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Arcelormittal India ... v. Abhijit Guhathakurta...
Factual and Procedural Background
ArcelorMittal India Private Limited (Appellant), a Resolution Applicant, submitted a Resolution Plan which was not approved by the Committee of Creditors (CoC). The CoC approved the Resolution Plan submitted by the 3rd Respondent, Royale Partners Investment Fund Limited, with a majority vote of 73.14%. The Appellant challenged the CoC's decision through a Miscellaneous Application before the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench), which was rejected. The Appellant contended that the approval violated the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016, requiring prior approval of the Competition Commission of India (CCI) before CoC approval. The Appellant also alleged procedural irregularities and argued that its plan was superior and better aligned with the objectives of the I&B Code. The Resolution Professional and the 3rd Respondent opposed the challenge, asserting the Appellant lacked standing to challenge the approved plan and that the plan had been duly considered and rejected by the CoC. The Competition Commission of India subsequently granted approval for the plan.
Legal Issues Presented
- Whether the Appellant, as an unsuccessful Resolution Applicant, has a vested right or standing to challenge the Committee of Creditors' approval of another Resolution Plan.
- Whether the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016, mandating prior approval from the Competition Commission of India before the Committee of Creditors approves a Resolution Plan, is mandatory or directory.
- Whether the procedural irregularities alleged by the Appellant vitiate the approval of the Resolution Plan by the Committee of Creditors.
Arguments of the Parties
Appellant's Arguments
- The approval of the Resolution Plan violated the mandatory requirement under the proviso to Section 31(4) of the I&B Code to obtain Competition Commission of India approval prior to CoC approval.
- The Appellant's Resolution Plan was ex facie better and served the twin objects of the I&B Code more effectively than the approved plan.
- The Committee of Creditors' approval was tainted by procedural irregularities, rendering the approval illegal.
Respondents' Arguments
- The Appellant, being an unsuccessful Resolution Applicant, lacks the locus to challenge the approved Resolution Plan.
- The Appellant's plan was duly considered and rejected by the Committee of Creditors, receiving only 17.67% of voting share against the required threshold.
- The reasons for rejection included failure to maximize asset value and offers significantly lower than liquidation value.
- The plan approved by the Committee of Creditors received 73.14% voting share and was subsequently approved by the Competition Commission of India.
- An appeal under Section 61 is not maintainable in the absence of approval of the plan by the Adjudicating Authority.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors, (2019) 2 SCC 1 | The stages at which a Resolution Applicant can challenge decisions during the Corporate Insolvency Resolution Process (CIRP); the absence of vested rights before approval of a Resolution Plan by the Adjudicating Authority; the interpretation of Section 30 regarding approval and rejection of plans by Resolution Professional and Committee of Creditors; the jurisdictional limits of the NCLT and NCLAT in entertaining challenges. | The Court relied on this precedent to hold that the Appellant has no vested right or fundamental right to challenge the Committee of Creditors' rejection of its Resolution Plan prior to approval by the Adjudicating Authority, and that such challenges are not maintainable at this stage. |
Court's Reasoning and Analysis
The Court analyzed the statutory framework under the Insolvency and Bankruptcy Code, 2016, particularly the provisions of Section 30 and Section 31, and the procedural stages for approval of Resolution Plans. It relied heavily on the Supreme Court's decision in Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors, which clarified that a Resolution Applicant does not have a vested or fundamental right to have its plan approved, and challenges can only be entertained after the Adjudicating Authority approves a plan. The Court observed that the Appellant's challenge to the Committee of Creditors' decision is premature and not maintainable.
Regarding the Competition Commission of India approval under the Competition Act, 2002, the Court examined the statutory thresholds and exemptions under Sections 5, 6(2), and 54 of the Competition Act. It noted that the proviso to Section 31(4) of the I&B Code, which requires CCI approval before CoC approval of a Resolution Plan, is directory rather than mandatory. The Committee of Creditors may approve a plan subject to such approval being obtained prior to the Adjudicating Authority's final approval. Since the CCI approval was eventually obtained, no violation occurred.
The Court declined to decide on whether the 3rd Respondent's plan falls within the ambit of Section 5 or the exemption under Section 54 of the Competition Act, as that issue was not before it.
Holding and Implications
The appeal is dismissed as not maintainable.
The Court held that the Appellant, as an unsuccessful Resolution Applicant, has no vested or fundamental right to challenge the Committee of Creditors' approval of another Resolution Plan prior to approval by the Adjudicating Authority. The proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016, requiring Competition Commission of India approval before CoC approval, is directory and not mandatory. Since the Competition Commission of India approval was eventually obtained, the approval of the Resolution Plan by the Committee of Creditors stands valid. The dismissal of the appeal concludes the dispute between the parties without setting any new precedent beyond reaffirming existing legal principles. No costs were imposed.
SUDHANSU JYOTI MUKHOPADHAYA, J. ArcelorMittal India Private Limited (Appellant) is one of the Resolution Applicants, whose Resolution Plan was not voted in its favour by the Committee of Creditors. The Committee of Creditors by majority vote of 73.14% approved the Resolution Plan submitted by 3rd Respondent- Royale Partners Investment Fund Limited. The Appellant preferred Miscellaneous Application challenging the decision of the Company Appeal (AT) (Insolvency) No. 524 of 2019 Committee of Creditors which has been rejected by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai.
2. Learned counsel for the Appellant submitted that approval of plan is in contravention of the mandatory requirement under the proviso to Section 31(4) of the Insolvency and Bankruptcy Code, 2016 (I&B Code for short), as amended, requiring Resolution Applicants to obtain approval of the Competition Commission of India prior to approval by the Committee of Creditors.
3. According to Appellant, the Committee of Creditors without appreciating the fact that the Appellants Resolution Plan is ex facie better Resolution Plan and serves the twin objects of the I&B Code has rejected the plan.
4. It was further submitted that the action of the Committee of Creditors is vitiated by procedural irregularities rendering illegal approval.
5. Learned counsel appearing on behalf of the Resolution Professional of EPC Constructions India Limited submitted that the Appellant is Unsuccessful Resolution Applicant and cannot challenge the Resolution Plan as it has been duly approved by the Committee of Creditors. It was informed that the Appellant was called for negotiations on 4th December, 2018, 14th December, 2018, 24th December, 2018, 4th January, 2019, 7th January, 2019 and 10th January, 2019. Thereafter, Appellants Resolution Plan was duly considered in the meeting of Company Appeal (AT) (Insolvency) No. 524 of 2019 Committee of Creditors held on 10th January, 2019, and was rejected by the Committee of Creditors as it received only 17.67% of the total voting share. The reasons for rejection of the Appellants Resolution Plan were duly recorded in the meeting of the Committee of Creditors as follows: The reasons for rejection of the plan as provided by the CoC was the failure to maximise the value of the assets of the Company. The receivables being assigned to the creditors while having book value of
700 crores would be insignificant if the contracts are cancelled as proposed in the plan. Therefore, there is no certainty in the realization of any of the amounts. It was noted that the offer made was significantly lower than the liquidation value determined for the Resolution Applicant. In the light of the object of Code being to maximise the value of the assets of the Corporate Debtor, the plan was rejected on account of the plan not satisfactory achieving the same.
6. Learned counsel for 3rd Respondent-(Successful Resolution Applicant) submitted that the plan submitted by 3rd Respondent has been duly approved by the Committee of Creditors with majority voting shares of 73.14%. The Adjudicating Authority finally heard the matter and reserved the Judgment on 9th September, 2019. Company Appeal (AT) (Insolvency) No. 524 of 2019
7. It was submitted that the appeal under Section 61, in absence of any approval of plan by the Adjudicating Authority is not maintainable.
8. It was also informed that the Competition Commission of India has also given its approval of the plan subsequently.
9. In Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors. (2019) 2 SCC 1, the Honble Supreme Court observed and held as follows:
75. What has now to be determined is whether any challenge can be made at various stages of the corporate insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage is it open to the concerned resolution applicant to challenge the Resolution Professionals rejection? It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable
76. Given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred Company Appeal (AT) (Insolvency) No. 524 of 2019 to the Adjudicating Authority at this stage. A writ petition under Article 226 filed before a High Court would also be turned down on the ground that no right, much less a fundamental right, is affected at this stage. This is also made clear by the first proviso to Section 30(4), whereby a Resolution Professional may only invite fresh resolution plans if no other resolution plan has passed muster. xxx xxx xxx
79. Take the next stage under Section 30. A Resolution Professional has presented a resolution plan to the Committee of Creditors for its approval, but the Committee of Creditors does not approve such plan after considering its feasibility and viability, as the requisite vote of not less than 66% of the voting share of the financial creditors is not obtained. As has been mentioned hereinabove, the first proviso to Section 30(4) furnishes the answer, which is that all that can happen at this stage is to require the Resolution Professional to invite a fresh resolution plan within the time limits specified where no other resolution plan is available with him. It is clear that at this stage again no application before the Adjudicating Company Appeal (AT) (Insolvency) No. 524 of 2019 Authority could be entertained as there is no vested right or fundamental right in the resolution applicant to have its resolution plan approved, and as no adjudication has yet taken place.
81. If, on the other hand, a resolution plan has been approved by the Committee of Creditors, and has passed muster before the Adjudicating Authority, this determination can be challenged before the Appellate Authority under Section 61, and may further be challenged before the Supreme Court under Section 62, if there is a question of law arising out of such order, within the time specified in Section 62. Section 64 also makes it clear that the timelines that are to be adhered to by the NCLT and NCLAT are of great importance, and that reasons must be recorded by either the NCLT or NCLAT if the matter is not disposed of within the time limit specified. Section 60(5), when it speaks of the NCLT having jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person, does not invest the NCLT with the jurisdiction to interfere at an applicants behest at a stage before the quasi- judicial determination made by the Adjudicating Authority. The non-obstante clause in Section Company Appeal (AT) (Insolvency) No. 524 of 2019 60(5) is designed for a different purpose: to ensure that the NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings.
10. It is clear and apparent from the aforesaid judgment that the Appellant has no vested right to challenge the decision of the Committee of Creditors which rejected its Resolution Plan and approve another resolution plan which is under consideration of the Adjudicating Authority.
11. Section 5 of the Competition Act, 2002 is limited to the enterprises and the matter of merger, amalgamation and acquisition, if it comes within threshold of value of assets, as mentioned therein, which reads as follows:
5. Combination. The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises, if (a) any acquisition where
(i) the parties to the acquisition, being the acquirer and the enterprise, Company Appeal (AT) (Insolvency) No. 524 of 2019 whose control, shares, voting rights or assets have been acquired or are being acquired jointly have, (A) either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) [in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) the group, to which the enterprise whose control, shares, assets or voting rights have been acquired or are being acquired, would belong after the acquisition, jointly have or would jointly have, Company Appeal (AT) (Insolvency) No. 524 of 2019 (A) either in India, the assets of the value of more than rupees four thou sand crores or turnover more than rupees twelve thousand crores; or (B) [in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or] (b) acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, if
(i) the enterprise over which control has been acquired along with the enterprise over which the acquirer Company Appeal (AT) (Insolvency) No. 524 of 2019 already has direct or indirect control jointly have, (A) either in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) [in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) the group, to which enterprise whose control has been acquired, or is being acquired, would belong after the acquisition, jointly have or would jointly have, (A) either in India, the assets of the value of more than rupees Company Appeal (AT) (Insolvency) No. 524 of 2019 four thou sand crores or turnover more than rupees twelve thousand crores or (B) [in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in India, or turnover more than six billion US dollars, including at least rupees fifteen hundred crores in India; or] (c) any merger or amalgamation in which
(i) the enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, have, (A) either in India, the assets of the value of more than rupees one thou sand crores or turnover more than rupees three thousand crores; or (B) [in India or outside India, in aggregate, the assets of the Company Appeal (AT) (Insolvency) No. 524 of 2019 value of more than five hundred million US dollars, including at least rupees five hundred crores in India, or turnover more than fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
(ii) the group, to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would have, (A) either in India, the assets of the value of more than rupees four-thou sand crores or turnover more than rupees twelve thousand crores; or (B) [in India or outside India, in aggregate, the assets of the value of more than two billion US dollars, including at least rupees five hundred crores in Company Appeal (AT) (Insolvency) No. 524 of 2019 India, or turnover more than six billion US dollars, including at least rupees Fifteen Hundred Crores in India Explanation. For the purposes of this section, (a) control includes controlling the affairs or management by
(i) one or more enterprises, either jointly or singly, over another enterprise or group;
(ii) one or more groups, either jointly or singly, over another group or enterprise; (b) group means two or more enterprises which, directly or indirectly, are in a position to
(i) exercise twenty-six per cent or more of the voting rights in the other enterprise; or
(ii) appoint more than fifty per cent of the members of the board of directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise; (c) the value of assets shall be determined by taking the book value of the assets as shown, in the audited books of account of the enterprise, in the financial year immediately preceding the Company Appeal (AT) (Insolvency) No. 524 of 2019 financial year in which the date of proposed merger falls, as reduced by any depreciation, and the value of assets shall include the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout- design or similar other commercial rights, if any, referred to in sub-section (5) of section 3.
12. From the said provision, it is clear that in all such combinations which do not come within the meaning of Section 5 of the Competition Act, 2002, there is no need of obtaining any approval of the Competition Commission of India under Section 6(2) by issuing notice on it.
13. As per Section 54 of the Competition Act, 2002, the power of the Central Government to exempt by notification from the application of the Act including Section 6(2). In fact, the Central Government from its Ministry of Corporate Affairs by Notification dated 27th March, 2017, in exercise of the powers conferred by clause (a) of Section 54 of the Competition Act, 2002, in public interest exempted number of enterprises, from any acquisition referred to in clause (a) of Section 5 of the Competition Act, 2002, as extracted below: Company Appeal (AT) (Insolvency) No. 524 of 2019
14. In the present case, we are not deciding such issue as to whether the 3rd Respondent- Royale Partners Investment Fund Limited whose plan has been approved by the Committee of Creditors can claim that it does no come within the meaning of Section 5 or can take advantage of exemption under Section 54, as notified, on 27th March, 2017.
15. We have noticed and hold that proviso to sub-section (4) of Section
31 of the I&B Code which relates to obtaining the approval from the Competition Commission of India under the Competition Act, 2002 prior to the approval of such Resolution Plan by the Committee of Creditors, is directory and not mandatory. It is always open to the Committee of Creditors, which looks into viability, feasibility and commercial aspect of Company Appeal (AT) (Insolvency) No. 524 of 2019 a Resolution Plan to approve the Resolution Plan subject to such approval by Commission, which may be obtained prior to approval of the plan by the Adjudicating Authority under Section 31 of the I&B Code. In present matter already approval of the Competition Commission of India has been taken to the Resolution Plan.
16. For the reasons aforesaid and in view of the decision of the Honble Supreme Court, we dismiss the appeal being not maintainable. The Appellant has no vested fundamental right to challenge the plan approved by the Committee of Creditors. In absence of any merit, the appeal is dismissed. No costs. [Justice S.J. Mukhopadhaya] Chairperson [Justice A.I.S. Cheema] Member (Judicial) [Kanthi Narahari] Member (Technical) NEW DELHI 16th December, 2019
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