Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLAT) 1208

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
ASHOK BHUSHAN, J
Beacon Trusteeship Ltd. – Appellant
Versus
Jayesh Sanghrajka – Respondent
Company Appeal (AT) (Insolvency) No. 1494 – 1495 of 2022 | Company Appeal (AT) (Insolvency) No. 99 of 2023 | Company Appeal (AT) (Insolvency) No. 107 of 2023 | Company Appeal (AT) (Insolvency) No. 108 of 2023

Advocates:
For the Appellants/Petitioners:Mr. Abhijeet Sinha Sr. Advocate, Ms. Sneha Jai Singh, Ms. Vaishnavi Rao, Mr. Divyam Sharma, Mr. Manan Shah, Mr. Akash Chatterjee
For the Respondents: Mr. Trishmpati Sen, Ms. Riddhi Sancheti, Mr. Ashish Parwani, Mr. Dikshat Mehra, Mr. Chintan Gandhi, Mr. Anurag Anand, Mr. Mukul Kulhari, Mr. R. Sudhinder, Mr. Ranjit Shetty, Mr. Sandeep Singhi, Mr. Luckyraj Indorkar, Ms. Aastha Trivedi, Mr. Arjun Amin, Ms. Ekta Bhasin, Mr. Rahul Kriplani, Ms. Suhasini Sen, Mr. Aditya Pratap Singh Chauhan, Mr. Kinnar Shah, Ms. Nitya Shah, Ms. Supraja V., Ms. Surbhi, Mr. Dhruv Mehta, Mr. Denzil Arambhan, Mr. Pranaya Goyal, Mr. Dharav Shah, Ms. Amisha Patel, Mr. Dhawal Desai, Mr. Shubham Saini.

The commercial wisdom of the Committee of Creditors prevails in approving resolution plans, and dissenting creditors cannot claim preferential treatment beyond statutory provisions.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 30 and 53 - Corporate Insolvency Resolution Process - Appellants, dissenting financial creditors, challenge the approval of a resolution plan that provides significantly lower recovery to them compared to homebuyers - The Court held that the resolution plan complied with statutory requirements, affirming the authority of the Committee of Creditors to determine distribution based on commercial wisdom - Appeals dismissed. (Paras 6, 49, 53)

(B) Commercial Wisdom of Committee of Creditors - The court reinforced that it cannot interfere with the commercial decisions of the Committee unless they are proven irrational or in violation of statutory provisions - Appellants' claims regarding valuation inaccuracies and unfair treatment were not substantiated. (Paras 11, 42, 43)

Facts of the case:
The disputes arose from the approval of a resolution plan amidst significant dissent from financial creditors regarding the valuation of assets and the fair distribution of payouts, with homebuyers receiving preferential treatment. (Para 4)

Findings of Court:
The court found the resolution plan compliant with the requirements of the Code, emphasizing the importance of commercial wisdom in decision-making among creditors. (Para 6)

Issues: Whether the dissenting financial creditors could justifiably claim rights based on the liquidation value over the resolution plan provisions. (Para 30)

Ratio Decidendi: The court affirmed that while dissenting creditors have rights, those rights do not equate to being entitled to liquidation value when the plan adheres to the statutory framework as outlined in the Code. (Paras 49, 52)

Result: Appeals dismissed.

Table of Content
1. procedural background of appeals. (Para 4 , 5 , 6)
2. appellants’ objections to the resolution plan. (Para 12 , 13 , 14 , 15)
3. court's comments on valuation reports. (Para 36 , 37 , 38 , 39)
4. distinction between classes of creditors. (Para 42 , 43 , 44 , 45)
5. conclusion of the court. (Para 60 , 61)

JUDGMENT

ASHOK BHUSHAN, J.

These appeals viz. Comp. App. (AT) (Ins.) No. 1494-1495 of 2022 & Comp. App. (AT) (Ins.) No. 99 of 2023 by two dissenting Financial Creditors have been filed challenging the order dated 02.12.2022, by which I.A. 503/2022 and I.A. 931/2022 in C.P. (IB) No. 1390/2020 filed by Beacon Trusteeship Ltd. objecting to the Resolution Plan and I.A. 808/2022 in C.P. (IB) No. 1390/2020 filed by ICICI Prudential Venture Capital Fund Real Estate Scheme I, have been rejected.

2. Other two appeals viz. Comp. App. (AT) (Ins.) Nos. 107 & 108 of 2023 have been filed challenging the order dated 09.01.2023, by which order I.A. 573/2022 in C.P. (IB) No. 1390/2020 filed by Resolution Professional (RP) for approval of the Resolution Plan submitted by Successful Resolution Applicant (SRA) has been allowed.

3. Both the Appellants before us are dissenting Financial Creditors who cast their dissenting vote, Beacon Trusteeship Ltd. having 7.44 vote shares and ICICI Prudential Venture Capital Fund Real Estate Scheme I having 5.71 vote shares.

4. The facts giving rise to these appeals are:

i. The parcel of land in question is owned by Maharashtra Housing and Area Development Authority (MHADA).

ii. Middle Income Group Cooperating Housing Society has been granted long-term lease of the land in question.

iii. Society executed a Development Agreement with one MIG (Bandra) Realtors and Builders Private Ltd. on 31.10.2010 by which society granted Development Rights to MIG Bandra for re-development of the land.

iv. MIG (Bandra) Realtors and Builders Pvt Ltd. (hereinafter referred to as DB) executed an Agreement with Radius Estates and Developers Private Limited (the Corporate Debtor) on 31.03.2016, as per which Agreement upon discharging certain costs and obligations, including the obligations to complete construction of Project certain rights were assigned in the project by DB to the Corporate Debtor.

v. The Corporate Debtor issued Non-Convertible Debentures to Beacon Trusteeship Ltd. to the tune of Rs. 65 Crores through private placement to raise funds in the year 2018.

vi. Due to certain financial constraint, the construction could not proceed since March 2018.

vii. The society issued a letter dated 08.05.2020 to the DB terminating the Development Agreement. The termination of Development Agreement lead automatically suspension of the Corporate Debtor rights in the project.

viii. DB filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, before the Bombay High Court and sought interim stay of the termination. Hon’ble Bombay High Court had directed for maintaining Status Quo.

ix. In November 2020, Beacon Trusteeship Ltd. filed a C.P. IB No.1390/2020 under Section 7 for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

x. On 22.01.2021, Municipal Corporation of Greater Mumbai (MCGM)issued a circular granting a rebate/discount of 50% on the FSI premium payable by developers provided the FSI premium is paid by the developers on or before 31.12.2021.

xi. On 30.04.2021, Adjudicating Authority admitted Section 7 application filed by Beacon Trusteeship Ltd. initiating CIRP against the Corporate Debtor.

xii. On 05.05.2021, an interim award was passed by Learned Arbitrator in the Arbitration Proceedings initiated by DB against the society.

xiii. Under interim award, stay was granted on the termination of the Development Agreement subject to compliance of certain terms and conditions by DB which included conditions of several payments to society.

xiv. In the CIRP of the Corporate Debtor, Committee of Creditors (CoC) was constituted on 02.07.2021.

xv. The CoC consisted of following:

a) Homebu

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2024 Supreme(Online)(NCLAT) 1208

The commercial wisdom of the Committee of Creditors prevails in approving resolution plans, and dissenting creditors cannot claim preferential treatment beyond statutory provisions.

Cases Referred (2)