The National Company Law Tribunal (NCLT) rejected JSW Energy’s plea to withdraw its resolution plan for the takeover of debt-laden Ind-Barath Energy (Utkal) on grounds of deterioration of assets, saying it doesn’t have powers to terminate a plan approved by the Committee of Creditors (CoC) with big majority. At the same time, the tribunal took note of JSW Energy’s concerns over what it called the resolution professional’s negligence and the delay in grant of approval which led to asset deterioration, and advised the CoC to consider the situation in a ‘pragmatic and fair manner’.
To prevent such issues during insolvency resolution, the NCLT Hyderabad bench also urged the government to consider appointing a group of expert professionals and a government nominee collectively to act as RP for meaningful solution rather than single individuals as RPs in cases involving large companies.
The NCLT had, on August 29, 2018, admitted Bank of Baroda’s plea to initiate insolvency proceedings against Ind-Barath Energy, which owns a 700-MW under-construction thermal power plant in Odisha, and appointed Udayraj Patwardhan as its resolution professional. JSW Energy had emerged as the successful applicant after its plan involving resolution value of Rs 1,026 crore was approved by the lenders with 82.7% votes in October 2019.
However, objecting to its own resolution plan, JSW then alleged deterioration of assets of Ind-Barath to the tune of Rs 304 crore due to the RP’s negligence terming it to be a Material Adverse Change (MAC) entitling it to withdraw from the resolution process. The JSW’s said the deterioration of assets had resulted in an aggregate monetary impact of more than 10% of the total resolution value.
Refusing to allow JSW to withdraw its RP, the NCLT said that it cannot look into the issues whether the CoC-approved RP is capable of effective implementation or not or ask the CoC for re-consideration. It said that only an assessment can be made to see whether the RP incorporates provisions for its smooth implementation.
It also appointed a monitoring committee comprising one representative each from financial creditor, resolution applicant and the resolution professional to supervise the implementation of the JSW’s plan. The MC has been asked to file a status report on the implementation of the RP from time to time.
The tribunal also said that it is satisfied that the RP is in accordance with law and doesn’t contravene any of the provisions of the IBC, therefore, it shall be ‘binding’ on the corporate debtor, creditors and also the government, etc.
On the JSW’s allegations, the NCLT said that though it cannot be brushed aside, at the same time, it was incapable of going into such details. However, the tribunal said that Doctrine of Legitimate Expectation is to be applied and the CoC consisting of PSUs shall act in a manner that ‘is fair, just and reasonable’. Therefore, it is for the parties to sit across the table and take stock of the situation and in case there are lapses on the part of the RP or any party (intentional or not), the same may be evaluated, the bench said.
Without expressing any opinion on this, the tribunal said that it is ‘legitimately expected of CoC to deal with the situation in the fairest possible manner so as to enable JSW to take over and run the unit in a viable manner’.
“This shall establish as a precedent and would not discourage the corporate entities from proceeding or participating in any RP,” the NCLT said.
While JSW’s RP was awaiting approval from the NCLT, the latter had earlier rejected its plea while relying on the Supreme Court judgment in Ebix Singapore v CoC of Educomp Solutions where it was held that NCLT does not have power to permit withdrawal of the resolution plan.
The CoC contended that JSW’s RP is binding and irrevocable and the current insolvency regime does not recognise withdrawal or modification of the RP once it is approved by CoC and filed before NCLT.