The Supreme Court has ruled an appellate bankruptcy tribunal was right in rejecting Appu Hotels’ resolution plan even as 87.3% of verified financial creditors approved the offer given by M K Rajagopal, the founder of MGM Healthcare.
The National Company Law Appellate Tribunal (NCLAT) rejected Rajagopal’s Rs 423-crore plan on the grounds that it was revised after a majority of lenders voted on it, but the revised plan was not put before lenders for a vote. Secondly, the resolution applicant was ineligible under Section 29 (A) of the Insolvency and Bankruptcy Code — a rule which bars defaulters from acquiring companies.
The division bench observed that while respecting the commercial wisdom of the Committee of Creditors, the NCLAT could not have approved the plan for these two major reasons.
After NCLAT rejected Rajagopal’s plan, the lenders approved a Rs 592-crore offer from the promoter, Periasamy Palani Gounder, in November 2022, subject to approval from the Supreme Court, as reported by ET.
Appu Hotels operates the five-star Le Meridien hotels in Chennai and Coimbatore and a resort. If approved by NCLT, the entire dues of lenders amounting to Rs 389 crore would be paid. In its order issued on May 3, the apex court directed the NCLT to decide on the promoter’s plan “while keeping in view the law applicable”.
The apex court stated: “It is difficult to assume that the CoC had even in anticipation approved the plan which was to be revised. As to what decision CoC would have taken after examination of the revised plan, …. it cannot be a matter of guess or assumption that it was bound to be approved.”
The NCLT approved Rajagopal’s plan, but the promoter appealed against it, stating that his offer under Section 12A of IBC was not placed before the CoC for a vote.
The NCLAT, in its order dated May 5, 2021, directed the RP to put the plan for a vote within 15 days. However, 51% of lenders rejected the promoters’ plan because they were not sure if the promoter had arranged funds for the same. The NCLAT then directed lenders to restart the sale process by inviting expressions of interest.
The promoter once again submitted a resolution plan under Section 12A wherein he deposited Rs 150 crore as an upfront payment and provided a bank guarantee of `325 crore. The apex court also stated that NCLT should take into consideration that the promoter invoked Section 12A on September 12, 2022, after the lender received the seven resolution plans.
Even in the first instance, the promoter submitted the resolution plan just a day before lenders were to vote on Rajagopal’s plan on January 21, 2021.
“A pattern in the aforesaid dealings by the promoter is quite striking. When the resolution plans had been received at the earlier stage, only at the eleventh hour, the settlement proposal came up,” the apex court observed in its order.
