TMI Blog2019 (5) TMI 1718X X X X Extracts X X X X X X X X Extracts X X X X ..... e status of Tayo Rolls Ltd., as to whether it is 'undischarged insolvent'. An adjudication in respect of the corporate debtor to conclude that it is 'undischarged insolvent' has to be entrusted to a court of competent jurisdiction. We are unable to persuade ourselves that the adjudicating authority-NCLT has been vested with the jurisdiction to declare a body corporate as 'undischarged insolvent'. Such a findings lead to a very serious prejudice for a body corporate and its 'Directors'. Even in the Companies Act, 2013 there is complete absence of any provision which provide that on admission of a petition under Sections 7, 9 or 10 of the Code, the company would be regarded as 'undischarged insolvent' - it is extremely doubtful whether the Adjudicating Authority-NCLT has jurisdiction to issue such a declaration by adopting a summary procedure. The resolution plan is accepted and all objections are over-ruled. However, the acceptance and approval of the resolution plan shall be subject to the following; a) The amount due to the operational creditor under the resolution plan must be accorded priority in payment over the financial credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h) It is needless to clarify that Section 30(2) (f) of the Code mandates that the Resolution plan should not be against any provisions of the existing law. The resolution applicant, therefore, shall adhere to all the applicable laws for the time being in force. The application stands disposed of in the above terms. - C.A No. 929(PB)/2018 in C.P. (IB)-530(PB)/2017 - - - Dated:- 30-5-2019 - CHIEF JUSTICE (RTD.) M.M. KUMAR HON'BLE PRESIDENT AND SH. S.K. MOHAPATRA, HON'BLE MEMBER (TECHNICAL) For the Resolution Applicant : Mr. Rajiv Nayar, Senior Advocate withMr. V.P. Singh, Mr. A.R Chaudhary, Mr. Utsav Trivedi, Mr. Sahil Monga, Ms. Ruby Singh, Ms. Tahira, Ms. Vatsala Rai, Mr. Aditya Jalan, Mr.Aman Sharma, Mr. Navandeep Matta, Advocates for Resolution Applicant-TSL For the non-applicant : Dr. U.K Chaudhary, Sr. Adv. with Mr. Anuj Malhotra, Mr. Himanshu Vij, Advs. for Neeraj Singhal For the Vistrat : Mr. Parminder Singh, Adv. For the COC : Mr. Abhinav Vashisht, Sr. Adv. with Ms. Misha, Mr. Vaijayant Paliwal, Mr. Saurav Panda, Advs. For the RP : Mr. Arun Kathpalia, Sr. Adv. with Mr. Amar Gupta, Mr. Mayank Mishra, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uance of Section 15 of the Code the Interim RP invited claim on 10.01.2018 (Annexure A-5). He received and collated the claims amounting to INR 2779,94,79,058/- (Rupees Two Thousand Seven Hundred Seventy Nine Crores Ninety Four Lakhs Seventy Nine Thousand Fifty Eight) from twelve (12) financial creditors and further claims of ₹ 98,20,03,794/- (Rupees Ninety Eight Crores Twenty Lakhs Three Thousand Seven Hundred Ninety Four) from nineteen (19) operational creditors as on 13.09.2018. No claims were received from workmen/ employees and other creditors. A true copy of list of claims admitted by the Resolution Professional has been placed on record (Annexure A-6). The RP convened 10 meetings of the COC up to 14.09.2018. 3. It is also pertinent to mention that RP issued a public notice which was published on 22.02.2018 and invited prospective resolution applicants to put forward their resolution plans in respect of the Corporate Debtor. A true copy of the public notice has been placed on record (Annexure A-7). In response to the publication two (2) potential resolution applicants namely (i) Tata Steel Limited (TSL') and (ii) JSW Energy Limited expressed their interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time was based on the fact that the deadline for submission of approved plan to this Tribunal was 22.06.2018 and till that date plans were not evaluated and voted upon. Further same was followed by acceptance of Letter of Intent (Lol) and submission of a contract performance guarantee by the Resolution Applicant. The resolution for extension of time was voted and carried by adequate majority (i.e. 87.89% majority). Accordingly, we granted extension vide order dated 06.06.2018. In the light of the said order the date for submission of resolution plan was extended up to 90 days beyond 07.07.2018 which works out to be 05.10.2018. 6. The RP had received only one resolution plan of TSL as on 11.06.2018 which was the final deadline fixed. It is appropriate to mention that the initial deadline for receipt of resolution plans was 28.05.2018 which was later extended from time to time. Eventually the deadline was fixed at 11.06.2018. In order to evaluate the Resolution Plan submitted by TSL and to negotiate with TSL's representatives, a core committee headed by six top members of the COC was constituted on 12.06.2018. The RP constituted a core committee on 12.06.2018, compri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the resolution plan has been discussed in details through compliance certificate in Form-H dated 15.10.2018. In accordance with the process document, the HI Resolution Applicant was issued a letter of intent (Annexure A- 13) subsequently. The aforesaid resolution plan approved by the COC has now been placed before us for our acceptance and approval in terms of the Code and CIRP Regulations. 9. The RP has also ascertained that under Sections 10.2 14 of the approved Resolution Plan the Resolution Applicant has sought certain reliefs and concessions and submissions have been made that this Tribunal may approve and direct the grant of the reliefs and concessions envisaged in the COC approved resolution plan [Annexure A-16 (Colly)]. 10. The RP has stated that in terms of Section 5.1.1 of the approved Resolution Plan, the date of the approval of the Resolution Plan by this Tribunal, is to be regarded as effective date and until the date on which all the steps for the implementation set out in Annexure 5 would be completed (closing date). The plan envisaged inter alia the following: (i). the Resolution Professional along with its Professional Advisor shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the application. Mr. Abhishek Anand, Ld. Counsel appearing for the Ex-Management accepts notice. A copy of the application filed U/ s. 30(6) and 31 of the IBC has been furnished to him. Objections, if any, be filed within a week with a copy in advance to the counsel opposite. On examination of the application we find that there is certain lacuna which the resolution professional undertakes to remove before the next date of hearing. However, all objections including the objections to locus standi of the Ex-Management shall remain open. List on 15.10.2018. 14. The lacuna of filing Form-H prescribed under Regulation 39 (4) was cured. According to Regulation 39 (4) the RP is obliged to submit the resolution plan approved by the COC to the Adjudicating Authority-NCLT, at least fifteen days before the maximum period prescribed for CIR Process along with a compliance certificate in Form-H of the Schedule. It further requires the filing of evidence of receipt of performance security required under Sub-Regulation 4(A) of Regulation 36 (B). The aforesaid lacuna was cured to the extent Form-H was filed and a copy of the same was also furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by deciding to withdraw the pending Civil Appeal in case it adversely affect the Resolution Applicant. The relevant para of the minutes of the COC meeting held on 17.08.2018 has been relied and the same reads as under:- EARC (Edelweiss Assets Reconstruction Company) strongly recommended that the RP should immediately proceed and file an appeal in the Hon ble Supreme Court. SBI requested the members of the COC to consider that the discussions on the resolution plan was at advanced stages and it was not sure how fruitful further appeal would be and whether it may adversely affect the discussions with the resolution applicant. Axis Bank agreed with SBI and mentioned that any decision to file an appeal should be a considered decision. The members of the COC deliberated on this issue and also explored the option to withdrawal of the appeal to be file before the Supreme Court depending on how discussions with the Resolution Applicant progress. On being queried, the RP's Legal Counsel informed the members of the COC that such appeal can be withdrawn at any point time. However, the withdrawal of the appeal will be subject to such withdrawal being permitted by the judge of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual can be adjudged as an insolvent and not a corporate entity. 22. The RP submitted compliance certificate in Form-H under Regulation 39 (4) of the Regulations, 2016. It is certified by the RP that resolution plan has complied with all the provisions of the Code and the Regulations, 2016 and that it did not contravene any of the provisions of law for the time being in force. In order to confirm compliance with Section 29A of the Code, the RP and the COC sought and obtained affidavit from the Resolution Applicant which is patent from a perusal of aforesaid compliance certificate specifically declaring and affirming its eligibility under Section 29A of the Code which has been duly submitted by HI Resolution Applicant as part of their respective resolution plans confirming that it was not disqualified by virtue of the provisions of Section 29A of the Code. 23. We have heard learned counsel for the parties and have perused the record with their able assistance. 24. Dr. U.K. Chaudhary, learned Senior counsel for the Ex-Promoter/ Ex-Director has advanced following arguments: (i) That, the Resolution Plan Applicant is ineligible under Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n applicant become ineligible post submission of resolution plan then the Adjudicating Authority would lose power to check the eligibility at the time of approving the resolution plan. 25. Dr. U.K. Chaudhary has then submitted that concealment of proceedings pending before Hon ble the Supreme Court must be viewed seriously which was intentional and was for malafide reasons to give undue advantage to the resolution applicant, as it has material bearing on the valuation of the assets of the Corporate Debtor. Another submission made by Dr. Chaudhary is that there is impairment of fair market valuation of the Corporate Debtor and the order of Hon ble the Supreme Court in Civil Appeal No. 8517 / 2018 should be awaited as it would have a direct bearing on the resolution process of the Corporate Debtor. According to the learned counsel the fair market value of the Corporate Debtor would go up substantially if Hon ble the Supreme Court uphold the Power Purchase Agreements. The last submission made by Dr. Chaudhary is that there was no justification for lower valuation. The power plant of the Corporate Debtor is a 'captive power plant' having 485 MW capacity and it was set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... palia then argued that the allegation of concealment concerning the filing of Civil Appeal No. 8517 / 2018 challenging the resolution plan in respect of Bhushan Steel Limited, a sister concern of the Corporate Debtor is absolutely baseless and as a matter of fact there is no concealment. According to the learned counsel RP has preferred an appeal in respect of the resolution plan concerning Bhushan Steel Limited which is publicly known to all the stake holders including the non-applicant. Learned counsel argued that even otherwise it is not directly relevant as the Civil Appeal filed before Hon'ble the Supreme Court is in respect of a distinct and different entity than the one involved in the present case namely Bhushan Energr Limited. In any case the COC of Bhushan Energ,r Limited was made fully aware of the proceedings before Hon'ble the Supreme Court as is evident from the minutes of the 10th meeting of the COC held on 14.09.2018 (Annexure R-11 with the objections filed by the Ex-Promoter). It has been pointed out that the RP had raised a limited challenge to the resolution plan of the TSL in respect of Bhushan Steel Limited which is pending before Hon'ble the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Bench has any bearing on the issue. It is appropriate to mention that Kolkata Bench of NCLT had refused to admit the petition filed in respect of M/ s Tayo Rolls Limited and the order was reversed by the NCLAT. According to the learned counsel this will not make M/S Tayo Rolls Limited as undischarged insolvent. 32. Mr. Rajiv Nayar, learned senior counsel for the TSL has highlighted that the resolution plan proposes payments of INR 805 Crores and the break up is INR 730 Crores for Financial Creditors and INR 25 Crores for CIRP Costs and INR ₹ 50 Crores for Operational Creditors. Mr. Nayar has also highlighted that INR 367 Crores is to be invested as equity to improve operations of the Corporate Debtor. The investment would be subject to market conditions, business requirements and regulatory approvals, as and when required by the Corporate Debtor, as determined by the Resolution Applicant. According to the learned counsel the total proposal made by the Resolution Applicant is upto INR 1,172 Crores. 33. Mr. Nayar has denied the allegations of Ex-Promoter of the Corporate Debtor as completely unfounded and baseless and that there is no collusion. They were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applies only to individuals. According to the learned counsel the above interpretation of the term 'undischarged insolvent' is also consistent with the use of the term 'undischarged insolvent' under the Code. Apart from Section 29A(a) of the Code, the term 'undischarged insolvent' is used only in Section 79(3) (which falls under Chapter Ill of the Code which deals with 'Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms and it is yet to be enforced). The term bankrupt , defined under Section 79(3) of the Code, refers only to individuals . It is clear therefore, that any person adiudged as an undischarged insolvent refers only to individuals . Mr. Nayar then submitted the drafters of the Code could not have intended the same term 'undischarged insolvent' to have different meanings under Chapter Il of the Code (of which Section 29A is a part) and Chapter Ill of the Code. In light of the same, adoption of the interpretation proposed by the Objector, (i.e. whereby a person is an undischarged insolvent may also refer to a body corporate), would result in the application of sub-section (c) of Section 79 (3) to body cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was 11.06.2018 in the present case and not thereafter. No order of admission was passed for initiation of CIR Process in respect of Tayo Rolls Limited at that time. 36. Mr. Nayar also submitted that Section 29A (c) of the Code or any other clause concerning disqualification has no application at all. It has not even been pleaded and is irrelevant to the facts of the present case as each contingency specified under Section 29A of the Code is a distinct circumstance and it encompasses a separate mischief. Therefore, it is not possible to read conjunctively or rely upon any other grounds of disqualification under Section 29A. 37. On behalf of the COC supporting submissions have been advanced by Mr. Abhinav Vashisht learned Senior counsel adopting virtually the arguments advanced on behalf of the Resolution Plan Applicant as well as RP. 38. A primary question of law arises for determination is [a] whether a body corporate could be an 'undischarged insolvent' on proper interpretation of Section 29A (a) read with Sub Section (j) of the Code; (b) if the answer to the aforesaid question is 'yes' then in the facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such person, or any other person acting jointly or in concert with such person is an 'undischarged insolvent'. In other words, clause (j) covers a connected person who may not be eligible under clauses (a) to (i). The explanation further assigns meaning to the expression 'connected person'. Clause (iii) of explanation clearly stipulates that it would cover the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii). The first unnumbered proviso excludes specified entities from disqualification contemplated by Section 29A(a) of the Code. In other words, financial entities like scheduled banks would not incur any such disqualification as has been provided in unnumbered proviso 2. Explanation Il clarifies the expression 'financial entity' to mean a scheduled bank etc. 41. The expression 'person' has been defined in Section 3 (23) which includes a company. Therefore, the expression 'person' used in Section 29A of the Code is not to be understood in literal terms but has a statutory meaning assigned to it. It appears to us that a body corporate can be declared undischarged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted the petition filed under Section 9 of the Code vide order dated 05.04.2019. It is appropriate to notice that an application under Section 10 of the Code by Tayo Rolls Limited was filed on 13.072017 being C.P. (1B) No. 398/1 45. In the backdrop of the aforesaid facts it requires to be determined whether HI Applicant-TSL attracts disqualification under Section 29A (a) (j). It has come on record that the HI Applicant-TSL submitted its resolution plan on 11.06.2018 negotiated version as on 31.08.2018 which was finally submitted on 13.09.2018. The RP placed it before the COC and the COC approved the plan on 16.09.2018. 46. The expression 'undischarged insolvent' has not been defined in the Code nor in the Companies Act, 1956/2013. However, in common parlance an undischarged insolvent is a person or a body corporate who cannot pay its debts as they become due and payable and; as long as he remains in that position, he continues to be 'undischarged insolvent'. When a petition under Section 7 or 9 of the Code is admitted then the Adjudicating Authority-NCLT in a summary proceedings record a finding that there is non payment of debt when whole or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y does not appear to be correct. On the basis of prima facie facts, the petition has been admitted for initiating corporate resolution process. The resolution process is an attempt to rescue a fund starving body corporate from the financial challenging conditions and to restore it back to a sustainable financial ease. It may involve financial restructuring, any other arrangement by involving another fund infusing company or even by compromise with its creditors. An 'undischarged insolvent' cannot be a one who is in the resolution process as is obtaining in the facts and circumstances in the present case. It may be possible to record a finding on the basis of admissible evidence to reach a conclusion about the status of a body corporate that it is an 'undischarged insolvent' but not at a stage wherein a petition has merely been admitted in a summary proceeding to provide a pedestal for resolving an insolvency. It would be wholly premature to jump to any such conclusion. Moreover, to record a finding about the status of body corporate that it is 'undischarged insolvent', the court should lean towards principles of strict interpretation for the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the benefits of all creditors. Hon ble the Appellate Tribunal in the case of Binani Industries Limited. v. Bank of Baroda Anr. in Company Appeal(AT) (Insolvency) No. 82 of 2018 decided on 14.11.2018, has also highlighted that the object of the Code is also to promote entrepreneurship, availability of credit and to balance the interests. Hon ble Appellate Tribunal has also indicated that the Code aims at promoting availability of credit by rescuing the failing but viable business. The Resolution plan is to result in resolving the insolvency and rather than the driving the corporate debtor into the death-whole of 'undischarged insolvent'. If that is the underlying ideas of the Code then no way a body corporate like Tayo Rolls Ltd. could be regarded as 'undischarged insolvent' at the stage of admission of the petition against it. 48. We accept the submission of Mr. Nayar based on the judgment of Hon ble the Supreme Court rendered in the case of Thampanoor Ravi (supra) that unless a declaration is given by an Insolvency Court with regard to the insolvency no disqualification would be attracted to HI Applicant-TSL which is not available in this case. We a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval of the Adjudicating Authority-NCLT. It is appropriate to mention that on the application filed by RP in Bhushan Steel Limited the Power Purchase Agreements were found to be exorbitant in its rates and the aforesaid application was allowed on 15.05.2018. Therefore, if it might have impacted the valuation but it would not result in any illegality. We are also not impressed with the allegation of concealment of proceedings which are stated to be pending before Hon ble the Supreme Court. There is sufficient material on record to show that the aforesaid facts were disclosed more than adequately. 50. As a sequel of the above discussion, the resolution plan is accepted and all objections are over-ruled. However, the acceptance and approval of the resolution plan shall be subject to the following; a) The amount due to the operational creditor under the resolution plan must be accorded priority in payment over the financial creditor as is laid down in Regulation 38(1) of the Insolvency Resolution Regulations, 2016. b) CA No. 384(PB)/2019 which has been disposed of today involves the claim of the Operational Creditor which submitted on 22.11.2018 by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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