TMI Blog2020 (12) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... ntors and other stakeholders involved in the resolution plan. Approval of revised Resolution Plan - HELD THAT:- Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta Ors. [ 2019 (11) TMI 731 - SUPREME COURT ] , to buttress her point that the applicant cannot challenge the approved resolution plan despite the fact that the applicant itself has voted in favor of the Resolution Plan albeit not voted in approving the distribution pattern. The Applicant in this application is an unsecured financial creditor of the Corporate Debtor who has to share the sum of ₹ 5 lakhs with all other unsecured financial creditors thereby getting a share of only 1.44% of the admitted claim amount of all unsecured creditors, as per the resolution plan approved by the CoC. In the resolution plan all the unsecured creditors are given the same treatment. The secured financial creditors and unsecured financial creditors may not be treated alike. In our view there is no discriminatory treatment among the unsecured creditors. The Respondent No. 1 and 2 be ordered and directed to provide to the Applicant sharing percentage of its admitted claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IndusInd Bank Limited 27.81 3. Aditya Birla Finance Limited 1.44 4. Cap Float Financial Services Private Limited 1.58 5. P. C. Bhatia (HUF) 0.58 6. Premchand C. Bhatia 0.05 7. Kunal P. Bhatia 0.12 8. Shriram City Union Finance Limited 0.67 9. Sandeep Harsulkar 8.88 10. IDFC First Bank Limited 0.75 TOTAL 100 4. The First meeting of the CoC was convened on 21.01.2019 wherein IRP was confirmed as Resolution Professional (RP) with 98.35% voting. The confirmation of IRP as RP was intimated to this Bench on 05.02.2019. The copy of the minutes of the First CoC meeting are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 19.06.2019. Accordingly, a fresh public announcement inviting the EOI from the PRAs was issued on 25.06.2019. 9. In the Fifth meeting of the CoC held on 29.08.2019, the CoC discussed the feasibility and viability of the resolution plan dated 22.08.2019 received from Nitrex (from now on referred to as RA), with the President of RA. The CoC requested the RA to increase the amount of the resolution plan as the same was not satisfactory. The RA informed the CoC that it had already increased the amount of the resolution plan from ₹ 8 crores to ₹ 9 crores when they submitted the same under the second EOI process. After negotiations, the RA agreed to provide an addendum to the resolution plan, wherein the RA would increase the amount of the resolution plan to ₹ 9.40 crores. The said addendum was received on 30.08.2019. E-voting was conducted on 31.08.2019 to 03.09.2019, and the CoC with 96.91% vote share passed the following resolution: Resolved that the amount of the resolution plan of ₹ 9.40 crores as provided by the Resolution Applicant namely Nitrex Chemicals Limited vide addendum dated 30.08.2019 to the Resolution Plan dated 22.08.2019 and addendum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s EMD and Bank statement of Corporate Debtor have been submitted in proof thereof. 15. The Resolution Professional has submitted Form H under Regulation 39(4). The Resolution Professional has certified that the resolution plan complies with all the provisions of the I B Code, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and does not contravene any of the provisions of the law for the time being in force. 16. The Resolution Applicant has submitted an Affidavit pursuant to section 30(1) of the Code confirming its eligibility under section 29A of the Code to submit resolution plan. The Resolution Professional has further certified that the said Resolution Plan has been approved by the CoC in accordance with the provisions of the I B Code and the CIRP Regulations made thereunder. The Resolution Plan has been approved by 96.91% of voting share of financial creditors after considering its feasibility and viability and other requirements specified by the CIRP Regulations. 17. The Resolution Plan includes a statement under Regulation 38(1A) of the CIRP Regulations as to how it has dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Applicant agreed to provide additionally ₹ 11 Lakhs which will be exclusively distributed to all the employees/workers of the Corporate Debtor equally, apart from the payment of ₹ 22 Lakhs provided under the Plan to the employees. The Resolution Applicant, vide his letter dated 05.03.2020 sent to RP, has confirmed and revised the Plan amount accordingly. The amount to employees to be paid upfront within 90 days from the date of Order approving this Plan. 24. It is made clear that no further liability can be imposed on the Resolution Applicant in whatever manner except the above resolution amount of ₹ 9.40 Crore as provided in the Plan and a sum of ₹ 11 Lakhs (as mentioned in the above said para) as agreed at the time of hearing to be paid to RP who will distribute it to all the employees/workers. There won't be any further liability on RA towards Financial Creditors, Operational Creditors or other stakeholders, etc. Restructuring of Existing Shareholding 25. On the effective date and with effect from the appointed date, all existing issued, subscribed and paid-up share capital comprising of 76,000 equity shares of ₹ 100/- s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility, is at this moment rejected. 34. The Resolution Applicant, on taking control of the Corporate Debtor, shall ensure compliance under all applicable laws for the time being in force. 35. The Resolution Applicant shall obtain the necessary approval required under any law for the time being in force. 36. On perusal of the Resolution Plan, we find that the resolution plan has necessary provisions for its effective implementation. The CoC has approved this Resolution Plan with requisite vote of more than 66% as required under the law, in favor of the Resolution Plan. 37. We are satisfied that the Resolution Plan fulfils the mandatory requirements of Section 30 of the I B Code and Regulation 38 39 of IBBI (CIRP) Regulations, 2016. 38. On the basis of discussion made above and in view of the provisions of Section 30(4) of the Code, we approve the resolution plan submitted for International Book House Private Limited as approved by the CoC. The resolution plan so approved shall be binding on the corporate debtor and its employees, members, creditors [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because such differentiation would amount to differentiating among the similarly situated persons. Hence there is a discrimination which is impermissible. C) In this case there is no basis to show that valuation of the security held by the applicant and by Respondent No. 3 were so different that they be treated differently. Nowhere in the application filed by R1 there is mention of valuation of the security held by the applicant and in fact R1 did not even attempt to make such study. The burden to show a basis for differentiation raises on the person who chooses to differentiate. D) There is a discrimination in treatment with reference to liquidation value of the respective security, the sum of ₹ 8.40 Crores proposed to be paid to R3 in excess of the liquidation value of its security i.e. ₹ 8 Crores which is found in the valuation report. E) The security comprises hypothecation charge on current assets, stocks, book dates, investments, trade receivable, current assets etc. of the Corporate Debtor and the liquidation value of the said hypothecated asset has not been considered at all by the R1 in distribution. F) The liquidation value of the above re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt given by the 'Successful Resolution Applicant'/'Corporate Debtor', we find that the Appellant- 'Hero Fincorp Limited' has been provided with 32.34% of its admitted claim as it has dissented with the plan. On the other hand, Tata Capital Financial Services Ltd.' has been provided with 75.63% of its admitted claim and other 'Financial Creditors' i.e. 'Indian Overseas Bank' has been provided with 45% of its admitted claim; the 'Bank of Baroda' has been provided with 45% of its admitted claim and the 'Punjab National Bank' has been provided with 45% of its admitted claim. . 12. The impugned order approving the 'Resolution Plan' has been passed by the Adjudicating Authority on 17th October, 2018, but the Adjudicating Authority failed to notice that no 'Resolution Plan' can be approved discriminating the dissenting 'Financial Creditor' in terms with the post amended Regulation 38. It also failed to notice that this Appellate Tribunal much prior to the same, declared the un-amended (old) Regulation 38(1)(c), which stipulated liquidation value for the dissenting 'Financial Creditor', as ille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the 'Export-Import Bank of India' and the 'State Bank of India (Hong Kong)' who are similarly situated have been discriminated. . 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 India (Supra) the Insolvency and Bankruptcy Board of India also amended/repealed the Regulation 38 aforesaid having found it discriminatory. 29. We agree with the submissions made by Mr. Arun Kathpalia, learned Senior Counsel that Section 53, including explanation given therein cannot be relied upon while approving the 'Resolution Plan'. However, that does not mean that a discriminatory plan can be placed and can be got through on one or other ground, which is against the basic object of maximization of the assets of the 'Corporate Debtor' on one hand and for balancing the stakeholders on the other hand. 43. From the two 'Resolution Plans', it will be clear that the 'Rajputana Properties Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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. Quite clearly, secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid. And, most importantly, operational creditors are separately viewed from these secured and unsecured financial creditors in S. No. 5 of paragraph 7 of statutory Form H. Thus, it can be seen that the Code and the Regulations, read as a whole, together with the observations of expert bodies and this Court's judgment, all lead to the conclusion that the equality principle cannot be stretched to treating unequals equally, as that will destroy the very objective of the Code-to resolve stressed assets. Equitable treatment is to be accorded to each creditor depending upon the class to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re this amount) 1.44% Capfloat Financial Services Private Limited Unsecured 38,96,944 P.C. Bhatia (HUF) Unsecured 14,22,693 Premchand C. Bhatia Unsecured 1,28,640 Kunal P. Bhatia Unsecured 2,98,918 Shriram City Union Finance Limited Unsecured 16,59,064 Sandeep Harsulkar Unsecured 2,18,60,250 IDFC First Bank Limited Unsecured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases filed by the Corporate Debtor under Section 138 of the Negotiable Instrument Act, 1881 amounting to 1.70 Crores, were dismissed. 53. The Resolution Professional referring to the table supra submits that the applicant and R3 are not similarly situated as there is vast difference in the liquidation value of the securities held by them. Hence the question of discrimination of similarly situated secured creditors does not arise at all. 54. The Resolution Professional further submits that Section 30(4) of the Code Provides as below: (4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board: 55. Relying on the above provision it is submitted that, the CoC while determining or approving the distribution pattern shall also take into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants. 40.Thus, what is left to the majority decision of the Committee of Creditors is the feasibility and viability of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution Applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution Applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution Applicant which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional creditors has been taken care of. If the Adjudicating Authority finds, 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. 50. The importance of valuing security interests separately from interests of creditors who do not have security is well set out. 54. Indeed, if an equality for all approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /0189/2019), for the proposition that Adjudicating Authority is not endowed with the jurisdiction to analyze or evaluate the commercial decision taken by the CoC, as long as the same is in consonance with law. The RP has relied on following paragraphs of the said judgment, extract of which is reproduced below: 33The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given Under Section 22 of Sick Industrial Companies Act, 1985 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity is an immovable asset where the liquidation value is ₹ 7.9 Crores and the CoC in its commercial wisdom decided to pay the said creditor a sum of ₹ 8.4 Crores. Yes, evidently R3 is getting ₹ 50 Lacs more than the liquidation value of the security. The applicant is also getting ₹ 1,00,000/- more than the liquidation value of the value of its security interest. However, the security interest held by the applicant is only against the current assets such as stock in trade, work in progress, sundry debtors, plants and machinery whereas the security interest of R3 is in respect of an immoveable asset. Even though the financial statements show the sundry debtors to the extent of ₹ 36 Crores, the realizable value seems to be very low and there is no guarantee that the pending litigations will end up in collection from all the debtors. Further it is submitted that most of the debts were also time barred and majority of the Section 138 proceedings were dismissed. In the given circumstances the apportionment of ₹ 25 lakhs to the applicant cannot be faulted and the commercial wisdom of the CoC cannot be questioned by this Bench. B) The Judgment in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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