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TMI Blog2020 (1) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... , out of which Rs. 1652 crores comprised of term loans from two entities of Deutsche Bank. These are DB International (Asia) Limited and Deutsche Bank AG, Singapore Branch. There was also debt on account of working capital borrowing of Rs. 245 crores from another bank, being Indian Bank. Said Indian Bank is the initiator of the CIRP, who filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code). DB International (Asia Ltd.) is the appellant in C.A. No.4967-68 of 2019. A concern by the name of UMW had provided corporate guarantee to Deutsche Bank, Singapore as collateral to the said term loan. The Adjudicating Authority, the National Company Law Tribunal, Hyderabad Bench (NCLT) by an order passed on 21st January, 2019 approved the resolution plan submitted by MSL in an application filed by the Resolution Professional. This resolution plan included an upfront payment of Rs. 477 crores. Ancillary directions were issued by the Adjudicating Authority while giving approval to the said resolution plan with the finding that the said plan met all the requirements of Section 30(2) of the Code. This order was carried up in appeal before the National Company L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent to this order, if so required." (quoted verbatim) 3. In the common order dated 8th April 2019 in the aforesaid appeals, the Appellate Tribunal, inter-alia, observed and held:- "45. 'M/s. Maharashtra Seamless Ltd.' ('Successful Resolution Applicant') has taken plea that out of verified claims of Rs. 2,02,88,948/-, and 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'. The 25% of verified claim of Rs. 2,02,88,948/- is Rs. 50,72,237/- approximately, therefore, even if such offer is accepted then it will be Rs. 577,50,237/- i.e. Rs. 578 Crores approximately, which is also much less than the liquidation value of Rs. 597.54 Crores. 46. Taking into consideration the nature of the case, we are of the view that 'M/s. Maharashtra Seamless Ltd.' should increase upfront payment of Rs. 477 Crores as proposed to the 'Financial Creditors', 'Operational Creditors' and other Creditors to Rs. 597.54 Crores by paying additional Rs. 120.54 Crores approximatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution Plan', as ordered above and deposits another sum of Rs. 120.54 Crores within 30 days, by improving the plan, the Adjudicating Authority will allow 'M/s. Maharashtra Seamless Limited' to take over the possession of the 'Corporate Debtor' including its moveable and immoveable assets and the plant. On failure, the plan approved in favour of 'M/s. Maharashtra Seamless Ltd.' deemed to be set aside and the Adjudicating Authority will pass appropriate order in accordance with law." (quoted verbatim) 5. There is an application registered as I.A. No. 115118 of 2019, taken out by MSL in connection with their own appeal before us. In this application, they have, in substance, sought refund of the sum deposited in terms of the resolution plan alongwith interest. In this application, MSL has also applied for withdrawal of the resolution plan. Their grievance is that in order to take over the corporate debtor, they had availed of substantial term loan facility and deposited the sum of Rs. 477 crores for resolution of the corporate debtor in a designated escrow account on 19th February, 2019 but because of delay in implementation of the resolution plan, they were compelled to bear the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this order of 28th September, 2018:- "(2) The Resolution Professional shall convene a meeting of CoC to place the qualified Resolution Plans along with Resolution Plan of MSL before CoC for reconsideration, in the light of revised liquidation value of the Corporate Debtor Company. (3) 30 days' time is excluded from the CIRP period with effect from today for completing the above direction. (4) The Resolution Professional is directed to allow Directors / Suspended Board to participate in the CoC meetings and permit them to express their views and suggestions and record the same in the Minutes of the meeting of the CoC." 9. Revised valuation of the corporate debtor was made, enhancing the same to Rs. 597.54 crores from Rs. 432.92 crores. In its 9th meeting held on 16th October, 2018, the Committee took into consideration the revised valuation and on majority voting approved again the resolution plan of MSL. The directors of suspended Board were given opportunity to express their views and suggestions before the Committee. 10. The order of the Adjudicating Authority passed on 28th September 2018 was appealed against by MSL before NCLAT. This appeal was registered as Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by its previous order. 28. The CoC has approved the Resolution Plan submitted by M/s MSL with a majority of voting share of Financial Creditors at 87.10%. The CoC in its wisdom has approved the Plan. No doubt Indian Bank, the other Financial Creditor having voting share at 12.90% opposed for approval of the Resolution Plan. The minimum required percentage of voting for approval of the Resolution Plan as per the latest amendment is 66%. In this case, the Resolution Plan with voting share of 87.10 of the Financial Creditors approved the plan. 29. The other contention raised that upfront payment is below the revised liquidation value and therefore, the Plan could not be accepted. On the other hand, Hon'ble NCLAT has held in Company Appeal No.637/2018 that this Tribunal to decide the Application under Section 31 of IBC without being influenced by the previous order. When such is the case, the revised Liquidation value has no role to pay while considering the Resolution Plan submitted by M/s MSL. The Tribunal has to test the Resolution Plan with reference to provisions of Section 30 (2) of IBC. The Resolution Professional certified that Plan of M/s MSL is in conformity with pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much lower amount. The other ground urged by the Bank was that the Area Projects Consultants Private Limited, one of the Resolution Applicants had made revised offer of Rs. 490 crores, which was more than the amount offered by the MSL. In course of the hearing of the appeal, it appears that the successful Resolution Applicant had indicated infusion of more funds, which was taken into consideration by the NCLAT. This would appear from the following passage of the order of the NCLAT under appeal before us:- "24. It was submitted that actually the total exposure of the 'Successful Resolution Applicant' is around Rs. 657.50 Crores although Rs. 477 Crores is upfront amount. In addition to that Rs. 180.50 Crores which would be infused directly in the 'Corporate Debtor' by 'M/s. Maharashtra Seamless Ltd.'- (4th Respondent). Further, Rs. 57 Crores would be infused towards 25% margin money of working capital expenditure. Moreover, in fact, the total working capital Rs. 224 Crores, the balance to be taken as loan from Bank(s), which would also require Corporate Guarantees of the 4th Respondent. 25. It was further contended that the 'Corporate Debtor' plant has been lying closed for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors and there is no requirement that resolution plan should match the maximized asset value of the corporate debtors. On the other hand, Mr. Abhishek Manu Singhvi, learned senior counsel appearing for two main financial creditors, while supporting the main appeal of Mr. Sibal has resisted the plea for withdrawal of the resolution plan and refund of the sum already remitted by Mr. Sibal's clients. Mr. Singhvi has highlighted the fact that the exposure of his clients to the total debt of the corporate debtors is Rs. 2060 crores and his clients being the primary creditors to the tune of 87.10% of the total dues, it was his clients who would have suffered loss, if any, on account of resolution plan not matching the liquidation value. 15. On the aspect of withdrawal of the plan, Mr. Singhvi has referred to Section 12-A of the 2016 Code. His submission is that the only route through which a resolution applicant can travel back after admission of the resolution plan is the aforesaid provision. Section 12-A of the 2016 Code stipulates:- "12A. Withdrawal of application admitted under section 7, 9 or 10. - The Adjudicating Authority may allow the withdrawal of application admitted un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1. - For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2. - For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor- (i) where a resolution plan has not been approved or rejected 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in that sub-section.". Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. (5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. (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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme- workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal." 20. It has 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different 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 Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod as provided for in such law, whichever is later. Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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