# THE KARAD URBAN COOPERATIVE BANK LTD v. SWWAPNIL BHINGARDEVAY & ORS

- **Citation:** [2020] 13 S.C.R. 465
- **Court:** Supreme Court of India
- **Decided:** 2020-09-04
- **Case number:** Civil Appeal No. 2955 of 2020
- **Bench:** S. A. Bobde, A. S. Bopanna, V. Ramasubramanian
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-karad-urban-cooperative-bank-ltd-v-swwapnil-bhingardevay-ors-34363
- **Pages:** 23

## Headnote

Insolvency and Bankruptcy Code, 2016: Appellant financial
creditor filed s.7 application before NCLT against corporate debtor
- Committee of Creditors (CoC) resolved to approve the Resolution
Plan submitted by one M/s Sai Agro - On the basis of approval of
Resolution Plan, Resolution Professional moved an application
before NCLT - At this stage, the Director/Promoter of corporate
debtor also came up with an application seeking permission to file
Resolution Plan - NCLT rejected the application of corporate debtor
and approved Resolution Plan submitted by M/s Sai Agro - Thus,
M/s Sai Agro became Successful Resolution Applicant (SRA) -
Director/Promoter of corporate debtor filed appeal before NCLAT
against the approval of the Resolution Plan of SRA - NCLAT allowed
the appeal and remanded the matter back to NCLT with direction to
send back the Resolution Plan to the CoC - Order of NCLT was
challenged on the ground inter alia that the Resolution Plan suffered
from issues of viability and feasibility and that the Resolution Plan
did not take note of important fact that the ethanol plant and
machinery shown as part of the assets of the corporate debtor,
actually belonged to another company by name, Sarvadnya
Industries Private Ltd. (SIPL) and that a bank by name, Janata
Sahkari Bank Ltd. had taken possession of the same under the
SARFAESI Act - Financial creditor and Resolution Professional both
filed separate appeals respectively - Held: It is not the case of
corporate debtor or its promoter/Director or anyone else that some
of the factors which were crucial for taking a decision regarding
viability and feasibility were not placed before the CoC or the
Resolution Professional - The only basis for the corporate debtor
to raise the issue of viability and feasibility was that the ownership
and possession of the ethanol plant and machinery was the subject
A
B
C
D
E
F
G
H
466
SUPREME COURT REPORTS
[2020] 13 S.C.R.
matter of another dispute and that the Resolution Plan did not take
care of the contingency where the said plant and machinery may
not eventually be available to SRA - However, records very clearly
show that SRA, Resolution Professional and financial creditor were
fully aware of the said issue - The order passed by the NCLAT
showed that the possession of the ethanol plant and machinery was
restored to SIPL, in the appeal to which SRA was also a party - SRA
also appeared to have offered to Janata Sahkari Bank to purchase
the said plant and machinery - In the appeal before the NCLAT out
of which these appeals arose, SIPL which claimed ownership of the
ethanol plant and machinery, was also a party - In any case, the
Resolution Professional took a specific plea in his grounds of appeal
before this Court, that SRA was itself into the ethanol manufacturing
business and that they had sufficient ethanol production capacity
required to fulfil their Resolution Plan - Therefore, the fact that
there was an issue with regard to the ethanol plant and machinery,
had been taken note of by Resolution Professional, CoC and SRA -
Since all these three parties took note of the said fact and took a
conscious decision to go ahead with the Resolution Plan, it cannot
be stated that the question of viability and feasibility was not
examined in the proper perspective - Therefore, the main ground
on which NCLAT interfered with the decision of the NCLT to approve
the Resolution Plan, was wholly untenable, misconceived and
unjustified.
Allowing the appeals, the Court
HELD: 1.1 If all the factors that need to be taken into
account for determining whether or not the corporate debtor can
be kept running as a going concern have been placed before the
Committee of Creditors and the CoC has taken a conscious
decision to approve the resolution plan, then the adjudicating
authority will have to switch over to the hands off mode. It is not
the case of the corporate debtor or its promoter/Director or
anyone else that some of the factors which are crucial for taki

## Text

_Characters 0–39,930 of 48,189. This is a partial read: ask again with offset=39930 for what follows._

A
B
C
D
E
F
G
H
465
 [2020] 13 S.C.R. 465
465
THE KARAD URBAN COOPERATIVE BANK LTD.
V.
SWWAPNIL BHINGARDEVAY & ORS.
(Civil Appeal No. 2955 of 2020)
SEPTEMBER 04, 2020
[S. A. BOBDE, CJI, A. S. BOPANNA AND
V. RAMASUBRAMANIAN, JJ.]
Insolvency and Bankruptcy Code, 2016: Appellant financial
creditor filed s.7 application before NCLT against corporate debtor
- Committee of Creditors (CoC) resolved to approve the Resolution
Plan submitted by one M/s Sai Agro - On the basis of approval of
Resolution Plan, Resolution Professional moved an application
before NCLT - At this stage, the Director/Promoter of corporate
debtor also came up with an application seeking permission to file
Resolution Plan - NCLT rejected the application of corporate debtor
and approved Resolution Plan submitted by M/s Sai Agro - Thus,
M/s Sai Agro became Successful Resolution Applicant (SRA) -
Director/Promoter of corporate debtor filed appeal before NCLAT
against the approval of the Resolution Plan of SRA - NCLAT allowed
the appeal and remanded the matter back to NCLT with direction to
send back the Resolution Plan to the CoC - Order of NCLT was
challenged on the ground inter alia that the Resolution Plan suffered
from issues of viability and feasibility and that the Resolution Plan
did not take note of important fact that the ethanol plant and
machinery shown as part of the assets of the corporate debtor,
actually belonged to another company by name, Sarvadnya
Industries Private Ltd. (SIPL) and that a bank by name, Janata
Sahkari Bank Ltd. had taken possession of the same under the
SARFAESI Act - Financial creditor and Resolution Professional both
filed separate appeals respectively - Held: It is not the case of
corporate debtor or its promoter/Director or anyone else that some
of the factors which were crucial for taking a decision regarding
viability and feasibility were not placed before the CoC or the
Resolution Professional - The only basis for the corporate debtor
to raise the issue of viability and feasibility was that the ownership
and possession of the ethanol plant and machinery was the subject
A
B
C
D
E
F
G
H
466
SUPREME COURT REPORTS
[2020] 13 S.C.R.
matter of another dispute and that the Resolution Plan did not take
care of the contingency where the said plant and machinery may
not eventually be available to SRA - However, records very clearly
show that SRA, Resolution Professional and financial creditor were
fully aware of the said issue - The order passed by the NCLAT
showed that the possession of the ethanol plant and machinery was
restored to SIPL, in the appeal to which SRA was also a party - SRA
also appeared to have offered to Janata Sahkari Bank to purchase
the said plant and machinery - In the appeal before the NCLAT out
of which these appeals arose, SIPL which claimed ownership of the
ethanol plant and machinery, was also a party - In any case, the
Resolution Professional took a specific plea in his grounds of appeal
before this Court, that SRA was itself into the ethanol manufacturing
business and that they had sufficient ethanol production capacity
required to fulfil their Resolution Plan - Therefore, the fact that
there was an issue with regard to the ethanol plant and machinery,
had been taken note of by Resolution Professional, CoC and SRA -
Since all these three parties took note of the said fact and took a
conscious decision to go ahead with the Resolution Plan, it cannot
be stated that the question of viability and feasibility was not
examined in the proper perspective - Therefore, the main ground
on which NCLAT interfered with the decision of the NCLT to approve
the Resolution Plan, was wholly untenable, misconceived and
unjustified.
Allowing the appeals, the Court
HELD: 1.1 If all the factors that need to be taken into
account for determining whether or not the corporate debtor can
be kept running as a going concern have been placed before the
Committee of Creditors and the CoC has taken a conscious
decision to approve the resolution plan, then the adjudicating
authority will have to switch over to the hands off mode. It is not
the case of the corporate debtor or its promoter/Director or
anyone else that some of the factors which are crucial for taking
a decision regarding the viability and feasibility, were not placed
before the CoC or the Resolution Professional. The only basis
for the corporate debtor to raise the issue of viability and
A
B
C
D
E
F
G
H
467
feasibility is that the ownership and possession of the ethanol
plant and machinery is the subject matter of another dispute and
that the resolution plan does not take care of the contingency
where the said plant and machinery may not eventually be available
to the Successful Resolution Applicant. [Para 13][477-C-E]
1.2 The records very clearly show that the Successful
Resolution Applicant, the Resolution Professional and the
financial creditor were fully aware of the said issue. The order
passed by the NCLAT passed on 16.12.2019 shows that the
possession of the ethanol plant and machinery was restored to
Sarvadnya Industries Pvt. Ltd., in the appeal to which the
Successful Resolution Applicant was also a party. The Successful
Resolution Applicant also appears to have offered to Janata
Sahkari Bank to purchase the said plant and machinery. In the
appeal before the NCLAT out of which the present Civil Appeals
arise, Sarvadnya Industries Pvt. Ltd. which claims ownership of
the ethanol plant and machinery, were also a party. In any case,
the Resolution Professional has taken a specific plea in his
grounds of appeal before this Court, that the Successful
Resolution Applicant is itself into the ethanol manufacturing
business and that they have sufficient ethanol production capacity
required to fulfil their Resolution Plan. Therefore, the fact that
there was an issue with regard to the ethanol plant and machinery,
had been taken note of by the Resolution Professional, the
Committee of Creditors and the Successful Resolution Applicant.
Once all these three parties have taken note of the said fact and
taken a conscious decision to go ahead with the Resolution Plan,
it cannot be stated that the question of viability and feasibility
was not examined in the proper perspective. [Paras 14-17][477F-H; 478-A-B, E-F]
2.1 The second ground on which NCLAT interfered with
the decision of the NCLT is the alleged breach of confidentiality.
The contention of the Promoter/Director of the corporate debtor
is that the liquidation value mentioned in the Resolution Plan
submitted by the SRA exactly tallied with the liquidation value
obtained by the Resolution Professional and that the whole
THE KARAD URBAN COOPERATIVE BANK LTD. v.
SWWAPNIL BHINGARDEVAY & ORS.
A
B
C
D
E
F
G
H
468
SUPREME COURT REPORTS
[2020] 13 S.C.R.
sequence of events would show clearly that there was an attempt
to cover up. According to the Director/Promoter of the corporate
debtor, the self-declaration signed by the Resolution Applicant,
and which forms part of the Resolution Plan, bears the date 9th
February 2019. This document mentions the liquidation value as
Rs. 13.53 crores. It was the same value as obtained by the
Resolution Professional. It is the contention of the Director/
Promoter of the corporate debtor that the Resolution Professional
wrote an email on 07.02.2019 itself (2 days before the submission
of the Resolution Plan by the SRA), asking for clarification as to
how the liquidation value matched. This, according to the Director
of the corporate debtor, was proof enough to show that there was
not merely a leakage of information, but also an attempt to coverup. This contention cannot be accepted. The Resolution Plan
actually runs to 31 pages. Pages 30 and 31 contain Annexure A,
which provides the business plan. Page 29 contains a selfdeclaration certificate signed by the partners of the SRA. Just
below the signatures of the partners at page 29, the date "09th
February 2019" is type-written. But the cover page of the entire
document contains the date "7th February 2019" as the date of
submission of the Resolution Plan. The last date for submission
of the resolution plan was 08.02.2019. [Paras 27-30][480-F-H;
481-A-D]
2.2 Nowhere in the Memorandum of Appeal filed by the
Promoter/Director of the corporate debtor before the NCLAT,
has he claimed that the Resolution Plan was submitted by the
SRA after the last date. We have perused the Memorandum of
Appeal filed by the Promoter/Director of the corporate debtor
before the NCLAT. It was not his case at all that the Resolution
Plan was submitted by the SRA after the last date, but the same
was predated by the Resolution Professional acting in collusion.
[Para 31][481-E]
2.3 It appears from the impugned order of NCLAT that
only in the course of hearing of the appeal, the date "09th February
2019" type-written at the bottom of the self-declaration (page 29
of the Resolution Plan) was sought to be taken advantage of.
Since this was not raised as one of the grounds in the
Memorandum of Appeal but raised in the course of arguments,
A
B
C
D
E
F
G
H
469
the Resolution Professional could do no more than to file the
print-out of the email correspondence between him and the SRA
dated 07.02.2019. In the first email dated 07.02.2019, the
Resolution Professional had sought a clarification from the SRA
as to how they discovered the liquidation value and the source
for the same. In response to this mail, the SRA sent a reply email
contending that they undertook a due diligence to know the
current market value and liquidation value and that what was
quoted by them in the Resolution Plan, was something that an
independent agency provided to them. Unfortunately, NCLAT
rejected the print-out of the email correspondence dated
07.02.2019 on the sole ground that the same was not supported
by affidavit and that it was filed after the conclusion of the oral
arguments. But NCLAT failed to take note of the fact that the
Resolution Professional did not have any alternative except to
respond in the manner that he did, to a point raised only in the
course of arguments, but not raised in the Memorandum of Appeal.
If the Promoter/Director of the corporate debtor had raised the
issue of collusion or the submission of the Resolution Plan after
the expiry of the last date, even in the Memorandum of Appeal, a
duty would have been cast upon the Resolution Professional to
respond in an appropriate manner. But that was not the case.
[Paras 32, 33, 34][481-F-H; 482-A-C]
2.4 The fact that there was an email correspondence
between the Resolution Professional and the SRA on 07.02.2019,
touching upon one of the contents of the Resolution Plan, would
show (i) that the SRA had submitted the Resolution Plan before
the last date and (ii) that the Resolution Professional had obviously
scrutinised it, as otherwise he could not have found out the
liquidation value mentioned therein matching the confidential
information that he had. The liquidation value mentioned in the
Resolution Plan of the SRA is Rs. 13.53 crores. But the actual
total pay-out as per the Resolution Plan is Rs. 29.74 crores. This
meant that the workers and employees of the corporate debtor
were to be paid 100% of their dues; that all statutory dues would
be cleared 100% and that the financial creditors who constituted
THE KARAD URBAN COOPERATIVE BANK LTD. v.
SWWAPNIL BHINGARDEVAY & ORS.
A
B
C
D
E
F
G
H
470
SUPREME COURT REPORTS
[2020] 13 S.C.R.
the CoC were to be paid 60% of their dues. It offends common
sense to think that a resolution applicant who had the benefit of
leakage of information relating to liquidation value would quote a
figure of Rs. 29.74 crores as the total pay-out, as against a
liquidation value of Rs. 13.53 crores. The question of breach of
confidentiality and leakage of confidential information can easily
be tested on the touchstone of the benefit that accrued to the
party who got the information. In the case on hand, no benefit
accrued to the SRA. [Paras 35-38][482-D-H]
2.5 It is obvious from the material on record that the
Promoter/Director of the Corporate Debtor has tried to take
advantage of two small mistakes on the part of the SRA, one of
which was a typographical error mentioning the date "09th
February 2019" at the bottom of the self-declaration and the other,
which happened as a matter of coincidence. The NCLAT appears
to have made a mountain out of a molehill and has recorded a
finding even beyond the pleadings in the Memorandum of Appeal.
Hence, the second ground on which the NCLAT was convinced
to pass the impugned order, is legally and factually untenable.
[Para 39][483-A-B]
3. The next ground on which NCLAT proceeded, related
to the ethanol plant and machinery. SRA admittedly did not make
his Resolution Plan on the strength of the ethanol plant and
machinery in question. The threat looming large over the
availability of the ethanol plant and machinery has admittedly been
taken note of by the SRA and the CoC. The Resolution Plan does
not give an indication anywhere that without this plant and
machinery the whole resolution plan will fail. In paragraph 8.04
of the Resolution Plan, the SRA has undertaken to continue the
operations in the normal course of business. It is a commercial
decision that they have taken. The corporate debtor cannot cry
wolf over the said decision. Therefore, the third ground on which
NCLAT chose to interfere, is also bound to be rejected. [Para
40][483-C-E]
4.1 The last ground revolves around the advertisement
issued by the Resolution Professional on 30.03.2018. NCLAT
holds that the advertisement was not in conformity with
Regulation 36A of The Insolvency and Bankruptcy Board of India
A
B
C
D
E
F
G
H
471
(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 and as per Form G of the Schedule. Regulation
36A was inserted only with effect from 06.02.2018 under
Notification No. IBBI/2017-18/GN/REG024 dated 06.02.2018. It
underwent a change under Notification No. IBBI/2018-19/GN/
REG031 dated 03.07.2018, with effect from 04.07.2018.
Regulation 36A, as it stood during the period from 06.02.2018 to
04.07.2018, did not mandate the publication of the invitation of
Resolution Plans, either in Form G or otherwise, in newspapers.
It is only the amended Regulation 36A, which came into effect
from 04.07.2018, that requires the publication of Form G in
newspapers. Therefore, the publication in newspapers made by
the Resolution Professional, in the case on hand, on 30.03.2018,
was something that was statutorily not required of him and hence
the Promoter/Director of the corporate debtor cannot take
advantage of the amendment that came later, to attack the
advertisement. The unamended and amended Regulation 36A
are provided in a tabular column for easy comparison and
appreciation. The second meeting of the Committee of Creditors
was held on 27.03.2018. The advertisement was approved in the
said meeting. It was the unamended Regulation 36A that was in
force at that time. This has not been appreciated by NCLAT.
Therefore, the NCLAT was wrong in its approach even in this
regard. [Paras 41, 45, 46][483-E-F; 484-E-H; 487-C-D]
Committee of Creditors of Essar Steel India Limited v.
Satish Kumar Gupta and others
(2019) SCC Online
SC 1478; K. Sashidhar v. Indian Overseas Bank (2019)
12 SCC 150; [2010] 3 SCR 845 - relied on
Case Law Reference
[2010] 3 SCR 845
relied on
Para 10
CIVIL APPELLATE JURISDICTION : Civil appeal nos. 2955
of 2020
From the Judgment and Order dated 02.06.2020 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal(AT)
(Ins) No. 943 of 2019.
With
Civil Appeal o. 2902 of 2020.
THE KARAD URBAN COOPERATIVE BANK LTD. v.
SWWAPNIL BHINGARDEVAY & ORS.
A
B
C
D
E
F
G
H
472
SUPREME COURT REPORTS
[2020] 13 S.C.R.
Siddhartha Dave, Jayant Bhushan, Sr. Advs., Dr. Ravindra
Sadanand Chingale, Shikhil Suri, Shiv Kumar Suri, Ms. Shilpa Saini, Ms.
Nikita Thapar, Ms. Vinishma Kaul, Ms. Madhu Suri, Ranjit Balasaheb
Raut, Bhushan V. Mahadik, Akshat Kumar, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
V. RAMASUBRAMANIAN, J.
1. Challenging an order passed by the National Company Law
Appellate Tribunal (hereinafter referred to as 'NCLAT') (i) setting aside
the approval granted by the National Company Law Tribunal (hereinafter
referred to as 'NCLT') to a Resolution Plan and (ii) remanding the matter
back to the NCLT with a direction to have the Resolution Plan resubmitted before the Committee of Creditors, the financial creditor and
the Resolution Professional have come up with these appeals.
2. We have heard learned counsel appearing on both sides.
3. The Karad Urban Cooperative Bank Ltd., which is the financial
creditor, filed an application on 04.09.2017 under Section 7 of the IBC
before the NCLT against M/s. Khandoba Prasanna Sakhar Karkhana
Limited, which is the corporate debtor. NCLT admitted the application
on 01.01.2018 and an Interim Resolution Professional was appointed.
The first meeting of the Committee of Creditors (hereinafter referred to
as 'CoC') took place on 02.03.2018. As per the decision taken therein,
one Mr. Jitendra Palande was appointed by the NCLT, by an order dated
06.03.2018, as Resolution Professional.
4. Pursuant to the second meeting of the Committee of Creditors
held on 27.03.2018, the Resolution Professional issued an advertisement
on 30.03.2018 inviting Expression of Interest. In the meantime, a Director/
Promoter of the corporate debtor moved the High Court of Judicature at
Bombay by way of a writ petition in Writ Petition No.4746 of 2018,
challenging the orders of the NCLT dated 01.01.2018 and 06.03.2018.
Initially, the High Court granted stay of further proceedings before the
NCLT on 18.04.2018. However, the writ petition was eventually
dismissed on 23.08.2018.
5. Several meetings of the Committee of Creditors were held
thereafter and eventually the Committee of Creditors, in its 8th Meeting
held on 09.02.2019 resolved to approve the Resolution Plan submitted
by one M/s. Sai Agro (India) Chemicals. On the basis of the approval of
A
B
C
D
E
F
G
H
473
the Resolution Plan by the Committee of Creditors, the Resolution
Professional moved an application on 15.02.2019 before the NCLT,
Mumbai. At this stage, the Director/Promoter of the corporate debtor
also came up with an application seeking permission to file a resolution
plan. But by a common order dated 01.08.2019, NCLT, Mumbai Bench,
rejected the application filed by the Director/Promoter of the corporate
debtor and approved the Resolution Plan submitted by M/s. Sai Agro
(India) Chemicals. Thus, M/s. Sai Agro (India) Chemicals, have become
the Successful Resolution Applicant (hereinafter referred to as the
'SRA').
6. The Director/Promoter of the corporate debtor (who
unsuccessfully approached the High Court of Bombay at the earliest
point of time), filed an appeal before the NCLAT in Company Appeal
(AT) (Ins) No.943 of 2019, as against the order of the NCLT dated
01.08.2019, granting approval of the Resolution Plan of the SRA.
7. By an order dated 02.06.2020, NCLAT allowed the appeal and
remanded the matter back to the adjudicating authority, with a direction
to send back the Resolution Plan to the Committee of Creditors. The
operative portion of the order of NCLAT dated 02.06.2020 reads as
follows:-
"The Appeal is allowed. For the above reasons, we set aside the
Impugned Order and remit the matter back to the Adjudicating
Authority with a direction to send back the Resolution Plan to the
Committee of Creditors to resubmit the Plan taking into
consideration observations made above and after satisfying the
parameters as laid down by the Hon'ble Supreme Court in the
Judgment in the matter of "Essar Steel" referred (supra) and IBC.
The Adjudicating Authority may give specific time period to the
Resolution Professional to place matter before Committee of
Creditors for resubmitting the Resolution Plan taking into
consideration observations made above and after satisfying the
parameters laid down by the Hon'ble Supreme Court and IBC.
Further incidental Orders may also be passed.
On resubmission of the Resolution Plan, the Adjudicating Authority
will deal with the same in accordance with law.
The Appeal is disposed accordingly. No costs."
THE KARAD URBAN COOPERATIVE BANK LTD. v. SWWAPNIL
BHINGARDEVAY & ORS. [V. RAMASUBRAMANIAN, J.]
A
B
C
D
E
F
G
H
474
SUPREME COURT REPORTS
[2020] 13 S.C.R.
8. It is against the aforesaid order of remand passed by NCLAT
that the financial creditor has come up with one appeal and the Resolution
Professional has come up with another appeal.
9. It is seen from the order of the NCLAT that the Appellate
Tribunal was convinced to interfere with the order of NCLT granting
approval of the Resolution Plan, on four grounds. They are:-
(i)
That the Resolution Plan suffers from issues of viability
and feasibility;
(ii)
That in as much as the liquidation value mentioned by the
Successful Resolution Applicant in its Resolution Plan tallied
exactly with the liquidation value obtained by the Resolution
Professional, there appears to have been a breach of
confidentiality, violating Regulation 35(2);
(iii)
That the Resolution Plan does not take note of one important
fact namely, that the ethanol plant and machinery shown as
part of the assets of the corporate debtor, actually belonged
to another company by name, Sarvadnya Industries Private
Limited, and that a bank by name, Janata Sahkari Bank
Limited, Pune had taken possession of the same under the
SARFAESI Act; and
(iv)
That even the advertisement issued by the Resolution
Professional on 30.03.2018 inviting Expression of Interest,
was vitiated in as much as the invitation contained therein
was for outright sale of the Company as a going concern,
and was in violation of Regulation 36A.
10. The order of the NCLAT is assailed by the appellants on the
ground, inter alia, (i) that the question of viability and feasibility, is to be
left to the commercial wisdom of the CoC and the same cannot be
lightly interfered with by the Tribunal, in view of the law laid down by
this court in Essar Steel India Ltd.1 and K. Sashidhar;2 (ii) that a
mere suspicion that there was breach of confidentiality cannot take the
place of proof; (iii) that once the Successful Resolution Applicant has
taken note of the issue relating to the ethanol plant and machinery and
submitted a resolution plan, the Director/Promoter of the corporate debtor
1 Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and
others, (2019) SCC OnLine SC 1478
2 K. Sashidhar vs. Indian Overseas Bank, (2019) 12 SCC 150
A
B
C
D
E
F
G
H
475
cannot make an issue out of it, and (iv) that the advertisement issued
was actually in tune with the regulations, including Regulation 36A.
11. Supporting the order of the NCLAT, it is contended by Mr.
Jayant Bhushan, learned Senior Counsel, (i) that the Resolution Plan
proceeds on the basis as though the ethanol plant, owned by a third
party, is part and parcel of the assets of the corporate debtor and hence,
the examination of the viability and feasibility on the basis of such wrong
notion stands vitiated; (ii) that the very self-declaration accompanying
the Resolution Plan bears the date 09.02.2019, but the email exchanged
between the Resolution Professional and the Successful Resolution
Applicant, on the question of leakage of information relating to the
liquidation value is dated 07.02.2019, showing thereby that there was
collusion between the Resolution Professional and the Successful
Resolution Applicant; (iii) that the issue relating to legal possession of
the ethanol plant and machinery had already been left open by NCLAT
in a collateral proceeding between its legal owner namely, Sarvadnya
Industries Pvt. Ltd. and its banker, Janata Sahkari Bank Ltd. and hence,
this machinery could not have formed part of the assets of the corporate
debtor to enable the Successful Resolution Applicant to take over the
corporate debtor as a going concern and run it; and (iv) that the very
fact that the Successful Resolution Applicant was the only person who
submitted a bid in response to the advertisement and the fact that the
Resolution Plan was approved within 2-3 hours in the 8th meeting of the
CoC in a hasty manner, would show that the Resolution Plan was tainted,
and that therefore, NCLAT was justified in setting aside the approval
granted by the NCLT to the Resolution Plan.
12. We have carefully considered the rival submissions. On the
first question regarding the viability and feasibility of a resolution plan,
the law is now well-settled. In K. Sashidhar (supra), it was held as
follows:
(i)
"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...The opinion
on the subject matter expressed by them after due
deliberations in the 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
THE KARAD URBAN COOPERATIVE BANK LTD. v. SWWAPNIL
BHINGARDEVAY & ORS. [V. RAMASUBRAMANIAN, J.]
A
B
C
D
E
F
G
H
476
SUPREME COURT REPORTS
[2020] 13 S.C.R.
financial creditors or their collective decision before the
adjudicating authority. That is made nonjusticiable."
(paragraph 52)
(ii)
"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." (paragraph 57)
(iii)
"Further, the jurisdiction bestowed upon the appellate
authority (NCLAT) is also expressly circumscribed. It can
examine the challenge only in relation to the grounds
specified in Section 61(3) of the I&B Code, which is limited
to matters "other than" enquiry into the autonomy or
commercial wisdom of the dissenting financial creditors."
(paragraph 58)
(iv)
"At best, the adjudicating authority (NCLT) may cause an
enquiry into the "approved" resolution plan on limited
grounds referred to in Section 30(2) read with Section 31(1)
of the I&B Code. It cannot make any other inquiry nor is
competent to issue any direction in relation to the exercise
of commercial wisdom of the financial creditors - be it
for approving, rejecting or abstaining, as the case may be.
Even the inquiry before the appellate authority (NCLAT) is
limited to the grounds under Section 61(3) of the I&B Code.
It does not postulate jurisdiction to undertake scrutiny of
the justness of the opinion expressed by financial creditors
at the time of voting." (paragraph 64)
Thereafter, in Essar Steel India Ltd. (supra), this Court held:
(i)
"Thus, it is clear that the limited judicial review available,
which can in no circumstance trespass upon a business
decision of the majority of the Committee of Creditors, has
to be within the four corners of Section 30(2) of the Code,
insofar as the Adjudicating Authority is concerned, and
Section 32 read with Section 61(3) of the Code, insofar as
the Appellate Tribunal is concerned." (paragraph 48)
A
B
C
D
E
F
G
H
477
(iv)
"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." (paragraph 54)
13. The principles laid down in the aforesaid decisions, make one
thing very clear. If all the factors that need to be taken into account for
determining whether or not the corporate debtor can be kept running as
a going concern have been placed before the Committee of Creditors
and the CoC has taken a conscious decision to approve the resolution
plan, then the adjudicating authority will have to switch over to the hands
off mode. It is not the case of the corporate debtor or its promoter/
Director or anyone else that some of the factors which are crucial for
taking a decision regarding the viability and feasibility, were not placed
before the CoC or the Resolution Professional. The only basis for the
corporate debtor to raise the issue of viability and feasibility is that the
ownership and possession of the ethanol plant and machinery is the subject
matter of another dispute and that the resolution plan does not take care
of the contingency where the said plant and machinery may not eventually
be available to the Successful Resolution Applicant.
14. But the aforesaid argument, coming as it does from the
Promoter/Director of the corporate debtor is like the wolf shedding tears
for the lamb getting drenched in rain. The records very clearly show
that the Successful Resolution Applicant, the Resolution Professional
and the financial creditor were fully aware of the said issue. The order
passed by the NCLAT in Company Appeal (AT) (Insolvency) No.897
of 2019 on 16.12.2019 shows that the possession of the ethanol plant
and machinery was restored to Sarvadnya Industries Pvt. Ltd., in the
appeal to which the Successful Resolution Applicant was also a party.
The Successful Resolution Applicant also appears to have offered to
Janata Sahkari Bank to purchase the said plant and machinery. In the
appeal before the NCLAT out of which the present Civil Appeals arise,
Sarvadnya Industries Pvt. Ltd. which claims ownership of the ethanol
plant and machinery, were also a party.
THE KARAD URBAN COOPERATIVE BANK LTD. v. SWWAPNIL
BHINGARDEVAY & ORS. [V. RAMASUBRAMANIAN, J.]
A
B
C
D
E
F
G
H
478
SUPREME COURT REPORTS
[2020] 13 S.C.R.
15. In any case, the Resolution Professional has taken a specific
plea in his grounds of appeal before this Court, that the Successful
Resolution Applicant is itself into the ethanol manufacturing business
and that they have sufficient ethanol production capacity required to
fulfil their Resolution Plan. In paragraph 4.P of -the Civil Appeal filed by
the Resolution Professional, he has stated as follows:
"Further, the said Ethanol Plant was functional only between April
2016 and August 2016. That Respondent No. 3/SRA is itself into
the ethanol manufacturing business and has sufficient ethanol
production capacity required to fulfil its resolution plan. Additionally,
there is a provision for capital expenditure in the approved plan of
SRA which includes the cost of a new ethanol facility, if required.
Additionally, Janata Bank Pune, which holds symbolic possession
of the ethanol plant, had approached Respondent No. 3/ Successful
Resolution Applicant for the sale of the said ethanol plant to the
said SRA. That further the Respondent No. 3/ successful
resolution applicant was planning to expand and integrate other
facilities with the distillery plant of the Corporate Debtor which
was functional since 2007;"
16. Therefore, the fact that there was an issue with regard to the
ethanol plant and machinery, had been taken note of by the Resolution
Professional, the Committee of Creditors and the Successful Resolution
Applicant. Once all these three parties have taken note of the said fact
and taken a conscious decision to go ahead with the Resolution Plan, it
cannot be stated that the question of viability and feasibility was not
examined in the proper perspective.
17. Therefore, the first ground and actually the main ground on
which NCLAT interfered with the decision of the NCLT to approve the
Resolution Plan, is wholly untenable, misconceived and unjustified.
18. In fact, our discussion could have ended here without going
into the other grounds, for one simple reason. Though the Director/
Promoter of the corporate debtor, who was the appellant before the
NCLAT, raised other grounds apart from viability and feasibility, NCLAT
issued limited notice in the appeal, on 12.09.2019, only with regard to
viability and feasibility. Even in the impugned order dated 02.06.2020, it
is made clear in the last sentence of paragraph 1 that "this appeal on
12.09.2019 was admitted to limited extent of examining viability
and feasibility of the Plan".
A
B
C
D
E
F
G
H
479
19. It is true that in the last paragraph of the impugned order,
namely paragraph 14, the Appellate Tribunal holds that the CIRP suffered
from material irregularities and the Resolution Plan approved suffers
from feasibility and viability. But then the operative portion of the
impugned order does not take the findings on other issues to their logical
end. For instance, the Tribunal holds that the advertisement inviting
Expression of Interest itself was defective and that there was breach of
confidentiality in as much as the liquidation value appears to have been
leaked out. These findings should have taken the Appellate Tribunal to
the point of setting aside the entire process and directing the Resolution
Professional to start the process all over again from the stage of issue of
a fresh advertisement. The NCLAT did not do so. In the operative portion,
NCLAT merely remanded the matter back to the Adjudicating Authority
with a direction to send back the Resolution Plan to the Committee of
Creditors to resubmit the plan after taking into consideration the law
laid down by this Court.
20. In other words, the reliefs that would normally flow in the light
of the findings with regard to breach of confidentiality and defective
Invitation to Offer, were not granted by NCLAT. The Director/Promoter
of the corporate debtor has not come up with any appeal against the
failure of NCLAT to grant appropriate reliefs, connectable to the aforesaid
findings. The Director/Promoter of the corporate debtor is obviously
happy with the limited relief, if at all it is one, granted to him for the
resubmission of the Resolution Plan.
21. It must be pointed out at this stage that the order of the NCLT,
Mumbai Bench dated 01.08.2019 became the subject matter of a single
appeal before NCLAT. But it was actually a common order passed in
three applications namely, MA Nos.1509/2019, 2104/2019 and 662/2019.
The details of these applications are as follows:
(i)
MA No.1509/2019 was filed by an operational creditor, by
name Sarvadnya Industries Pvt. Ltd. (whose ethanol plant
and machinery also became a matter of dispute). Their claim
was that they had a rental agreement with the corporate
debtor with regard to the plant and machinery and that there
was default in payment of the rent.
(ii)
MA No.2104/2019 was filed by the Director/Promoter of
the corporate debtor seeking to submit a resolution plan.
THE KARAD URBAN COOPERATIVE BANK LTD. v. SWWAPNIL
BHINGARDEVAY & ORS. [V. RAMASUBRAMANIAN, J.]
A
B
C
D
E
F
G
H
480
SUPREME COURT REPORTS
[2020] 13 S.C.R.
But it was obviously filed after 270 days and also after the
approval of the Resolution Plan by the CoC.
(iii)
The third application, MA No.662/2019, was by the
Resolution Professional for the approval of the Resolution
Plan which was accepted by the CoC.
22. By its common order dated 01.08.2019, the NCLT dismissed
MA Nos.1509 and 2104 of 2019, filed respectively by the operational
creditor (lessor of the ethanol plant) and the Promoter/Director of the
corporate debtor. But the application filed by the Resolution Professional
was allowed.
23. But the Director/Promoter of the corporate debtor filed only
one appeal and the Memorandum of Appeal suggests that the Director/
Promoter of the corporate debtor prayed for two reliefs, namely (i) to
set aside the approval of the Resolution Plan, and (ii) to consider his own
resolution plan.
24. By the order impugned in the present Civil Appeals, the NCLAT
granted only a limited relief, as can be seen from the operative portion of
the order of NCLAT which we have extracted earlier.
25. Therefore, in the light of the above facts, the consideration of
all other issues, such as breach of confidentiality and defective Invitation
to Offer would only be academic, as NCLAT did not grant any relief to
the Promoter/Director of the corporate debtor, which could logically flow
out of those other grounds.
26. But be that as it may, we will still deal with the other three
grounds also, as the same would put things in the right perspective and
clear any air of suspicion.
27. The second ground on which NCLAT interfered with the
decision of the NCLT is the alleged breach of confidentiality. The
contention of the Promoter/Director of the corporate debtor is that the
liquidation value mentioned in the Resolution Plan submitted by the SRA
exactly tallied with the liquidation value obtained by the Resolution
Professional and that the whole sequence of events would show clearly
that there was an attempt to cover up.
28. According to the Director/Promoter of the corporate debtor,
the self-declaration signed by the Resolution Applicant, and which forms
part of the Resolution Plan, bears the date 9th February 2019. This
A
B
C
D
E
F
G
H
481
document mentions the liquidation value as Rs. 13.53 crores. It was the
same value as obtained by the Resolution Professional. It is the contention
of the Director/ Promoter of the corporate debtor that the Resolution
Professional wrote an email on 07.02.2019 itself (2 days before the
submission of the Resolution Plan by the SRA), asking for clarification
as to how the liquidation value matched. This, according to the Director
of the corporate debtor, was proof enough to show that there was not
merely a leakage of information, but also an attempt to cover-up.
29. But we are unable to accept the above contention. The
Resolution Plan actually runs to 31 pages. Pages 30 and 31 contain
Annexure A, which provides the business plan. Page 29 contains a selfdeclaration certificate signed by the partners of the SRA. Just below the
signatures of the partners at page 29, the date "09th February 2019" is
type-written.
30. But the cover page of the entire document contains the date
"7th February 2019" as the date of submission of the Resolution Plan.
The last date for submission of the resolution plan was 08.02.2019.
31. Nowhere in the Memorandum of Appeal filed by the Promoter/
Director of the corporate debtor before the NCLAT, has he claimed that
the Resolution Plan was submitted by the SRA after the last date. We
have perused the Memorandum of Appeal filed by the Promoter/Director
of the corporate debtor before the NCLAT. It was not his case at all that
the Resolution Plan was submitted by the SRA after the last date, but
the same was predated by the Resolution Professional acting in collusion.
32. It appears from the impugned order of NCLAT that only in
the course of hearing of the appeal, the date "09th February 2019" typewritten at the bottom of the self-declaration (page 29 of the Resolution
Plan) was sought to be taken advantage of. Since this was not raised as
one of the grounds in the Memorandum of Appeal but raised in the
course of arguments, the Resolution Professional could do no more than
to file the print-out of the email correspondence between him and the
SRA dated 07.02.2019. In the first email dated 07.02.2019, the Resolution
Professional had sought a clarification from the SRA as to how they
discovered the liquidation value and the source for the same. In response
to this mail, the SRA sent a reply email contending that they undertook a
due diligence to know the current market value and liquidation value and
that what was quoted by them in the Resolution Plan, was something
that an independent agency provided to them.
THE KARAD URBAN COOPERATIVE BANK LTD. v. SWWAPNIL
BHINGARDEVAY & ORS. [V.