The proviso to Section 31(1) of IBC does not allow the NCLT to approve a Conditional Resolution Plan – Balady Shekar Shetty RP for Avvas Infotech Pvt. Ltd. – NCLT Bengaluru Bench

The Adjudicating Authority held that the Resolution Plan in question is uncertain and conditional and thus in our considered view that this plan cannot be effectively implemented Therefore this kind of uncertain amounts provided under the plan cannot be approved under the provisions of the Code. In terms of the amounts provided under the plan, the payments cannot be made conditional. In spite of specific opportunity granted to the Resolution Applicant during the hearing as discussed above to cite any precedence for similar type of situations in the Resolution Plan for the Non-monetary value of attached collateral security mentioned in the relevant columns of Form H, the Applicant could not furnish the same. It is settled law, that conditional Resolution Plans cannot be approved under the Code and such Resolution Plans would diminish the objective for which the Code was enacted. If at all, this plan is approved it cannot be effectively implemented. The Proviso to Section 31(1) of the Code does not permit us to approve such conditional Resolution Plan.

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I. Case Reference

Case Citation : (2023) ibclaw.in 239 NCLT
Case Name : Balady Shekar Shetty RP for Avvas Infotech Pvt. Ltd.
Corporate Debtor : Avvas Infotech Pvt. Ltd.
Application/Appeal No. : I.A. No.42 of 2022 in CP (IB) No.168/BB/2020
Judgment Date : 25-May-23
Court/Bench : NCLT Bengaluru Bench
Member (Judicial) : Smt. Justice T.Krishnavalli
Member (Technical) : Shri Manoj Kumar Dubey

II. Brief abut the decision

This application is filed by Resolution Professional under section 30(6) r/w section 31 of IBC,2016 seeking approval of the Resolution Plan submitted by suspended director of the Corporate Debtor (Resolution Applicants/RAs).

There are the following conditions for implementation of the implementation of the Plan; and the following provisions of the Code have been violated:

  • (a) For the amount provided to the Secured Creditor (UBI), merely the enforcement of security for the loan being a mortgaged property of the third party was stated to be provided under the Plan; on which there was an attachment of the State Government authorities and the ‘Status quo’ was to be maintained. The UBI has contended that the Petition before the Government of Andhra Pradesh u/s 3 r/w Section 7(3) of the AP Protection of Depositors Financial Establishment Act, for removal of the attachment was yet to be disposed of and therefore the realisation depended on this contingency. Even though the permission for sale for realisation of dues under the SARFAESI Act,2002 was granted by the Hon’ble High Court, there was a stipulation that this was not to be disbursed without the permission of the Hon’ble High Court.
  • (b) In respect of the Unsecured Creditor also the amount provided mentions that the Property of the CD was given as security to M/s. PARAS which was to be sold for realisation of the outstanding amount. However, in respect of this also ‘Status quo’ was to be maintained and similarly it is stated that PARAS was in the process of getting clearance from the Hon’ble High Court of Telangana for realising the property in view of the attachment made by the Govt. of Andhra Pradesh / Enforcement Directorate; and only after the clearance of the Hon’ble High Court is received; this would be available for sale and provision of the amount to the Unsecured Creditor under the Resolution Plan. Therefore, in respect of (a) and (b) both, the realisation of the dues of the Creditors under the Plan to the Secured Creditor and Unsecured Creditor was clearly subject to certain conditions. It is also seen that in the Resolution Plan it is proposed to maintain the ‘Status quo’ with respect to these securities and the only role proposed for the CD / SRA was to facilitate the disposal of such securities, being the mortgaged properties. Thus, the proposal to repayment to these creditors was clearly contingent on the future sale, which cannot be treated as repayment under the Plan which clearly takes care of the stakeholders, as per the Requirement of Regulation 38(1A) of the IBBI Regulation.
  • (c) As already discussed above, there is no commitment of the timeframe for realisation of the aforesaid amount in the Plan and because of this uncertainty, the Plan becomes contingent in nature as the timeframe is not available and thus there is violation of Regulation 38(2)(a) and 38(3)(d) of the IBBI Regulations.
  • In this regard, it is pertinent to refer to the provisions under Section 30(2)( e) and 30 (2)(f) , accordingly to which the Resolution Plan has to meet the requirements specified by the Board and does not contravene any provisions of the law. The Regulations as stated above in (b) and (c) are specified by the Board. Thus it is seen that there is a violation of Section 30 (2) (e ) and (f) of the Code.

The Adjudicating Authority held that the Resolution Plan in question is uncertain and conditional and thus in our considered view that this plan cannot be effectively implemented Therefore this kind of uncertain amounts provided under the plan cannot be approved under the provisions of the Code. In terms of the amounts provided under the plan, the payments cannot be made conditional. In spite of specific opportunity granted to the Resolution Applicant during the hearing as discussed above to cite any precedence for similar type of situations in the Resolution Plan for the Non-monetary value of attached collateral security mentioned in the relevant columns of Form H, the Applicant could not furnish the same. It is settled law, that conditional Resolution Plans cannot be approved under the Code and such Resolution Plans would diminish the objective for which the Code was enacted. If at all, this plan is approved it cannot be effectively implemented. The Proviso to Section 31(1) of the Code does not permit us to approve such conditional Resolution Plan. The same view has been taken by the co-ordinate Bench of NCLT Ahmedabad in the matter of M2K Developers Pvt. Ltd. v. Ramchandra D Choudhary RP of Anil Mega Food Park Pvt. Ltd., in IA No.843(AHM)2021 and IA No.420 (AMH)2022 in CP (IB) 287 of 2019. Moreover, the requirements of Sec 30(2)(e) and (f) of IBC are not satisfied, and there by the provisions of Sec 31 (1) r.w.s Sec 31 (2) are also not satisfied . The Resolution Plan submitted in therefore not tenable in law and is hereby rejected under section 31(2) of IBC. IA No.42 of 2022 in CP IB 168 of 2020 is accordingly disposed of.

 

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