Judgments

THE KARAD URBAN COOPERATIVE BANK LTD VS SWWAPNIL BHINGARDEVAY : CASE SUMMARY

The Supreme Court has held in Karad Urban Cooperative Bank Ltd Vs Swwapnil Bhingardevaya  AIR 2020 SC 4381 that once the CoC has approved the Resolution Plan taking into account relevant factors, the Adjudicating Authority has to switch to hands off mode.

FACTS OF THE CASE

The Karad Urban Cooperative Bank Ltd, Financial Creditor, filed application on 04.09.2017 under Section 7 of Insolvency and Bankruptcy Code, 2016  for initiating insolvency proceedings against M/s. Khandoba Prasanna Sakhar Karkhana Limited (Corporate Debtor), which was admitted by NCLT vide order dated 01.01.2018.  The Committee of Creditors approved the Resolution Plan submitted by one M/s Sai Agro (India ) Chemicals. Application for approval of Resolution Plan was filed before NCLT. At this stage the Director/Promotor of the Corporate Debtor also came up with application seeking permission to file Resolution Plan. The NCLT vide order dated 01.08.2019 rejected the application filed by Director/Promoter and approved the Resolution Plan submitted by M/s Sai Agro (India) Chemicals.

An appeal was filed before the NCLAT wherein matter was remanded back to the Adjudicating Authority with direction to send back the Resolution Plan to the Committee of Creditors.

FINDINGS OF THE SUPREME COURT

The Supreme Court noted that NCLAT has interfered in the matter on the ground that the Resolution Plan suffers from issues of viability and feasibility. The Resolution Plan amount  matched with Liquidation Amount which shows breach of confidentiality. The ethanol plant and machinery shown as part of assets of the Corporate Debtor actually belonged to third party. Expression of Interest (EOI) was vitiated as the same was for outright sale of the Corporate Debtor as going concern in violation of Regulation 36A.

The Supreme Court relied on K Shashidhar Vs. Padmanabhan Venkatesh (2019) 12 SCC 150 and Committee of Essar Steel India Ltd Vs Satish Kumar Gupta (2019) 2 SCC 1 and observed that if all the factors that need to be taken into account for determining whether or not the Corporate Debtor can be kept running as going concern have been placed before CoC and CoC has taken a decision to approve the Resolution Plan, the Adjudicating Authority will have to switch to the hands off mode. Corporate Debtor or its promotor/director cannot claim that some of relevant materials were not placed before the CoC. The only issue regarding feasibility and viability of resolution plan in this case was  issue of  ownership and possession of ethanol plant. CoC was well aware of this issue and it cannot be stated that the question of viability and feasibility was not examined in proper perspective.

The Supreme Court also rejected that there has been any breach of confidentiality. The Supreme Court also noted that the Liquidation value of mentioned in the Resolution Plan is Rs. 13.53 Crore but the actual total payout as pe the Resolution Plan is Rs. 29.74 Crore. In this case the Successful Resolution Applicant was not going to get any benefit out of breach of confidentiality.

The Supreme Court also rejected the ground that EOI has been issued in violation of Regulation 36A. The Court noted that the second meeting of the Committee of Creditors was held on 27.03.2018. It was only on 04.07.2018  when amended Regulation  36A,  which required publication of Form G in newspapers,  came into force.  The advertising was approved in the said meeting. It was unamended Regulation 36 A which was in force at that time.

The Supreme Court found the order of NCLAT flawed and set aside the same.  The order of NCLT was restored.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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