India: HSA | Restructuring & Insolvency Monthly Update | August 2023

IBBI (Insolvency Professionals) (Amendment) Regulations, 2023

• The Insolvency and Bankruptcy Board of India (IBBI) vide notification dated July 20, 2023 notified IBBI (Insolvency Professionals) (Amendment) Regulations, 2023 (IP Amendment Regulations).
• By way of the IP Amendment Regulations, the IBBI has inserted the word 'Post' in Regulation 5(c)(ii) before the words 'Graduate Insolvency Programme' of the IBBI (Insolvency Professionals) Regulations, 2016 (IP Regulations).
• The amended Regulation 5(c)(ii) of the IP Regulations reads as follows:

• Accordingly, an amendment has also been brought to Form A in the IP Regulations in caption 'B. Qualifications: Educational, Professional, Insolvency Examination and Pre-Registration Educational Course', in Table (iii) Insolvency Examination, in Sl. No. 2 row.
• By way of this amendment, the IBBI has sought to increase the minimum qualification required to be eligible for registration as an Insolvency Professional under the IP Regulations. In the place of the Graduate Insolvency Program, the Revised IP Regulations mandate the persons desiring to be registered as IPs to complete the Post Graduate Insolvency Program.
• With the need for more skilled and experienced insolvency professionals, this move of the IBBI comes as a necessary step to ensure that persons who are registered as IPs have the requisite skillset and expertise required to handle the up-and-coming challenges and innovative models in the insolvency sector – such as project-wise insolvency resolution and consolidated resolution of group insolvencies.

IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2023

• The Insolvency and Bankruptcy Board of India (IBBI) vide notification dated July 20, 2023 notified IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2023 (CIRP Amendment Regulations).
• By way of the CIRP Amendment Regulations, the IBBI has inserted an explanation in Regulation 31A (1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations).
• The explanation, which is to be inserted after the proviso to Regulation 31A (1), reads as follows:

• The amended Regulation 31A (1) shall come into force on the date of its publication in the Official Gazette and now reads as follows:

• By way of this amendment, the IBBI has clarified that Resolution Applicants who are a group or association of homebuyers will be exempt from the regulatory fee payable by the successful Resolution Applicants to the IBBI in cases where the realizable value in the approved Resolution Plan is more than the liquidation value of the Corporate Debtor.
• This amendment brings a necessary relief to homebuyers and homebuyer associations aiming to submit Resolution Plans for the revival of Corporate Debtors running real estate projects, by alleviating them of the burden to pay the regulatory fee, which is charged from Resolution Applicants who are corporate entities.

Anil Kumar, Suspended Director of SK Elite Industries India Ltd v. Jayesh Sanghrajaka, Resolution Professional of SK Elite Industries India Ltd

Background facts

• The Appellant, suspended Director of Corporate Debtor, SK Elite Industries, filed the present appeals under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), against the Orders dated March 06, 2023 and May 15, 2023 (Impugned Orders) passed by the National Company Law Tribunal, Mumbai Bench (NCLT).
• Vide the first Impugned Order 'dated March 06, 2023', the NCLT allowed the placing of the Resolution Plan submitted by Metro Realty Group in respect of the Corporate Debtor for the consideration of the Committee of Creditors (CoC). Vide the second Impugned Order 'dated May 15, 2023', the NCLT approved the said Resolution Plan. Being aggrieved thereby, the Appellant preferred the present appeals.
• The Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor was initiated pursuant to the admission order dated May 07, 2021 passed by the NCLT and the Respondent No. 1, i.e., Mr Jayesh Sanghrajaka was appointed as the Interim Resolution Professional (IRP). Subsequently, his appointment as the Resolution Professional (RP) of the Corporate Debtor was confirmed.
• After the issuance of Form G, in spite of granting several extensions and opportunities for revision, no viable Plan was received from any PRA. At this juncture, the RP informed the CoC that the Appellant, i.e., the Suspended Director also desired to submit a settlement proposal under Section 12A of the IBC.
• The CoC allowed the Appellant sufficient time to submit his proposal. However, even after multiple extensions, the Appellant failed to submit a viable proposal. Thus, in the absence of a viable Resolution Plan even after issuing Form G on 3 separate occasions, the RP filed an application before the NCLT seeking the initiation of liquidation process in respect of the Corporate Debtor.
• At this juncture, a fresh Resolution Plan was submitted by Metro Realty Group for the revival of the Corporate Debor. The RP filed an application seeking permission of the NCLT to place this Resolution Plan for the consideration of the CoC. Vide the first Impugned Order, the NCLT allowed this application.
• The fresh Resolution Plan was passed by the CoC with 100% votes and vide the second Impugned Order, the same was also approved by the NCLT. Aggrieved by these decisions, the Appellant approached the NCLAT.

Issues at hand?

• Whether a Resolution Plan submitted without the fresh publication of Form G can be entertained by the CoC?
• Whether the commercial wisdom of the CoC in approving such a Resolution Plan is justiciable?

Decision of the Tribunal

• The NCLAT considered the contention of the Appellant that the consideration of the Resolution Plan having been submitted without the fresh publication of Form G constituted a material irregularity. However, relying on the decision of the Supreme Court in MK Rajagopalan v. Dr. Periasamy Palani Gounder¹ , the NCLAT held that a statutory provision regulating a matter of practice is regarded to be directory, not mandatory.
• The Bench further observed that the conduct of the RP in seeking the approval of the NCLT before placing the Resolution Plan before the CoC displayed complete transparency and that even otherwise, ample opportunity had been provided to the Appellant and other PRAs to submit their Resolution Plans.
• Concurring with the findings of the NCLT, the NCLAT opined that in a situation where no other Resolution Plan had been received during the CIRP of the Corporate Debtor, considering the Resolution Plan submitted by the successful Resolution Applicant would save the Corporate Debtor from undergoing the liquidation process. The NCLAT observed that this approach was in line with maintaining the going concern status of the Corporate Debtor and ensuring the value maximization of the Corporate Debtor.
• Further, the NCLAT took note of the fact that the Resolution Plan value in the plan submitted by the SRA was much more than the liquidation value of the Corporate Debtor, and giving due consideration to all the circumstances, the NCLAT held that merely a procedural deviation such as the non-publication of Form G should not bar the Resolution Plan from being considered, or approved.
• Relying on a plethora of decisions of the Supreme Court which have settled the law on the limited scope of judicial review available to the NCLT to interfere with the commercial wisdom of the CoC, the NCLAT held that since the CoC in the present case has approved the Resolution Plan by 100% voting share after considering its feasibility and viability, such a decision of the CoC is sacrosanct and cannot to be interfered with.
• Both the appeals were thus, dismissed, as being devoid of merit.

To view the full article, click here.

Footnote

1. 2023 SCC OnLine SC 574

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.