Insolvency and Bankruptcy Code, 2016 – Corporate Insolvency Resolution Process – Power of Committee of creditors to approve resolution plan - On facts, resolution plans for Corporate debtor-Essar Steel India Limited – In CIRP of corporate debtor, ArcelorMittal India was successful resolution applicant – Resolution plan of ArcelorMittal specifically providing for an upfront payment of INR 35,000 crores in order to resolve debts amounting to INR 42,213 crores – Approval of final resolution plan of Arcelor Mittal by Committee of Creditors – Initiation of several proceedings – NCLT allowed the resolution plan – Challenge to, before NCLAT – NCLAT held that there can be no difference between a financial creditor and operational creditor in the matter of payment of dues; thus, NCLAT re-distributed the proceeds payable under the approved resolution plan as per the method of calculation adopted by it so that all financial creditors and operational creditors be paid 60.7% of their admitted claims; NCLAT directed that each financial creditor (whether secured or unsecured) with a claim equal to or more than INR 10 lakhs be paid 60.7% of its admitted claim irrespective of their security interest; that operational creditors with a claim of equal to or more than INR 1 crore be paid 60.268% of their admitted claims; that Committee of Creditors not empowered to decide the manner of distribution to be made between one or other creditors; that s. 53 cannot be applied during the corporate resolution process but will apply only at the stage of liquidation; and that the claims decided by the resolution professional and affirmed by the Adjudicating Authority or the Appellate Tribunal are final and binding on all creditors – On appeal, held: Order by NCLAT which substitutes its wisdom for the commercial wisdom of the Committee of Creditors and also directs the admission of a number of claims which was done by the resolution applicant, is set aside - CIRP of the corporate debtor will take place in accordance with the resolution plan of ArcelorMittal dated 23.10.2018, as amended and accepted by the Committee of Creditors on 27.03.2019, as it has provided for amounts to be paid to different classes of creditors by following s. 30(2) and Regulation 38 of the Code.

Insolvency and Bankruptcy Code, 2016 – Resolution professional – Role of, in the revival of the corporate debtor – Held: Role of resolution professional is not adjudicatory but administrative - Resolution professional manages the affairs of the corporate debtor as a going concern from the stage of admission of an application u/ss. 7, 9 or 10 - He appoints and convenes meetings of the Committee of Creditors – He collects, collates and finally admit claims of all creditors, which must then be examined for payment, by the resolution applicant and be finally negotiated and decided by the Committee of Creditors.

Prospective resolution applicant - Role of – Explained. Insolvency and Bankruptcy Code, 2016 – Committee of creditors - Role of, in the corporate resolution process – Held: Committee of Creditors decides on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan – 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 - Ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve the best resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants – Furthermore, the Committee of Creditors does not act in any fiduciary capacity to any group of creditors, on the contrary, it is to take a business decision based upon ground realities by a majority, which then binds all stakeholders, including dissentient creditors - Thus, commercial wisdom of this majority of creditors is important 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 –ss. 21, 24, 28, 29, 30 and 31.

Insolvency and Bankruptcy Code, 2016 – National Company Law Tribunal- Adjudicating Authority and National Company Law Appellate Tribunal-Appellate Tribunal under – Jurisdiction of, qua resolution approved by Committee of Creditors – Held: Adjudicating Authority’s jurisdiction is circumscribed by s. 30(2) and Appellate Tribunal’s jurisdiction is circumscribed by s. 32 rw s. 61(3) - Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of - If the Adjudicating Authority finds, on a given set of facts, that the said parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the said parameters - Reasons given by the Committee of Creditors while approving a resolution plan may be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal.

Insolvency and Bankruptcy Code, 2016 – Secured and unsecured creditors – Equality principle – Held: Secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid - Operational creditors are separately viewed from these secured and unsecured financial creditors in S.No.5 of paragraph 7 of statutory Form H - Thus, it can be seen that the Code and the Regulations, read as a whole, lead to the conclusion that the equality principle cannot be stretched to treating unequals equally, as that will destroy the very objective of the Code to resolve stressed assets - Equitable treatment is to be accorded to each creditor depending upon the class to which it belongs: secured or unsecured, financial or operational.

Insolvency and Bankruptcy Code, 2016 – s. 21(8), 28 - Constitution of a sub-committee by the Committee of Creditors – Permissibility of – Plea that the Committee of Creditors delegated its functions to a sub-committee, as a result of which, the subcommittee secretly made negotiations with ArcelorMittal – Held: Section 28(1)(h) provides that though the powers of Committee of Creditors are administrative in nature, they shall not be delegated to any other person – Power of approval of resolution plan u/s. 30(4), also cannot be delegated to any other body - However, subcommittees can be appointed for the purpose of negotiating with resolution applicants, or for performing other ministerial or administrative acts, provided such acts are in the ultimate analysis approved and ratified by the Committee of Creditors – On facts, every single administrative decision qua approving and administering the resolution plan submitted by ArcelorMittal was in fact done by the requisite majority of the Committee of Creditors itself, the sub-committee having been used only for purposes of initiating proceedings and negotiating with ArcelorMittal, which ultimately culminated in the resolution plan as finally negotiated, being passed by the requisite majority of creditors - Standard Chartered Bank voted in favour of the constitution of a subcommittee and also requested for inclusion of its name in subCommittee, however, when the Standard Chartered Bank found that things were going against it that it started raising objections on the technical plea that sub-committees cannot be constituted under the Code, thus, plea was not bonafide and is rejected.

Insolvency and Bankruptcy Code, 2016 – s. 31(1) - Extinguishment of Personal Guarantees and Undecided Claims – Held: s. 31(1) makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on all stakeholders, including guarantors – It cannot be said that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile directors of the corporate debtor – A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would lead to uncertainty regarding amounts payable by a prospective resolution applicant who successfully took over the business of the corporate debtor - All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor - Successful resolution applicant does on a fresh slate. Insolvency and Bankruptcy Code (Amendment) Act, 2019 – ss. 4 and 6 – Constitutional Validity of – Held: As regards s. 4 of the Amendment Act, it is clear that as per s. 12 of the principal Act, the Corporate Insolvency Resolution proceedings should be mandatorily completed within a period of 330 days including any extension and legal proceedings related to resolution process of corporate debtor – Further grace period of 90 days is given, failing which corporate debtor shall be sent into liquidation – While leaving the provision otherwise intact, the word “mandatorily” is struck down as being manifestly arbitrary under Article 14 of the Constitution and as being an excessive and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution – As regards, the substitution of s. 30(2)(b) by s. 6 of the Amending Act of 2019, it is constitutionally valid since the substituted s. 30(2)(b) is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable – Furthermore, Explanation 1 and 2 as also sub-clause (b) of s. 6 of the Amending Act of 2019, is constitutionally valid.