TMI Blog2018 (9) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... 7;12, 604. 60 crores as is evident from the document Annexure A-8 attached with CA No. 114 of 2018. The resolution professional has also filed the compliance certificate under regulation 39 (4) of the Regulations by diary No. 2159, dated 13. 06. 2018. We allow CA and the resolution plan submitted by LHG Pte Limited is found to be in conformity with sub-section (2) of Section 30 of the Code and the same is approved with the modification that the timelines given in the resolution plan shall stand extended during the period, CA No. 114 of 2018 remained pending i. e. from 16. 04. 2018 upto the date of decision of the application. The application bearing CA which has been filed by the resolution professional for seeking clarification from this Tribunal stands disposed of as the non-disclosures of the associate companies by the Resolution Applicant in this case, has not been found to be fatal to the validity of the resolution plan and its implementation. It is further directed that the resolution plan so approved shall be binding on the Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. With the approval of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution process was extended by 90 days vide order dated 17. 01. 2018 passed in CA No. 08/2018 in terms of sub-section (3) of Section 12 of the Code. 5. Few miscellaneous applications were filed during pendency of the petition by some of the financial creditors/Banks challenging the decision of the resolution professional in not accepting the claim filed with the resolution professional on the basis of invocation of the bank guarantee/ indemnity / surety and the letters of comfort furnished by the corporate debtor for extending the loan facilities to certain subsidiaries of the corporate debtor. Those are in CA Nos. 61/2018, 77/2018, 177/2018, 178/2018 72/2018 which are being disposed of by a common detail order separately. It is, however, admitted proposition that the adjudication of those applications would not have any impact on the approval of the resolution plan as the dispute in those applications is only insignificant percentage of the voting share of the COC. There are certain more allegations made in CA No. 77 of 2018 to attack validity of the plan which have also been discussed in the separate order being passed on these applications. 6. In the first application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion applicants was finalised by the Resolution Professional and submitted to the COC in the meeting held on 06. 12. 2017 in consultation with legal advisors of COC, the Applicant and process advisors. The COC approved the process note containing terms and conditions for consideration and selection of Resolution Plans. The COC approved the resolution plan evaluation criteria in the meeting held on 18. 12. 2017 which was informed to the resolution applicants. 10. The binding resolution plans were, however, received from only two applicants, namely; Liberty House Group PTE Ltd. (LHG) and Deccan Value Investors LP (DVI). The other four resolution applicants neither submitted the resolution plan nor the bid bond guarantee. Thereafter in the meeting held by the committee of creditors, these resolution applicants were invited to submit the improved resolution plans. Scores on the basis of the bid evaluation matrix were given to both the resolution plans. LHG submitted revised resolution plan by email dated 20. 02. 2018, which was not acceptable to the COC and both the applicants were granted final opportunity to submit the improved resolution plans. 11. On this, the sealed covers c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s namely Indian Overseas Bank, Oriental Bank of Commerce and Honda of the UK Manufacturing Limited total aggregating 5. 05% voting share cast their dissenting vote. 28 financial creditors aggregating 1. 06% abstained from voting. Later on MSRTC Contributory Provident Fund and MSRTC Gratuity Fund aggregating 0. 31% of voting share by their email dated 06. 04. 2018 expressed approval to this plan. In this way, the plan was approved by 94. 20% of the voting share of the financial creditors. The email dated 06. 04. 2018 received from MSRTC Contributory Provident Fund and MSRTC Gratuity Fund is at Annexure A-7 (Colly). Copy of the minutes of the meeting along with the voting summary is at Annexure A-8. The list of financial creditors of the corporate debtor with their admitted claims and voting share has also been annexed at Annexure A-9. 14. The resolution professional has made a detailed reference in his application to the compliances made in Section 30 (2) of the Code. It is also stated that the resolution plan as approved by the committee of creditors meets with the requirement of regulations 38 (1), 38 (1A), 38 (2) and 38 (3) (i) of the Regulations, details of which are given i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 a. m. on 17. 04. 2018 (Annexure A-4) that though there was no principal outstanding , the accounts of the subsidiaries of the corporate debtor are non-performing for a period of more than one year on account of non-payment of the interest by the borrower companies. The exposure was not guaranteed either by the LHG or Sanjeev Gupta. However, the default of the group companies subsists with the EXIM Bank as no payment as on date has been received from the borrower companies. The EXIM Bank further stated in the email that they came to know about this default during CIRP proceedings in ABG Shipyard case. 19. The resolution professional immediately informed the main lenders of the corporate debtor and requested for urgent meeting proposed to be held at 10. 30 am on 18. 04. 2018. 20. However, LHG also sent its response stating that this group is not ineligible and will send the detailed reply. A detailed letter dated 18. 04. 2018 was received from LHG in which it was stated that there is a long standing dispute before the English High Court in respect of the amount claimed by the EXIM Bank from certain companies, where a formal Pre Action Protocol has been initiated and com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution Applicant has averred that no adverse measures can be taken against it as a result of certain accounts of group companies being classified as NPA, without affording opportunity to address on the issue and cure the defect allegedly causing the ineligibility. It is further alleged that the resolution professional has stated that Exim Bank by email dated 17. 04. 2018 informed that three group companies of the respondent LHG Group being LITL 6 Limited, LITL 7 Limited and LITL 18 Limited (collectively LITL Companies ) are in default with Exim Bank for failing to pay certain amount of interest on the loan facilities extended by Exim Bank. It was admitted in the said mail that there was no principal sum outstanding and that the exposure of Exim Bank was neither guaranteed by LHG nor Mr. Sanjeev Gupta. 25. It is averred that the statement of objects and reasons of the Code is to maximise the asset value of the corporate debtor. In fact the other bidder/resolution applicant namely, DVI had already withdrawn its bid and therefore no longer eligible to be participating in the CIRP process of the corporate debtor. 26. LHG was for the first time notified regarding certain loan ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the resolution applicant. 29. The resolution applicant, however, has also challenged the decision of ABG Shipyard RP holding the resolution applicant to be ineligible in the said case by making IA No. 139 of 2018 in CP (IB) 53/7/NCLT/AHM/2017 and the Ahmedabad Bench of NCLT vide order dated 08. 05. 2018 has observed that the issue of disqualification in the said case being under challenge and sub judice, would have no bearing and / or impact on the other CIRP processes wherein the resolution applicant is participating. Copy of order of NCLT Bench, Allahabad Bench is at Annexure R-3. The emphasis has been laid on the fact that the resolution applicant was not having knowledge of notice regarding the account of LITL companies having purportedly classified as NPA by Exim Bank in accordance with the guidelines of Reserve Bank of India. Exim Bank has not even indicated how LITL companies are connected persons under Section 29 (A) (J) of the Code. 30. With regard to the disclosure and declaration made by the resolution applicant (LHG), it is stated that only key operating entities were disclosed. There are even no guidelines in place for resolution applicants regarding scope and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to all the terms of the process memorandum including the timelines prescribed therein. 35. In the course of the process, the resolution professional informed the applicant that DVI (the applicant herein) and LHG were found eligible in terms of the Code for submitting resolution plans. The plans submitted by the applicant were discussed and it revised the same from time to time and finally submitted the plan on 05. 03. 2018. It was informed to the applicant by the resolution professional on or about 06. 03. 2018 that the resolution plan proposed by the LHG has been given higher scores based on the evaluation criteria and therefore, the committee of creditors would consider only the other prospective plan of LHG. In view of the aforesaid information supplied by the resolution professional, the applicant withdrew its plan on or about 06. 03. 2018. 36. The applicant has now come to know from the news reports that LHG has been found ineligible to bid under Section 29A of the Code in respect of the another company undergoing corporate insolvency resolution process i. e. ABG Shipyard Limited. This was on account of nonpayment of the dues owed to Exim Bank by connected persons of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding dues of all the three connected entities of the Resolution Applicant namely; LITL 6, LITL 7 and LITL 18, who were granted the term loans respectively by the Exim Bank which is also a Financial Creditor and member of committee of creditors in this case. LHG admittedly holds 49% of the shares in these three entities, which is sufficient to say that these three entities are the connected persons with the Resolution Applicant. However, Exim Bank in the communication Annexure A-4 dated 17. 04. 2018 sent the response to the Resolution Professional that rest of 51% of the shareholding is held by Sanjeev Gupta, who is the person in the Management of LHG being its director as mentioned at page 43 of CA No. 112 of 2018. 43. It would be relevant to refer to clauses (c) and (j) of Section 29A of the Code which lays down the persons not eligible to submit a resolution plan and these provisions are as under: A person shall not be eligible to submit a resolution plan, if such person or any other person acting jointly or in concert with such person xxxx xxxx xxxx ( c) has an account or an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be eligible to be the Resolution Applicant until the amount of default in respect of its connected entities was cleared. 46. The learned counsel for DVI vehemently contended that the LHG whose resolution plan was approved, did not furnish the details of these three entities while submitting the declaration and undertaking with the Resolution Professional on 12. 02. 2018. This undertaking is at Annexure A-6 of CA No. 112 of 2018. The details of this Resolution Applicant furnished with the undertaking are at Annexure A-7 with this application and it has provided the details of various holding companies, subsidiary and associate companies (numbering 22), related parties of LHG and related parties of the persons in the management of the Resolution Applicant (numbering 17) apart from the other general disclosures, but failed to disclose entities whose accounts were declared NPAs for more than one year as per requirement of clause (c) of Section 29A of the Code. 47. A similar matter arose before the Division Bench of NCLT, Ahemdabad in Numetal Limited Vs . Mr . Satish Kumar Gupta and Ors IA 98 of 2018 in CP (IB) No . 40/7/NCLT/AHM/2017, decided on 19 . 04 . 2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve provided the shareholding and directorship details of the targets based on the information available from the website and also press media source. It is further observed that PwC has relied upon the information generated from the database which are licensed from third party and does not assume any responsibility in respect of inaccuracies, omissions or errors, which may subsequently be discovered in information detail in the database. The procedure of PwC does not involve in verifying this information with Target Entity and Target Individuals. 52. The learned counsel for DVI referred to Regulation 38 (3) of the Regulations to contend that it is mandatory for the Resolution Applicant to furnish the details of the connected persons to enable the Committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering resolution plan for its approval. Explanation (ii) to Regulation 38 (3) of the Regulations defines the expression connected persons as meaning a) persons who are promoters or in the management or control of the resolution applicant; b) persons who will be promoters or in management or control of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HG had not furnished the guarantee for payment of the amount of loan in respect of these associate companies. It has also been stated in this reply that there was no principal outstanding in the account of the aforesaid associate companies. 55. Further the Exim Bank vide letter dated 23. 04. 2018 Annexure R-2 (Colly) attached to the reply filed by LHG to CA No. 112 of 2018 has confirmed that the outstanding dues along with the interest thereon and other charges have been fully repaid as on 23. 04. 2018 by LITL 6, LITL 7 and LITL 18 and there is no outstanding due payable by any of these three entities. 56. Otherwise the Resolution Applicant had sent a response to the Resolution Professional to the query raised by the Resolution Professional in view of the news published in the newspaper. In the said reply dated 18. 04. 2018 Annexure R-1 with reply to CA No. 112 of 2018, LHG has stated that the facilities granted to LITL entities were part of larger loan syndication transaction by Essar Steel India Limited ( ESIL ) aggregating to USD 1. 25 billion. Various companies including the entities in question entered into Advance Payment and Supply Agreements (APSA) for supply of cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the issue arose out of a service matter. 59. In the present case, while the resolution plan is still under consideration before this Tribunal that the associate entities of the Resolution Applicant are found to have defaulted in making payment of the amount of interest and not the principal and that too stands already paid. 60. The other case cited by the learned counsel is of Hon ble Allahabad High Court reported in Arunachalam Muthu Vs . State Bank of India 2010 (4) AWC 3289 (LB) . In that case, it was observed that the deed of assignment dated 16. 01. 2006 was obtained by Kotak Mahindra Bank, claiming that it is an Asset Reconstruction Company (India) Limited and that the agreement is executed for assigning the debt as per the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002, whereas it was admitted that Kotak Mahindra Bank was neither a securitisation company nor asset reconstruction company and therefore, the agreement was found to be the result of fraud. 61. The fact of the matter in the present case is that there are huge number of the associate companies or the connected per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COC discussed and examined feasibly and viability in the meeting held on 02. 04. 2018 and it was approved in the meeting dated 04. 04. 2018 by 94. 20% of voting share. The Resolution Applicant was declared as the successful bidder in the meeting held on 05. 04. 2018. 67. Keeping in view the total amount of the debt of corporate debtor, the amount of resolution plan and very large number of the related and connected entities, the non-disclosure of the three entities for whom the amount in default in payment of interest to the tune of ₹18 crores would not be significant, especially when it has been paid. 68. Now we would examine whether the resolution plan complies with the provisions of the Code and Regulations framed thereunder. Section 31 (1) of the Code says that if the Adjudicating Authority is satisfied, the resolution plan as approved by the COC under sub-section (4) of Section 30 meets the requirements as referred to in subsection (2) of Section 30, the Adjudicating Authority shall approve the resolution plan. 69. Sub-section (2) of Section 30 of the Code reads as under:- The resolution professional shall examine each resolution plan received by him to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph 7 of Part IV (Financial Proposal of the Resolution Applicant) of the resolution plan. 72. In this regard, the resolution plan states that all the statutory dues and claims in relation thereto shall be fully and finally settled by making payment of the statutory dues settlement amount, which is to the tune of ₹11. 5 crores, details of which are given in para 7. 11 of Part 4 of the plan. 73. With regard to the other Operational Creditors, the plan stipulates that such portion of the verified amount as may be determined by the Resolution Applicant subject to aggregate cap of ₹50 crores shall be paid to the Operational Creditors in full and final settlement of the claims of all the creditors. 74. It is further certified that the resolution plan provides for continuation of the Corporate Debtor, its business and affairs as a going concern. 75. Further the implementation provisions of the plan are mentioned in schedule 4 of the resolution plan, which provides that the Resolution Applicant and Resolution Professional shall jointly supervise the implementation of the plan until the closing date. The mechanism for supervision of the payment to the stakeholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution professional has also filed the compliance certificate under regulation 39 (4) of the Regulations by diary No. 2159, dated 13. 06. 2018. 80. In view of the above discussion, we allow CA No. 114 of 2018 and the resolution plan submitted by LHG Pte Limited is found to be in conformity with sub-section (2) of Section 30 of the Code and the same is approved with the modification that the timelines given in the resolution plan shall stand extended during the period, CA No. 114 of 2018 remained pending i. e. from 16. 04. 2018 upto the date of decision of the application. 81. In view of the aforesaid, the application bearing CA No. 112 of 2018 which has been filed by the resolution professional for seeking clarification from this Tribunal stands disposed of as the non-disclosures of the associate companies by the Resolution Applicant in this case, has not been found to be fatal to the validity of the resolution plan and its implementation. As such, CA No. 140 of 2018 filed by DVI and its associate also stands dismissed. 82. It is further directed that the resolution plan so approved shall be binding on the Corporate Debtor, its employees, members, creditors, guarantors ..... X X X X Extracts X X X X X X X X Extracts X X X X
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