NCLAT Upholds Eligibility of NTPC As A Resolution Applicant- A new interpretation favoring Section 29A of IBC, 2016.

NCLAT Upholds Eligibility of NTPC As A Resolution Applicant- A new interpretation favoring Section 29A of IBC, 2016.

The National Company Law Appellate Tribunal ("NCLAT") while adjudicating an appeal filed in the matter of Avantha Holdings Limited and Mr. Anil Bhargava (hereinafter called “the Appellants”) v Mr. Abhilash Lal, Resolution Professional, Committee of Creditors (“CoC”) and NTPC Limited (hereinafter called “the Respondents”) has upheld the eligibility of NTPC Limited (NTPC) under Section 29A of the IBC to submit the Resolution Plan for Jhabua Power Limited.

The Avantha Holdings Limited was the Promoter and Shareholder of Avanta Power and Infrastructure Limited, which in turn holds 17.9% shares of Jhabua Power Limited. FLSmidth Private Limited had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the NCLT Kolkata ("Adjudicating Authority”), seeking initiation of CIRP against Jhabua Power Limited (“Corporate Debtor”). The Adjudicating Authority vide an order dated 27.03.2019 had initiated CIRP against the Corporate debtor and Mr. Abhilash Lal ("Respondent No. 1") was appointed as Resolution Professional.

On 03.06.2019, the Appellant had submitted a One Time Settlement ("OTS") proposal to the Resolution Professional, which was considered by CoC and was not found commercially viable. Thereafter, the Resolution Professional invited Expression of Interest ("EOI") from prospective Resolution Applicants for submission of Resolution Plan vide advertisement dated 19.08.2019.

On 22.10.2019 NTPC had submitted an affidavit certifying its eligibility under Section 29A of IBC and on 06.12.2019 informed the Resolution Professional that Ratnagiri Gas and Power Private Ltd. ("RGPPL") and Konkan LNG Private Limited ("KLL"), which were joint ventures of NTPC, have been declared Non-Performing Asset ("NPA"). In the meanwhile, the NTPC submitted various Resolution Plans for consideration of CoC and was unanimously approved by CoC with 100% voting.

On 21.12.2020, the Appellant made a proposal to the Committee of Creditors ("CoC") under Section 12A of the IBC for settlement of debt owed by the Corporate Debtor. In a meeting dated 05.03.2021 the CoC rejected the Appellant's proposal as not being economically viable.

On 16.04.2021, the NTPC submitted its revised Resolution Plan and an affidavit under Section 29A, claiming that the dues towards the lenders of KLL and RGPPL have been satisfied and lenders have provided no due certificates as on 30.03.2020 and January 2021 respectively.

On 06.06.2021, the Appellant had filed an application bearing I.A. No.537 of 2021 before the Adjudicating Authority seeking declaration that NTPC as not compliant with Section 29A of the IBC and further praying to set-aside the CoC decision's rejecting the proposal under Section 12A.

Thereafter, NTPC again submitted a revised Resolution Plan dated 14.06.2021, which was approved by the CoC with 100% votes. Subsequently, an application was filed by the Resolution Professional before the Adjudicating Authority for approval of the Resolution Plan.

The Adjudicating Authority vide an order dated 08.03.2021 rejected the I.A. No.537 of 2021 filed by the Appellant and held that the NTPC is not disqualified under Section 29A of the IBC.

The Appellant filed an appeal before the NCLAT challenging the Order dated 08.03.2021; seeking disqualification of NTPC under Section 29A of IBC; and praying to set-aside decision of the CoC rejecting the proposal of the Appellant under Section 12A of IBC

Extracts of IBC, 2016

Section 29A. Persons not eligible to be resolution applicant.

A?person?shall not be eligible to submit a?resolution plan, if such person, or any other?person?acting jointly or in concert with such person—

(c) at the time of submission of the?resolution plan?has an account?or an account of a?corporate debtor?under the management or control of such?person?or of whom such?person?is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a?financial sector regulator?issued under any other law for the time being in force,?and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the?corporate debtor:

Provided that the?person?shall be eligible to submit a?resolution plan?if such?person?makes payment of all overdue amounts with interest thereon and?charges?relating to nonperforming asset accounts before submission of?resolution plan:

Provided further that nothing in this clause shall apply to a?resolution applicant?where such applicant is a financial entity and is not a?related party?to the?corporate debtor.

Explanation I.- For the purposes of this proviso, the expression “related party” shall not include a financial entity, regulated by a?financial sector regulator, if it is a?financial creditor?of the?corporate debtor?and is a?related party?of the?corporate debtor?solely on account of conversion or substitution of?debt into equity shares or instruments convertible into equity shares?14[or completion of such transactions as may be prescribed],?insolvency commencement date.

Explanation II— For the purposes of this clause, where a?resolution applicant?has an account, or an account of a?corporate debtor?under the management or control of such?person?or of whom such?person?is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior?resolution plan?approved under this Code, then, the provisions of this clause shall not apply to such?resolution applicant?for a period of three years from the date of approval of such?resolution plan?by the?Adjudicating Authority?under this Code.

CONTENTIONS OF THE APPELLANT

The following contentions had been raised by Dr. Abhishek Manu Singhvi, Learned Senior Counsel, Appellants, categorically;

1. The eligibility of Resolution Applicant has to be there on the date of submission of Resolution Plan and the NTPC being disqualified on the date of submission of Resolution Plan i.e. 30.12.2019, all the subsequent process vitiated. The Canara Bank has classified KLL and RGPPL as NPA on 21.05.2018 with effect from 01.04.2009. Even if, the claim that RGPPL and KLL entered into OTS with lenders and no due certificates were issued, the payment having not been made by NTPC, the proviso to Section 29A(c) is not attracted. The payment of all overdue amounts has to be made by person, who is to submit the Resolution Plan and thus the ineligibility of NTPC cannot be said to have been removed by no due certificates granted by lenders in March 2020 and January2021.
2. The Code does not contemplate submission of more than one Resolution Plan. Under the scheme of the Code, no Resolution Applicant can submit four plans.
3. The CoC did not consider the proposal of settlement given by the Appellant under Section 12A with any application of mind and there is no reasonable basis for rejection of such proposal.

CONTENTIONS OF THE NTPC and CoC

Shri Ramji Srinivasan, Learned Senior Counsel refuting the submissions of Mr. Singhvi for the Appellants submitted that no disqualification attached to NTPC under Section 29A(c).

1. The Canara Bank classified RGPPL and KLL as NPA on 21.05.2018 and by that time period of one year from the date of commencement of CIRP has not elapsed. CIRP having commenced on 27.03.2019, disqualification under Section 29A(c) was not attracted. On the date on 16.04.2021, when 3rd Plan was submitted, which ultimately was considered and approved in its revised form by the CoC, NTPC was fully compliant of Section 29A. By clearing all overdues by virtue of proviso to Section 29A(c), the NTPC had become eligible.
2. The provisions of the Code contemplate for submission of vertical Plans. The use of words ‘Plans’ in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the “CIRP Regulations”) indicate that submission of more than one plan is contemplated.
3. Section 12A proposal submitted by the Appellant was duly considered by the CoC and was not accepted. The approval of the 90% of the CoC, voting is necessary for passing an order under Section 12A by the Adjudicating Authority. The CoC having never granted its approval, there was no question of withdrawal under Section 12A. The CoC submitted that the Appellant has proposed upfront payment of Rs. 200 crores in its OTS proposal, which was significantly lower than the NTPC Resolution Plan, which provided upfront payment of Rs. 905 crores. The CoC did not find the Settlement Plan submitted by the Appellant as commercially viable.

DECISION OF THE NCLAT

The NCLAT observed that Section 12A does not entitle Promoters of the Corporate Debtor to submit a One Time Settlement Plan as is claimed by the Appellant under Section 12A. The pre-condition of accepting any withdrawal Application under Section 12A is on approval by CoC by 90% of its voting shares. CoC having never granted its approval, Section 12A route was never open for withdrawal of CIRP.

Para 15

“We are of the considered opinion that Section 12A cannot be forced upon the lenders. The Promoters, who led to insolvency process of Corporate Debtor cannot claim to submit a Resolution Plan indirectly by way of proposal under Section 12A and ask the lenders to evaluate their Resolution Plan. Something which is not permissible directly by virtue of prohibition under Section 29A for submitting Resolution Plan by the Promoters, cannot be permitted to be done indirectly. Further, the commercial wisdom of the CoC, which is reflected in its Meeting dated 05.03.2021 and 21.04.2021 is not liable to be judicially reviewed."

The Bench held that the CoC had not committed any error in rejecting the Appellant's proposal under Section 12A and the Adjudicating Authority had correctly refused to interfere with CoC's decision.

With regards to NTPC's eligibility to submit Resolution Plan, the Bench observed that Section 29A(c) is plain and clear that grace period of one year has been given and if after expiry of grace period, Resolution Applicant is unable to pay the dues and the NPA continues, the Resolution Applicant becomes ineligible.

The purpose for statutory requirement that at least one year has elapsed from the date of such classification is to see that within a period of one year from classification, if the Resolution Applicant did not get away from NPA, it should be declared as NPA. But in case where the Resolution Applicant does not actually get the grace period whether by a backdate, which is of nine years ago, it can be denied the benefit of the expression statutory requirement of at least period of one year has elapsed from the date of such classification". We, thus, are of the view that date of NPA classification by the Canara bank shall be treated as 21.05.2018 and it cannot be taken as on 01.04.2009, which is the backdate, as has been given by the Canara Bank, with effect from which date NPA is declared."

The Bench observed that if contention of back dated NPA is accepted, the purpose of statutory prescription under Section 29A(c) can be defeated by the Financial Institutions by declaring NPA on particular date and making it effective from back date, so that no Resolution Applicant can take the benefit of statutory provision as provided under Section 29A(c). Therefore, the Bench considered the NPA date as 21.05.2018 and held that the period of one year had not elapsed till 27.03.2019, when CIRP commenced. Since on the date of commencement of CIRP, period of one year has not elapsed, the disqualification under Section 29A(c) shall not attach to the NTPC as a Resolution Applicant and the same is held to be eligible on 30.12.2019 and in entire process of the CIRP.

The NTPC being eligible, was entitled to submit Resolution Plan being eligible on 30.12.2019 and was also entitled to revise its Plan from time to time as per the Scheme of the IBC. The Plan having approved by 100% vote of CoC, we do not find any error in the decision of the Adjudicating Authority rejecting the application filed by the Appellant.