Pratap Technocrats (P) Ltd. & Ors. v. Monitoring Committee of Reliance Infratel Limited & Anr.
Case Citation: (2021) ibclaw.in 148 SC
Case Brief by Preetika Bharti,
Graduate from O.P. Jindal Global University
In a recent judgement dated 10th August 2021, the Hon’ble Supreme Court, has once again, upheld the wisdom of Committee of Creditors (“COC”) and dismissed the appeal filed by the Operational Creditors (“OC”) against approval of Resolution Plan (“Plan”). A brief of the judgement is provided hereinbelow:
- A Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency & Bankruptcy Code, 2016 (“IBC”) was commenced against Reliance Infratel Limited (“RIL”) vide order dated 15th May 2018 by the National Company Law Tribunal (“NCLT”).
- Pursuant to such order, an Interim Resolution Professional (“IRP”) was appointed and COC was formed on 24th May 2019. The IRP was replaced with Mr. Anish Niranjan as the Resolution Professional (“RP”)
- The process for inviting resolution plans ensued and subsequently, four prospective resolution applicants submitted plans.
- After due deliberation, between the COC and the prospective resolution applicants, the plan submitted by Reliance Digital Platform and Project Services Limited (“Successful Resolution Applicant/SRA”) was approved by the COC, with 100% vote, on 02nd March 2020, on the basis of its “feasibility, viability and implementability”.
- An application under Section 30(6) of IBC was submitted for approval of resolution plan, which was approved by the NCLT vide order dated 03rd December 2020 (“Impugned Order”) reported at (2020) ibclaw.in 196 NCLT.
History of Proceedings
- In the process of deciding the Impugned Order, the NCLT noted that a financial creditor (“FC”), namely Doha Bank had approached the NCLT (“Application”) for challenging admission of claims of few financial creditors vis-à-vis challenging the decision of RP to recognize indirect lenders as FC’s of Corporate Debtor. While the application was pending before the NCLT, it was noted that the same would not stand in the way of approval of the Plan. However, the NCLT remarked, in the Impugned order, that distribution of payments to creditors, will be subject to orders passed in the respective interim applications.
- An appeal was filed by the appellants herein, before the National Company Law Appellate Tribunal (“NCLAT”) on the ground of unfair and inequitable treatment of OC’s and material irregularities in accumulation and disbursal of funds. It was also argued that there was a haircut of 90%. However, the NCLAT vide order dated 04th January 2021 reported at (2021) ibclaw.in 02 NCLAT, dismissed the appeal on the ground that there is no substance in the appellant’s contentions and that there is no question of inequitable treatment in the present case.
- The present appeal was filed under Section 62 of IBC, by Pratap Technocrats and others (“Appellants”), who are operational creditors of the corporate debtor.
Arguments of the Appellant
- It was contended that in order to further the objective of IBC, i.e. maximisation of asset value and protection of interests of all stakeholders, it is necessary that CIRP must be just, fair and equitable. Arguing that FC’s have been placed at a higher pedestal than OC’s, the appellant contended that OC’s interests have not been given due consideration.
- Furthermore, it was contended that the CIRP in itself was conducted in a secluded manner and the OC’s were not made aware of the ongoing process. The appellant herein claimed that it has 90% of total operational debt and is Small and medium size company, who has not been given due regard by the COC.
- The appellant argued that the resolution plan, as approved by the NCLT, also segregated and reserved a high amount of Rs. 800 crores exclusively for FC’s, not giving much relief for OC’s.
- The application filed by Doha Bank, was also brought at the stage of submissions, to raise the contention that many FC’s were excluded from the COC. It was contended that the NCLT failed to consider the implication of such exclusion of FC’s in the COC and that such exclusion resulted in increasing the rate of recovery for the FC’s from 10.32% to 91.98%.
- Moreover, the appellant contended that OC’s have a mere recovery of 19.62 % and that the CIRP was conducted in an non-transparent manner, to the deliberate unawareness of the appellant herein.
- A contention was raised by the appellant that the realisable value of preference shares held by the Wholly owned subsidiary (“WOS”) of the Corporate Debtor, namely Reliance Bhutan limited, in Reliance Reality Limited (“RIL”), was excluded from the liquidation value. It is pertinent to note that these preference shares were to be segregated and reserved for realising Rs. 800 crore for FC’s, as per the appellant’s submissions. The Apex Court, however, noted that this was factually incorrect basis the valuation report submitted by the appointed valuers.
- Further, the Hon’ble Supreme Court also noted, that at the stage of proceeding before NCLAT, it was argued that OC’s should not be paid less than the liquidation value, according to the waterfall mechanism enshrined under Section 53 of IBC and that exclusion of realisable preference shares, from the liquidation value, is contrary to the spirit of IBC. However, on a qualitative assertion and analysis, it was held that liquidation value due to appellants was nil and will remain such, irrespective of the fact if realisable preference shares are included or not.
- On the application filed by Doha Bank, it was held that such application has no bearing on the present matter and rejected any contention raised w.r.t to the same.
- For the issue on jurisdiction of approval of resolution plan, the Apex Court once again upheld the wisdom of COC and held that once an Adjudicating Authority (“AA”) is satisfied that a resolution plan has been approved, in compliance with the provisions of IBC and majority vote of the COC, the AA shall mandatorily cease its jurisdiction. Focusing on the powers and functions of an AA under IBC, it was noted that it is creature of statute and is required to function within the realms of such statute only. Relying on landmark judgements, wherein it was time and time, held that COC wisdom should be given high priority and cannot be fettered with, the Apex court rejected the Appellant’s arguments.
- Furthermore, it was noted by the Apex Court that under Section 53 of IBC, what is required is that OC’s receive such amount which would have been payable during liquidation, which in the present case stood NIL. The Adjudicating authority can only interfere on limited grounds under the IBC, in which the present factual matrix did not fall under.
- On the issue of exercise of jurisdiction, it was noted that no substantial evidence was placed before the court to hold that the purpose of spirit of IBC has been contravened.
- A key peculiarity in the case was that the appellant argued that the court must give regards to guarantees of fair procedure and non-arbitrariness, principles duly established in Maneka Gandhi v. Union of India (1978) 1 SCC 248. Rejecting the argument, the apex court noted that the IBC is a complete code, formed after due deliberation and that the AA does not have uncharted jurisdiction in equity.
In the end, the Apex Court upheld the COC wisdom, who approved the plan with a 100% vote in the present case and noted that the AA is confined to the discipline and boundary of the Statute, and is only required to ascertain if a resolution plan meets the criterion under the IBC. Therefore, the appeal was dismissed.