POWER OF COC & PRINCIPAL OF COMMERCIAL WISDOM

Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors is one of the landmark cases describing the power of COC and establishing the principle of Commercial Wisdom.

Facts: 

The total debt of the corporate debtor (CD) (United Seamless Tubular Private Limited) was Rs. 1897 crores. The application was filed by Indian Bank being the Financial Creditor Under Section 7 of Insolvency and Bankruptcy Code, 2016. The Resolution Professional appointed two licensed valuers for the valuation of the corporate debtor. The corporate debtor was graded at Rs. 681 crores and Rs. 513 crores respectively. A third valuer was selected based on the significant disparity in the aforementioned valuation. 

The proposal submitted by Maharashtra Seamlessly Limited was approved by a majority of the COC by 87.10% of the votes cast. Resolution Professional applied for approval of Resolution Plan for United Seamless Tubular Private Limited under section 30(6) and 31 of IBC, 2016 along with regulation 39 (4) of IBBI (Insolvency Resolution for Corporate Persons). The Tribunal passed a comprehensive order to re-determine the liquidation interest of the Corporate Debtor and then put the amended Voting Resolution Proposal before the COC, which was not adequately implemented by the RP.

The other Resolution Applicants were not allowed to submit their revised plans and prayed that the Resolution Plan be rejected. NCLAT directed the adjudicating authority to pass order under section 31 under IBC 2016 uninfluenced by the previous order. 87.10 per cent of the votes supported MSL 's Resolution Strategy. The Rs. 477 crores MSL bids were much less than the Rs 597.54 crores liquidation value. The Tribunal held that it had to pass order uninfluenced by the preceding order, as per the Hon'ble NCLAT orders.

DECISION OF NCLT:

Two appeals against an order of 21 January 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad, were preferred one by Mr Padmanabhan Venkatesh- (Promoter) and another by Indian Bank – (Financial Creditor). 

“The question before the NCLAT was whether the order approving the resolution plan should be set aside or the RA should be asked to amend the resolution plans with certain modification to ensure successful Resolution which was the foremost objective of IBC, 2016.” 

NCLAT held it is the at the discretion of COC to consider the feasibility and viability of the resolution.

Efficient RA Contended that it can pay the checked operating creditors at the same rate as the financial creditor. The NCLAT held that it is the RA should pay more than Rs. 120.54 crores, which would then equalise the average liquidation value of the corporate debtor.

DECISION OF SUPREME COURT:

The MSL being the successful applicant for resolution pursued guidance for effective execution of the resolution program for the corporate debtor as well as for the police and administrative authorities. MSL was not given access to the funds of the corporate debtor. They also requested the refund of the amount deposited, together with interest, under the resolution plan. In addition to which MSL also requested the withdrawal of the resolution plan.

The MSL's contentions were denied access to corporate debtor's properties and delay in implementing the resolution plan. For corporate debtor 's resolution, they had 477 crores deposited into an escrow account. They were forced to pay interest in the amount of Rs.477 crores.