Consideration of Improved Financial Offer in the Insolvency Resolution Process

[Varsha Gupta is a 4th-year law student at the School of Law, UPES, Dehradun]


After the approval of the resolution plan of JSW Steel in the Bhushan Power & Steel Limited, Tata Steel Limited, one of the resolution applicants challenged the submission of an improved financial offer. In Tata Steel Limited v. Liberty House Group Pte. Ltd., Tata Steel Limited argued that the National Company Law Tribunal (NCLT) cannot give numerous opportunities to the resolution applicants at the belated stage after submission of the resolution plan.

Factual Background

Three resolution plans were submitted in the case of corporate insolvency resolution process (CIRP) of Bhushan Power & Steel Limited. Liberty House Group Pte. Ltd., one of the resolution applicants, was given several opportunities to provide necessary documents according to the pre-qualification with criteria, including confidentiality affidavit. In the instant case, Tata Steel Limited challenged the decision of NCLT in allowing Liberty House to submit resolution plan. NCLT ruled that the resolution plan of Liberty House shall not be rejected on the ground of delay emanating from process document or any other document internally circulated by the resolution professional or the committee of creditors (CoC).

Similarly, JSW Steel submitted an improved financial offer after the submission of the resolution plan. Tata Steel Limited raised an objection in the meeting of CoC, and the CoC allowed all the three resolution applicants to submit revised financial offers. Tata Steel Limited stated that improvements were allowed despite Tata Steel having been declared the highest bidder.

Ruling by the NCLAT

The National Company Law Appellate Tribunal (NCLAT) rejected the arguments raised by Tata Steel Limited and directed the NCLT to consider the approved resolution plan by voting of members of CoC. The NCLAT, while deciding the feasibility of submission of revised financial offer, laid down that CoC is empowered to take them into consideration. It noted:

It was open to the ‘CoC’ to go through the viability, feasibility and financial matrix of the ‘Resolution Plans’ taking into consideration ‘revised financial offers’ and to decide the same in accordance with law.

Granting more opportunity to all the eligible ‘Resolution Applicants’ to revise its ‘financial offers’, even by giving more opportunity, is permissible in the Law. However, all such process should be completed within the time frame.

The NCLAT held that the approved resolution plan of JSW Steel should be considered by the NCLT under section 31 of the Insolvency and Bankruptcy Code, 2016. The NCLAT, with respect to counting the voting shares of the members of the CoC, noted:

A member of the ‘CoC’ who is not present in the meeting either directly or through Video Conferencing and thereby not considered its feasibility and viability and such other requirements as may be specified by the Board, their voting shares, therefore, cannot be counted for the purpose of counting the voting shares of the members of the ‘CoC’ under Section 30 (4) of the Code.

Analysis of the Decision

The NCLAT rejected the argument of Tata Steel Limited on the ground that the CoC is empowered to consider revised financial offers keeping in mind the time limit set out by law. The NLCAT clarified that it would advance the object of the Code in maximisation of the assets of the corporate debtor and may provide better solution in restructuring the stressed assets.

The NCLAT relied on Arcelor Mittal India Private Limited v. Satish Kumar Gupta, where the Supreme Court observed that the ‘resolution applicant’ has no vested right or fundamental right to have its ‘resolution plan’ considered or approved. The NCLAT relied on Binani Industries Limited v. Bank of Baroda, wherein the NCLAT held that an improved financial offer submitted by a ‘resolution applicant’ is a continuation of its ‘resolution plan’ already submitted.

Recently, the Supreme Court, while dealing with the constitutionality of Section 29A of the Code in Swiss Ribbons v. Union of India held that the submission of a resolution plan is not a vested right in the hands of the resolution applicants. Similarly, the NCLAT also placed reliance on the decision of the Supreme Court in Arcelor Mittal India Private Limited v. Satish Kumar Gupta. The position is clear that the resolution applicants cannot compel the CoC to consider their resolution plans or improved financial offers irrespective of their eligibility to submit the resolution plan.

Bhushan Power & Steel Limited was amongst one of the 12 cases referred by the Reserve Bank of India for insolvency to the NCLT. The CIRP has already been delayed due to several challenges being made by the resolution applicants and the creditors. Hence, the ruling by the NCLAT has authorized the long-delayed insolvency process to reach its resolution stage. The NCLAT ruled that the resolution plan can be modified as per the dates and conditions in the process documents. Hence, process documents of the resolution professional will play an intrinsic role in determining the validity of improved financial offers. It is pertinent to note that submission of improved financial offers is in the interest of the CoC as well the corporate debtor, where the resolution plan could not be approved and might lead to the liquidation of the corporate debtor. The ruling also justified the powers and functioning of the CoC in respect of the resolution plans. At the same time, the ruling emphasized that it shall not delay the CIRP Process. Therefore, the ruling by the NCLAT would not open the door for submission of a frivolous improved financial offer to delay the CIRP process.

Varsha Gupta

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