TMI Blog2020 (1) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Process for Corporate Persons) Regulations, 2016 - the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. Certain allegations were made by the MSL over failure on the part of the Resolution Professional in taking possession of the assets of the corporate debtor and subsequently in their failure in handing over the same to MSL. These issues are factual - The order of the Adjudicating Authority passed on 21st January 2019 is affirmed - appeal allowed. - Justice Rohinton Fali Nariman, Justice Aniruddha Bose And Justice V. Ramasubramanian For the Appellant : Ms. Avni Sharma, Adv.Mr. Raghav Sabharwal, Adv. Mr. Divyam Agarwal, AOR M/s. Khaitan Co., AOR For the Respondent : Mr. Aditya Verma, AOR Mr. G. Ramakrishna Prasad, AOR Mr. Suyodhan Byrapaneni, Adv. Ms. Filza Moonis, Adv. Mr. Mohd. Wasay Khan, Adv. Mr. Bharat J. Joshi, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019. The MSL s appeal was registered as Company Appeal (AT) (Insol.) No. 220 of 2019. 2. This appeal by MSL was in connection with I.A. No. 125 of 2019 filed by them in CP(IB) No. 49/7/HDB/2017. In that application, MSL sought directions upon the corporate debtor as also the police and administrative authorities for effective implementation of the resolution plan. Grievance of MSL in that proceeding was that they were not being given access to the assets of the corporate debtor. The Adjudicating Authority, while disposing of the application, directed, inter-alia:- 20. Even though appeal is preferred by Respondent No.5 to the Hon ble NCLAT, there is no stay and the appeal is coming up for hearing on 07.03.2019. The implementation of this Plan is subject to the outcome of the Appeal. Therefore, a direction can be given to the concerned to extend cooperation to the Applicant herein in implanting the Resolution Plan of the Corporate Debtor Company and it is only subject to the outcome of the Appeal which is pending before Hon ble NCLAT. 21. A direction cannot be given to the Superintendent of Police and Collector because by the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of additional amount of ₹ 120.54 Crores in addition to ₹ 477 Crores thereby raising it to ₹ 597.54 Crores (total) and deposit the amount in the Escrow Account within 30 days in such case, the impugned order of approval of the Resolution Plan be treated to be set aside. Thereafter, the Adjudicating Authority will pass appropriate order in accordance with law. (quoted verbatim) 4. So far as the appeal of MSL before the Appellate Authority is concerned, the same had direct correlation with the other two appeals. In this appeal, it was held and observed by the NCLAT:- 54. In the present case, we find that the Resolution Plan is against the statement and object of the I B Code and, therefore, we have directed M/s. Maharashtra Seamless Limited to modify the plan. Till the plan is modified, as ordered above, M/s. Maharashtra Seamless Limited cannot take over the Corporate Debtor without complying with the direction as given and recorded above. 55. However, it does not mean that the Promoters/ Ex-Directors will create hindrance in the matter of taking over the premises and plant of the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional was appointed initially, who was changed later in the proceeding. The Resolution Professional on 10th January, 2018, issued invitation calling applications from interested parties by 28th February, 2018. This timeline was subsequently extended from time to time, and altogether four resolution plans were placed before the Committee of Creditors (CoC). This Committee was constituted on 18th August 2017 by the Interim Resolution Professional. One of these plans was by MSL. The other Resolution Applicant whose offer was considered was M/s. Area Projects Consultants Private Limited. MSL had offered upfront payment of ₹ 477 crores. The resolution plan of MSL was approved by the financial creditors having 87.10% of the voting shares. This voting block consisted of the two aforesaid Deutsche Bank entities. The Deutsche Bank International (Asia) Limited had 73.40% vote share and the Indian Bank had 12.90% voting share in CoC. 7. Two registered valuers being K. Vijay Bhasker Reddy and P. Madhu were initially appointed for determining the value of the corporate debtor. Their valuations were to the tune of ₹ 681 crores and ₹ 513 crores respectively. On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors submits that during the pendency of this appeal in compliance of the order of the Adjudicating Authority, revised liquidation value was taken into consideration by the Committee of Creditors whereinafter the resolution plan of the appellant Maharashtra Seamless Ltd. has been approved. It is also accepted by the learned counsel appearing on behalf of the Resolution Professional and the learned counsel appearing on behalf of the appellant. In view of the aforesaid position, we are not inclined to deliberate on the question as raised in the present appeal, which may be answered in some other case. The Adjudicating Authority is now required to pass order under Section 31 of the I B Code without granting unnecessary adjournments to any of the party uninfluenced by its earlier order, which is under challenge. The appeal is disposed of with aforesaid observations and directions. (quoted verbatim) 11. Before disposal of Company Appeal (AT) (Insolvency) No.637 of 2018, on 25th October 2018 the resolution professional had filed an application (I.A.No.472/2018) before the Adjudicating Authority seeking approval of the resolution plan as per the decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquidation Value. Therefore, the objection taken by the Director (Suspended Board) and also Indian Bank could not be taken into account in view of the direction of Hon ble NCLAT. 30. The next contention raised that the Resolution Applicant has not obtained prior approval of the CCI as required under Section 31 (4) of the Code. The Counsel for Resolution Professional would contend that there is no need to obtain prior approval of CCI as the plan submitted by M/s MSL does not fall under the provisions of CCI. The Director (Suspended Board) has raised the same in the 9th CoC meeting and it is answered that such approval is not necessary. Even otherwise Section 31(4) provides that necessary approval required under any law for the time being in force is to be obtained by Resolution Applicant within a period of one year or within the prescribed period under such law. Therefore, Resolution Applicant can obtain necessary approvals in a period of one year if it is required. Thus, the Resolution Plan of M/s MSL filed by Resolution Professional is to be approved as it meets all the requirements of Section 30 (2) of IBC. 31. In the result, the Resolution pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionally, in all its operational life prior thereto, the Corporate Debtor over a period of seven years could not produce even a total of 1,50,000 MT, which is supposed to be its production capacity of one year. Thus, it was only after due and in-depth consideration, including taking into account extensive further investments, which would mandatorily have to be made to get the Corporate Debtor up and running, that the Successful Resolution Applicant offered ₹ 477 Crores, which was payable within 30 days of the approval of the plan. 26. Therefore, according to counsel for 4th Respondent, the aforesaid infusion of funds by the 4th Respondent aggregating ₹ 657.50 Crores is for the maximization of the assets of the Corporate Debtor . (quoted verbatim) 13. The NCLAT, however, found the reasoning of the Adjudicating Authority flawed, inter-alia, for the following reasons:- 34. Therefore, it is clear that the Committee of Creditors has also accepted the average of the liquidation value which comes to ₹ 597.54 Crores and on the basis of which the Resolution Plan was considered. If the Resolution Plan is cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 7, 9 or 10. The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified. 16. It is admitted position that approximately ₹ 472 crores have been remitted to the financial creditors which was received from Mr. Sibal s clients. The D.B. International Asia Limited, having 73.40% voting shares in the CoC has also assailed the impugned order on grounds similar to that taken by the MSL. 17. We shall address two issues in this appeal. The first one is whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not. The second question we shall deal with is as to whether Section 12-A is the applicable route through which a successful Resolution Applicant can retreat. Before we proceed to answer these two questions, we must indicate that before the Appellate Authority substantial argument was advanced over failure on the part of the Adjudicating Authority to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. Explanation. - For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. (3) The resolution profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority. 19. The manner in which the claims of the operational creditors shall be considered in a CIRP has been dealt with by a co-ordinate Bench of this Court (of which two of us, Nariman J. and Ramasubramanian J. were members) in the case of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, decided on 15th November, 2019 in Civil Appeal Nos. 8766-8767 of 2019 (2019 SCC OnLine SC 1478). It has been held in paragraph 53 of this judgment in the said report:- 53. However, as has been correctly argued on behalf of the operational creditors, the preamble of the Code does speak of maximisation of the value of assets of corporate debtors and the balancing of the interests of all stakeholders. There is no doubt that a key objective of the Code is to ensure that the corporate debtor keeps operating as a going concern during the insolvency resolution process and must therefore make past and present payments to various operational creditors without which such operation as a going concern would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). (emphasis supplied) 54. This is the reason why Regulation 38(1A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount to nil after secured creditors have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been further been held in the case of Essar Steel (supra):- 124. The other argument of Shri Sibal that Section 53 of the Code would be applicable only during liquidation and not at the stage of resolving insolvency is correct. Section 30(2)(b) of the Code refers to Section 53 not in the context of priority of payment of creditors, but only to provide for a minimum payment to operational creditors. However, this again does not in any manner limit the Committee of Creditors from classifying creditors as financial or operational and as secured or unsecured. Full freedom and discretion has been given, as has been seen hereinabove, to the Committee of Creditors to so classify creditors and to pay secured creditors amounts which can be based upon the value of their security, which they would otherwise be able to realise outside the process of the Code, thereby stymying the corporate resolution process itself. 21. Submission of the respondents supporting the impugned order of NCLAT has been in reference to Section 30(2)(b) of the 2016 Code. We have taken note of submission made by Mr. Singhvi that the operational creditors of the corporate debtor come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent terms which may also involve differences in distribution of amounts between different classes of creditors. 22. But the controversy on there being no provision in the resolution plan for operational creditors is only academic now. Before the Appellate Authority itself the successful Resolution Applicant had agreed to clear the dues of the operational creditors in percentage at par with the financial creditors. Moreover, none of the operational creditors has come before us questioning the legality of the resolution plan. It would appear from para 29 of the order under appeal: 29. It was submitted that the claims received of the Operational Creditors by the Respondent No.1 were to the tune of ₹ 2,26,70,153/- whereas the claims verified were of ₹ 2,02,88,948/-. However, it was submitted that the 4th Respondent is willing to pay the verified Operational Creditors at the same percentage as that of the Financial Creditors , i.e. 25%, which shall be paid within 30 days of the Successful Resolution Applicant getting clear and unfettered possession of and rights to the Corporate Debtor . (quoted verbatim) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esolution plan by the committee of creditors. 24. On behalf of the Indian Bank and the said promoter of the corporate debtor, reliance was placed on Clause 35 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016: 35. Liquidation value. (1) Liquidation value is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date. (2) Liquidation value shall be determined in the following manner: (a) the two registered valuers appointed under Regulation 27 shall submit to the interim resolution professional or the resolution professional, as the case may be, an estimate of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if in the opinion of the interim resolution professional or the resolution professional, as the case may be, the two estimates are significantly different, he may appoint another registered valuer who shall submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel (supra), the relevant passage (para 54) of which we have reproduced in earlier part of this judgment. The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have interfered with the order of the Adjudicating Authority in directing the successful Resolution Applicant to enhance their fund inflow upfront. 29. So far as the IA taken out by the MSL is concerned, in our opinion they cannot withdraw from the proceeding in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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