The Hon’ble National Company Law Appellate  Tribunal, Delhi ( ‘NCLAT’) in the Company Appeal (AT) (Insolvency) No. 412 of 2020 and in the Company Appeal (AT) (Insolvency) No. 744 of 2020 titled as Next Orbit Ventures Fund v. Print House (India) Pvt Limited, has held that there is nothing in the Insolvency and Bankruptcy Code, 2016 (‘the Code’) which prevents a ‘Resolution Applicant’ from changing the present line of business to adding value or creating ‘synergy’ to the existing assets and converting an obsolete line of business to a more ‘viable and feasible’ option. 

Facts in Brief: 

An application was filed by the Resolution Professional of Print House (India) Private Limited ( ‘Corporate Debtor’) by invoking the provisions of Section 30(6) of the Code read with Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘Regulation 2016’), for approval of the resolution plan in respect of the Corporate Debtor, against whom Corporate Insolvency Resolution Proceedings (“CIRP”) has been initiated vide an order dated October 9, 2018 in CP (IB) No. 82/MB.II/2018, before the National company Law Tribunal, Mumbai (Adjudicating Authority). 

The suspended directors and promoters of the Corporate Debtor filed an application before Adjudicating authority objecting to the approval of resolution plan, on the ground that the Resolution Applicant i.e. Sify Technologies Limited intends to change the main business of the ‘Corporate Debtor’ from printing business to running data centers. The said application was dismissed by the Adjudicating Authority. 

An appeal was filed before NCLAT against the order dated March 26, 2020. 

Issue involved in the Appeal: 

1. Whether the appeal is maintainable, and the resolution plan meets the provisions specified under Section 61(3) of the Code?
2. Whether a resolution plan approved under Section 31 of the Code can change the nature of the business of the ‘‘corporate debtor’’ and does it contravene the objective of the Code, which is ‘resolution’, maximization of the value of assets of the ‘Corporate Debtor’, ‘promoting entrepreneurship’, availability of credit and balancing of interests of the stakeholders? 

Decision of the NCLAT: 

Issue 1: 

The case of the unsuccessful resolution applicant i.e. Next Orbit Ventures Fund was that, it is not the commercial wisdom of Committee of Creditors (“CoC”) which is being challenged but that the resolution professional did not take into consideration the feasibility and viability of the ‘resolution plan’. 

The NCLAT held that, ‘business growth and ‘sustainability’ are important aspects of viability. The NCLAT further enunciated that, in the instant case, ‘feasibility and viability’ is to be viewed holistically and hence, technical, market, economic, financial model viability is to be taken into consideration as it is ultimately linked to the profitability of the business. The NCLAT, however, enumerated that, in the instance case, the CoC meetings and the ‘resolution plan’ cannot be construed to be an ‘auction or a recovery proceeding’. 

Issue 2: 

The NCLAT observed that the term, ‘going concern’ does not mean that the nature of the business cannot be changed with an objective to ‘add value’ or ‘create synergy’. Hence, the term ‘going concern’ cannot be interpreted in a very narrow compass and the same falls outside the scope and objective of the Code. 

Therefore, the NCLAT held that, if Sections 30(2) and 31 of the Code and Regulations 37, 38 and 39 of the Regulation 2016, are read together, it is evident that there is nothing in the Code which prevents a resolution applicant from changing the present line of business of the Corporate Debtor in order to add value or create ‘synergy’ to the existing assets and converting an obsolete line of business to a more ‘viable and feasible’ option. 

The appeals were thus, rendered infructuous and dismissed accordingly. 

Please find attached a copy of the judgment.

This update has been contributed by R. Sudhinder (Senior Partner) and Ekta Bhasin (Principal Associate, Designate).