TMI Blog2018 (11) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... f the submission of the Resolution Plan , any Resolution Plan could be verified by the Resolution Professional as per I B Code and be considered by the Committee of Creditors . However, it is also provided that the Committee of Creditors may it its discretion, evaluate, accept or reject such Resolution Plans . It is informed that the Committee of Creditors by majority decision has approved the plan submitted by Ultratech Cement Limited which was found to be eligible in absence of any demerit under Section 29A of the I B Code . i. The Resolution Professional had approached the Adjudicating Authority for seeking clarification in respect of the applications filed by the IDBI for being representative as a member of the Committee of Creditors . ii. The Adjudicating Authority passed order on 17th November, 2017 against which the appeal was filed by the IDBI before this Appellate Tribunal wherein by order dated 18th December, 2017, we directed the Resolution Professional to reconsider the claims of IDBI uninfluenced by the decision of the Adjudicating Authority, Principal Bench. In compliance with such order, the Resolution Professional admitted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 With Company Appeal(AT)(Insolvency) No. 123 of 2018, Company Appeal(AT)(Insolvency) No. 188 of 201, Company Appeal(AT)(Insolvency) No. 216 of 2018, Company Appeal(AT)(Insolvency) No. 234 of 2018 - - - Dated:- 14-11-2018 - Mr S.J. Mukhopadhaya, Chairperson And Mr Bansi Lal Bhat, Member (Judicial) For The Appellant : Mr. S.N. Mukherjee and Mr. Ratnako Banerjee, Senior Advocates with Mr. Arvind Kumar Gupta, Ms. Purti Marwaha Gupta, Mr. Kumar Kartikay, Mr. Abhinav Raghuvanshi, Mr. C.S. Chauhan and Ms. Henna George, Advocates for Binani Industries Ltd., Mr. Amit Sibal, Senior Advocate with Mr. Nakul Sachdeva, Mr. Somesh Dhawan, Mr. Pranshu Paul, Mr. Soham Kumar and Mr. Avinash Amarnath, Advocates for the RP with Mr. Vijay Iyer, RP in person For The Respondents : Mr. Arun Kathpalia and Mr. Gopal Subramanium, Senior Advocates with Ms. Misha, Mr. Manu Nair, Mr. Siddhant Kant, Ms. Bani Brar, Ms. Shantanu Chaturwedi, Ms. Srishti Khare and Ms. Jasveen Kaur, Advocates for Rajputana Properties Pvt. Ltd. Mr. Sanjiv Sen and Mr. Tushar Mehta, Senior Advocates along with Mr. R. Sudhinder, Mr. Soorjya Ganguli, Ms. Nimita Kaul, Ms. Amita Sarkar and Mr. Sumant Batra, Advocates for Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 123 of 2018 against the order dated 27th March, 2018 passed by the Adjudicating Authority, whereby liberty was granted to the Committee of Creditors to consider the settlement plan proposed by the Binani Industries Limited . 7. Another Company Appeal (AT) (Insolvency) No. 188 of 2018 has been preferred by Rajputana Properties Private Limited against the order dated 2nd May, 2018, whereby the CA (IB) No. 246/KB/2018 filed by the Resolution Applicant for approval of the plan of the Rajputana Properties Private Limited has not been accepted for the reasons mentioned in the said order. 8. Mr. Vijay Kumar Iyer, who is the Resolution Professional has preferred Company Appeal (AT) (Insolvency) No. 234 of 2018 against the order dated 2nd May, 2018 in so far it relates to adverse observations made by the Adjudicating Authority against the said Resolution Professional . 9. In the aforesaid background, all the appeals were heard together for disposal. 10. For deciding the issue, it is necessary to discuss all the relevant facts, as detailed below. 11. Mr. Vijay Kumar Iyer- Resolution Professional filed an application under Sections 30 and 31 of the Insolvency and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution Plan of Ultratech Cement Limited was ordered to be considered. The Binani Industries Limited has also challenged the Resolution Plan on other grounds. 17. To decide the issue, it will be desirable to notice the object of the I B Code , object of Resolution and what is expected from the Committee of Creditors , as summarized below: - 1. The objective of the I B Code As evident from the long title of the I B Code , it is for reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders. The recent Ordinance explicitly aims to promote resolution over liquidation. 2. The objective of the I B Code is Resolution. The Purpose of Resolution is for maximisation of value of assets of the Corporate Debtor and thereby for all creditors. It is not maximisation of value for a stakeholder or a set of stakeholders such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de aims at promoting availability of credit. Credit comes from the Financial Creditors and the Operational Creditors . Either creditor is not enough for business. Both kinds of credits need to be on a level playing field. Operational Creditors need to provide goods and services. If they are not treated well or discriminated, they will not provide goods and services on credit. The objective of promoting availability of credit will be defeated. c. The I B Code is for reorganisation and insolvency resolution of corporate persons, .for maximisation of value of assets of such persons to . balance interests of all stakeholders. It is possible to balance interests of all stakeholders if the resolution maximises the value of assets of the Corporate Debtor . One cannot balance interest of all stakeholders, if resolution maximises the value for a or a set of stakeholder such as Financial Creditors . One or a set of stakeholders cannot benefit unduly stakeholder at the cost of another. d. The I B Code prohibits any action to foreclose, recover or enforce any security interest during resolution period and thereby prevents a creditor from maximising his interests. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plan , certain rights in the Corporate Debtor , or assets and liabilities of the Corporate Debtor are exchanged, but that is incidental. It is not an auction. Depending on the facts and circumstances of the Corporate Debtor , Resolution Applicant may propose a Resolution Plan that entails change of management, technology, product portfolio or marketing strategy; acquisition or disposal of assets, undertaking or business; modification of capital structure or leverage; infusion of additional resources in cash or kind over time; etc. Each plan has a different likelihood of turnaround depending on credibility and track record of Resolution Applicant and feasibility and viability of a Resolution Plan are not amenable to bidding or auction. It requires application of mind by the Financial Creditors who understand the business well. It is not recovery: Recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. When creditors recover their dues one after another or simultaneously- from the available assets of the firm, nothing may be left in due course. Thus, while recovery bleeds the Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.7% 370.34 370.34 100% 7. Bank of India 1.5% 94.66 94.66 100% 8. State Bank of India 0.6% 36.89 36.89 100% FINANCIAL CREDITORS TO WHOM CORPORATE DEBTOR WAS A GUARANTOR 9. IDBI Bank Limited (Dubai Branch) 24.2% 1567 1567 100% 10. Export-Import Bank of India 9.6% 620 450 72.59% 11. State Bank of India (Hong Kong) 0.6% 37 3.7 10% 12. Bank of Baroda (London) 2.7% 172 172 100% 13. State Bank of India (Bahrain) 0.4% 25 25 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be paid in full as Rajputana Properties Private Limited was never granted the opportunity to undertake diligence of the underlying plans in China despite repeated requests. Therefore, no opportunity to appropriately analyse the commercial viability. 21. Though the aforesaid explanation seems to be attractive but such ground cannot be taken to discriminate between two same sets of the Creditors namely the Financial Creditors who are similarly situated as guarantors. 22. In so far as the Operational Creditors (other than workmen) are concerned, it will be seen that unrelated parties have been provided with 35% of their verified claim which is about ₹ 90 crores. However, related parties have not been provided with any amount. The breakup of payments to the Operational Creditors has been shown as follows: (a)Trade creditors with o/s of less than ₹ 1 Crore are being paid 100% of their verified claims and form 98.5% of the total trade creditors (i.e. approximately 2937 out of a total of 2988 creditors) (b) Trade creditors with o/s of ₹ 1-5 Crores are being paid 40% or ₹ 1 Crore, whichever is higher (i.e. approximately 24 Oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stent with the provisions of I B Code, and the legislators having not made any discrimination between the same set of group such as Financial Creditor or Operational Creditor , Board by its Regulation cannot mandate that the Resolution Plan should provide liquidation value to the Operational Creditors (clause (b) of regulation 38(1)) or liquidation value to the dissenting Financial Creditors (clause (c) of regulation 38(1)). Such regulation being against Section 240(1) cannot be taken into consideration and any Resolution Plan which provides liquidation value to the Operational Creditor(s) or liquidation value to the dissenting Financial Creditor(s) in view of clause (b) and (c) of Regulation 38(1), without any other reason to discriminate between two set of creditors similarly situated such as Financial Creditors or the Operational Creditors cannot be approved being illegal. 28. Therefore, the Appellant- Rajputana Properties Private Limited cannot take plea that dissenting Financial Creditors can be discriminated on the basis of Regulation 38. At this stage, it is desirable to notice that after the decision of this Appellate Tribunal in Central Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter alia stipulated general and qualitative parameters. It clearly indicated that Committee of Creditors will negotiate only with the Resolution Applicant which reveals highest score based on the evaluation criteria and whose Resolution Plan is in compliance with the requirements of the I B Code as confirmed by the Resolution Professional . We have dealt with the object of the I B Code as recorded above. The Resolution Professional as well as the Committee of Creditors are duty bound to ensure maximization of value within the time frame prescribed by the I B Code . Such an object in finding out a Resolution Applicant who can offer maximum amount so as to safeguard the interest of all stakeholders of the Corporate Debtor is lacking in the case in hand from the side of the Committee of Creditors . 33. In the present case, the Committee of Creditors not only failed to safeguard the interest of the stakeholders of the Corporate Debtor while approving the Resolution Plan submitted by Rajputana Properties Private Limited , also ignored the revised Resolution Plan offered by Ultratech Cement Limited which has taken care of maximization of the assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process document provides that the COC reserves the right to amend or modify the criteria of the evaluation of the Resolution Plan/ Financial Proposal submitted by the Resolution Applicants prior to the Resolution Plan Submission Date. 37. The aforesaid clause shows that the Committee of Creditors can amend or modify the criteria of the evaluation of the Resolution Plan / Financial Proposal submitted by the Resolution Applicants prior to the Resolution Plan submission date. 38. There are other Clauses of process document . Clause 1.6.1 provides that the Committee of Creditors have right to accept or reject one or all plans prior to approval of the same by the Adjudicating Authority . A reading of clause 1.6.1 shows that the Committee of Creditors have ample power to accept any plan prior to the acceptance of the plan by the Adjudicating Authority. Clause 1.6.2 (a) of the process document reads as follows: 1.6.2(a): On receipt of a Resolution Plan submitted by a Resolution Applicant, the Resolution Professional shall review the same for compliance under the IB Code in consultation with his legal advisors and have deliberations with the CoC in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Insolvency Resolution Process Cost 115.91 (114.08 was revised by COC) 115.91 NA 2. Workman Wages 18.01 18.01 NA FINANCIAL CREDITORS WITH DIRECT EXPOSURE TO CORPORATE DEBTOR 3. Edelweiss Asset Reconstruction Company 2775.82 2775.82 217.63 4. IDBI Bank 335.85 335.85 26.33 5. Bank of Baroda 427.69 427.69 33.53 6. Canara Bank 370.34 370.34 29.03 7. Bank of India 94.66 94.66 7.42 8. State Bank of India 36.89 36.89 2.89 9. Oriental Bank of Commerce 0.72 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan , the Ultratech Cement Limited agreed to pay further interest @10% per annum quarterly to rest of the Financial Creditors for the entire resolution period till the date of payment. In the aforesaid background, interest has been calculated to the Corporate Debtor as on 30th April, 2018. 43. From the two Resolution Plans , it will be clear that the Rajputana Properties Private Limited in its Resolution Plan has discriminated some of the Financial Creditors who are equally situated and not balanced the other stakeholders, such as Operational Creditors . Therefore, the Adjudicating Authority has rightly held the Resolution Plan submitted by Rajputana Properties Private Limited to be discriminatory. Resolution Plan of the Ultratech Cement Limited 44. Mr. Gopal Subramanium, learned Senior Counsel appearing on behalf of the Rajputana Properties Private Limited while requested to accept the Resolution Plan as approved by the Committee of Creditors submitted that the process of Insolvency Resolution is in the domain of Committee of Creditors . The jurisdiction of the Adjudicating Authority being a creature of the statute is limited. 45. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made known to the Ultratech Cement Limited who submitted its revised plan on 8th March, 2018. 50. From the record it will be evident that Ultratech Cement Limited always offered for revision of its Resolution Plan and having noticed that an opportunity given to the Rajputana Properties Private Limited on 7th March, 2018, it submitted the revised offer on 8th March, 2018. The revised offer of Ultratech Cement Limited is ₹ 2,427 Crores as against the offer of the Rajputana Properties Private Limited which is ₹ 2,224 Crores. Thereby there is a gap of ₹ 203.1 Crores. 51. It was submitted that on 13th March, 2018, the Resolution Professional was furnished the forensic report submitted by M/s. HariBhakti Co., a well-known forensic auditor appointed by the Resolution Professional to carry on forensic audit to identify preferential, undervalued, fraudulent and suspect transactions. However, such issue cannot be decided in this appeal, in absence of specific pleading of relevant facts. 52. It is alleged that the Ultratech Cement Limited to bail out Binani Industries Limited , the promoters and shareholders of the Corporate Debtor , wanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramework and objective of the I B Code , which we have already discussed in the preceding paragraphs. 57. Learned Solicitor General referred to date of advertisement dated 13th October, 2017 inviting prospective lenders, investors and other person(s) to put forward the Resolution Plans for the Committee of Creditors to consider. It was submitted that the Committee of Creditors always followed a fair and transparent procedure to select the Resolution Plan pursuant to the object of the I B Code i.e., the maximization of value of assets of the Corporate Debtor . 58. It was submitted that despite two proceedings before two different authorities i.e., the Adjudicating Authority and this Appellate Tribunal, the Committee of Creditors continued to follow the same procedure. 59. Mr. Tushar Mehta, learned Solicitor General submitted that pursuant to the Adjudicating Authority order dated 4th May, 2018 and this Appellate Tribunal s order dated 15th May, 2018, the Committee of Creditors complied with the directions passed by the Hon ble Tribunals and held negotiations with both Resolution Applicants . In compliance with order dated 15th May, 2018 of this Appellate Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (1) The resolution professional shall issue the information memorandum, evaluation matrix and a request for resolution plans, within five days of the date of issue of the provisional list under sub-regulation (10) of regulation 36A to- (a) Every prospective resolution applicant in the provisional list; and (b) Every prospective resolution applicant who has contested the decision of the resolution professional against its non-inclusion in the provisional list. (6) The resolution professional may, with the approval of the committee, extend the timeline for submission of resolution plans . 61. Therefore, according to learned Senior Counsel for the Committee of Creditors , if need be and if an extraordinary situation so arises, the Committee of Creditors holds the discretion in conformity with the Regulations framed by the Board to extend the timeline over and beyond the process documents . The said fact is also evidenced in the proviso to Clause 1.3.1 of the process document which provided that even after the deadline of the submission of the Resolution Plan , any Resolution Plan could be verified by the Resolution Professional as per I B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arliament amended the I B Code and inserted the provision of 12A, which reads as follows: 12A. Withdrawal of application admitted under 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. 68. The aforesaid provision has come into force on 6th June, 2018 i.e. much after the impugned order was passed (2nd May, 2018). The Applicant has not filed an application for withdrawal after approval of the 90% voting share of the Committee of Creditors , therefore, the Appellant- Binani Industries Limited cannot take advantage of Section 12A nor can be allowed to settle the matter. Even if they settle the matter, the Corporate Insolvency Resolution Process cannot be terminated by the Adjudicating Authority or this Appellate Tribunal in absence of any illegality. 69. In so far as the observations made by the Adjudicating Authority against the Resolution Professional are concerned, we are of view that the observations were uncall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to this Appellate Tribunal, also directed to transfer the insolvency petition from the Adjudicating Authority to this Appellate Tribunal for passing appropriate order in accordance with law. 71. After decision of the Adjudicating Authority by impugned order dated 2nd May, 2018, the Committee of Creditors held its 17th Meeting on 28th May, 2018 and considered the revised plan submitted by the Ultratech Cement Limited . It was put to vote and all the members of the Committee of Creditors by 100% voting shares voted in favour of Ultratech Cement Limited and resolved that the Letter of Intent in connection with and amending the Resolution Plan of Ultratech Cement Limited be issued to Ultratech Cement Limited . 72. The Resolution Professional has now placed the same before this Appellate Tribunal for passing appropriate order under Section 31 of the I B Code . 73. In exercise of powers conferred by Section 31 of the I B Code read with order of remand by the Hon ble Supreme Court, we have gone through the records, revised Resolution Plan submitted by Ultratech Cement Limited, gist of which noticed earlier and being satisfied that the Resolution Plan appro ..... 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