Micro Capitals Private Limited vs Commissioner Of Income Tax

The Corporate Debtor (CD), KSS Limited (“KSSL”), was incorporated on 06.09.1995 and engaged in the business of content distribution and exhibition of feature films. Its shares are listed on the National Stock Exchange of India and Bombay Stock Exchange.

The Appellant which is a Non-Banking Financial Company registered with the Reserve Bank of India, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) before the Adjudicating Authority seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. The Adjudicating Authority vide order dated 24.01.2023 admitted the petition and initiated CIRP against the Corporate Debtor and Mr. Dharmendra Dhelariya, was appointed as Interim Resolution Professional and later on, confirmed as Resolution Professional.

Pursuant to commencement of CIRP, a public announcement dated 30.01.2023 was issued inviting claims from creditors. Claims amounting to approximately Rs. 95.59 crores submitted by the Micro Capitals Private Limited (Appellant) and Axis Bank Limited were admitted. Consequently, the Committee of Creditors (“CoC”) was constituted with:

A. Micro Capitals Private Limited – 77.97% voting share; and

B. Axis Bank Limited – 22.07% voting share.

Two sets of registered valuers were appointed to determine the valuation of the assets of the Corporate Debtor. The Fair Value of the CD was assessed at approximately Rs. 3.21 crores and the Liquidation Value at approximately Rs. 2.52 crores as per valuation.

An Invitation for Expression of Interest (“EOI”) in Form-G was published on 25.03.2023 and subsequently revised on 17.04.2023. Eight prospective resolution applicants submitted EOIs.

Out of the eight prospective resolution applicants, only the Appellant/Micro Capitals Private Limited submitted a Resolution Plan on 14.06.2023.

During CIRP, the premises of the Corporate Debtor had been sealed by the Enforcement Directorate in connection with alleged offences committed by the erstwhile management, thereby restricting access to crucial records. Accordingly, the Resolution Professional filed an application seeking de-sealing of the premises, which was disposed of as infructuous on 07.09.2023 upon the statement of the Enforcement Directorate that de-sealing was underway.

The Resolution Plan submitted by the Appellant was placed before the CoC and approved in the 7th CoC meeting held on 17.10.2023 with 77.97% voting share. The Axis Bank which was holding 22.07% voting share was the dissenting Financial Creditor.

The Resolution Professional thereafter filed an application bearing I.A. (IBC) (Plan) No. 04 of 2024 under Section 30(6) of the Code seeking approval of the Resolution Plan before the Adjudicating Authority. The Resolution Plan proposed a total payment of approximately Rs. 3.01 crores against admitted claims exceeding Rs. 106 crores.

The Resolution Professional certified that the Resolution Plan complied with the provisions of Section 30(2) of the IBC and the CIRP Regulations, and that the CoC had approved the plan after considering its feasibility and viability.

By Impugned Order dated 24.03.2025, the Adjudicating Authority rejected the Resolution Plan on the following grounds:

Absence of genuine infusion of funds by the Resolution Applicant;

Non-compliance with Regulation 38 concerning payment to dissenting financial creditors;

Failure of the CoC to adequately consider feasibility and viability;

omission of certain assets allegedly de-sealed by the Enforcement Directorate;

Discrepancies in the total plan value and Form-H compliance;

Non-production of complete records including CoC minutes and Information Memorandum; and

Conflict of interest arising from the Resolution Applicant itself being the majority financial creditor in the CoC.

I. Ld. Counsel submits that the Appellant was the sole Resolution Applicant and its Resolution Plan was approved in the 7th CoC Meeting held on 17.10.2023, with requisite majority in accordance with Section 30(4) of the Insolvency and Bankruptcy Code, 2016 (“IBC”). Despite the approval accorded by the CoC, the Learned Adjudicating Authority rejected the Resolution Plan on grounds wholly extraneous to the limited jurisdiction contemplated under Section 31 of the Code.

II. He submits that the Impugned Order was pronounced after an inordinate delay of nearly seven months from the date on which orders were reserved on 29.08.2024. According to the Appellant, such extraordinary delay has resulted in erroneous appreciation of pleadings, documents and submissions advanced before the Learned Adjudicating Authority and is contrary to the time-bound framework envisaged under the IBC.

III. It is submitted that the Appellant, despite being the Successful Resolution Applicant (“SRA”), was not impleaded as a party in I.A.

(IBC) (Plan) No. 04 of 2024 filed by the Resolution Professional under Section 30(6) of the Code seeking approval of the Resolution Plan.

IV. Ld. Counsel further submits that the Learned Adjudicating Authority gravely erred in rejecting the Resolution Plan on the premise that a Financial Creditor cannot submit a Resolution Plan and that the approval of such Plan by the CoC violates the principle of nemo judex in causa sua. It is submitted by the Appellant that the aforesaid finding is contrary to the express provisions of the IBC itself. Reliance is placed upon the proviso to Section 30(5) of the Code, which specifically contemplates a situation where a Resolution Applicant may also be a Financial Creditor. It provides that a Resolution Applicant, who is also a Financial Creditor shall have a right to vote in approval of Plan.

V. He submits that the very existence of the proviso to Section 30(5) unequivocally demonstrates legislative recognition of a Financial Creditor being eligible to submit a Resolution Plan. Therefore, the finding of the Learned Adjudicating Authority that the Resolution Plan was vitiated merely because the Resolution Applicant was a member of the CoC is wholly unsustainable in law.

VI. Ld. Counsel submits that the only statutory restriction upon eligibility of a Resolution Applicant flows from Section 29A of the Code and admittedly the Appellant is not ineligible under Section 29A of the IBC and there exists no statutory prohibition restraining the Appellant from submitting the Resolution Plan.

VII. It is his submission that once the CoC, in its commercial wisdom, approved the Resolution Plan with requisite voting share, the jurisdiction of the Adjudicating Authority was confined only to examining whether the Plan satisfied the requirements of Section 30(2) of the Code and Regulation 38 of the CIRP Regulations.

VIII. In response to the finding of the Learned Adjudicating Authority that there was no infusion of funds by the SRA and that the CoC was merely protecting its own interest, Learned Counsel invited attention to Clause 2.3(vi) of the Resolution Plan which specifically provides for infusion of working capital amounting to Rs. 5 Crores within six months and an additional infusion of Rs. 5 Crores within twelve months. He further referred to Clause 4.20.4(b) of the Resolution Plan which contemplates infusion of funds through creation of a Special Purpose Vehicle funded by equity infusion and subscription of equity shares by the Resolution Applicant aggregating to Rs. 3 Crores. It is therefore submitted that the finding recorded by the Learned Adjudicating Authority that there was no infusion of funds is ex facie contrary to the material placed on record.

IX. With regard to the observation that there was no detailed bifurcation concerning the amount payable to the dissenting Financial Creditor, namely Axis Bank Limited, Learned Counsel submits that Clause 4.3.3(1) of the Resolution Plan specifically provides that dissenting Financial Creditors shall be paid in priority and not less than the liquidation value in terms of Section 30(2)(b) of the Code. He submitted that the exact bifurcation could not have been specified at the stage of submission of the Resolution Plan since the Resolution Applicant could not have anticipated the final voting pattern of assenting and dissenting Financial Creditors.

X. Learned Counsel further submits that the finding regarding alleged violation of Regulation 38(1)(b) of the CIRP Regulations is wholly misconceived since the Resolution Plan expressly provides priority payment to dissenting Financial Creditors. Reliance is placed upon Clause 3.2, Clause 4.3.3(1), and Clause 4.4 of the Resolution Plan, which collectively provide that dissenting Financial Creditors shall be paid in priority within thirty days from the Effective Date and such payment shall not be less than the liquidation value payable under Section 53 of the Code.

XI. Insofar as the findings concerning feasibility and viability of the Resolution Plan are concerned, Learned Counsel submits that the Learned Adjudicating Authority could not have substituted its own subjective assessment over the commercial wisdom exercised by the CoC. It is submitted by the Appellant that Clause 3.4(b) of the Resolution Plan specifically deals with feasibility and viability and records the experience of the Resolution Applicant in revival of distressed entities along with projected revenue statements for five years. Learned Counsel also referred to Clause 3.4(e) of the Resolution Plan to demonstrate that the Resolution Applicant possesses relevant experience in the same line of business and would also be assisted by a team of professionals possessing requisite technical expertise.

XII. Learned Counsel submits that the findings concerning the property allegedly de-sealed by the Enforcement Directorate are also unsustainable since the said property did not form part of the liquidation assets of the Corporate Debtor and was merely a leased property. It is submitted that the Resolution Plan could not therefore have been rejected on account of non-dealing with an asset which did not belong to the Corporate Debtor.

XIII. Ld. Counsel further assailed the findings of the Learned Adjudicating Authority with respect to treatment of statutory dues and reliance placed upon the judgment in State Tax Officer vS. Rainbow Papers. He submitted that the reliance placed on the aforesaid judgment is misplaced in as much as the said decision arose in the context of Section 48 of the Gujarat VAT Act, 2003, which specifically created a first charge in favour of the State authorities. He submits that the said judgment was subsequently distinguished by the Hon’ble Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat & Ors., wherein it was clarified that the waterfall mechanism under Section 53 of the IBC accords priority to secured creditors over government dues. It is therefore submitted that the treatment accorded to statutory authorities under the Resolution Plan was fully compliant with the provisions of the IBC.

XIV. In relation to the alleged inconsistency in Form-H regarding Regulation 38(1B), Learned Counsel submits that the Resolution Professional merely marked “YES” in the compliance column to indicate compliance with the said Regulation. It is submitted that Clause 3.5 of the Resolution Plan specifically records an undertaking by the Resolution Applicant that it has not failed to implement any previously approved Resolution Plan. He further submits that even otherwise Clause 9.7.5 of the Resolution Plan specifically provides that in the event of any inconsistency between the Resolution Plan and any other document; the provisions of the Resolution Plan shall prevail.

XV. With regard to the alleged discrepancy in the total Plan value, Learned Counsel submits that there exists no discrepancy whatsoever. It is submitted that Clause 4 of the Resolution Plan stipulates the Plan value as Rs. 2.65 Crores together with CIRP Costs of Rs. 35 Lakhs, whereas Form-H reflects an aggregate amount of Rs. 3.01 Crores after inclusion of CIRP Costs and ex-gratia payment of Rs. 1 Lakh proposed for Operational Creditors. According to the Appellant, the figures are fully reconcilable and the Learned Adjudicating Authority erroneously treated the same as contradictory.

XVI. Learned Counsel further submits that the observation regarding non-filing of minutes of the 2nd to 6th CoC Meetings and Information Memorandum is also untenable. It is submitted that Regulation 39(4) read with Form-H merely requires annexing the minutes of the meeting approving the Resolution Plan and there exists no statutory requirement mandating filing of all previous CoC minutes along with the approval application. He submits that the Impugned Order has resulted in complete frustration of the CIRP, despite the existence of an approved Resolution Plan and has defeated the very objective of value maximization and revival of the Corporate Debtor contemplated under the IBC.

XVII. The Appellant submitted that the objections raised by SEBI are wholly misconceived and unsustainable in law. It is contended that SEBI, having itself lodged its claim in the CIRP as an “Operational Creditor” in respect of the penalty amount, is now precluded from asserting any superior or independent status dehors the scheme of the IBC. Having elected to participate in the CIRP in the capacity of an Operational Creditor, SEBI is estopped from contending that its claim survives the approval of the Resolution Plan in any other manner. He further submits that the reliance placed by SEBI upon State Tax Officer vs. Rainbow Papers Ltd. is entirely misplaced as it is a statutory authority having no security interest and has to be treated as operational creditor. He further relied upon the judgment of the Hon’ble Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd. to contend that Rainbow Papers stands explained and distinguished. XVIII. Ld. Counsel next contended that statutory penalties cannot be accorded any special or preferential treatment in the context of corporate insolvency resolution. It is submitted that wherever the legislature intended to exclude liabilities such as fines or penalties from the insolvency framework, it has done so expressly. In this regard, reliance has been placed upon Sections 79(15) and 79(19) contained in Part III of the IBC dealing with personal insolvency, wherein liabilities to pay fines imposed by a court or tribunal are specifically categorized as “excluded debts” and excluded from the definition of “qualifying debt”. According to the Appellant, the absence of any corresponding exclusion in the provisions governing corporate insolvency resolution is deliberate and significant. It is therefore contended that statutory penalties imposed upon a Corporate Debtor stand covered within the comprehensive framework of the CIRP and cannot survive independently once the Resolution Plan has attained approval under Section 31 of the IBC. He submitted that the impugned action of SEBI seeking to enforce recovery of penalty amounts subsequent to approval of the Resolution Plan is contrary to the scheme, object and overriding effect of the IBC and deserves to be set aside.

XIX. Ld. Counsel further submits that Section 32A of the IBC grants complete immunity to the Corporate Debtor and its assets from liabilities arising out of offences committed prior to the approval of the Resolution Plan. According to the Appellant, the legislative intent behind Section 32A is to ensure that the Successful Resolution Applicant acquires the Corporate Debtor on a “clean slate” basis, free from past liabilities and encumbrances, so as to maximize value and ensure successful revival of the Corporate Debtor. In view of the aforesaid submissions, Learned Counsel appearing for the Appellant prayed that the present Appeal be allowed.

I. Ld. Counsel submits that the Customs Department of the Union of India, has lawful and admitted statutory dues amounting to approximately Rs. 23.14 Crores arising out of adjudication proceedings under the Customs Act, 1962. The impugned Resolution Plan seeks to extinguish such substantial statutory liabilities by allocating merely a token amount of Rs. 1,00,000/- collectively towards all operational and statutory creditors, including Customs Authorities, Income Tax Authorities and SEBI. Such treatment is ex facie arbitrary, discriminatory, contrary to Section 30(2)(b) of the Code and against public interest. He submits that Such treatment is grossly inequitable, arbitrary and contrary to Section 30(2)(b) of the Code, which mandates that operational creditors receive not less than the amount payable under Section 53 of the Code or liquidation value, whichever is higher.

II. Ld. Counsel submits that the Appellant occupied a dual and conflicting position in the CIRP process, namely:

As the sole Resolution Applicant; and

As the dominant financial creditor holding 77.97% voting share in the Committee of Creditors.

III. It is the submission of Ld. counsel that the Ld. Adjudicating Authority rightly relied upon the judgment of the Hon’ble Supreme Court in State Tax Officer vs. Rainbow Papers Ltd. wherein it was held that statutory dues owed to Government Authorities constitute secured debts by virtue of statutory charge created under the relevant enactment. The Customs Department, being a statutory authority exercising sovereign functions, cannot be reduced to a mere token recipient under the garb of commercial wisdom.

IV. Ld. Counsel further submits that the CIRP Regulations mandate that the Committee of Creditors must examine feasibility and viability of a Resolution Plan before approval under Regulation 39(4). In the present case, the Resolution Plan suffers from serious deficiencies and lack of transparency, including:

Non-placement of Minutes of CoC Meetings 2 to 6;

Non-placement of the Information Memorandum;

Non-placement of the Request for Resolution Plan (“RFRP”); and

Exclusion of de-sealed Enforcement Directorate properties from valuation exercise.

V. Ld. counsel further submits that the Appellant’s contention that the Ld. Adjudicating Authority impermissibly interfered with the commercial wisdom of the CoC is wholly misconceived. It is now well settled that while commercial wisdom of the CoC is ordinarily non-justiciable, the Adjudicating Authority is duty-bound to examine whether the Resolution Plan satisfies mandatory requirements under Section 30(2) of the Code and the CIRP Regulations. The Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta categorically held that judicial review is permissible, where the Resolution Plan suffers from illegality, material irregularity or non-compliance with the provisions of the Code.

VI. Ld. Counsel further submits that in the present case, the Ld. Adjudicating Authority rejected the Resolution Plan on account of conflict of interest; violation of Section 30(2)(b); disregard of statutory dues; lack of transparency; and non-compliance with CIRP Regulations. Thus, the exercise of judicial review by the Ld. Adjudicating Authority was fully justified and within jurisdiction. He further submits that the Appellant has sought to contend that since no competing Resolution Plan was available, the Resolution Plan submitted by the Appellant ought to have been approved. Such submission is legally untenable. The Code does not contemplate automatic approval of a Resolution Plan merely because it is the only plan available. Section 31 mandates that only a lawful and compliant Resolution Plan may be approved. If the available Resolution Plan violates mandatory provisions of the Code or fails statutory scrutiny, the inevitable consequence contemplated under Section 33 is liquidation. Absence of alternative plans therefore cannot validate an otherwise illegal and inequitable Resolution Plan.

VII. Ld. Counsel submits that the Resolution Plan clearly demonstrates disproportionate allocation in favour of the Appellant itself, while virtually extinguishing claims of statutory authorities and operational creditors. The bulk of the Resolution Plan value is directed towards the Appellant itself, whereas sovereign dues running into crores of rupees are sought to be settled for a token amount. Such conduct amounts to abuse of dominant position within the CoC and undermines the foundational objective of equitable insolvency resolution under the IBC.

I. Ld. Counsel for SEBI submits that Section 30(2)(b) of the Code mandates that the Resolution Plan must provide fair and equitable treatment to Operational Creditors and ensure payment to such creditors in the manner contemplated under Section 53 of the Code. The legislative intent behind the 2019 Amendment to Section 30(2) was to protect the interests of Operational Creditors and ensure balanced treatment amongst all stakeholders in the CIRP.

II. The Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta categorically held that while commercial wisdom of the Committee of Creditors (“CoC”) is paramount, the distribution mechanism under a Resolution Plan must reflect the objectives of the Code namely:

maximisation of value of assets of the Corporate Debtor; and

balancing of interests of all stakeholders including Operational Creditors.

III. In the present case, the Resolution Plan allocates merely Rs. 1,00,000/- collectively towards all Operational Creditors despite admitted claims running into several crores including statutory claims of Government Authorities such as SEBI. The records further reveal that the SRA itself, being the dominant financial creditor with 77.97% voting share, approved its own Resolution Plan despite dissent by the minority financial creditor. The Resolution Plan further fails to provide payment to dissenting financial creditors in priority as required under Section 30(2)(b) read with Regulation 38(1)(b) of the CIRP Regulations. He submits that the allocation mechanism under the Resolution Plan therefore completely disregards the principles of fairness, equitable distribution and balancing of stakeholder interests envisaged under the Code. The Ld. Adjudicating Authority therefore rightly concluded that the Resolution Plan was non-compliant with Section 30(2) of the IBC.

IV. He further submits that Section 30(4) of the IBC obligates the Committee of Creditors to consider the feasibility and viability of a Resolution Plan before approval. The said statutory requirement was introduced to ensure that only workable, implementable and sustainable Resolution Plans are approved during CIRP.

V. Further, Regulation 38(3) of the CIRP Regulations specifically mandates that a Resolution Plan must demonstrate:

that it addresses the cause of default;

that it is feasible and viable;

that it contains provisions for effective implementation; and

that the Resolution Applicant possesses capability to implement the plan.

VI. Ld. Counsel further submits that the SRA is an NBFC engaged in lending and financing activities whereas the Corporate Debtor operated in an entirely distinct business sector namely digital content distribution, film exhibition and entertainment business. No material was placed to demonstrate that the SRA possessed technical expertise, operational capability or industry experience necessary for revival of the Corporate Debtor. He reiterated that the Resolution Plan was therefore approved without satisfying the mandatory statutory test of feasibility and viability contemplated under Section 30(4) of the Code and Regulation 38 of the CIRP Regulations.

VII. SEBI also relied upon the judgment of the Hon’ble Supreme Court in State Tax Officer vs. Rainbow Papers Ltd. Ld. Counsel further submits that the aforesaid principle has subsequently been reaffirmed by the Hon’ble Supreme Court in Sanjay Kumar Agarwal vs. State Tax Officer while dismissing review petitions against Rainbow Papers. In the present case, SEBI had filed its statutory claim arising from adjudication proceedings under the SEBI Act for violations committed by the Corporate Debtor under securities laws. The penalties imposed under the SEBI Act constitute statutory dues recoverable by a Government Authority and are payable to the Consolidated Fund of India.

VIII. Ld. Counsel reiterated that despite the admitted nature of such dues, the Resolution Plan provides merely a token allocation collectively for all Operational Creditors and statutory authorities. The Resolution Plan therefore effectively extinguishes sovereign statutory liabilities contrary to the law laid down by the Hon’ble Supreme Court. The Ld. Adjudicating Authority therefore rightly rejected the Resolution Plan as being contrary to settled law.

IX. He submitted that the Resolution Plan seeks blanket waiver in respect of violations committed by the Corporate Debtor under:

SEBI Act, 1992;

SEBI (Listing Obligations and Disclosure Requirements)

SEBI (Substantial Acquisition of Shares and Takeovers)

various Listing Agreement obligations.

X. Ld. Counsel submits that the Corporate Debtor cannot be permitted to use CIRP proceedings as a mechanism to wash away violations committed under securities laws. The Hon’ble Adjudicating Authority in Roofit Industries Ltd. v. BSE Ltd. rightly observed that companies undergoing CIRP are not exempt from compliance with other statutory enactments. Similarly, the Hon’ble Madras High Court in National Sewing Thread Co. Ltd. vs. Superintending Engineer, TANGEDCO held that CIRP cannot be utilised to obliterate liabilities arising under other statutes.

XI. Ld. counsel further submits that the regulatory framework under SEBI laws permits waiver only in exceptional circumstances and based upon merits of each individual case. Blanket waiver of all past violations affecting securities market integrity is wholly impermissible. The Resolution Plan therefore seeks reliefs beyond the scope of the IBC and contrary to public interest. He submits that the SRA is not merely the Resolution Applicant, but also the largest unsecured financial creditor of the Corporate Debtor. The records demonstrate that the SRA advanced an unsecured loan of approximately Rs. 72 Crores to the Corporate Debtor despite the Corporate Debtor being financially distressed and on the verge of insolvency. Subsequently, the SRA itself initiated CIRP proceedings and thereafter emerged as the sole Resolution Applicant.

XII. Ld. counsel further submits the principle of nemo judex in causa sua squarely applies to the present facts. He reiterated that the Hon’ble Supreme Court in K. Sashidhar vs. Indian Overseas Bank and Arcelor Mittal India Private Limited vs. Satish Kumar Gupta has held that approval of a Resolution Plan is always subject to satisfaction of the Adjudicating Authority regarding compliance with Section 30(2) of the Code. The Ld. Adjudicating Authority therefore rightly exercised judicial scrutiny and rejected the Resolution Plan. XIII. He submits that Section 65 of the IBC empowers the Adjudicating Authority to examine whether CIRP proceedings have been initiated fraudulently or with malicious intent for purposes other than genuine insolvency resolution. This Hon’ble Appellate Tribunal in Shree Ambica Rice Mill vs. Kaneri Agro Industries Ltd. held that the Adjudicating Authority is obligated to investigate suspicious transactions and prevent misuse of IBC proceedings. Ld. counsel further submits that this Appellate Tribunal in Expert Realty Professionals Private Limited vs. Logix Infrastructure Private Limited held that fraud vitiates every stage of CIRP including approval of a Resolution Plan. In the present case the SRA advanced substantial unsecured loans despite weak financial condition of the Corporate Debtor; the SRA thereafter initiated CIRP proceedings itself; the SRA emerged as sole Resolution Applicant; the SRA approved its own Resolution Plan using dominant voting share; and the Resolution Plan substantially benefits the SRA itself without genuine value infusion.

XIV. Ld. counsel submits that the alleged “infusion” of funds under the Resolution Plan is illusory since the proposed amounts effectively circulate back to the SRA itself. The entire CIRP process therefore appears structured primarily to secure financial benefit for the SRA while extinguishing claims of Operational Creditors and statutory authorities. The Ld. Adjudicating Authority therefore rightly rejected the Resolution Plan. In view of the foregoing submission, he sought the dismissal of Appeal.

I. Ld. Counsel submits that the adverse observations recorded by the Ld. Adjudicating Authority against the present Appellant/Resolution Professional in Paragraph Nos. 4 & 12-17 of the Impugned Order are unsustainable both on facts and in law and deserve to be expunged from the record. The findings have been rendered on erroneous appreciation of the factual matrix, misreading of documents already placed on record, and contrary to the settled principles governing the limited scope of judicial review under the Code.

II. At the outset, he submitted that the Resolution Plan was approved by the Committee of Creditors with requisite voting share after due deliberations and in exercise of its commercial wisdom under Section 30(4) of the Code. The Ld. Adjudicating Authority itself, in Paragraphs 2 and 3 of the Impugned Order, observed that the Resolution Plan provided fair and equitable treatment to stakeholders. Having recorded such finding, the subsequent adverse remarks against the Resolution Professional are self-contradictory and legally untenable.

III. Ld. Counsel further submits that the observation of the Ld. Adjudicating Authority that the Appellant failed to include the premises of the Corporate Debtor in the Information Memorandum, thereby causing prejudice to stakeholders, is factually incorrect. The property referred to by the Ld. Adjudicating Authority is merely the registered office of the Corporate Debtor and not an asset owned by the Corporate Debtor. The said premises is a rented property, which fact stood specifically disclosed in the 1st CoC Meeting dated 23.02.2023. Therefore, no question arose for inclusion of the said rented premises as an asset in the Information Memorandum or in the Resolution Plan. The adverse remark has thus been rendered on an erroneous factual premise and deserves to be set aside.

IV. It is submitted by RP that the Ld. Adjudicating Authority further erred in holding that the Appellant failed to consider the Revenue Department as a secured creditor in view of Section 142A of the Customs Act and the judgment in State Tax Officer vs. Rainbow Papers Ltd. The said finding is contrary to both facts and settled law.

V. Firstly, the claim submitted by the Revenue Department itself specifically disclosed that no security interest was held in respect of its claim. Thus, the Revenue Department never asserted itself to be a secured creditor at the stage of claim verification.

VI. Secondly, Section 142A of the Customs Act is materially distinguishable from Section 48 of the Gujarat VAT Act considered in Rainbow Papers. Unlike Section 48 of the Gujarat VAT Act, Section 142A of the Customs Act does not override the provisions of the IBC. Consequently, the status and treatment of such claims necessarily fall for determination in accordance with Section 53 of the Code.

VII. Thirdly, the Appellant had already considered and communicated the treatment of the Revenue Department’s claim during CIRP proceedings, and no objection was raised by the Revenue Department at the relevant stage. Objections were raised only at the stage of approval of the Resolution Plan.

VIII. The finding of the Ld. Adjudicating Authority is also contrary to the law laid down by the Hon’ble Supreme Court in Sundaresh Bhatt, Liquidator of ABG Shipyard vs. Central Board of Indirect Taxes and Customs wherein it was categorically held that the provisions of the IBC shall prevail. Accordingly, the observation against the Appellant on this count is liable to be expunged.

IX. Ld. Counsel further submits that the Ld. Adjudicating Authority further committed an error in observing that there existed a glaring inconsistency in Form-H on account of the word “Yes” being mentioned in Item No. 9. A bare reading of Form-H demonstrates that Item No. 9 contains two separate columns namely:

X. It is contended by the RP that the observation that there exists a discrepancy between the total plan value of Rs. 2.65 Crores and total outlay of Rs. 3.01 Crores is ex facie contrary to the record. The breakup of the Resolution Plan clearly demonstrates that:

Rs. 1,00,000/- was earmarked towards Operational Creditors;

Rs. 35,00,000/- towards CIRP Costs; and

Rs. 2,65,00,000/- towards payment to unsecured financial creditors.

XI. Ld. Counsel further submits that the Ld. Adjudicating Authority, despite recording these figures elsewhere in the Impugned Order, erroneously treated the same as inconsistency. Such contradictory findings clearly demonstrate non-appreciation of the financial structure of the Resolution Plan.

XII. Ld. Counsel submits that finding of the Ld. Adjudicating Authority that Resolution Professional failed to place all CoC minutes, Information Memorandum, and RFRP on record, thereby raising concerns regarding transparency, is wholly unjustified. It is submitted that throughout the proceedings for approval of the Resolution Plan, the Ld. Adjudicating Authority never directed the Appellant to produce any additional document. The matter was repeatedly adjourned on multiple dates and ultimately heard and reserved for orders. At no point was any deficiency recorded by the Ld. Adjudicating Authority regarding the documents filed by the Appellant. In absence of any direction calling upon the Appellant to furnish additional material, the adverse observations alleging lack of transparency are wholly unwarranted and violative of principles of natural justice.

XIII. RP submits that the Ld. Adjudicating Authority further erred in holding that the Resolution Plan failed to justify payment to dissenting financial creditors in terms of Section 30(2)(b) of the Code. The Resolution Plan specifically provided that dissenting financial creditors shall receive an amount not less than the liquidation value due to them and that such payment shall be made in priority to assenting financial creditors. The relevant clause stood incorporated in the Resolution Plan itself. The dissenting financial creditor, holding approximately 22% voting share, was fully aware of the distribution mechanism and exercised its commercial wisdom by dissenting to the plan. The finding of violation under Section 30(2)(b) is therefore contrary to the express terms of the Resolution Plan and deserves to be set aside.

XIV. It is submitted by the RP that the Ld. Adjudicating Authority gravely erred in law by observing that the Committee of Creditors acted merely as an “eyewash” and failed to exercise commercial wisdom. Such observation is contrary to the settled legal position repeatedly affirmed by the Hon’ble Supreme Court that the commercial wisdom of the Committee of Creditors is non-justiciable except on limited grounds provided under Section 30(2) and Section 61(3) of the Code.

XV. Ld. Counsel for RP submits that the Resolution Plan was duly deliberated upon and approved by the Committee of Creditors in accordance with Section 30(4) and Section 30(5) of the Code. Merely because one creditor dissented to the Resolution Plan cannot lead to a conclusion that the CoC failed to exercise commercial wisdom. The findings of the Ld. Adjudicating Authority therefore amount to impermissible substitution of judicial opinion over commercial decision-making of the CoC.

XVI. Ld. Counsel further submits that the Ld. Adjudicating Authority further erred in observing that the feasibility and viability of the Resolution Plan was “orchestrated” merely because the Resolution Applicant was itself a CoC member. The Code does not prohibit a financial creditor, who is a member of the CoC, from submitting a Resolution Plan and participating in the voting process, subject to compliance with statutory requirements.

XVII. It is submitted by the RP that the feasibility and viability of the Resolution Plan were duly examined by the Committee of Creditors and approved by requisite majority. The dissenting financial creditor participated in the process and exercised its rights under the Code. The observation that the dissenting creditor remained a “spectator” is therefore contrary to the statutory framework of the IBC.

XVIII. Ld. Counsel for RP submits that the finding that the Resolution Plan failed to provide for contingent liabilities is equally unsustainable. The treatment of disputed and contingent claims falls squarely within the commercial domain of the Resolution Applicant and Committee of Creditors. The Resolution Applicant had undertaken to deal with disputed claims in accordance with law. The Hon’ble Supreme Court has consistently held that once a Resolution Plan satisfies the requirements under Section 30(2), the Adjudicating Authority cannot sit in appeal over the commercial wisdom of the CoC.

XIX. Ld. counsel further submits that in view of the aforesaid facts and settled position of law, it is respectfully submitted that the adverse remarks recorded against the Appellant/Resolution Professional in Paragraph Nos. 12 to 17 of the Impugned Order are based on patent errors of fact, misreading of documents, contradictory findings, and impermissible interference with the commercial wisdom of the Committee of Creditors. The said observations have caused serious prejudice to the professional standing and reputation of the Appellant despite there being no finding of misconduct, mala fide, suppression, or statutory violation attributable to the Appellant. Accordingly, this Hon’ble Appellate Tribunal may be pleased to expunge and set aside the adverse observations recorded against the Appellant in the Impugned Order and grant such other reliefs as this Hon’ble Tribunal may deem fit and proper in the interest of justice.

The Resolution Applicant proposes to distribute the amount proposed to secured financial creditors in the following order of priority: -