amount and this will cause prejudice to their hard earned money.

The Court initiated steps to protect the interests of homebuyers essentially for the reason that, at the given stage, homebuyers were not regarded as financial creditors and they were not represented in the CoC.

-          Board taken over

-          Bids invited and amicus appointed to take care of all claims at present

-          Asked JAL to deposit 2000 crore which they failed after 750 Crore

 

 

Mainly two categories of parties are here:

One category is of the parties who stand for the resolution plan, as approved by the CoC but who state grievance against a few parts of the aforesaid orders dated 03.03.2020 and 22.04.2020, insofar as providing for modification of the resolution plan and modified mechanism for its implementation.

The other category is of the parties who carry grievances against the resolution plan for one or more of its prescriptions or omissions; and/or who are dissatisfied with the order dated 03.03.2020 insofar as their objections have either been rejected or not taken into account; and/or who are dissatisfied with the order dated 22.04.2020 for the reasons different than those of the parties of first part

The parties standing for the resolution plan

The two entities who need not, as such, be aligned with any of the other contesting parties but for practical purposes, stand for the resolution plan as approved by CoC are:

(i)                  the corporate debtor company in whose relation the resolution plan has been adopted and approved; and

 

(ii)                the Interim Resolution Professional

 

Major set of parties who stand for the approved resolution plan and seek its implementation while stating objections/grievances against the modification parts of the order dated 22.04.2020 as passed by NCLAT and the order dated 03.03.2020 as passed by NCLT

NBCC (India) Limited (NBCC)	It is the resolution applicant and had prepared the resolution plan for JIL, which was approved by a majority of 97.36% of the voting share of the CoC. NBCC seeks setting aside of those parts of the order dated 03.03.2020 where the NCLT has modified some of the terms of resolution plan and/or has issued certain directions. The appeal filed by this company, being Company Appeal (AT) (Insolvency) No. 475 of 2020, stands transferred to this Court and is registered as T.C. (C) No. 236 of 2020. This company is also the respondent in various other appeals/petitions and has comprehensively opposed the objections raised against the resolution plan
IDBI Bank Limited	This bank is standing in the capacity of an institutional financial creditor of the corporate debtor JIL. The corporate insolvency resolution process in relation to the corporate debtor JIL, which has culminated in the approval of the resolution plan submitted by NBCC, got initiated pursuant to an application moved by this bank under Section 7 of the Code before the NCLT. This bank leads a set of nine institutional financial creditors including itself, who have voted in favour of the resolution plan in question; and stands in support of the resolution plan
Jaypee Kensington Boulevard Apartments Welfare Association and 5 others	They are the associations of homebuyers who have invested in the housing projects floated by JIL. They are appellants in Civil Appeal No. 3395 of 202022, questioning the order dated 22.04.2020 as passed by NCLAT and essentially submit that the resolution plan as approved by NCLT deserves to be implemented.
Ishwar Jha and 6 others	They are individual homebuyers of the flats in the development projects initiated by JIL. They are appellants in Civil Appeal No. 3396 of 202023, questioning the order dated 22.04.2020 as passed by NCLAT and they also essentially submit that the resolution plan as approved by NCLT deserves to be implemented without further delay
Krishna Dev Mishra and 2 others	They are also individual homebuyers of the flats in the development projects initiated by JIL. They are applicants of I.A. No. 87967 of 2020 in Civil Appeal No. 3395 of 2020 and similarly submit that  the resolution plan as approved by NCLT deserves to be implemented without further delay.
Major General Praveen Kumar and Colonel V.S. Gaur	They are the homebuyers who have moved applications for impleadment/intervention in Civil Appeal No. 3395 of 2020, being I.A. Nos. 73323 of 2020 and 73330 of 2020 respectively, essentially seeking directions to NBCC to complete the remaining works on priority basis in Tower Nos. 5 to 12 and 14 to 16 in Kensington Park – 1, Jaypee Greens, Noida so that the possession of flats could be handed over to the buyers

 

 

 

 

 

CHAPTER-2: NCLT JUDGMENT & NCLAT JUDGMENT

Via order dated 03.03.2020, as passed by the Adjudicating Authority (NCLT) in exercise of its jurisdiction under Section 31 of the Code

(a)    As regards the said sum of INR 750 crores, the Adjudicating Authority, with reference to the  orders passed by this Court in the case of Chitra Sharma, held that the deposit made by JAL became an asset of the corporate debtor JIL; and the said money was to be utilized towards securing the interests of homebuyers.

 

(b)   As regards the objections by the dissenting financial creditor ICICI Bank, the Adjudicating Authority held that payment to such dissenting financial creditor shall be made in cash, as per the amount it would be entitled to under Section 53 of the Code

 

(c)    As regards the objections by YEIDA, the Adjudicating Authority held that YEIDA shall have the right to collect the acquisition cost through the SPVs proposed to be incorporated so as to make the resolution plan compliant with the terms of the Concession Agreement; however, the Adjudicating Authority refrained from adjudicating on the issue of additional compensation

 

(d)   The Adjudicating Authority brushed aside the objections sought to be taken by some of the aggrieved homebuyers, while holding that they could not be categorized or treated as dissenting financial creditors.

 

 

 

 

Order dated 22.04.2020 by NCLAT making interim arrangement

 

Via interim order dated 22.04.2020 passed by NCLAT, whereby the NCLAT made an interim arrangement of constitution of an Interim Monitoring Committee for implementation of the plan in question.

 

 

 

 

 

 

CHAPTER-3: LEGAL PROVISIONS AND SCHEME OF IBC

Legal Provisions

The expressions generally used in the Code are defined in Section 3 but then, the expressions employed for the purpose of Part II of the Code are defined in Section 5

Section 3(8): “corporate debtor, Section 3(10): “creditor”, Section 3(11): “debt, Section 3(12): “default”, Section 3(30): “secured creditor, Section 3(31): “security interest”

Section 5(7): “financial creditor, Section 5(8): “financial debt, Section 5(20): “operational creditor, Section 5(21): “operational debt, Section 5(25): “resolution applicant, Section 5(26): “resolution plan, Section 5(28): “voting share

The Explanation inserted to sub-clause (f) of clause (8) of Section 5 with effect from 06.06.2018 made it clear that any amount raised from an allottee under a real estate project is deemed to be having the commercial effect of a borrowing and thereby, it answers to the description of a “financial debt”.

The pertinent consequence of this clarificatory amendment is that such an allottee under a real estate project stands in the capacity of a financial creditor of the corporate debtor. Prior to this amendment, such an allottee was sought to be regarded only as an ‘other creditor’ and that had been the principal cause behind the litigation in this Court in Chitra Sharma

Section 18 relating to the duties of interim resolution professional; Section 21 specifying the composition of the Committee of Creditors and matters related with it; Section 24 laying down the norms for meeting of the Committee of Creditors; Section 25 relating to the duties of the resolution professional; Section 25A, as inserted with effect from 06.06.2018 and as amended with effect from 16.08.2019, in regard to the rights and duties of the authorized representative of the financial creditors; Section 30 on the essentials of a resolution plan and its submission to the Committee of Creditors by the resolution professional; Section 31 relating to the approval of resolution plan by the Adjudicating Authority; Sections 32 and 61 relating to the appeal against an order approving the resolution plan and grounds for such an appeal; Section 53 relating to distribution of assets in case of liquidation; and Section 238 on the overriding effect of the Code.

Regulations 16A, 37, 38, 39 and 39B in CIRP Regulations

Regulation 16A deals with Authorized representative, Regulation 37 deals with Resolution Plan, Regulation 38 deals with Mandatory contents of the resolution plan, Regulation 39 deals with Approval

 

 

 

 

Scheme of IBC

Part I thereof contains the provisions regarding title, extent, commencement and application of the Code as also the definition and meaning of various expressions used in the Code. Different provisions have come into force on different dates, as permissible under proviso to sub-section (3) of Section 1. Part II of the Code deals with insolvency resolution and liquidation for corporate persons.

Chapter I of Part II makes provision for its applicability and also defines various expressions used in this Part (Sections 4 and 5). Chapter II of Part II contains the provisions for corporate insolvency resolution process in Sections 6 to 32 whereas Chapter III of this Part II contains the provisions for liquidation process in Sections 33 to 547

A glance at Chapter II of Part II would inform that it contains the blueprint for the process of insolvency resolution in relation to the corporate debtors to whom this Part applies, while specifying the

-          persons who could initiate the process;

-          the manner and impact of such initiation;

-          the roles and rights as also duties of key persons and entities to be involved in the resolution process like the resolution professional,

-          the Committee of Creditors,

-          the authorized representative of financial creditors and

-          the resolution applicant;

-          the matters essential for preparation of the resolution plan;

-          the submission and approval of the resolution plan; and

-          the appeal against approval of the resolution plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER-4: SUPREME COURT OBSERVATIONS

Present Controversy

The issues now raised relate to the contents of the resolution plan in question; its approval by the Committee of Creditors; and the order passed by the Adjudicating Authority in its approval with modifications. Thus, on the issues raised and points arising for determination, the focus in the present case is on the dispensation governing the process of approval of the resolution plan by CoC who, under Section 30(4) of the Code, considers and votes at the resolution plan after it has been verified by the resolution professional as being compliant with the statutory requirements specified in Section 30(2) of the Code; and on the approval of resolution plan by the Adjudicating Authority in terms of Section 31 of the Code

Resolution professional & IBC

In the scheme of IBC, the script of corporate insolvency resolution process, to a large extent, revolves around the resolution professional. When CIRP gets initiated with admission of the application by the Adjudicating Authority as per Sections 7, 9 or 10, as the case may be, an interim resolution professional is appointed by the Adjudicating Authority in terms of Section 13(1)(c) and in the manner laid down in Section 16. Collating and admitting the claims of all creditors; appointing and convening the meetings of the Committee of Creditors; and running the business of the corporate debtor as a going concern during the intermediate period are the key tasks assigned to the interim resolution professional, as distinctly appears from Sections 15, 17, 18 and 20 of the Code.

Further, in the scheme of IBC, the Committee of Creditors, in its first meeting to be held within seven days of its constitution, has to resolve to appoint the interim resolution professional as a resolution professional or to replace him by another resolution professional (vide Section 22 IBC). In terms of Section 23, the resolution professional is to conduct the entire CIRP and manage the operations of the corporate debtor during the period of CIRP.

His duties and responsibilities extend to the conduct of all the meetings of the Committee of Creditors, giving notice of such meetings to the members of CoC, to the members of the suspended Board of Directors and to the operational creditors, if amount of their aggregate dues is not less than 10% of the debt. Akin to the duties of the interim resolution professional under Section 18 of the Code, the resolution professional is also required to preserve and protect the assets of the corporate debtor while continuing with the business operations and while undertaking the actions contemplated by Section 25(2) of the Code.

Significantly, the resolution professional is also required to prepare the information memorandum in terms of Section 29 of the Code; invite prospective resolution applicants; and present the resolution plans at the meeting of the Committee of Creditors, while duly examining them as required by Section 30 of the Code. These compliances are duly regulated by Regulations 35, 36, 36A and 36B of the CIRP Regulations.

 

Case name	Relevant Remarks
K. Sashidhar v. Indian Overseas Bank and Ors.: (2019) 12 SCC 150	The matters in issue related to two different corporate debtors, Kamineni Steel & Power (India) (P) Ltd. (‘KSPIPL’) and Innovative Industries Ltd. (‘IIL’). In case of KSPIPL had been that the said company had filed a petition under Section 10 of the Code seeking initiation of CIRP that was admitted on 10.02.2017 by NCLT, Hyderabad and IRP was appointed with directions to constitute CoC. Accordingly, CoC was constituted and there had been a few rounds of consideration of the matter by CoC, where different propositions were mooted for insolvency resolution. Ultimately, on 30.10.2017, the voting share of consenting banks expressly approving the proposed resolution plan was 66.67% and the voting share of dissenting lender banks was 26.97%. Bank of Maharashtra, having 6.36% voting share, neither approved nor rejected the plan nor abstained from voting but conveyed that they remained ‘open to consider the resolution plan’. Be it noted that at the relevant time, the requirement for approval of the resolution plan, as per Section 30(4) of the Code, was that it ought to be approved by a vote of not less than 75% of voting share of the financial creditors. The position as obtainable after the aforesaid voting was that the resolution plan fell short of receiving minimum 75% votes of the voting share of the financial creditors. IRP filed an affidavit of the outcome before the Adjudicating Authority (NCLT, Hyderabad) on 03.11.2017. However, the Managing Director of the corporate debtor submitted before the Adjudicating Authority that the majority ought to be counted without taking into account the voting share of the financial creditor who chose not to participate in the voting. It was the submission that with such exclusion, the percentage of voting share in approval of the plan would be 78.63% and, therefore, the plan could be taken as approved by the CoC. The NCLT, by its order dated 20.11.2017, allowed the petition so filed and approved the resolution plan with certain directions. The three dissenting financial creditors, including the said Bank of Maharashtra, filed an appeal before NCLAT against the order of NCLT in approving the resolution plan despite the same having not received the approval of minimum 75% votes of the voting share of financial creditors. The Managing Director of the corporate debtor also filed an appeal challenging the observation made by NCLT regarding the corporate guarantee to be proceeded with.       In Innovative Industries The lender bank filed insolvency application that was admitted by NCLT, Mumbai on 17.01.2017. In the CoC meeting relating to this corporate debtor, the financial creditors holding 66.57% voting share voted in favour of approving the proposed resolution plan, whereas dissenting financial creditors, having 33.43% voting share, voted against. Resultantly, the proposed plan was not approved for want of support of the requisite percentage of voting share. The resolution applicant filed an application seeking permission to submit a revised resolution plan and to invite fresh votes. The impending liquidation proceedings were objected to by the workers’ union too. The NCLT, however, rejected the applications and directed initiation of liquidation proceedings by its order dated 23.11.2017. An appeal was filed challenging the order so passed by the NCLT. Common Appeals before NCLAT The Appellate Authority (NCLAT) took up both the appeals relating to KSPIPL and IIL together and the same were disposed of by a common judgment dated 06.09.2018, wherein it was held that the statutory requirement of approval of resolution plan by vote of not less than 75% of the voting share of financial creditors, as laid down under Section 30(4) of the Code, was mandatory and the plans in question were not approved by the requisite majority. Therefore, the appeals were dismissed. Supreme Court held that Upon receipt of a “rejected” resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable.
Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors.: (2020) 8 SCC 531	NCLT, Ahmedabad admitted the petition filed by a lender bank and after a few rounds of proceedings, the negotiated resolution plan of ArcelorMittal (India) (P) Ltd. was approved by CoC by a majority of 92.24%. After several further proceedings, the Adjudicating Authority, by its order dated 08.03.2019, disposed of the application to approve the resolution plan. However, in the appeal, the NCLAT modified the terms of the resolution plan and proceeded to redistribute the proceeds while, inter alia, holding that financial creditors and operational creditors deserve equal treatment under a resolution plan and while further holding that CoC was not empowered to decide the manner in which distribution was to be made between one or other creditors, as there would be a conflict of interest between financial and operational creditors. The order so passed by the NCLAT was in challenge before this Court The apex court observed that: Resolution professional is a person who is not only to manage the affairs of the corporate debtor as a going concern from the stage of admission of an application under Sections 7, 9 or 10 of the Code till a resolution plan is approved by the Adjudicating Authority, but is also a key person who is to appoint and convene meetings of the Committee of Creditors, so that they may decide upon resolution plans that are submitted in accordance with the detailed information given to resolution applicants by the resolution professional. Another very important function of the resolution professional is to collect, collate and finally admit claims of all creditors, which must then be examined for payment, in full or in part or not at all, by the resolution applicant and be finally negotiated and decided by the Committee of Creditors Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting up of such Committee What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.
Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors.: (2020) 11 SCC 467	Court reiterated the primacy assigned to the commercial wisdom of the Committee of Creditors in the matter of corporate insolvency resolution. The matter related to CIRP concerning the corporate debtor United Seamless Tubular Private Ltd. where resolution plans of four different applicants were considered and CoC approved the resolution plan filed by the appellant Maharashtra Seamless Ltd. by a majority of 87.10% of the voting share of financial creditors. Certain differences arose with respect to the liquidation value of the assets of corporate debtor and the CoC took an average of the closest estimate. However, NCLAT ordered re-determination of liquidation value and accordingly, the revised value was arrived at. Thereafter, the CoC again approved the resolution plan of the appellant considering the  revised liquidation value. Then, NCLT approved the resolution plan submitted by the appellant which included an upfront payment of INR 477 crores for infusion in the capital of the corporate debtor. A promoter of the corporate debtor and a financial creditor filed appeals before NCLAT contending that the resolution plan gave unfair advantage to the resolution applicant whereupon, the Appellate Authority proceeded to give a direction to the resolution applicant to enhance its fund inflow upfront The appellate authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code.

 

COC & Scheme of IBC

The resolution professional and the resolution applicant are duty bound to ensure that the resolution plan is prepared in conformity with the requirements of the Code and the CIRP Regulations and is properly presented for consideration, the central role in taking the decision as to whether a resolution plan be adopted or not, in the same form as presented to it or in a modified form; and as to whether the attempt for revival of corporate debtor be made or not, ultimately rests with the pivotal body, comprising of the financial creditors of the corporate debtor and termed as “Committee of Creditors”.

As noticed from the provisions above-quoted, the final decision on a resolution plan is taken by the Committee of Creditors; and, for approval, a resolution plan is required to be voted in favour by not less than 66% of the voting share of the financial creditors, as per Section 30(4) of the Code. It is also relevant to point out that though the resolution professional is to run the business of the corporate debtor as a going concern during the corporate insolvency resolution process but, as per Section 28(3) of the Code, he cannot take certain decisions relating to the management of the corporate debtor without prior approval of the Committee of Creditors by a vote of at least 66% of the voting shares78.

It is, therefore, evident that corporate insolvency resolution, with approval of the plan of resolution, is ultimately in the exclusive domain of the Committee of Creditors. Even during the resolution process, major decisions as regards management and finances of the corporate debtor are in the control of the Committee of Creditors. As per the composition delineated in Section 21 of the Code, the Committee of Creditors is comprised of all financial creditors of the corporate debtor; and the frame of Section 21 puts it beyond doubt that the voting share of each financial creditor is determined on the basis of financial debt owed to it. It is also clear from Section 30(4) as also Section 28(3) that the major decisions of approval are to be taken by the Committee of Creditors by a vote of at least 66% of the voting share of the financial creditors and not by a simple majority. The reasons and purpose for assigning such a unique and decisive role in corporate insolvency resolution to the Committee of Creditors and for that matter, to a substantial block of not less than 2/3^rd of voting share of the financial creditors, were extensively delineated in the report of the Bankruptcy Law Reforms Committee of November, 2015 while remarking on the essential theme that the ‘appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it’.

In corporate insolvency resolution process, the role of Committee of Creditors is akin to that of a protagonist, giving finality to the process (subject, of course, to approval by the Adjudicating Authority), who takes the key decisions in its commercial wisdom and also takes the consequences thereof. As noticed, the process is aimed at bringing the corporate debtor back on its feet and it is acknowledged that appropriate disposition of a defaulting corporate debtor and the choice of solution, to keep the corporate debtor as a going concern or to liquidate it, is to be made by the financial creditors, who could assess the viability and may take decisions in modification of the terms of the existing liabilities. In other words, the decision as to whether the corporate debtor be resurrected or not, by acceptance of a particular resolution plan, is essentially a business decision and hence, is left to the committee consisting of the financial creditors, that is, the Committee of Creditors but, with the requirement that the resolution plan, for its approval, ought to muster not less than 66% votes of the voting share of the financial creditors.

The significance of primacy of the Committee of Creditors in the process of corporate insolvency resolution unfolds itself when we examine the contours of the jurisdiction of Adjudicating Authority dealing with a resolution plan after the same has been voted at by the Committee of Creditors

The decision on legality and validity of the order passed by the Adjudicating Authority on any particular objection or issue would largely depend on the question as to whether the Adjudicating Authority has acted within its jurisdiction or has overstepped its jurisdiction or has acted illegally or with material irregularity in exercise of its jurisdiction

The resolution plan in relation to the corporate debtor JIL, as propounded by NBCC, has been approved by the Committee of Creditors with the votes of 97.36% of the voting share of financial creditors. However, the Adjudicating Authority (NCLT), while passing the impugned order dated 03.03.2020, has modified some of the terms of the resolution plan while also declining modification in relation to some other terms of the resolution plan. In relation to either of the events, whether of modifying the terms of the plan or declining the prayer for modification, invariably the question pertaining to the jurisdiction of the Adjudicating Authority would arise for consideration

 

Jurisdiction of NCLT on approval of Resolution Plan

Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan “as approved” by the requisite per cent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides: (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code.

The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality

The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the I&B Code.

For the same reason, even the jurisdiction of NCLAT being in continuation of the proceedings would be circumscribed in that regard

The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order “approving a resolution plan” under Section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers “by the resolution professional” during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board.

Thus, the prescribed authorities (NCLT/NCLAT) have been endowed\ with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers.

Limited Judicial review

There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class  of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximizing the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors.

Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters

The power of judicial review in Section 31 is not akin to the power of a superior authority to deal with the merits of the decision of any inferior or subordinate authority. It is not a jurisdiction to decide as to what ought to be the terms of the resolution plan.

 

On contention of JIL that COC/ NBCC merging it will not result into value maximization

The assessment about maximisation of the value of assets, in the scheme of the Code, would always be subjective in nature and the question, as to whether a particular resolution plan and its propositions are leading to maximisation of value of assets or not, would be the matter of enquiry and assessment of the Committee of Creditors alone.

When the Committee of Creditors takes the decision in its commercial wisdom and by the requisite majority; and there is no valid reason in law to question the decision so taken by the Committee of Creditors, the adjudicatory process, whether by the Adjudicating Authority or the Appellate Authority, cannot enter into any quantitative analysis to adjudge as to whether the prescription of the resolution plan results in maximisation of the value of assets or not. The generalised submissions and objections made in relation to this aspect of value maximisation do not, by themselves, make out a case of interference in the decision taken by the Committee of Creditors in its commercial wisdom

On Simultaneously Voting of Two Resolution plan

It is noteworthy that there has not been any prohibition in the scheme of IBC and CIRP Regulations that CoC could not simultaneously consider and vote upon more than one resolution plan at the same time for electing one of the available options.

Moreover, the legislature itself has made the position clear by way of a later amendment with effect from 07.08.2020, by specifically making stipulations for simultaneous voting over more than one resolution plan by the CoC, particularly with amendment of subregulation (3) of Regulation 39 of CIRP Regulations and insertion of subregulations (3A) and (3B) thereto. Such an amendment could only be vide second footnote to sub-regulation (3) of Regulation 39 of CIRP Regulations, visualised as clarificatory in nature; and, in any case, even before amendment, there had not been any prohibition in putting two or more conforming resolution plans to vote simultaneously.

Hence, the objection of two simultaneously approved plans were rightly rejected by NCLT

 

 

On Matters related with the land providing agency YEIDA & Concession agreement as Statutory contract

The JIL got the rights: (a) to construct and operate the Expressway and collect toll for a period of 36 years; and (b) to use the land along the Expressway for commercial exploitation for a period of 90 years

The Allahabad High Court dated 21.10.2011 in the case of Gajraj and Ors. v. State of U.P. and Ors.: 2011 SCC OnLine All 1711, wherein the High Court ruled in favour of payment of additional compensation to the land owners involved therein. The said decision in Gajraj was upheld by this Court in the case of Savitri Devi v. State of U.P. & Ors.: (2015) 7 SCC

The Government of U.P. proceeded to issue G.O. dated 29.08.2014, directing YEIDA to ensure payment of additional compensation to all the land owners.

In this turn of events, YEIDA demanded the amount of additional compensation from JIL

The said G.O. dated 29.08.2014 were challenged by JIL by way of a writ petition before the High Court of Allahabad but, later on, JIL sought permission to withdraw with a view to seek recourse to the alternative remedy of arbitration which decided in JIL favor, holding that the demand made by YEIDA was not sustainable. This award has been challenged by YEIDA under Section 34 of the Arbitration and Conciliation Act, 1996 and those proceedings, being Arbitration Case No. 3 of 2020, are pending in the Court of District Judge, Gautam Budh Nagar

However, for the reason that the matter was sub judice, the Resolution applicant considered it appropriate to make a provision for meeting with the contingency, in case this liability would ultimately get fastened on JIL

Resolution applicant also proposed to set up two separate SPVs, one being Expressway SPV and another being Land Bank SPV. It was proposed that the assets and liabilities pertaining to Expressway shall be transferred to the Expressway SPV by way of transfer of 100% shareholding and the concession rights under the CA; and that out of the unutilised parcels of land available with the corporate debtor, 1,526 acres shall be transferred to Land Bank SPV; and that Land Bank SPV will also take over the admitted financial debt to the tune of INR 5,100 crores.

In Clause 4 of Schedule 3 of the resolution plan, NBCC expected that YEIDA shall withdraw its challenge to another award dated 23.01.2017

In Clause 14 of Schedule 3 of the plan, the resolution applicant sought extinguishment of liability towards capital cost pertaining to Noida-Greater Noida Expressway

In Clause 27 of Schedule 3, the resolution applicant expected an extension of the period under the CA by 10 years.

The Adjudicating Authority proceeded to modulate such terms ‘to make the plan viable’ and provided that the resolution plan be read to mean that YEIDA shall have a right to collect acquisition cost through the SPVs concerned.

India Thermal Power Ltd

Merely because a contract is entered into in exercise of an enabling power conferred by a statute that by itself cannot render the contract a statutory contract

 In Present case, the agreement in question does not acquire the status of a statutory contract merely for having been executed in terms of the powers with YEIDA under Section 6-A of the U.P. Act of 1976.

The contract in question, the CA, even though not a statutory one is nevertheless a contract entered into between the concessionaire and statutory authority, that is, YEIDA. It is needless to observe that even if in the scheme of IBC, a resolution plan could modify the terms of a contract, any tinkering with the contract in question, that is, the Concession Agreement, could not have been carried out without the approval and consent of the authority concerned

The authority concerned in the present case, YEIDA, is the one established by the State Government under the U.P. Act of 1976 and its approval remains sine qua non for validity of the resolution plan

Although, as urged, the proposal to create two separate SPVs may not be impermissible looking to the framework of the CA, where different stipulations were made in relation to the land for constructing Expressway with its allied facilities and the land for commercial exploitation, respectively in Clauses 4.1 and 4.3 of the CA, but the question is as to the method of transfer of concessionaire’s rights and obligations to such SPVs.

That could only be in accordance with the approval of YEIDA

The Adjudicating Authority (NCLT), while disapproving the stipulations in the resolution plan whereby documentation for such transfer was sought to be avoided, proceeded to order execution of such documents. According to YEIDA, this modification has no commercial effect and therefore, has rightly been ordered by NCLT. Although this modification, prima facie, does not appear to be having any commercial effect, for it being only a matter of proper documentation but, interlaced with this process of documentation are the other stipulations, which do impact the commercial terms of the resolution plan, particularly those relating to the amount of additional compensation, if payable.

The question is yet to be finally determined as to whether such a liability towards additional amount of compensation rests with the corporate debtor JIL or with YEIDA, because the arbitral award made in favour of JIL is the subject matter of challenge in the Court. However, the contingency was required to be provided in the plan in case liability would be ultimately fastened on the corporate debtor JIL. In any case, while making a provision for meeting with this contingent liability of additional amount of compensation, the resolution applicant could not have decided of its own that there will not be any liability of the concessionaire or its assigns towards the land under Expressway.

The resolution applicant, of its own, could not have decided that end-user would mean sub-lessee and thereby deflect even collection of the amount towards this liability on YEIDA and that too when YEIDA was not going to be a party in creation of any sub-lease.

The only course open for the Adjudicating Authority (NCLT) was to send the plan back to the Committee of Creditors for reconsideration

 

On Treatment of the debt of dissenting financial creditor ICICI Bank Limited

The preceding steps, in their chronology, in Resolution Plan are

(1)    incorporation of NBCC SPV and acquisition of the corporate debtor by the resolution applicant through that SPV;

(2)    incorporation of Expressway SPV by the corporate debtor and transfer of Yamuna Expressway to that SPV and securitization of toll cash flow;

(3)    payment of unpaid CIRP costs;

(4)    payment of total operational debt; and

(5)    Incorporation of Land Bank SPV.

(6)    The sixth step is divided in two parts, being Step 6A concerning upfront payment to the institutional financial creditors and 6B concerning treatment of institutional financial creditors for the remaining amount. In the second part of Step 6B, specific stipulations are contained as regards the dissenting financial creditors.

In the present case, the resolution plan has, in the first place, stated that according to the estimate of the resolution applicant, the liquidation value to be received by the dissenting financial creditors was likely to be nil but then, has provided for discharge of any likely obligation towards them in the manner that they shall be provided a proportionate share in the equity of Expressway SPV and land parcels but not any payment in terms of money.

As per Dictionary meaning and the cited decisions, the contention has been that “payment” means the discharge of an obligation by delivery of money or its equivalent; and the expression “payment” is not restricted to delivery of money or legal tender only.

The expression “payment” occurs in Section 30(2) of the Code, which lays down certain basics which the resolution professional has to find in the resolution plan before he presents the same to the Committee of Creditors. The question is as to what is intended by these provisions and as to how the action of “payment” is to be performed?

The expressions “payment” and “amount to be paid”, when read in the context and on the canvass of the objects and purposes of the Code  these expressions only convey their ordinary meaning, as understood in ordinary business parlance, that is, delivery of money alone; and there is no reason to construe these expressions to be conveying the meaning of ‘delivery of money or its equivalent

Though the Adjudicating Authority has not erred in disapproving the treatment of dissenting financial creditor like ICICI Bank in the resolution plan but, has erred in modifying the terms of the resolution plan and in not sending the matter back to the Committee of Creditors for reconsideration while extending an opportunity to the resolution applicant to make the necessary modifications

 

On Home buyers & Voting rights

The homebuyers, the operation of sub-section (3A) of Section 25A of the Code is that their authorised representative is required to vote on the resolution plan in accordance with the decision taken by a vote of more than 50% of the voting share of the homebuyers and, he shall vote accordingly and his vote shall bind all the homebuyers, being of the single class he represents

In the present case, on one hand, it has consistently been submitted by the stakeholders, particularly the homebuyers, that liquidation of JIL should be eschewed, but on the other hand, some of the associations and homebuyers have attempted to find faults with the resolution plan to which their majority, who voted, took the decision for approval.

The homebuyers as a class having assented to the resolution plan of NBCC, any individual homebuyer or any association of homebuyers cannot maintain a challenge to the resolution plan and cannot be treated as a dissenting financial creditor or an aggrieved person

The question of violation of the provisions of the Real Estate (Regulation and Development) Act, 2016 does not arise. Hence, the objections of Homebuyers refused

 

On 750 Crore

The  sum in question was never ordered by Court to be deposited by JAL in discharge of its obligations towards JIL or towards homebuyers of JIL alone

The said money is the property of JAL, ordinarily, the consequence would have been of  directing its refund to JAL but the other entangled features of the case relating to the amount otherwise payable by JAL to JIL cannot be ignored altogether

Court is not determining the extent of amount payable by JAL to JIL because that would be a matter of reconciliation of accounts

 

On Security interest of the lenders of JAL and effect of judgment of Anuj Jain

In the case of Anuj Jain, Court examined as to whether the lenders of JAL could be categorized as financial creditors of JIL. In this regard, this Court though observed that when the transactions in question were hit by Section 43 of the Code, they were denuded of their value and worth and the security interest created over the property of JIL involved in those transactions stood discharged in whole; and, therefore, such lenders of JAL were not entitled to claim any status as creditors of the corporate debtor JIL much less as financial creditors

The resolution applicant has overtly relied upon the fact that the objector bank was not accepted as a financial creditor of JIL by Court in Anuj Jain

Unfortunately, Adjudicating Authority totally missed out the real issue  and the Adjudicating Authority assumed that all the mortgages in favour of the lenders of JAL (covering the entire 858 acres of JIL land) were annulled by this Court in Anuj Jain  as avoidance transactions

In the said Clause 23, it is stated that ‘JAL lenders mortgaged land shall continue to be vested in the corporate debtor free from any mortgage, charge and encumbrance’

The Adjudicating Authority totally missed out that one transaction relating to 100 acres of land, being remained unaffected by the judgment in Anuj Jain and that the security creating over this land could not have been annulled in the manner suggested in the plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER-5: CONCLUSION

 

(I)                 The Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by Committee of Creditors. If, within its limited jurisdiction, the Adjudicating Authority finds any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court.

 

(II)               The process of simultaneous voting over two plans for electing one of them cannot be faulted  

 

(III)             The stipulations in the resolution plan were to send the plan back to the Committee of Creditors for reconsideration.

 

(IV)             The Adjudicating Authority has not erred in disapproving the proposed treatment of dissenting financial creditor like ICICI Bank Limited in the resolution plan; but has erred in modifying the related terms of the resolution plan and in not sending the matter back to the Committee of Creditors for reconsideration.

 

 

 

 

(V)               It cannot be said that the resolution plan does not adequately deal with the interests of minority shareholders.

 

(VI)             The homebuyers as a class having assented to the resolution plan of NBCC, any individual homebuyer or any association of homebuyers cannot maintain a challenge to the resolution plan and cannot be treated as a dissenting financial creditor or an aggrieved person

 

(VII)           The amount of INR 750 crores  is property of JAL

 

 

(VIII)         The claim of Secure Creditor (as consequence of Anuj Jain Judgment) cannot be ignored in resolution plan.

 

Hence, RP will invite revised plans from two Resolution applicants again and matter will put to vote by COC & thereafter for approval of NCLT under Section 31.

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