M. K. RAJAGOPALAN v. DR. PERIASAMY PALANI GOUNDER & ANR.

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(5) The resolution applicant may attend the meeting of the A committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. B (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority. Section 31. Approval of resolution plan.- C (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub- section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 58 [including the Central D Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan: E 59 [Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.] (2) Where the Adjudicating Authority is satisfied that the resolution F plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),— (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and G

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A (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. 60 [(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.] Section 32. Appeal. -Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61. Section 61. Appeals and Appellate Authority.-(1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely: G (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force;

60 H Ins. by Act 26 of 2018, sec. 24(b) (w.r.e.f. 6-6-2018).

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(ii) there has been material irregularity in exercise of the powers A by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; B (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. C [61(4) An appeal against a liquidation order passed under section 33, or sub-section (4) of section 54L, or sub-section (4) of section 54N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order. (5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O, may be filed on grounds of material irregularity or fraud committed in relation to such an order.] Section 238. Provisions of this Code to override other laws.- The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” 38.2. We may also take note of regulations in the CIRP Regulations as are relevant to the facts of the present case as follows: - F 62 [27. Appointment of Professionals.- (1) The resolution professional shall, within seven days of his appointment but not later than forty-seventh day from the insolvency commencement 61 Subs. by Act 26 of 2021, sec. 9, for sub-section (4) (w.r.e.f. 4-4-2021). Sub-section (4) before substitution, stood as under: G “(4) An appeal against a liquidation order passed under section 33 may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.” 62 Substituted by Notification No. IBBI/2021-22/GN/REG075, dated 14th July, 2021, for regulation 27 (w.e.f. 14-7-2021). Earlier regulation 27 was substituted by Notification No. IBBI/2017-18/GN/REG024, dated 6 th February, 2018 (w.e.f. 6-2-2018) and amended H

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A date, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35. (2) The interim resolution professional or the resolution professional, as the case may be, may appoint any professional, in B addition to registered valuers under sub-regulation (1), to assist him in discharge of his duties in conduct of the corporate insolvency resolution process, if he is of the opinion that the services of such professional are required and such services are not available with the corporate debtor. C (3) The interim resolution professional or the resolution professional, as the case may be, shall appoint a professional under this regulation on an arm’s length basis following an objective and transparent process: Provided that the following persons shall not be appointed, namely: D - (a) a relative of the resolution professional; (b) a related party of the corporate debtor; (c) an auditor of the corporate debtor at any time during the period of five years preceding the insolvency commencement date; E (d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director.

by Notification No. IBBI/2018-19/GN/REG031, dated 3 rd July, 2018 (w.e.f. 4-7-2018). F Regulation 27 before substitution, stood as under: “27. Appointment of registered valuers.-The resolution professional shall within seven days of his appointment, but not later than forty-seventh day from the insolvency commencement date appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 35: Provided that the following persons shall not be appointed as registered valuers, namely: (a) a relative of the resolution professional; (b) a related party of the corporate debtor; (c) an auditor of the corporate debtor to any time during the five years preceding the insolvency commencement date; or (d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director”.

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(4) The invoice for fee and other expenses incurred by a A professional appointed under this regulation shall be raised in the name of the professional and be paid directly into the bank account of such professional.] 63 [30A. Withdrawal of application. - (1) An application for withdrawal under section 12A may be made to the Adjudicating B Authority – (a) before the constitution of the committee, by the applicant through the interim resolution professional; (b) after the constitution of the committee, by the applicant through the interim resolution professional or the resolution professional, C as the case may be: Provided that where the application is made under clause (b) after the issue of invitation for expression of interest under regulation 36A, the applicant shall state the reasons justifying withdrawal after issue of such invitation. D (2) The application under sub-regulation (1) shall be made in Form- FA of the Schedule accompanied by a bank guarantee- (a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date E of filing of the application under clause (a) of sub-regulation (1); or (b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of sub-regulation (1). F (3) Where an application for withdrawal is under clause (a) of sub-regulation (1), the interim resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt. (4) Where an application for withdrawal is under clause (b) of G sub-regulation (1), the committee shall consider the application, within seven days of its receipt.

63 Subs. by Notification No. IBBI/2019-20/GN/REG048, dated 25 th July, 2019 for regulation 30A (w.e.f. 25-7-2019). H

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A (5) Where the application referred to in sub-regulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval. B (6) The Adjudicating Authority may, by order, approve the application submitted under sub-regulation (3) or (5). (7) Where the application is approved under sub-regulation (6), the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of sub-regulation (2) till the date of approval by the Adjudicating Authority, as determined by the interim resolution professional or resolution professional, as the case may be, within three days of such approval, in the bank account of the corporate debtor, failing which the bank guarantee received under sub-regulation (2) shall be invoked, without prejudice to any other action permissible against the applicant under the Code.] 64 [35. Fair value and Liquidation value.- (1) Fair value and liquidation value shall be determined in the following manner:- (a) the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;

F (b) if in the opinion of the resolution professional, the two estimates of a value are significantly different, he may appoint another registered valuer who shall submit an estimate of the value computed in the same manner; and (c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may G be. (2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide 64 Subs. by Notification No. IBBI/2017-18/GN/REG024, dated 6 th February, 2018, for Regulation 35 (w.e.f. 6-2-2018). H

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the fair value and the liquidation value to every member of the A committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub- B section (2) of section 29. (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value.” 65 [36A. Invitation for expression of interest.- (1) The resolution professional shall publish brief particulars of the invitation C for expression of interest in Form G of the Schedule at the earliest, not later than seventy-fifth day from the insolvency commencement date, from interested and eligible prospective resolution applicants to submit resolution plans. (2) The resolution professional shall publish Form G- D (i) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the resolution professional, the corporate debtor conducts material business operations; E (ii) on the website, if any, of the corporate debtor; (iii) on the website, if any, designated by the Board for the purpose; and (iv) in any other manner as may be decided by the committee. F (3) The Form G in the Schedule shall - (a) state where the detailed invitation for expression of interest can be downloaded or obtained from, as the case may be; and (b) provide the last date for submission of expression of interest which shall not be less than fifteen days from the date of issue of G detailed invitation. (4) The detailed invitation referred to in sub-regulation (3) shall- 65 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, for regulation 36A (w.e.f. 4-7-2018). H

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A (a) specify the criteria for prospective resolution applicants, as approved by the committee in accordance with clause (h) of sub- section (2) of section 25; (b) state the ineligibility norms under section 29A to the extent applicable for prospective resolution applicants; B (c) provide such basic information about the corporate debtor as may be required by a prospective resolution applicant for expression of interest; and (d) not require payment of any fee or any non-refundable deposit for submission of expression of interest. C 66 [(4A) Any modification in the invitation for expression of interest may be made in the manner as the initial invitation for expression of interest was made: Provided that such modification shall not be made more than once.] D (5) A prospective resolution applicant, who meet the requirements of the invitation for expression of interest, may submit expression of interest within the time specified in the invitation under clause (b) of sub-regulation (3). (6) The expression of interest received after the time specified in the invitation under clause (b) of sub-regulation (3) shall be rejected. (7) An expression of interest shall be unconditional and be accompanied by- (a) an undertaking by the prospective resolution applicant that it meets the criteria specified by the committee under clause (h) of sub-section (2) of section 25; (b) relevant records in evidence of meeting the criteria under clause (a);

G (c) an undertaking by the prospective resolution applicant that it does not suffer from any ineligibility under section 29A to the extent applicable;

66 Ins. by Notification No. IBBI/2021-22/GN/REG078, dated 30th September, 2021 H (w.e.f. 30-9-2021).

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(d) relevant information and records to enable an assessment of A ineligibility under clause (c); (e) an undertaking by the prospective resolution applicant that it shall intimate the resolution professional forthwith if it becomes ineligible at any time during the corporate insolvency resolution process; B (f) an undertaking by the prospective resolution applicant that every information and records provided in expression of interest is true and correct and discovery of any false information or record at any time will render the applicant ineligible to submit resolution plan, forfeit any refundable deposit, and attract penal action under the Code; and (g) an undertaking by the prospective resolution applicant to the effect that it shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29. (8) The resolution professional shall conduct due diligence based on the material on record in order to satisfy that the prospective resolution applicant complies with- (a) the provisions of clause (h) of sub-section (2) of section 25; E (b) the applicable provisions of section 29A, and (c) other requirements, as specified in the invitation for expression of interest. (9) The resolution professional may seek any clarification or additional information or document from the prospective resolution applicant for conducting due diligence under sub-regulation (8). (10) The resolution professional shall issue a provisional list of eligible prospective resolution applicants within ten days of the last date for submission of expression of interest to the committee and to all prospective resolution applicants who submitted the expression of interest. (11) Any objection to inclusion or exclusion of a prospective resolution applicant in the provisional list referred to in sub- H

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A regulation (10) may be made with supporting documents within five days from the date of issue of the provisional list. (12) On considering the objections received under sub-regulation (11), the resolution professional shall issue the final list of prospective resolution applicants within ten days of the last date B for receipt of objections to the committee.] 67 [37. Resolution Plan.- A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following: - C (a) transfer of all or part of the assets of the corporate debtor to one or more persons; (b) sale of all or part of the assets whether subject to any security interest or not; 68 D [(ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger;] (c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons; 69 E [(ca) cancellation or delisting of any shares of the corporate debtor, if applicable;] (d) satisfaction or modification of any security interest; (e) curing or waiving of any breach of the terms of any debt due from the corporate debtor; F (f) reduction in the amount payable to the creditors; (g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporate G debtor; 67 Subs. Notification No. IBBI/2017-18/GN/REG024, dated 6th February, 2018, for regulation 37 (w.e.f. 06.02.2018). 68 Ins. by Notification No. IBBI/2019-20/GN/REG052, dated 27th November, 2019 (w.e.f. 28-11-2019). 69 Ins. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 4- H 7-2018).

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(i) issuance of securities of the corporate debtor, for cash, property, A securities, or in exchange for claims or interests, or other appropriate purpose; (j) change in portfolio of goods or services produced or rendered by the corporate debtor; (k) change in technology used by the corporate debtor; and B

(l) obtaining necessary approvals from the Central and State Governments and other authorities.] 70

38. Mandatory contents of the resolution plan.- [(1) The amount payable under a resolution plan – C (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub- section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.] 71 [(1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.] 72 [(1B) A resolution plan shall include a statement giving details if the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other resolution plan approved by the Adjudicating Authority at any time in the past.] (2) A resolution plan shall provide: F

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73 A [(d) provides for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed: B Provided that this clause shall not apply to any resolution plan that has been submitted to the Adjudicating Authority under sub-section (6) of section 30 on or before the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) C Regulations, 2022.] 74 [(3) A resolution plan shall demonstrate that – (a) it addresses the cause of default; (b) it is feasible and viable; D (c) it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline for the same; and (e) the resolution applicant has the capability to implement the resolution plan.]

39Copy pinpoint39. Approval of resolution plan.- 75[(1) A prospective resolution applicant in the final list may submit resolution plan or plans prepared in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with - (a) an affidavit stating that it is eligible under section 29A to submit resolution plans; 76 [***] 73 G Ins. by Notification No. IBBI/2022-23/GN/REG084, dated 14th June, 2022 (w.e.f. 14-06-2022). 74 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, for sub-regulation (3) (w.e.f. 4-7-2018). 75 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, for sub-regulation (1) (w.e.f. 4-7-2018). 76 Clause (b) omitted by Notification No. IBBI/2018-19/GN/REG032, dated 5th October, H 2018 (w.e.f.5-10-2018).

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A (d) fraudulent transactions under section 66, and the orders, if any, of the adjudicating authority in respect of such transactions.] 79 [(3) The committee shall- (a) evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix; B (b) record its deliberations on the feasibility and viability of each resolution plan; and (c) vote on all such resolution plans simultaneously. (3A) Where only one resolution plan is put to vote, it shall be C considered approved if it receives requisite votes. (3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the highest votes, but not less than requisite votes, shall be considered as approved: D Provided that where two or more resolution plans receive equal votes, but not less than requisite votes, the committee shall approve any one of them, as per the tie-breaker formula announced before voting: Provided further that where none of the resolution plans receives E requisite votes, the committee shall again vote on the resolution plan that received the highest votes, subject to the timelines under the Code. *** *** ***] 80 F [(4) The resolution professional shall endeavour to submit the resolution plan approved by the committee to the Adjudicating 79 Subs. by Notification No. IBBI/2020-21/GN/REG064, dated 7th August, 2020, for sub-regulation (3) (w.e.f. 7-8-2020). Prior to this substitution, Regulation 39(3) stood as under: “(3) The committee shall evaluate the resolution plans received under sub- G regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit: Provided that the committee shall record its deliberations on the feasibility and viability of the resolution plans. (3A) The committee shall, while approving the resolution plan under sub- section (4) of section (30), specify the amounts payable from resources under the resolution plan for the purposesunder sub-regulation (1) of regulation 38.” H 80 Subs. by Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018, for sub-regulation (4) (w.e.f. 4-7-2018).

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A approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan. 84 [(9) A creditor, who is aggrieved by non-implementation of a B resolution plan approved under sub-section (1) of section 31, may apply to the Adjudicating Authority for directions.] 38.3. We may further take note of Section 88 of the Trusts Act which essentially provides for nullifying the pecuniary advantage if gained by a fiduciary and ordains that where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage; or where the person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby the fiduciary gains for himself a pecuniary advantage, he would hold the advantage so gained for the benefit of such other person. Section 88 of the Trusts Act with a few of its illustrations read as under: - “Section 88. Advantage gained by fiduciary.—Where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained. Illustrations (a) A, an executor, buys, at an under-value from B, a legatee, his claim under the will. B is ignorant of the value of the bequest. A G must hold for the benefit of B the difference between the price and value.

84 Ins. by Notification No. IBBI/2019-20/GN/REG040, dated 24th January, 2019 (w.e.f. H 24-1-2019).

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(b) A, a trustee, uses the trust-property for the purpose of his A own business. A holds for the benefit of his beneficiary the profits arising from such user. (c) A, a trustee, retires from his trust in consideration of his successor paying him a sum of money. A holds such money for the benefit of his beneficiary. B (d) A, a partner, buys land in his own name with funds belonging to the partnership. A holds such land for the benefit of the partnership. *** *** ***” C 38.4. Apart from the above, we may also refer to Section 164 of the Companies Act which sets forth various disqualifications for appointment of directors. It also provides that if a person fails to repay deposits accepted by the company of which he is a director, and failure to repay the due amount has continued for one year or more, he shall not be eligible for reappointment as director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. Moreover, in view of the submissions made, a reference to Section 166(4) of the Companies Act shall also be apposite. The relevant parts of the aforementioned provisions would read as under:- “Section 164. Disqualifications for appointment of director.— *** *** *** (2) No person who is or has been a director of a company which— (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

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85 A [Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), we shall not incur the disqualification for a period of six months from the date of his appointment.] *** *** *** B “Section 166. Duties of directors.— *** *** *** (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. *** *** *** Objectives and scheme of IBC: crucial role-players:

39. For dealing with the questions involved, at the outset, a brief reference to the scheme of the Code, as noticed from its Preamble and as exposited by this Court need to be taken note of. The Preamble of the Code reads as under: - “An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.” 39.1. In the case of Swiss Ribbons (supra), this Court traversed through the historical background and scheme of the Code in sufficient detail and while pointing out that the Code was a beneficial legislation to put the corporate debtor on its feet and not a mere recovery legislation for the creditors, said as under: - “27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate 85 Ins. by Act 1 of 2018, sec. 52(i) [w.e.f. 7-5-2018, vide S.O. 1833(E), dated 7th May, H 2018].

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debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme—workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar F Gupta & Ors: (2019) 2 SCC 1] at para 83, fn 3)

28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which G puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution H

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A process is not adversarial to the corporate debtor but, in fact, protective of its interests…..” (emphasis in bold supplied) 39.2. As regards to the process of insolvency resolution, while dealing with various provisions of Chapter II of Part II of the Code, this B Court in the case of Essar Steel (supra) summed up the key role of resolution professional in the following terms: - “48. The detailed provisions that have been stated hereinabove make it clear that the resolution professional is a person who is not only to manage the affairs of the corporate debtor as a going concern from the stage of admission of an application under Sections 7, 9 or 10 of the Code till a resolution plan is approved by the Adjudicating Authority, but is also a key person who is to appoint and convene meetings of the Committee of Creditors, so that they may decide upon resolution plans that are submitted in accordance with the detailed information given to resolution applicants by the resolution professional. Another very important function of the resolution professional is to collect, collate and finally admit claims of all creditors, which must then be examined for payment, in full or in part or not at all, by the resolution applicant and be finally negotiated and decided by the Committee of Creditors.” E 39.3. In the case of Jaypee Kensington (supra), after taking note of the roles and duties of the resolution professional and the resolution applicant, this Court underscored the crucial role of committee of creditors in the entire CIRP with reference to several past decisions. Rather than any other discussion, we deem it appropriate to reproduce the relevant passages therein as under: - “Committee of Creditors: the protagonist of CIRP

97. While in their representative roles, the resolution professional and the resolution applicant are duty-bound to ensure that the resolution plan is prepared in conformity with the requirements of the Code and the CIRP Regulations and is properly presented for consideration, the central role in taking the decision as to whether a resolution plan be adopted or not, in the same form as presented to it or in a modified form; and as to whether the attempt for revival of corporate debtor be made or not, ultimately rests with the pivotal body, comprising of the financial creditors of the

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corporate debtor and termed as “Committee of Creditors”. As A noticed from the provisions above quoted, the final decision on a resolution plan is taken by the Committee of Creditors; and, for approval, a resolution plan is required to be voted in favour by not less than 66% of the voting share of the financial creditors, as per Section 30(4) of the Code. It is also relevant to point out that B though the resolution professional is to run the business of the corporate debtor as a going concern during the corporate insolvency resolution process but, as per Section 28(3) of the Code, he cannot take certain decisions relating to the management of the corporate debtor without prior approval of the Committee of Creditors by a vote of at least 66% of the voting shares86. C 97.1. It is, therefore, evident that corporate insolvency resolution, with approval of the plan of resolution, is ultimately in the exclusive domain of the Committee of Creditors. Even during the resolution process, major decisions as regards management and finances of the corporate debtor are in the control of the Committee of D Creditors. As per the composition delineated in Section 21 of the Code, the Committee of Creditors is comprised of all financial creditors of the corporate debtor; and the frame of Section 21 puts it beyond doubt that the voting share of each financial creditor is determined on the basis of financial debt owed to it. It is also clear from Section 30(4) as also Section 28(3) that the major decisions of approval are to be taken by the Committee of Creditors by a vote of at least 66% of the voting share of the financial creditors and not by a simple majority. The reasons and purpose for assigning such a unique and decisive role in corporate insolvency resolution to the Committee of Creditors and for that matter, to a substantial block of not less than 2/3rd of voting share of the financial creditors, were extensively delineated in the report of the Bankruptcy Law Reforms Committee of November 2015 while remarking on the essential theme that the “appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it”. G

97.2. In K. Sashidhar, while setting out the relevant extracts from the said Report, this Court exposited on the primacy of the

86 Ins. by Act 1 of 2018, sec. 52(i) [w.e.f. 7-5-2018, vide S.O. 1833(E), dated 7 th May, 2018]. H

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A commercial wisdom of the Committee of Creditors in the corporate insolvency resolution process in the following terms: (SCC pp. 183-84, paras 52-53) “52. As aforesaid, upon receipt of a “rejected” resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of the Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of E CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. 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. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in 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 financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable. H

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53. In the report of the Bankruptcy Law Reforms Committee A of November 2015, primacy has been given to CoC to evaluate the various possibilities and make a decision. It has been observed thus: “The key economic question in the bankruptcy process When a firm (referred to as the corporate debtor in the draft B law) defaults, the question arises about what is to be done. Many possibilities can be envisioned. One possibility is to take the firm into liquidation. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value. Another C possibility is to sell the firm as a going concern and use the proceeds to pay creditors. Many hybrid structures of these broad categories can be envisioned. The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision : D a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, laws in India have brought arms of the Government (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. E The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it. (emphasis in bold supplied; emphasis in italics is in original) 97.3. In Essar Steel, a three-Judge Bench of this Court surveyed almost all the relevant provisions concerning corporate insolvency resolution process; and, as noticed above, explained the assignments of different role players in this process. In that context, this Court again explained the primacy endowed on the commercial wisdom of the Committee of Creditors and reasons therefor, with a further detailed reference to the aforesaid report of the Bankruptcy Law Reforms Committee of November 2015. Apart from the passage from the said report that was noticed in K. Sashidhar (reproduced hereinabove), the Court noticed various other passages from this report in Essar Steel; and one part thereof, which further underscores the rationale for only H

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A financial creditors handling the process of resolution, could be usefully reproduced as under (part of para 56 at pp. 578-79 of SCC): “56. … 5.3.1. Steps at the start of the IRP *** B

4. Creation of the creditors committee The creditors committee will have the power to decide the final solution by majority vote in the negotiations. The majority vote requires more than or equal to 75% of the creditors committee by weight of the total financial liabilities. The majority vote will also involve a cram down option on any dissenting creditors once the majority vote is obtained. … The Committee deliberated on who should be on the creditors committee, given the power of the creditors committee to ultimately keep the entity as a going concern or liquidate it. The Committee reasoned that members of the creditors committee have to be creditors both with the capability to assess viability, as well as to be willing to modify terms of existing liabilities in negotiations. Typically, operational creditors are neither able to decide on matters regarding the insolvency of the entity, nor willing to take the risk of postponing payments for better future prospects for the entity. The Committee concluded that, for the process to be rapid and efficient, the Code will provide that the creditors committee should be restricted to only the financial creditors.” (emphasis in italics is in original) 97.4. In Essar Steel, the Court referred to the above-quoted and other passages from the judgment in K. Sashidhar (supra) and explained the decisive role of the commercial wisdom of the G Committee of Creditors, inter alia, in the following passages: “54. Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code H and the Regulations outline in detail the importance of

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setting up of such Committee, and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion. … *** *** ***

59. Even though it is the resolution professional who is to run the business of the corporate debtor as a going concern during the intermediate period, yet, such resolution professional cannot take certain decisions relating to management of the corporate debtor without the prior approval of at least 66% of the votes of the Committee of Creditors. …

60. Thus, it is clear that since corporate resolution is ultimately in the hands of the majority vote of the Committee of Creditors, nothing can be done qua the management of the corporate debtor by the resolution professional which impacts major decisions to be made in the interregnum between the taking over of management of the corporate debtor and corporate resolution by the acceptance of a resolution plan by the requisite majority of the Committee of Creditors. Most importantly, under Section 30(4), the Committee of Creditors may approve a resolution plan by a vote of not less than 66% of the voting share of the financial creditors, after considering its feasibility and viability, and various other requirements as may be prescribed by the Regulations. *** *** *** F

64. Thus, what is left to the majority decision of the Committee of Creditors is the “feasibility and viability” of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity G dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential H

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A element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.” (emphasis in bold supplied) 97.5. In Maharashtra Seamless Ltd. (supra), again, a three-Judge Bench of this Court referred extensively to the enunciations in Essar Steel and reiterated the primacy assigned to the commercial wisdom of the Committee of Creditors in the matter of corporate insolvency resolution.

98. For what has been noticed hereinabove, it would not be an exaggeration in terms that, in corporate insolvency resolution process, the role of Committee of Creditors is akin to that of a protagonist, giving finality to the process (subject, of course, to approval by the adjudicating authority), who takes the key decisions in its commercial wisdom and also takes the consequences thereof. As noticed, the process is aimed at bringing the corporate debtor back on its feet and it is acknowledged that appropriate disposition of a defaulting corporate debtor and the choice of solution, to keep the corporate debtor as a going concern or to liquidate it, is to be made by the financial creditors, who could assess the viability and may take decisions in modification of the terms of the existing liabilities. In other words, the decision as to whether the corporate debtor be resurrected or not, by acceptance of a particular resolution plan, is essentially a business decision and hence, is left to the committee consisting of the financial creditors, that is, the Committee of Creditors but, with the requirement that the resolution plan, for its approval, ought to muster not less than 66% H votes of the voting share of the financial creditors.”

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40Copy pinpoint40. Keeping the aforesaid principles and the relevant statutory provisions in view, we may take up the points arising for determination in this case. Point A – Valuation: Regulations 27 and 35

41Copy pinpoint41. The Appellate Tribunal has laid great emphasis on the point that commercial wisdom of CoC was materially affected for want of existence of a valid and actual valuation report and sharing of all the relevant facts pertaining to the valuation with the members of CoC leading to violation of Regulations 27 and 35 of the CIRP Regulations. We are unable to agree. 41.1.It has rightly been contended on behalf of the appellants that the members of CoC were provided with fair value and liquidation value after obtaining a confidentiality undertaking. We have reproduced hereinbefore all the material parts of the minutes of the meetings of CoC and it is at once clear that the members of CoC were fully satisfied with and endorsed the process of valuation and even re-evaluation as undertaken by the resolution professional. Particularly, the minutes of second, fourth, sixth and seventh CoC meetings stand testimony to the fact that the requirements of Regulation were scrupulously followed and complied with and there had not been any doubt in CoC as regards the process of valuation as also supplying of fair and liquidation value to the members of CoC. The detailed findings of the Adjudicating Authority E in this regard (reproduced in paragraph 15.1.1. hereinabove) make it clear that the Adjudicating Authority independently applied its mind to the process of valuation and presentation of the matter to CoC. Rejection of all the objections in that regard by the NCLT, called for no interference. 41.2. The Appellate Tribunal appears to have unnecessarily and rather unjustifiably presumed that there had been blatant statutory violations and irregularities. Even if certain issues were raised in some of the meetings of CoC as regards the process of valuation, the clarifications from the resolution professional and the steps taken by him for valuation and re-valuation had been to the satisfaction of CoC. It has rightly been contended on behalf of the appellants with reference to the decision in Maharashtra Seamless (supra) that resolution plan is not required to match the liquidation value as such. 41.3. The findings of the Appellate Tribunal in regard to the question of valuation and thereby taking the resolution plan to be in contravention H

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A of Sections 30(2) and 61(3) of the Code cannot be approved and are required to be set aside. Point B – Publication of Form G: Regulation 36-A

42Copy pinpoint42. A long deal of discussion of the Appellate Tribunal had been diverted towards purported non-compliance of Regulation 36-A(2)(iii) B of the CIRP Regulations for want of publication of Form G on the designated website with the Appellate Tribunal assuming that want of compliance of mandatory requirements had been of material irregularity on the part of the resolution professional. The findings of the Appellate Tribunal in this regard are also difficult to be accepted. C 42.1. It has rightly been contended on behalf of the resolution professional that Form G was published in all leading newspapers on 09.08.2020 and then, IBBI was also informed about technical issues in uploading the Form on the website. The Adjudicating Authority has also rightly observed that a statutory provision regulating a matter of practice or procedure would generally be read as directory and in the present case, no prejudice has been shown by anyone as regards technical non- compliance of all the requirements of publication. It has been too far- stretched on the part of the Appellate Tribunal to observe that when CIRP was conducted during the periods of lockdown in the face of Covid-19 pandemic, most of the people avoided reading newspapers under the apprehension of Covid infection. As noticed, initially as many as 13 EOIs were received. It has also rightly been contended on behalf of the resolution professional that all the requisite steps having been reasonably taken, the process that had reached an advanced stage could not have been annulled on such technicalities. F 42.2. An argument has been advanced on behalf of the appellant- resolution applicant that this issue relating to publication of Form G was dealt with by NCLAT in the earlier order dated 05.05.2021 and that decision would operate as res judicata. In the relevant part of the said order dated 05.05.2021, the NCLAT even while dealing with the questions G raised against time enlargement granted by NCLT, took note of various features related with the CIRP in question and in that regard, also observed that it was the commercial decision of CoC not to seek extension of time for submission of resolution plans and to issue directions to the resolution professional to expedite the process on the resolution plans already submitted. The NCLAT had observed as under: - H

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“ 23. On perusal of the minutes of the CoC, it appears that the RP A apprised the CoC about the legal options available either to seek an extension of the timeline for submission of Resolution Plan or to make the decision for publication of fresh Form-G. It was the CoC’s commercial decision that “no extension of time for submission of Resolution Plan should be done and RP was directed to expedite the valuation process and check the feasibility and viability of the Resolution Plan already submitted and present the eligible Resolution Plan before the CoC for consideration.” 42.3. The NCLAT held that the aforesaid was a commercial decision of CoC not requiring interference of the Court. It has been argued on behalf of the contesting respondents that, the aforesaid decision cannot be considered res judicata for they being not the parties to the said appeals decided by NCLAT on 05.05.2021. In our view, even if principles of res judicata are as such not applied, fact of the matter remains that at the given stage, the process as undertaken by the resolution professional had been consistently approved by CoC, Adjudicating Authority and the Appellate Tribunal. Even otherwise, as observed hereinabove, there had not been any such illegality or material irregularity for which the entire process would have been considered vitiated. The findings of the Appellate Tribunal in this regard too, cannot be approved and are required to be set aside. E

Point C1 – Effect of Section 164(2)(b) Companies Act

43Copy pinpoint43. A long length of argument has been advanced by the contesting parties as regards impact of Section 164(2)(b) of the Companies Act because of the alleged default of the company named International F Aviation Academy Private Limited of which, the resolution applicant is a director. It has been argued that the said company collected share application money pending allotment and did not refund the same; and consequently, in terms of Section 164(2)(b) of the Companies Act, this default would disqualify the resolution applicant from acting as a director and thereby, would render him ineligible to submit a resolution plan. We G find it difficult to accept the submissions aforesaid and the propositions against the resolution applicant on this score. 43.1. Even if there had been any possibility of the resolution applicant incurring such a disqualification in terms of Section 164(2)(b) H

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A of the Companies Act, because of alleged default of another company, in which he is a director, to refund the share application money, the same would essentially be a matter of consideration of the registrar of companies. Unless a categorical finding was recorded in the competent forum as regards any such default and unless specific order disqualifying the resolution applicant as director because of such default came into B existence, it could not have been taken by way of any process of assumption that the appellant-resolution applicant was disqualified to act as a director and thereby, was ineligible to submit a resolution plan. It has rightly been pointed out that when DIN status of the appellant was “active compliant”, he could not have been treated as ineligible. C 43.2. Again, it has been too far-stretched on the part of the Appellate Tribunal to refer to the Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014 and then to make a declaration as if the resolution applicant was disqualified in terms of Section 164(2)(b) of the Companies Act. Although, we do not agree with the submissions D on behalf of appellant that such an issue of eligibility could not have been raised before NCLAT for the first time because the question of eligibility of the resolution applicant goes to the root of the matter but, we do agree with the other part of the submission in this regard that there is no concept of deemed disqualification under Section 164(2)(b) of the Companies Act. E 43.3. Hence, in our view, the Appellate Tribunal had not been right in holding the resolution applicant ineligible by virtue of Section 164(2)(b) of the Companies Act. Point C1 is answered accordingly. Point C2 – Effect of Section 88 Trusts Act

44Copy pinpoint44. What has been stated hereinabove in relation to the question of ineligibility of the resolution applicant in terms of Section 164(2)(b) of the Companies Act, however, does not apply in relation to the other material objection as regards Section 88 of the Trusts Act. 44.1. It is not in dispute that the trust “Sri Balaji Vidyapeeth” of G which the appellant-resolution applicant is the Managing Trustee, was one of the disqualified resolution applicants on the ground that the said entity was a charitable trust. It has been argued on behalf of the appellant that his status as Managing Trustee of the said trust does not render him ineligible while submitting the resolution plan in his individual capacity. It has also been argued that even if the trust may be disqualified, the appellant H

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cannot be disqualified because his financial capability was independent of the trust money. In our view, this part of the matter cannot be examined by a broad and generalised reference to the separate status of the two entities, i.e., the trust on one hand and the resolution applicant as an individual on the other. 44.2. Noticeable it is that the said trust was held ineligible on the ground that it was a charitable trust and cannot run a profit-making entity. The EOIs in the first place were submitted by the present appellant- resolution applicant for himself as also on behalf of the trust. The Appellate Tribunal has rightly noticed that this filing of two EOIs by the resolution applicant, one for himself and another one on behalf of the ineligible trust has a material bearing on the competence of the resolution plan of the appellant, for being directly hit by Section 88 of the Trusts Act. The Appellate Tribunal has rightly held that the applicant-Mr. M.K. Rajagopalan, being the Managing Trustee of the said trust, cannot be permitted to act as its alter ego in implementing the resolution plan to gain financial advantage for himself. By virtue of the operation and impact of Section 88 of the Trusts Act, submission of individual resolution plan by the appellant cannot be countenanced for any implementation of the said individual resolution plan would nevertheless be hit by the provisions contained in the Trusts Act. We may elaborate a little. 44.3. The suggestion on the part of the resolution applicant to assert his independent standing detached from the said ineligible applicant Sri Balaji Vidyapeeth carries its own shortcoming when examined in the context of the assertions made by him in clauses 3.5 and 3.10 of his resolution plan which have been extracted by the Appellate Tribunal and we are impelled to re-extract them for ready reference as under: - F “3.5. Sri Balaji Vidyapeeth: Mr. M.K. Rajagopalan is the founder and managing trustee of Sri Balaji Vidyapeeth……… 3.10. Financial Snapshot “The entities under the leadership of Mr. M.K. Rajagopalan have been growing rapidly while ensuring quality of service to nation and public at large…….. G There entities have achieved turnover of Rs. 417.94 Crores in FY 2016- 2017; Rs. 500.03 Crores in FY 2017-2018; Rs. 679.23 Crores in FY 2018-2019 and Rs.860.59 Crores (estimated) for FY 2019-2020. The above growth is ample testimony of the credentials of the RA as a competent business leader and his H

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A capability to manage and turn around various diverse businesses.” 44.3.1. It is thus obvious that the appellant-resolution applicant admitted his status as founder and managing trustee of said Sri Balaji Vidyapeeth and then, boldly claimed that the entities under his leadership were growing rapidly while ensuring quality of service to nation and public at large. In view of the claim made by the resolution applicant himself, coupled with the fact that in CIRP in question, two resolution plans were submitted by this appellant, one in individual capacity and another as managing director of the said trust, it is difficult to detach him from the said resolution applicant-Sri Balaji Vidyapeeth. Hence, it cannot be said that the Appellate Tribunal committed any error in observing that the appellant was attempting to act as alter ego of the said ineligible applicant (the trust); and the benefit from his own (individual’s) resolution plan cannot escape the operation of Section 88 of the Trusts Act. Even if the appellant would assert that his financial capability was independent of trust money, the fact of the matter remains that he projected the overall picture of his own profile while also relying on his status as Managing Trustee of the said trust, Sri Balaji Vidyapeeth. Thus, any pecuniary advantage gained by him under the resolution plan in question would be directly subsumed by operation of Section 88 of the Trusts Act. This would, in all practical purposes, bring about a position that what could not be done directly for the said trust was sought to be done by the appellant by way of this indirect methodology. 44.4. Although, the aspects aforesaid did not form the part of consideration of CoC but, they cannot be ignored merely with reference to the status assigned to the commercial wisdom of CoC. The principles underlying the decisions of this Court respecting the commercial wisdom of CoC cannot be over-expanded to brush aside a significant shortcoming in the decision making of CoC when it had not duly taken note of the operation of any provision of law for the time being in force. 44.5. In the given set of facts and circumstances of this case, in our view, the Appellate Tribunal has rightly held the resolution plan being in contravention of the provisions of law for the time being in force. Observations and findings of the Appellate Tribunal in paragraphs 106 to 112 of the impugned order dated 17.02.2022 (reproduced hereinabove in paragraph 19.4.2.) deserve to be and are approved.

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Point C3 – Effect of Section 166(4) Companies Act A

45Copy pinpoint45. For what has been discussed hereinabove, the submission of resolution plan by the appellant-resolution applicant was directly hit by Section 88 of the Trusts Act and could not have been approved. In this view of the matter, no other aspect appears requiring consideration as regards the question of eligibility of the resolution applicant. However, B we have formulated point C3 for determination in view of the submissions made in this case as regards another feature of ineligibility of the resolution applicant and it appears appropriate to deal with this aspect of the matter too. 45.1. The status of the appellant-resolution applicant as Managing C Director of another company MGM Healthcare Private Limited is not of any dispute. Rather, the particulars of this company and projections for taking this company forward had been stated extensively by the resolution applicant in his profile submitted with the resolution plan. As per the resolution plan, the appellant-resolution applicant had proposed to convert the Coimbatore property of the corporate debtor into a hospital. D The said MGM Healthcare Private Limited is also said to be a super- speciality hospital and the company is said to be looking forward to set- up new hospitals and aspires to be a leading hospital chain in India. 45.2. In the backdrop of the aforesaid facts, noticeable it is that Section 166(4) of the Companies Act prohibits a director of a company E from involving himself in a situation in which he may have a direct or even indirect interest that conflicts, or may possibly conflict, with the interest of the company. Given the status of the resolution applicant as Managing Director of MGM Healthcare Private Limited, his dealing with property of the corporate debtor and converting the same into a F hospital cannot be said to be having no impact on the activities of the said MGM Healthcare Private Limited. A direct conflict of interest being writ large on the face of the record, it cannot be said that the prohibition in terms of Section 166(4) does not operate and the resolution plan does not stand in contravention of any of the provisions of law for the time being in force. For this reason too, in our view, the appellant-resolution G applicant could not have been accepted as eligible applicant. Point D1 – Revision of resolution plan after approval by CoC

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46Copy pinpoint46. Even when the findings of the Appellate Tribunal as regards valuation process and non-compliance of other procedural requirements have not been approved by us, a material factor which otherwise may appear to be of another procedural requirement, has its significant bearing and cannot be ignored as mere technicality. It is concerning want of presentation of finally revised plan to the committee of creditors before B being presented to the Adjudicating Authority.

47Copy pinpoint47. As noticed hereinbefore, commercial wisdom of CoC is given such a status of primacy that the same is considered rather a matter non-justiciable in any adjudicatory process, be it by the Adjudicating Authority or even by this Court. However, the commercial wisdom of C CoC means a considered decision taken by CoC with reference to the commercial interests and the interest of revival of the corporate debtor and maximization of value of its assets. This wisdom is not a matter of rhetoric but is denoting a well-considered decision by the protagonist of CIRP i.e., CoC. As observed by this Court in K. Sashidhar (supra), the financial creditors forming CoC ‘act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision.’ This Court also observed in K. Sashidhar that ‘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.’ These observations read with the observations in Essar Steel (supra) with reference to the reasons stated in the report of Bankruptcy Law Reforms Committee of November 2015, make it clear that commercial wisdom of CoC is assigned primacy in CIRP for it represents collective business decision, which is arrived at after thorough examination of the proposed resolution plan and assessment made with involvement of experts by the body of persons who are most vitally interested in rapid and efficient decision making. It follows as a necessary corollary that to be worth its name, the commercial wisdom of CoC would come into existence and operation only when all the relevant information is available before it and is duly deliberated upon by all its members, who have direct and substantial interest in the survival of corporate debtor and in the entire CIRP.

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47.1. In light of the aforesaid position of law and its operation in A relation to the decision-making process of CoC, it needs hardly any emphasis that each and every aspect relating to the resolution plan, and more particularly its financial layout, has to be before the CoC before it could be said to have arrived at a considered decision in its commercial wisdom. B

48Copy pinpoint48. From the facts and the proceedings pertaining to the present case, as noticed in detail hereinbefore, it is but clear that in the ninth CoC meeting held on 22.01.2021, the resolution plan submitted by the appellant-resolution applicant was approved with 87.39% of the total voting share of the financial creditors present and voting. However, this approval came with a significant condition that in view of the dissent by some of the financial creditors, the plan would be sent back to the creditors for further revision so as to make it complaint with Section 30(2) of the Code which provides that the amount paid to the dissenting financial creditors will not be less than the amount paid to such creditors in accordance with Section 53 of the Code in the event of the liquidation of the corporate debtor. On 25.01.2021, the appellant-resolution applicant submitted the revised resolution plan incorporating the changes. He also submitted bank guarantee as noticed hereinbefore. However, the resolution professional did not place the revised plan in CoC meeting but directly presented it to the Adjudicating Authority for approval. This process has not been approved by the Appellate Tribunal, while observing that based on the resolution in the ninth meeting of CoC, the resolution plan was sent back for further revision and the revised plan was never presented to CoC for approval. Two major submissions in this regard by the appellant-resolution applicant are: first, that the plan had already been approved by the CoC and it was only the requirement of allocating eligible amount to the dissenting financial creditors and hence, there was no need to seek further approval of the CoC; and secondly, that in the tenth meeting, the CoC had granted the deemed post facto approval to the revised plan and not objected to any of its portions even in the later affidavits. The resolution professional would also contend that the resolution applicant was only required to provide for redistribution to ensure that dissenting financial creditors were given their share. It has also been submitted that in the modified resolution plan the allocation for the unsecured dissenting financial creditors was revised from Rs. 29 crore to Rs. 49.13 crore. H

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A 48.1. On the submissions as made, at the first blush it might appear as if revision of the plan after ninth CoC meeting had been a matter of formality and consequential to the approval already given by the CoC. However, on a close look at the scheme of IBC, this irregularity of not placing the revised plan after ninth meeting before the CoC and directly placing it before Adjudicating Authority cannot be ignored as a mere B technicality. As noticed hereinabove, each and every aspect relating to the resolution plan, and more particularly its financial layout, has to be considered by the CoC before it could be said to have arrived at a considered decision. The fact that there had been a change in financial layout in the resolution plan in question is not a matter of dispute. When C CoC applied itself and arrived at a decision in its commercial wisdom with approval by the requisite majority, it was equally the requirement that the resolution applicant would revise the plan. In terms of the minutes of the ninth CoC meeting, it is difficult to assume that the CoC had even in anticipation given an approval to the plan which was to be revised. As to what decision CoC would have taken after examination of the revised plan, pursuant to its decision in the ninth meeting, cannot be a matter of guess or assumption that it was bound to be approved. As to which aspect would have arisen for consideration of CoC after revision of the plan is again a matter of uncertainty but it cannot be said that the conditional approval in the ninth CoC meeting was to be treated as fait accompli. This, in our view, is not the true operation of the scheme of the process of corporate insolvency resolution nor could the commercial wisdom of CoC be a matter of assumption. Looking to the nature and form of decision taken by the CoC in its ninth meeting, such a conditional approval could not have been treated as a final approval. Whereafter, whatever be the revision, the plan was only to be presented to CoC and could have been presented to the Adjudicating Authority only after final approval of CoC by the requisite majority. In other words, when the modified resolution plan, even if carrying minor modification/revision was not finally approved by CoC, its presentation to the Adjudicating Authority amounts to a material irregularity and this defect cannot be cured. G 48.2. The suggestion of post facto approval of the revised resolution plan in the tenth CoC meeting has only been noted to be rejected. There is no and there cannot be any concept of post facto approval of any resolution plan by CoC which had not been placed before it prior to the filing before the Adjudicating Authority. Moreover, in the H tenth CoC meeting dated 15.06.2021, Agenda Item No. A1 only related

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to the updates of resolution professional where he, of course, stated about the plan having been revised and filed with NCLT on 04.02.2021. Such updates by resolution professional, even if taken note of by CoC, could hardly be considered as of approval by requisite majority of voting share in the CoC. In any case, prior to this meeting, the plan had already been presented to the Adjudicating Authority. That plan could not have been approved thereafter by the CoC.

49Copy pinpoint49. We would hasten to observe that the requirement of CIRP Regulations, particularly of placing the resolution plan in its final form before the CoC, has to be scrupulously complied with. No alteration or modification in the process could be countenanced. We say so for the specific reason concerning law that if the process as adopted in the present matter is approved, the very scheme of the Code and CIRP regulations would be left open-ended and would be capable of inviting arbitrariness at any level. The minor procedural aspects which we have held to be not of material bearing hereinbefore and this aspect pertaining to approval of financial resolution plan by CoC stand at entirely different footing. The irregularity in the process of approval by CoC and filing before Adjudicating Authority are not the matters of such formal nature that deviation in that regard could be ignored or condoned. As stated above, when commercial wisdom of CoC is assigned primacy, it presupposes a considered decision on the resolution plan in its final form. E

50Copy pinpoint50. For what has been discussed hereinabove, disapproval of the resolution plan by the Appellate Tribunal for want of presentation of final resolution plan before CoC remains unexceptionable and calls for no interference. Point D2 – Increase of fees of resolution professional F

51Copy pinpoint51. Though we have approved the findings of the Appellate Tribunal that the resolution plan in question, which was placed before Adjudicating Authority for approval without having been put to vote before CoC was void and non-est but, an ancillary observation of the Appellate Tribunal in correlating this material irregularity with increase of fees of resolution G professional is difficult to be accepted. 51.1. The CoC had precisely deliberated over the question of increase of fees of resolution professional and its decision in that regard could not have been correlated with any shortcoming in the process undertaken, which might have occurred for want of an erroneous H

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A assumption on the part of the resolution professional in view of the contents of minutes of ninth CoC meeting dated 22.01.2021. Though as aforesaid, when the resolution plan was to be revised so as to make provision for dissenting financial creditors, the financial outlay was going to be altered and it ought to have been placed before CoC again but, it is too far-stretched to connect this irregularity with the increase of fees of B the resolution professional. The findings and observations of the Appellate Tribunal against resolution professional in this regard deserve to be set aside. Point E – The matter concerning related party

52Copy pinpoint52. Another factor taken into consideration by the Appellate Tribunal has been in relation to the so-called discrimination in the resolution plan in relation to a related party of the corporate debtor.

53Copy pinpoint53. Learned counsel for the appellant in Civil Appeal No.1827 of 2022 has referred to several decided cases to submit that therein, even when certain dues of related parties were admitted, the resolution plans not providing for any payment to such related parties were upheld by this Court; and that the principles of non-discrimination would not be applicable to the decision of CoC. It has been argued on behalf of the resolution professional that none of the statutory requirements are of any mandate that a provision has to be made in the resolution plan for payment to the related parties. According to the learned counsel, the need is, essentially, to ensure that the plan provides for payment to financial creditors (including dissenting financial creditors) entitled to vote. Thus, the plan in question cannot be said to be standing in contravention of any mandatory requirements. Per contra, the learned counsel appearing for the related party would submit that even when related party is to be treated as a separate class in terms of the principles laid down by this Court in Phoenix ARC (supra), so as to be excluded from CoC, there is no reason that they be treated as separate class when it comes to payment of dues under the resolution plan. It is submitted that failure to provide for discharge of debt of the related party is in violation of Section 30(2)(b), G (e) and (f) of the Code. The submissions made on behalf of the related party and the observations of the Appellate Tribunal are difficult to be accepted.

54Copy pinpoint54. The lengthy discussion of Appellate Tribunal in regard to the related party (the parts whereof have been reproduced in paragraph H

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19.7 hereinabove) depict rather unsure and irreconcilable observations of the Appellate Tribunal. 54.1. After taking note of the fact that related party is prohibited to be a part of CoC and is further prohibited to be a resolution applicant or an authorized representative etc., the Appellate Tribunal has rightly observed that involvement of a related party in CIRP in any capacity was seen as giving unfair benefit to the corporate debtor; and that the statutory recognition of related party as a different class would apply even to resolution plan when CoC would decide whether in its commercial wisdom it should pay to related party at all because that would mean paying to the same persons who are behind the corporate debtor. However, thereafter the Appellate Tribunal proceeded to observe that related party was required to be equated with the promoters as equity share-holders and then, further made certain observations about discrimination between related party unsecured financial creditor and other unsecured financial creditors as also between related party operational creditor and other operational creditors. Such far-stretched observations of the Appellate D Tribunal are difficult to be reconciled with the operation of the statutory provisions. 54.2. It has rightly been argued on behalf of the appellants and had rightly been observed by the Adjudicating Authority (vide extraction in paragraph 15.4.1 hereinabove) that there was no provision in the Code E which mandates that the related party should be paid in parity with the unrelated party. So long as the provisions of Code and CIRP Regulations are met, any proposition of differential payment to different class of creditors in the resolution plan is, ultimately, subject to the commercial wisdom of CoC and no fault can be attached to the resolution plan merely for not making the provisions for related party. F

54.3. On the facts of the present case, we find no reason to discuss this matter any further when it is noticed that the promoter and erstwhile director, the contesting respondent before us, has been holding the position of Chairman of the said related party. Suffice it would be to observe for the present purpose that the Appellate Tribunal has erred in applying the G principles of non-discrimination and thereby holding against the resolution plan in question for want of provision for related party.

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A Point F – NCLAT’s findings regarding settlement offer of promoter

55Copy pinpoint55. The discussion foregoing, particularly with answers to points C2, C3 and D1 is decisive of the matter so far as approval of the resolution plan in question is concerned. As noticed, for want of eligibility of the resolution applicant and for want for approval of the finally revised resolution plan by CoC meeting, the resolution plan in question is required to be rejected and the process as adopted in seeking approval of the Adjudicating Authority is required to be disapproved. However, the other segment of consideration in this case, carrying the peculiarities of its own, relates to the settlement offer of the promoter and operation of the provisions of Section 12-A of the Code.

56Copy pinpoint56. A comprehensive look at the factual aspects and the orders previously passed in the matter make it clear that right from the inception of CIRP in question, the promoter and erstwhile director had made several attempts to invoke the operation of Section 12-A of the Code. At the very initial stage, while admitted the petition made by TFCI, the NCLT observed in its order dated 05.05.2020 that the attempts on the part of corporate debtor by way OTS settlement proposal had only been to gain time. Yet again, when the process has gone several steps ahead and when the resolution plans were being put to vote, just a day before voting, the promoter put forth yet another settlement proposal without any concrete plan and without disclosing the source of funds to complete the settlement. The CoC, after due deliberation, refused to consider the same and thereafter voted on the resolution plan in question.

57Copy pinpoint57. The Adjudicating Authority (NCLT) dealt with the matter in sufficient detail (vide paragraph 15.2 and relevant extraction therein) while noting that even the original applicant of CIRP, i.e., TFIC, was kept in dark about such a proposal. It was also noticed that even the term-sheet to support the proposal from Deutsche Bank came with a disclaimer. In the totality of facts and circumstances, the proposals as made by the promoter and erstwhile director were all of eyewash and of dilatory tactics. However, the Appellate Tribunal (NCLAT) proceeded to observe that in the ninth CoC meeting, no discussion about settlement proposal had occurred and that CoC never considered the settlement proposal submitted by the promoter and erstwhile director; and that after getting the settlement proposal, it was incumbent upon the resolution H

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professional to call the CoC meeting for consideration of such proposal. A The observations of the Appellate Tribunal cannot be said to be in conformity with the record of proceedings. 57.1. As noticed, the proposal in question was forwarded for consideration only at the eleventh hour, i.e., a day before CoC was to vote on the resolution plan in its ninth meeting. The CoC, in the said meeting, indeed, took into consideration the proposition of settlement and application for withdrawal request letter, which was circulated two hours before the meeting. The creditors with significant voting shares such as SBI and Bank of India were clear in their stand that they would stick to the agenda and would not deviate therefrom. The resolution professional had to request the representatives of the corporate debtor to allow the agenda items to go through as per the wishes of the majority of CoC and no further discussions were to be made on the letter sent to CoC. When the substantial majority of CoC was not in favour of such discussion which was proposed to be thrusted on them only a few hours before the meeting, their approach cannot be faulted at. In any case, an application for withdrawal in terms of Section 12-A of the Code could have been made only if CoC approved the proposal with 90% voting share. When the creditors with substantial voting share were against any such proposal, any consideration was clearly ruled out and there could not have been any valid application for withdrawal. E

58Copy pinpoint58. Thus, the Appellate Tribunal has erred in holding that the settlement offer of the promoter in terms of Section 12-A was not placed for consideration of CoC. Approval of resolution plan in question could not have been reversed on this count. However, as noticed hereinbefore, approval of the resolution plan in question could not have been endorsed by the Appellate Tribunal because of other substantial reasons. F

Point G – Impact and effect of subsequent events

59Copy pinpoint59. The discussion aforesaid would have been decisive of the matter but there had been several subsequent events in this matter, particularly of fresh invitation for EOI and then, approval of the settlement G offer of the promoter by the CoC in its nineteenth meeting held on 12.10.2022 by 100% majority of the voting share. Thus, the question is about the impact and effect of such subsequent events. For dealing with this question, we need to recapitulate the relevant background aspects of the case and the chronology of subsequent events. H

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60Copy pinpoint60. As noticed, in the impugned judgment and order dated 17.02.2022, the Appellate Tribunal had directed the CoC to reconsider the offer of the promoter within fifteen days from the date of its order (i.e., within fifteen days from 17.02.2022). Prior to this, twice over the propositions of such settlement offer by the promoter had been dealt with disfavourably. The relevant parts of proceedings in the ninth CoC B meeting concerning such proposal have already been noticed hereinbefore. It is noticed that after approval of the resolution plan, the promoter again submitted a settlement proposal on 08.03.2021 which was followed by a letter dated 14.07.2021 from one Saveetha Institute of Medical and Technical Sciences as proof of funding, but the said letter was subsequently withdrawn by the said Institute. The resolution plan was approved by the Adjudicating Authority on 15.07.2021, which was challenged by the promoter and the Appellate Tribunal granted stay over operation of the order dated 15.07.2021. The Appellate Tribunal, ultimately, allowed the appeal and apart from disapproving the resolution plan in question, directed the resolution professional to call for the meeting of CoC within 15 days from the date of judgment and to proceed with CIRP from the stage of publication of Form G and put the proposal of promoter before CoC for consideration. In compliance of these directions of NCLAT, eleventh CoC meeting was held on 03.03.2022 where the settlement proposal of the promoter was put to vote in the CoC; the voting continued until 25.03.2022; and ultimately, the said settlement proposal was voted against by 51.81% of the voting share.

61Copy pinpoint61. After such rejection of the settlement proposal of the promoter, as we have detailed hereinabove in paragraphs 26.1 to 26.4, proceedings continued in CoC for invitation of fresh EOI and for that purpose, CoC F even resolved to seek further time extension to the Adjudicating Authority. 61.1. On 29.09.2022, in the eighteenth CoC meeting, it was informed that seven resolution plans had been received and their evaluation was under process but, the CoC members were informed that another settlement proposal was received from the promoter on 19.09.2022. At G that stage, again, when the mandatory 330 days’ period was about to end, the CoC members unanimously voted to seek extension of CIRP timelines. Then, on 12.10.2022, the discussion on the settlement proposal of the promoter took place, it was put to vote and was approved by the CoC with 100% of the total voting powers.

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62Copy pinpoint62. The aforesaid proceedings continued with the matter remaining pending in this Court. The question is, what ought to be the way forward? At the first blush, it may appear that when the settlement proposal has now been approved by the CoC with 100% voting powers in their commercial wisdom, the process thereunder may be allowed to continue as such. However, a blanket approval by this Court at this stage is fraught with other complications.

63Copy pinpoint63. Section 12-A was introduced in the Code later and in accordance with the Insolvency Law Report, March, 2018. This provision was introduced to provide for a mechanism for withdrawal upon settlement which was missing in IBC as originally promulgated. Regulation 30-A was also introduced to the CIRP Regulations. It was further amended with effect from 25.07.2019, providing for withdrawal of CIRP even after issuance of expression of interest but, with the condition that the applicant shall state the reasons justifying withdrawal after issuance of EOI.

64Copy pinpoint64. As noticed from various events, even at the threshold stage, the NCLT noticed the settlement proposal on behalf of the corporate debtor but then, found the same to be an eyewash which was put forward only to gain time. The petition was admitted, triggering CIRP. Significantly, the settlement proposal then came up from the promoter only a day before the received resolution plans were to be put to vote, i.e., on E 21.01.2021. The CoC, even when not formerly voting on it, clearly rejected the same for the Agenda having already set for dealing with the resolution plan received from the resolution applicant. As noticed, after approval of the resolution plan, the promoter again submitted a settlement proposal but the Institute, said to be supporting the same, subsequently withdrew. After allowing of the appeal by NCLAT and in terms of those directions, the new settlement proposal was precisely put to vote and was rejected. Thereafter, fresh EOIs were invited and resolution plans were received. Significantly, the promoter moved another settlement proposal for invoking Section 12-A of the Code on 19.09.2022, only after receiving of the resolution plans from seven prospective resolution applicants. A pattern in the aforesaid dealings by the promoter is quite striking. When the resolutions plans had been received at the earlier stage, only at the eleventh hour, the settlement proposal came up. This time too, the settlement proposal came up from the promoter only after resolution plans had been received. Prior to it, his proposal had already been H

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