TMI Blog2018 (9) TMI 1833X X X X Extracts X X X X X X X X Extracts X X X X ..... came up for scrutiny in 7th 8th COC meeting. For this a minimum of 30 days is required for the COC and Resolution Professional to comply the direction. Therefore, 30 days is required to be excluded from the CIRP period of 270 days with effect from today so that the entire process can be completed. Application allowed. - Counsel for Petitioner(s): IA 125/2018, IA 282 of 2018, IA & 124/2018 in CP(IB) No.49/7/HDB/2017 - - - Dated:- 28-9-2018 - bankShri V. Venkatachalam, Padmanabhan Venkatesh Versus Shri V. Venkatachalam, M/S United Seamless Tubulaar Private Limited, M/S Indian Bank, M/S United Seamless Tubulaar Private Limited And Shri K.K. Lakshmlnarayana Shri Ratakonda Murali, J. For the Resolution Professional: Shri R. Raghunandan Rao, Senior Advocate, Shri CH Gunaranjan, Shri D.V.A.S. Ravi Prasad, Shri M. Sridhar and Shri G. Bhupesh, Advocates and Shri V. Venkatachalam, Resolution Professional (in person) For Indian Bank: Shri V.K. Sajith, Advocate For Directors: Shri Santosh Jadhav, Advocate For DB (International) (Asia) Ltd: Shri S. Ravi, Senior Advocate along with Shri H. Rajesh Kumar and Varghese Thomas, Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in after referred to as Regulations, 2016). Since the valuation report from Mr. K. Vijay Bhaskar Reddy, the second valuer was not received by the Resolution Professional, as it was directly sent to Indian Bank (Petitioner/FinanciaI Creditor), instead of to Resolution Professional, he requested the 2nd Valuer to send the same to the Resolution Professional directly. On receipt of the Valuation Report, the Applicant/Resolution Professional observed that the valuer had not valued inventory, advances, receivables and deposits in accordance with Regulation 35(2) (a) of IBBI (IRPCP) Regulations, 2016. (5) It is the case of Resolution Professional that after receiving both the valuation reports he observed substantial differences in the two estimates of value, valuation methodologies and principles between the two valuers appointed by IRP. The Applicant / Resolution Professional thus, appointed a third valuer in accordance with Regulations 2016 to determine liquidation value of the Corporate Debtor. (6) In an endeavour to find out a promoter for taking over the Company under Resolution Process, RP has convened eight Committee of Creditors (COC) meetings. Out of 04 Expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom Corporate Debtor owes financial debt did not have any right of representation, participation and voting in the meeting of the Committee of creditors in accordance with Section 21(2) of the Code. (b) List of Operational Creditors S No. Name of the Operational Creditor Amount Claimed Amount Verified 1 UMW Oilfield International (L) Ltd 2,09,22,456 1,79,44,354 2 SBI CAP Trustee Company Limited 6,90,000 6,90,000 3 UMW Holdings Berhad 2,49,710 - 4 UMW Petropipe (L) Ltd 7,229 - 5 M/S Asian Bearings Tools Corporation 12,67591 11,21,427 6 M/S Bearing Age 5,33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2.50 lakhs only per assignment. However the RP engaged the services of the third valuer for ₹ 23.65 lakhs which is 10 times higher than the valuation of the previous valuers. (3) It is the case of Respondent No. 1/lndian Bank that they objected for the third valuation stating that Adjudicating Authority needs only two valuations to arrive at the Liquidation value and the same was presented to Respondent No.l in the COC meeting held on 04.04.2018. (4) It is the case of Respondent NO. I that even in the third valuation report there is more substantial differences between the third valuation and the first two valuation reports in some aspects of the assets valued and the RP never invited the valuers to attend the COC to discuss the wide variations. Instead the Resolution Professional arrived at the Distress value of 2 3, which is contrary to the Code. (5) It is also the case of Respondent NO. I that SBI CAPS is the security trustee for the Deutsche Bank and they valued the fixed assets of USTPL/Corporate Debtor on 03.10.2016 which shows much higher market value and for calculation of distress value it is much more higher than the third valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of DB but the same is not yet clarified by the RP. (12) It is also contended that as per Financial Statements of UMW Holdings Malaysia, provision was made towards contingent liability for the Financial years 2016 2017 for the corporate guarantee to the tune of RM. 899 million (equivalent to 1400 crores). It is thus clear that Deutsche Bank is having Corporate Guarantee of UMW holdings, Malaysia for the NCDs of ₹ 1006 crore and the same is acknowledged by UMW by providing RM 899 million which is reflected in their balance sheets. It is the contention of Indian Bank to reduce the claim to the extent of NCDs or share the amount to be received, at the same share of 13%. Counter by Respondent No.3/Suspended Director Mr. P. Venkatesh (13) It is contended that the table containing various values mentioned at Page 20 of the Resolution Plan, the liquidation value is mentioned as @ ₹ 432.92 crores without giving any basis or valuation methodologies and principles adopted and Fair Value is not mentioned in the table. Respondent NO.3 would contend that the Resolution Professional failed to file copies of 03 (three) Engineer's valuation rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation from Deutsche Bank which is the lender and also the recipient of the Corporate Guarantee from UMW and comply with Regulations, 2016 and that CIRP process was conducted in deviation of IBC to benefit MSL and therefore, the Resolution Plan to be set aside. (17) Respondent No.3 would further contend that Resolution Professional has treated Compulsory Convertible Preference Shares (CCPS) worth ₹ 309 crores which is equity in nature as debt and included it in the claims statement, to be excluded in the claim statement. (18) It is the case of Respondent No. 3 that DB International (Asia) Limited is the lender for the Bonds. The CCPS came from DB Hong Kong. The RP has not brought this fact while verifying the claims and added the CCPS to the Bond to arrive at a higher voting share, ignoring the fact the CCPS was invested by DB Hong Kong and it is in the nature of equity and cannot be considered as a debt. (19) Respondent No.3 would further contend that RP has totally outsourced the entire CIRP from the beginning to the end to an outside agency i.e M/S Brahmayya Co which is against IBBI Circular No.3/2018 dated 03.01.2018 and that three employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Applicant(s) are not mere spectator but may express their views to the COC for coming to a conclusion in one or other way . (23) It is the case of Respondent NO.3 that no reasons were provided/recorded by the COC for accepting or rejecting all the Resolution Plans received by the RP, which is against the Code. (24) Respondent No. 3 contends that MSL (Resolution Applicant) informed the stock exchanges, NSE BSE immediately after COC meeting held on 20.04.2018 that they are the successful bidder of USTPL, even before the Resolution Plan is approved by the Adjudicating Authority. (25) Respondent No.3 further contends that sources of funds for payment of Resolution Plan amount which HDFC Bank letter dated 30.03.2018 cannot be considered as confirming funding requirement. Hence, prays this tribunal to dismiss the Application and set aside the Resolution Plan. 5. A rejoinder is filed by Resolution Professional/AppIicant to the reply / objections filed by Respondent No.3 (1) Applicant would contend Respondent No.3 at this belated stage with malafide intent sought to raise very same contentions with sole intension to disrupt and delay th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also informed to the COC in the meeting held on 10.11.2017. (8) Resolution Professional further stated that M/S Brahmayya Co was appointed as Resolution Applicant Facilitator after the same was discussed in three consecutive meetings of the COC. Therefore, the allegations of conflict of interest is untenable. (9) It is further submitted in the 7th, meeting of COC , the plan submitted by Area Projects was deliberated in the presence of its representative. Since no satisfactory answers were provided by the representatives of Area Projects and multifarious inconsistencies noted, the same was rejected by the COC. Further, majority of COC had clearly set out the reasons for rejecting the Resolution Plan submitted by Area Projects Consultants Private Limited. (10) It is averred by Resolution Professional that MSL (Resolution Applicant) has stated that the upfront payment shall be made within 30 days of order of this Tribunal. All the Resolution Plans were tabled before the COC and COC had taken decision in considering and approving most viable Resolution Plan. The letter issued by HDFC Bank reflects a source of funding the proposed financial infusion by MS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. I have heard Counsel appearing for Resolution Professional. I have heard the Counsel appearing for 1st Respondent/Financial creditor and also the counsel appearing for 3rd Respondent who is the Director (suspended Board) of Corporate Debtor. 6. The Application is filed by Applicant/Resolution Professional under Section 30 31 of IBC, 2016, with a prayer for approval of Resolution Plan submitted by Resolution Applicant i.e. Maharashtra Seamless Limited (MSL). It is the case of Applicant that the members of COC having voting share of 86% have approved the Resolution Plan of MSL in the 8th COC meeting held on 20.04.2018. However, 1st Respondent/ Financial Creditor dissented and voted in favour of other Resolution Applicant i.e. Area Projects Consultants Private Limited. 7. It is the case of Applicant that Resolution Plan meets all the requirements of Law. It is the case of Applicant that members of COC with majority voting share considered the Resolution Plan as feasible and viable and therefore approved the same. It is the case of Learned Counsel for Applicant that it is in the wisdom of COC in approving the resolution plan and that 3rd Respondent, Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel contended Regulation 35 of Regulations, 2016 is not followed in ascertaining the Liquidation Value of the Corporate Debtor. The contention of the Learned Counsel there is total deviation of Regulation 35 of Regulations, 2016 in ascertaining the Liquidation Value for the Corporate Debtor. 10. The next contention of the Learned Counsel that 3rd Respondent / Director (suspended Board) was not able to attend the COC meetings as there is a note appended to the notice issued that 3rd Respondent to excuse himself from attending the COC meetings. Counsel contended issuing notice to the Director not to attend COC is in contravention of Section 24 (3) (b) of the Code. The Counsel relied on the decision of Hon'ble NCLAT in Rajputana Properties Limited Vs Ultra Tech Cement Limited Others, wherein Hon'ble Appellate Tribunal has observed that Directors (suspended Board) or its Partners, Operational Creditors or its representatives and the Resolution Applicant(s) are not mere spectators but to associate in the discussion and to suggest their views or opinion for consideration. Now the contention of the Learned Counsel in the 7th COC meeting, the Director was asked to le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal shall provide the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the liquidation value and shall not use such value to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29. (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and, the liquidation value. .] 12. The question whether Liquidation Value in this case was ascertained in accordance with Regulation 35. If it is not done what type of direction to be given for the same. It is an admitted fact that prior to appointment of Applicant as Resolution Professional, Mr. Ahalada Rao Vummenthala was appointed as IRP. It is not in dispute that IRP has appointed two registered valuers for ascertaining the value of the assets of the Corporate Debtor. The Applicant became Resolution Professional on 10.10.2017 by order of this Tribunal. What is clear from the minutes of 2nd COC meeting that only one valuation report was received and 2nd Valuation report was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuation by the 3rd valuer is required only when there is significant difference between the two valuations. Going for 3rd valuation without examining the first' two valuation reports is not in accordance with Regulation 35. Interestingly, the minutes goes to show that the 3rd valuation is sought not on the ground of significant difference between two valuations but on the grounds that first valuation report did not properly value the assets of the Corporate Debtor. In other words first valuer has not included the value of certain items of Corporate Debtor such as inventory, trade receivables, deposits and advances. RP cannot go for 3rd valuation on this ground under Regulation 35. The RP must find difference which must be significant between the two valuations and then go for 3rd valuation. 14. The Indian Bank/FinanciaI Creditor has raised objections for 3rd valuation and requested Resolution Professional to consolidate two valuations and submit the amended reports after assessing the valuation of left out items of the Corporate Debtor. 15. The contention of the Learned Counsel for 3 rd Respondent/Director (suspended Board), the Resolution Professional h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for Respondent-3 contended that the Director had no access to the valuation because of confidentiality. 17. It is true Director of Corporate Debtor Company had filed CA 89/2018 questioning among others the procedure adopted for valuation. The Resolution Professional took objection about maintainability of the said Application by the Director (suspended Board) on behalf of Corporate Debtor Company and further took objection regarding liquidation value on the ground of confidentiality. The Resolution Professional had pleaded that Liquidation Value was ascertained in terms of Regulation 35. So it was observed that Resolution Professional had proceeded for ascertaining liquidation value in terms of Regulation 35. Now the Resolution Plan has come up for approval. The minutes of 2nd COC meeting was also placed on record. The Resolution Professional has furnished the valuation given by three Valuers. In the earlier Application such an information cannot be furnished to the Tribunal on the grounds of confidentiality. The limited question for consideration in the earlier Application whether procedure prescribed in Regulation 35 was followed for ascertaining Liquidation Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is sought on the ground certain items of Corporate Debtor Company were not valued by the first valuer. The difference between first valuation and 2nd valuation over the assets of Corporate Debtor is ₹ 167.27 crores. The difference between second valuation and third valuation is ₹ 161.85 crores. The Resolution professional arrived at the liquidation value by taking into account the average of two closet valuations which are - 2nd valuation at ₹ 513.85 crores and the 3rd valuation at ₹ 352 crores. The average valuation of the 2nd and 3rd valuation is ₹ 432.92 crores, whereas the average valuation between 1st and 2nd valuations is ₹ 597 crores. 20. The contention of the Learned Counsel COC accepted the liquidation value therefore the 3rd Respondent cannot question the same. It is true COC has accepted the Liquidation value arrived at by taking into account average of 2nd and However, the 3rd Respondent being a 3rd valuations. participant since he is the Director (suspended Board) is entitled to raise the same before the COC when Resolution Plan came up for discussion. The grievance of the 3rd Respondent that he was not allowed to partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent that the last COC meeting was held on 20.04.2018 in which Resolution Plan was finalized. The contention of 3rd Respondent that Resolution Professional sent a notice to the Director (suspended Board) with a note below that Director to excuse themselves from the meeting as the meeting is convened to discuss and vote on the Resolution Plan . So the contention of Respondent No.3 that Resolution Professional wanted the absence of R-3/Director (suspended Board) at 8th COC meeting. In this connection, Learned Counsel for R-3 relied on the decision of Hon'ble NCLAT in Rajputana Properties Limited Vs Ultra Tech Cement Limited Others. The Respondent No.3 has prayed in IA No.2820f 2018 for setting aside the resolution plan and for giving an opportunity to participate in the meeting to consider the resolution plan and to take the views and suggestions of the 3rd Respondent at the time of consideration of the resolution plan. The contention of 3rd Respondent that he was not allowed to participate in the 8th COC meeting and the note to the notice clearly directed the Directors not to attend the meeting. The Resolution Professional has relied upon copy of notice issued for 7th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and approve the resolution plan submitted by Resolution Applicant. The Director (suspended Board) should have been permitted to attend the 8th COC meeting and to express his views. The meeting also discussed the valuation reports. However, the notice issued by Resolution Professional for the meetings is filed by RP along with written submissions. Notice Form is at page No. 28 of written submissions. The note to notice is as follows: Note: Since, the 8th COC meeting, considers evaluation and approval of resolution plans, owing to confidentiality, members of suspended Board or Director, being related parties/connected persons of the Corporate Debtor, may be requested to excuse themselves for the entire proceedings of the 8th COC. 24. It is very interesting to note Resolution Professional directed the members of Suspended Board to excuse themselves in the entire proceedings of 8th COC. What is clear from the note appended to the notice that members of suspended Board to excuse themselves for the entire proceedings. One of the agenda of the meeting A-5 is to consider and evaluate the Resolution Plan submitted by Resolution Applicants. Can a Director be asked not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended, there is no doubt COC in its wisdom either to accept or reject the Resolution Plan. It is purely in the domain of COC to consider the viability of the Resolution Plan. However, COC has to allow the Director (Suspended Board) being a participant to express his views and suggestions and to offer comments over the Resolution Plan. The COC has to give reasons why the suggestions/ views were not considered. The minutes should have contained the views and suggestions of the participants / Director (Suspended Board) and the reasons given by the COC for not accepting the views and suggestions. The contention of the Learned Counsel in the 7th COC meeting held on 13.04.2018, when Agenda Item-5 came up for discussion, the Respondent No.3 was directed to leave the COC meeting. The Director was unable to express his views and suggestions when Resolution Plans came up for discussion. The Counsel contended Respondent No. 3 wrote in the attendance sheet that he was not allowed to participate at the time when Resolution plan came up for discussion/ scrutiny. The Learned Counsel contended that the Counsel appearing for Indian Bank has given Affidavit to the same effect that Resolution Profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice issued by Resolution Professional for 8th COC meeting with appended note is not in accordance with Section 24 (3) (b). So, in the light of my discussion, the Resolution Plan filed before the Adjudicating Authority can not be approved since opportunity is not given to the Board of Directors (Suspended Board) particularly to Respondent No. 3 to express views or give suggestions. Therefore, the resolution plan is to be sent back to the COC for re-consideration after giving opportunity to suspended Board of Directors, particularly to Respondent No.3 to permit him to offer his views and give suggestions to be recorded in the minutes and the reasons of COC is also to be noted in the minutes. For this purpose Resolution Professional is directed to convene the COC meeting. 28. The contention of Respondent NO.3 that constitution of COC is not in accordance with the provisions of the Code. The Learned Counsel would contend that UMWH, Malaysia gave guarantee in respect of the loan sanctioned to the Corporate Debtor. The Deutsche Bank (AG) Bangalore recalled the guarantee and as a result UMWH cleared the loan liability. The contention of the Learned Counsel is that the COC has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Petition, the IRP appointed two valuers in pursuance of Regulation 35 who have valued the assets of the Corporate Debtor Company and gave Fair Value and Liquidation value. 30. The contention of the Learned Counsel for Indian Bank, the valuation for the Corporate Debtor Company prior to admission was done by H. Jayasurya Associates , Banglalore in respect of assets of Corporate Debtor. This was sometime prior to valuation by Duff Phelps. The contention of the Counsel for Indian Bank there is lot of difference in respect of valuations between the valuation done by SBI CAP Security Trustee of Deutsche Bank and Duff Phelps and the gap between the two valuations is around two years and six months, but difference between two valuations is very wide. The contention of the Learned Counsel, the Liquidation valuations is not in accordance with Regulation 35 and that Indian Bank being the Financial Creditor in the COC raised objection for going for 3rd Valuation. 31. On the other hand Learned Counsel for Resolution Professional contended that it was unanimous decision of COC to go for 3rd valuation. The Learned Counsel for Resolution Professional pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng valuation arrived at by each of the valuers. The IRP appointed two Registered valuers. The first Registered valuer P. Madhu valued the assets of Corporate Debtor at ₹ 681.12 crores. The 2nd Registered Valuer Mr. K. Vijay Bhaskar Reddy valued the assets of Corporate Debtor at ₹ 513.85 crores. The difference between the two valuations is ₹ 167.27 crores. The third valuer valued the assets at ₹ 353 crores. Thus, the three valuers have given three different values of the assets of the Corporate Debtor. The difference between the 2nd and 3rd valuations is around ₹ 161.85 crores. There is a slight difference of ₹ 5.42 crores between the valuations of first and second on one hand and the second and third valuations on the other hand. In other words to make it clear, the difference between first and Second valuations is ₹ 167.27 crores and between second and third is ₹ 161.85 crores. The difference between them is ₹ 5.42 crores. Now, the Resolution Professional had taken into consideration for fixing Liquidation value, the second and the third valuations on the ground they are two closet valuations. I already stated, the difference b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Liquidation value between first and second on one hand and between second and third on the other hand is ₹ 164.57 crores. Therefore, it is a fit case to direct the Resolution Professional to re- determine the Liquidation Value by taking into consideration the valuation reports of 1st and 2nd valuers i.e. valuation reports furnished by the Registered Valuers P. Madhu and K.Vijay Bhaskar Reddy. The Resolution Plan submitted by MSL/Resolution Applicant shall be examined or reconsidered by the COC in the light of redetermination of Liquidation Value. 34. In this connection, Learned Counsel for Resolution Professional has relied on the decisions of NCLT Mumbai in Monnet Ispat Energy Limited in MA 346/2018 in CP (1B) 1139 (MB)/2017 and also NCLT Chandigarh in Amtek Auto Limited in CP (1B) No.42/chd/Hry/2017 dated 25.07.2018. The contention of the Learned Counsel that NCLT Mumbai Bench approved the Resolution Plan even though there is a wide difference in the Fair Value and Liquidation Value. The Learned Counsel for Resolution Professional relied on para (6) of the judgement. It is held in the decision cited above that even though there is difference between Fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. (vi) Any other circumstances which justifies exclusion of certain period. It is clear in ground No. (vi), the Adjudicating Authority can exclude certain period for the purpose of counting total period of CIRP is circumstances justify such exclusion. In this case, Resolution Plan of MSL is ordered to be placed before COC for consideration after redetermination of Liquidation Value. Further, in view of re-determination of liquidation value and on the other grounds that Directors of the Suspended Board were not allowed to participate in the discussion in the 7th 8th COC meetings. Therefore, the Resolution Plans which were found to be qualified along with the Resolution Plan submitted by MSL to be placed before the COC again for consideration and Directors (Suspended Board) be permitted at the time that time when Resolution Plans come up for discussion and they be allowed to express their views and suggestions and the same to be recorded in the minutes along with views of coc. 36. For this purpose, Resolution Professional has to convene the COC to comply the directions of the Tribunal. The last date after extension for submission of Resolution Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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