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Justice Rohinton Fali Nariman, former judge of India's Supreme Court (SC) who is considered an authority in matters relating to commercial disputes, insolvency and arbitration, has opined that the resolution plan of AGI Greenpac for the acquisition of Hindustan National Glass (HNG) is contrary to the law. Nariman is the third judge of SC to have highlighted abuse of insolvency proceedings in his opinion. Prior to him, Justice AK Sikri and Justice NV Ramana, the two retired SC judges, had also highlighted malpractices (in their opinion) in the matter.
HNG is India's oldest and largest container glass manufacturing company that is now undergoing corporate insolvency resolution proceedings (CIRP). AGI's resolution plan for HNG was approved by the Committee of Creditors (COC) after it was put to vote by the Resolution Professional (RP) Girish Juneja, in contravention to the set terms. The HNG CIRP has been marred by allegations of malpractices and is among the longest stretching debt resolutions in India due to the various controversies surrounding it.
"There is no doubt that the approval to the resolution plan of AGI by COC and the Adjudicating Authority would be contrary to law, in as much as, it is clear that AGI was declared a successful resolution applicant on 28 October, 2022, whereas conditional approval from the Commission (Competition Commission of India) was obtained only on March 15, 2023," Nariman said in his opinion on the matter.
Biggest controversy in HNG CIRP is that the COC, led by a consortium of banks along with Edelweiss ARC, approved a resolution plan of AGI Greenpac put to vote by RP Juneja, even though it lacked prior approval from the Competition Commission of India (CCI). Since both HNG and AGI Greenpac are in the same business of container glass manufacturing in India, their combination necessitates a thorough probe and prior approval of CCI.
But the RP and COC are alleged to have approved AGI's plan before the CCI approval came. Most intriguingly, after the approval of AGI's plan by COC, the CCI gave only a "conditional" approval, which again goes against the set precedents of the SC and the rulings of the bench consisting of incumbent Chief Justice of India DY Chandrachud. As per a judgement of Justice Chandrachud and Justice M.R. Shah in Ebix Singapore Private Limited and Ors. v. Committee of Creditors of Educomp Solutions Limited, the SC had observed that permitting introduction of conditionalities regarding the approval of the resolution plan by the National Company Law Tribunal (NCLT) would introduce an additional tier of negotiations, which is not permitted under the scheme of the Indian Bankruptcy Code (IBC).
As per Justice Nariman, the newly introduced proviso of IBC in 2018 makes it clear that where the resolution plan contains a provision for combination, the applicant (bidder) must obtain prior approval of the CCI, prior to approval of such resolution by COC.
"It is settled law that a provision has to be constructed to be mandatory, if there is consequence for breach of such provision in law (cited Bhikhraj Jaipuria v/s Union of India 1962; Lakshmanasami Gounder vs. CIT). The clear consequence of breach of this provision results in there being no resolution plan at all in law as the resolution plan would then be contrary to the law therefore violative of sections of IBC," Justice Nariman has said in his opinion. Simply put, he says that AGI's resolution would be in violation if prior approval of CCI was not sought, which was mandatory in this case.
As per the terms of bidding, RP Juneja had sent out emails to the bidders stating that prior approval of CCI would be necessary. But when AGI Greenpac's first time appeal to CCI for prior approval was rejected, the RP relaxed the norms and put up its plan for voting to COC despite there being no CCI approval. All the other members of the COC, except Edelweiss, voted equally in favour of two bidders, one among them who had a prior CCI approval. Later it came to light that Edelweiss Alternative Asset Advisors, a company belonging to the same group as Edelweiss ARC, had promised Rs 1100 crores in funding to AGI.
In the opinion of Justice Nariman, the email of RP Juneja dated August 25, 2022, is clearly in the teeth of the mandatory provisions of s.31 (4) of IBC. This is the same email of the RP wherein he told the bidders to get prior approval of CCI for the deal.
"Nothing is stated by the RP as to why such a provision would be directory - and in any case it is entirely outside the RP's ken to declare what the law is and to grant a relaxation. It is well settled that the RP has no adjudicatory powers under the code as has been held in Swiss Ribbons P Ltd. vs. Union of India 2019," Justice Nariman has said.
In putting up AGI's plan for voting to COC, despite it having no prior approval from the CCI, the RP by his whims and fancy relaxed the provisions of IBC to suit the bidder. This has also been the opinion of Justice AK Sikri and Justice NV Ramana in the HNG-AGI Greenpac matter.
Justice Nariman's Final Word
Whether RP and COC failed to conduct the CIRP proceedings fairly and in accordance with the scheme and object of the IBC and the regulations thereunder?
"Yes, RP has no power to condone any mandatory provisions of law," said Justice Nariman.
Not the law, but on the question of the commercial wisdom of the lenders, Justice Nariman says it is entirely within the ken of COC as to which resolution plan it wants to prefer.
