Analysis of NCLT Chennai Judgment in the matter of Nitrex Chemicals India Limited Vs Ravindra Beleyur and Ors. dated 13th December, 2018 by Adv. Partho Sarkar
Case: Nitrex Chemicals India Limited Vs Ravindra Beleyur and Ors. MA /523/2018 in CP/ 689/(IB)/CB/2017 Decided on 13th December, 2018
Non-rescheduling the date of CoC meeting by Resolution Professional on the request of a Resolution Applicant tantamount to denial of Natural Justice, hence CoC directed to reconvene themselves and consider resolution plan afresh – The author expressed himself in disagreement of the ruling, explained in the Epilogue.
Back Ground Facts/Rival Submissions:
- Resolution applicant (Nitrex Chemicals), filed an MA against Ravindra Beleyur/the RP of Merchem seeking the following reliefs:
- Reject the CoC approved resolution plan of Acme Chem Ltd.
- The RP be directed to submit revised figures of Nitrex Chemicals to CoC for re-consideration.
- RP be directed to conduct transparent competitive bidding for value maximisation.
- Pending disposal of the application of Nitrex, the RP be restrained to pursue the CoC approved resolution plan.
- Nitrex was amongst the resolution applicant of Merchem/Corporate Debtor – the RP had originally fixed the CoC meeting on 11th September, 2018, subsequently was altered to 12th September, 2018, to which Nitrex sought a change – since the promoters had some religious engagements, the request wasn’t acceded by the RP. It was alleged by Nitrex, this implies, the RP had made up his mind to proceed with the meeting to the exclusion of Nitrex, hence being imputed/alluded of ulterior motives. Nitrex sought the copies of the minutes of meeting – 12th September, 2018, (in which Acme was declared the successful resolution applicant) which was refused by the RP, expressing inability.
- It was the case of Nitrex, that the approval of resolution plan was held in hush, against the principles of Natural Justice & to favour Acme, thus must be quashed and entire procedure be started afresh. Nitrex cited the ruling of Binani Cements V/s Vijay Kumar Iyer by NCLT Kolkata & NCLAT’s decision (15th May 2018) in Rajputana V/s Ultratech, wherein it was clarified of the persons entitled to attend CoC meeting in terms of Section 24 & 30 of I & B Code, interalia also includes resolution applicant’s whose application is/are being considered under Section 30 (5) of the Code.
- Nitrex alleged foul play on the part of RP for in a short span having reduced the eligibility criterion of annual average turnover of last three years from 200 Crores to 160 crores, to accommodate Acme – though Acme fell short of even the said revised criterion yet his resolution plan was taken up for consideration & was declared as successful resolution applicant, thereby corroborating favouritism – further the RP was alleged of suppressing the revised offer of Nitrex to CoC, and slashing the eligibility criterion in favour of Acme, in sum granting an unfair advantage to Acme through an opaque/discriminatory process sans the rule of natural justice to approve the resolution plan of Acme. It is also the case of Nitrex that it offered better package to operational creditors; the CoC also didn’t record its satisfaction/endorsement as to the viability/feasibility of the resolution plan of Acme in terms of Section 30 (4) of the I & B Code; and prima-facie the resolution plan of Acme was likely to attract considerable Minimum Alternate Tax Liability under Section 115 JB of the Income Tax Act and liability under Section 140 A of the Income Tax Act – on both issues, the resolution plan of Acme was silent, thereby a distorted picture was presented to the CoC, morefully the proposal submitted by RP for approval to CoC wasn’t in accordance with Regulation 39 (2) of CIRP Regulations, i.e. in compliance to the requirement of the Code.
- In terms of Section 31 (1) of the I & B Code, NCLT can approve the resolution plan so approved by CoC under Section 30 (4) of the Code, provided the resolution plan meets the test of Section 30 (2) of the Code. It is the case of Nitrex that the Resolution Plan seeks to secure accord to such proposals in the Resolution Plan, beyond the scope and power of NCLT.
- It is the counter of the RP, that the proposal submitted and approved by 100% majority was in complete accordance with the Code – furthermore the turnover criterion so far as eligibility of participating as resolution applicant was reduced, lest it grants a dominant position to NOCIL in rubber chemical industry (and also Nitrex in its MA mislead NCLT in understating the average turnover of Acme), further the RP was not in attendance of the CoC meeting on 12th Sept, 2018 and in any case, he is duty bound to maintain confidentiality as to the minutes of the meeting. Morefully given the Supreme Court ruling, there stands no vested right in favour of any Resolution Applicant, that his plan ought to be considered; and that in any case Nitrex was given, opportunity enough to attend the CoC meeting, which it didn’t attend either through himself or his authorised representative (an option anyways available, since the resolution applicant was a body corporate) and in any case all proposals (including that of Nitrex) were available to CoC and basis the ‘evaluation matrix’ CoC approved the resolution plan of Acme. The ratio of ruling in Rajputana Industries isn’t applicable in the present case as in the said case the resolution applicant wasn’t allowed to attend the CoC meeting, herein, the resolution applicant abstained from attending the meeting – thus it can’t be the case of Nitrex to agitate violation of Section 24 of the Code. It was further the case of RP, that invocation of Section 60 (5) of the Code is of a different import qua the jurisdiction of NCLT, which concerns application or proceedings by or against the corporate debtor, as also Nitrex mislead NCLT on various other financial criterion/data etc…in any case no differential/discriminatory criterion was adopted in evaluating various resolution applications and as per the laid out evaluation matrix. In any case, the application of Nitrex isn’t maintainable under Section 60 (5) of the Code and remedy if any is under 60 (1) of the Code before NCLAT; qua the evaluation matrix, the resolution plan by Acme secured 73 marks against 52 by Nitrex, accordingly the resolution plan submitted by Acme was put up for approval under Section 31 of the Code, and is pending for NCLT approval.
Observation by the Court:
That Acme sought for an alteration as to the date of CoC meeting, as because of their promoters religious commitments/engagements – however the RP refused to reschedule the meeting, thus a violation of natural justice. Under Section 30 (5) of the Code, the resolution applicant is entitled to attend the meeting in which his resolution plan is to be considered. Reliance is placed on NCLAT’s ruling in ANG Industries V/s Shah Bros. Ispat Company Appeal (AT) Insolvency 109/2018, the NCLT relied therein upon the findings of the Jt. Parliamentary Committee Report and its earlier ruling in Rajputana Properties V/s Ultratech Cements IA 594/2018 in Company Appeal (AT) Insolvency 188/2018 – wherein it was ruled, that the CoC is to adopt a transparent procedure, the resolution applicants aren’t mere spectators and are entitled to express their opinion for the CoC to conclude a decision. Thus it emerges of the said ruling, the resolution applicant ought to be offered an opportunity to attend the meeting and express his view points as to the resolution plan submitted by him.
The MA of Nitrex is allowed, the CoC is directed to consider afresh the resolution plan of theirs, with an opportunity of they being heard.
- Apparently NCLT exercised inherent power on the pretext of natural justice – though there was no case for the same and there is no vested right onto any resolution applicant to plead violation of natural justice if he is unable to attend a meeting, due to his personal commitments elsewhere, tested on the same, the captioned ruling also falls foul of the spirit of ruling of Supreme Court in the matter of K Sashidhar V/s IOB Civil Appeal No. 10673/2018, wherein Supreme Court restrained to exercise powers under Article 142 of the Constitution in the teeth of specific provision – which in the captioned matter, the specific provision was/were observed by the RP & shouldn’t have called for any interference. Recently NCLAT in Kundan Care Products V/s Amit Gupta COMPANY APPEAL (AT) (INSOLVENCY) – 653/2020, reiterated the ruling of K Sashidhar V/s IOB, that intervention by NCLT is limited to compliance of resolution plan approved by CoC to the requirements of Section 30 (2) of the Code.
- That amongst the issues raised by the RP, the maintainability of the MA was challenged which qualifies as preliminary issue to be adjudicated in precedence, the captioned order nowhere adjudicates the preliminary issue of maintainability and proceeds with the purported substantive issues raised through in the captioned MA, thus is in conflict with the Supreme Court ruling in UOI V/s Ranbir Singh Rathaur (2006) 11 SCC 696. Furthermore the order fails to discuss as to how the ratio of ruling of Binani Cements, Rajputana Properties which primarily concerns denial of opportunity to a resolution applicant fits into the present matter where Nitrex wasn’t denied opportunity to attend the CoC meeting, rather, Nitrex Promoters opted not to attend the CoC meeting because of their religious engagements, this differentiation was grossly overlooked in the captioned ruling and mechanically the ruling of Binani Cement etc… got applied without reasoning as to its applicability in the traverse of the present case, thus is in conflict with the Supreme Court ruling in Dinubhai Boghabhai Solanki V/s State of Gujarat, (2014) 4 SCC 626 “… The most important principles have been culled out by this Court in Bank of India v. K. Mohandas (2009) 5 SCC 313 as follows
“54. A word about precedents, before we deal with the aforesaid observations. The classic statement of Earl of Halsbury, L.C. in Quinn v. Leathem [1901 AC 495 (HL)] , is worth recapitulating first: (AC p. 506)
‘… before discussing … Allen v. Flood [1898 AC 1 : (1895-99) All ER Rep 52 (HL)] and what was decided therein, there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but are governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all.”
- The judgment in the captioned MA is based on incongruous reasoning as to denial of natural justice, except that non-scheduling of meeting by RP is held to be the purported ground of denial of natural justice – the order no way impresses as to how the resolution plan of Acme fails the test of Regulation 39 (2) of CIRP or the test of Section 30 (2) of I & B Code. The order in the captioned MA also fails to reason out as to how there was lack of transparency on the part of RP, except for his purported refusal to share the minutes of the meeting, though that too wasn’t adverted in the operative part of the order. The captioned order never faulted with the evaluation matrix adopted by CoC or its outcome or even how Nitrex was discriminated in terms of the evaluation matrix or even didn’t express that the resolution plan of the successful applicant is in anyway inhibiting value maximisation of the Corporate Debtor. The order also missed out the broad objectives of I & B Code, that CIRP is a time-bound process and unless some gross or substantive irregularity or non-adherence of any law is pointed out of any specifics, opinion, perception or bland averments by the aggrieved party which though might have caused prejudice to him certainly not a ground to inhibit the time bound Corporate Insolvency Resolution Proceedings (Ref: Global Business Corporation V/s PNB COMPANY APPEAL (AT) (INSOLVENCY) – 02 & 09 of 2019, the CIRP can’t be kept pending endlessly without considering the mandatory period under Section 12 of the Code).
- That in the matter of Embassy Properties Developments Pvt. Ltd v/s State of Karnataka wherein it was ruled that NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law and respect of which it is called to administer.
- In view of the incongruity, the author is of the opinion that the captioned ruling doesn’t qualify to become a binding precedent.
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