TMI Blog2022 (1) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (e) provides that Wherein it was decided that the parties can jointly proceed with the sale of trademarks and the sale proceeds so realised shall be deposited into a designated escrow account in the manner as provided in this MOU and then shared amongst the parties based on a mutually agreed sharing ratio - No document on record that pursuant to the aforesaid term it was agreed between the parties that they will share the sale proceeds of trademarks equally i.e. 1/6th. The MOU is valid only for one year i.e. 29.05.2015 whereas the resolution plan was approved by the CoC in the 20th CoC meeting held on 10.12.2018. As per the hypothecation deed dated 03.09.2012 the Appellant has an exclusive charge over the trademarks of the Corporate Debtor. Whether the criteria for FCs category A and B is based on sound principle? - HELD THAT:- Admittedly, the Resolution Applicant has divided the Financial Creditors into two categories i.e. category A and B, this categorization was made on the basis of core-assets and non-core assets of the Corporate Debtor over which the Financial Creditors have got some security interest. Category A are those assets which are required for the Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulations, 2016. Therefore, the impugned order is not sustainable in law as well as on facts. The approval of resolution plan by the CoC and subsequently approval of resolution plan by the Adjudicating Authority vide order dated 03.06.2019 is not sustainable in law. The Appellant was not required to challenge the subsequent order dated 03.06.2019. Thus, the impugned order as well as the order dated 03.06.2019 are hereby set aside - matter is remitted back to the CoC with the direction to distribute the resolution amount in conformity with the Section 30(4) r/w Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Appeal allowed by way of remand. - Company Appeal (AT)(Insolvency) No. 553 of 2019 - - - Dated:- 21-1-2022 - [Justice Jarat Kumar Jain] Member (Judicial) And [Dr. Ashok Kumar Mishra] Member (Technical) For the Appellant: Mr. Anugrah Robin Frey, Advocate For the Respondent: Mr. Abhijeet Sinha, Mr. Siddharth Sharma and Mr. Arjun Asthana, Mr. Saikat Sarkar, Ms. Mamta Binani (In person), Advocates Mr. Rishav Banerjee, Mr. Saptarshi Mandal, Advocates for Respondent No. 2. Mr. PBA Srinivasan, Mr. Parth D Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category A lenders and category B lenders. The Applicant also objected that the waterfall mechanism of liquidation is irrelevant at this stage and cannot be a basis for classifying the Financial Creditors. The said objections raised by the Applicant in the 12th CoC meeting had not been recorded in the minutes of the meeting. The Applicant objected in 13th CoC meeting and sought amendment of the minutes. The objections were later added to the relevant minutes by way of an amendment to the minutes in the 13th CoC meeting held on 22.06.2018. 6. First resolution plan submitted by the Resolution Applicant was rejected by the CoC, thereafter, the Resolution Applicant by the amendment made in its earlier resolution plan on 10.07.2018, modified the settlement offered to the selected Financial Creditors against their respective admitted claims and pro-rata entitlement. 7. The resolution plan of the Resolution Applicant dated 12.05.2018 clearly shows that the Applicant was offered an upfront cash settlement of ₹ 50 Crores, however, the same was thereafter, reduced to ₹ 13.4 Crores in the subsequent resolution plan dated 11.12.2018. The issue of resolution plan being discrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te higher amounts against their admitted pro-rata entitlement. 12. The Application is contested by the Resolution Applicant, members of the CoC represented by Canara Bank and the RP. 13. After hearing Ld. Counsels for the parties. Ld. Adjudicating Authority held that the grouping of Financial Creditors does not amount to any discrimination. The creditors who are having valuable assets are to be given higher percentage from out of the Resolution Fund than those who are holding less value of the assets. Though, Canara Bank was allotted higher amount then the applicant, it cannot be said there is discrimination in the allocation of share from the Resolution Fund and the same is done basing on the value of security. With the aforesaid findings, Ld. Adjudicating Authority has dismissed the Applications. 14. Being aggrieved with the order, the Applicant (IDBI) has filed this Appeal. Submissions of Appellant: - 15. Ld. Counsel for the Appellant submitted that the Corporate Debtor and its promoters created exclusive security over the trademarks in favour of the Appellant by way of deed of hypothecation. Clause 2.8 of the resolution plan provides that the security interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis on which the Financial Creditors mentioned in category B had been given additional benefits. Even though they have admittedly security over inferior and non-core assets. It is settled law that the plan is required to be non-discriminatory between similar situated creditors, therefore, plan cannot give better treatment to Financial Creditors who have inferior security, since, the plan does not comply with this requirements of law is not in a compliance with Section 30 (2) (e) of the IBC. 19. The Resolution Applicant has wrongly submitted in its reply dated 04.11.2019 that the Appellant has been put under category A, since it does not have exclusive security on the assets of the Corporate Debtor. The averment is in incorrect on two counts firstly the Appellant hold exclusive security over the trademark and secondly it has been admitted by Canara Bank that the basis of classification of Financial Creditors is the criticality of security held by the Financial Creditors and not whether the Financial Creditors have exclusive security or not. Further, in so far as the Resolution Applicant has submitted that it had to come up with its own mechanism of distribution of monies in ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the FCs forming part of the same category. Even otherwise, if value of charge had been the basis of distribution of monies, the Appellant ought to have received a higher amount since it holds exclusive security over the trademarks. 23. The Resolution Applicant has attempted to justify the discrimination inter se the FCs by drawing vague references to the memorandum of understanding dated 30.05.2014. At the outset, it is stated that the Resolution Applicant has made bald averments with respect to the MOU, without interpreting specific provisions of the same. The intent of the MOU is to ensure that there is coordinated enforcement of respective lender s rights. Such private understanding amongst the lenders was necessitated due to the cross injunction taken by the lenders before the DRT for the sale of the assets of the Corporate Debtor. It is evident from a perusal of the MOU that it was the Appellant which had to effect the sale of the trademark, which evidences that the trademarks were solely charged with the Appellant. The MOU stipulates that the parties hereby agree for sale of trademarks namely Deccan Chronicle , Andhra Bhoomi , the Asian Age and Financial Chronicle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the creditors who are having valuable assets are to be given higher percentage if applied correctly to the facts of the present matter would have resulted in an order in favour of the Appellant. The security interest held by the Appellant is much superior than the security interest held by category B FCs. The Appellant held exclusive security over the trademarks, jointly owned by the Corporate Debtor and two ex-promoters which are the brand names used by the Corporate Debtor and are admittedly valuable and a critical asset of the Corporate Debtor. therefore, it is submitted that the Ld. Adjudicating Authority has erred in dismissing the Application. Submissions of Respondent No. 1 27. Ld. Counsel for the Respondent No. 1(Erstwhile RP now Chairperson of Monitoring Committee of the Corporate Debtor) submitted that the Appeal has been filed by dissenting Financial Creditor challenging the order dated 09.05.2019. After passing of the impugned order, Ld. Adjudicating Authority on 03.06.2019 approved the resolution plan, no objection has been filed either before the Ld. Adjudicating Authority or before this Appellant Tribunal in regard to the approval of resolution plan. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well settled principle of law that neither the Adjudicating Authority nor the Appellate Authority can enter into the commercial wisdom underlying the approval granted by the CoC to the resolution plan. Commercial wisdom of the CoC in its collegial capacity is hence, not justiciable. For this purpose, he cited the Judgment of Hon ble Supreme Court in the case of Pratap Technocrat (P) Ltd. Vs. Monitoring Committee of Reliance Infratel Limited Anr. 2021 SCC Online SC 569. Similar approach has been adopted by the Hon ble Supreme Court in the matters relating to approval of resolution plan in the matter of Japypee Kensington Boulevard Apartments Welfare Association Ors. VS. NBCC (India) Ltd. Ors. 2021 SCC Online SC 253 (Para 30) 31. Ld. Counsel for the Respondent No. 1 submitted that the Appellant has contended that it is entitled to a higher value based on an alleged exclusive security created in its favour by the Corporate Debtor. However, it has been categorically held by the Hon ble Supreme Court that the amount to be paid to different classes or sub-classes of the creditors in accordance with the Code and the related Regulations, is essentially the commercial wisdom of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble with them in the Information Memorandum and virtual data room, proposed an upfront resolution fund of ₹ 408.06 Crores which was the total cash component to be distributed in terms of the Resolution plan. The Resolution Applicant had carried out valuation of individual assets of the Corporate Debtor and the enterprise valuation of the Corporate Debtor. The Resolution Applicant then identify the core and non-core assets of the Corporate Debtor in order to come up with a viable resolution plan. The Core assets constituted such assets which were pursued by the Resolution Applicant as essential and /or integral for running of the Corporate Debtor as going concern and for running day to day activities of the Corporate Debtor. Non-core assets were the assets which in the opinion of Resolution Applicant were not required for running and/or managing the day to day activities and of affairs of the Corporate Debtor. Accordingly, the Resolution Applicant identifies those Financial Creditors having exclusive charge on the non-core assets and assigned them the status of FC category B. It has been proposed in the resolution plan that FC category B Financial Creditors shall get ownership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri passu and / or over lapping and /or distributed charge and / or security interest over the assets of the Corporate Debtor. If the IDBI Bank would have had exclusive charge over the trademarks of the Corporate Debtor, the IDBI would not have agreed to share proceeds from the sale of the trademarks with five other lenders. 39. The CoC in the minutes of 12th CoC meeting of the Corporate Debtor has themselves stated that the IDBI Bank is not the only charge holder of the trademarks. The charge of trademarks will be shared among the lenders. The IDBI Bank has never challenged this instant recording in the 12th CoC meeting, thus, the IDBI is stopped from contending that IDBI Bank is the sole charge holder of the trademarks. Thus, IDBI is not similarly placed as Canara Bank or any other Financial Creditor who has exclusive charge over the core-assets of the Corporate Debtor. Since, the IDBI Bank is not similarly placed with the other Financial Creditors, the IDBI Bank cannot contain that the resolution plan has discriminated between the different sets of Financial Creditors just because certain Financial Creditors have got some more money than IDBI Bank under the Resolution Plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d creditors must be paid the same amounts, percentage wise under the resolution plan it can pass master, fair and equitable dealing of OCs right under the Regulation 38 involves the resolution plan stating as to how it was dealt with the interest of OCs, which is not the same thing as saying that they must be paid the same amount of other debt proportionately. 45. Lastly, it is submitted that the Hon ble Supreme Court in the case of CoC Essar Steel India Ltd. through Authorised Signatory Judgment held that ultimately it is the commercial wisdom of the requisite majority of the Committee of Creditors that must prevail on the facts of any given case, which would include distribution of assets. It is therefore not possible that the Adjudicating Authority and consequently the NCLAT would be vested with the discretion i.e. vested in the CoC. The IDBI Bank is a dissenting Financial Creditor and hence, simply challenged the plan being aggrieved by the facts that the majority of the CoC has approved the resolution plan of the Resolution Applicant by a vote of 81.39%, in the facts and circumstances of the aforesaid, the Resolution Applicant prays that the resolution plan is in conformit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 09.05.2019. On the other hand, the Appellant sought relief pertaining to modification in distribution of resolution fund/proceeds and the part of resolution plan pertaining to enforcement of security to be severed from the rest of the resolution plan. The contradictory nature of relief sought by the Appellant in the Appeal whereby the Appellant has sought alternate prayer for modification of resolution plan while at the same time seeking declaration that the resolution plan is illegal, clearly shows the Appellant misconception and malafide in preferring the Appeal. Thereby it is liable for dismissal. 50. Ld. Counsel for the Respondent No. 3 further submitted that as per the Memorandum of Understanding (MOU) dated 30.05.2014 which was executed between 6 Financial Creditors (who are the members of CoC) including the Respondent No. 3 and the Appellant. It is further submitted that, a pari passu charge was created upon the trademarks (As the Corporate Debtor had availed lending under in multiplicity banking facility as opposed to a consortium lending) however, the claim of the Appellant that the Appellant has a exclusive security over the trademarks is misleading and the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets of the Corporate Debtor in order to come up with viable resolution plan. The core assets constituted such assets which were pursued by the Resolution Applicant as essential and are integral for running of the Corporate Debtor as going concern and for running day to day activities of the Corporate Debtor. The non-core assets were the assets which in the opinion of Resolution Applicant were not required for running and / or managing day to day activities of the affairs of the Corporate Debtor. Accordingly, the Resolution Applicant identifies those Financial Creditors having exclusive charge on the non-core assets and assigned them the status of FCs category B. It has been proposed in the resolution plan that FCs category B shall get ownership interest on their respective non-core assets in terms of the resolution plan. All the other Financial Creditors of the Corporate Debtor were assigned category A. There are 37 Financial Creditors which fall under the Financial Creditors category A and 8 Financial Creditors which fall under the category B. The Appellant (IDBI) falls under the category A. The resolution plan was put up before the CoC and the CoC in the 20th CoC meeting held o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lenders, does not and indeed cannot override or nor supersede hypothecation deed or the facts of the ownership of the trademarks. The Respondents have failed to provide a single provision in the MOU which would support their main contention that MOU allegedly prevails over the hypothecation deed. Ld. Adjudicating Authority in the impugned order held that six Financial Creditors who executed the MOU in respect of the trademarks of the Corporate Debtor Company having authority to sale the trademarks and distribute the funds among them. Thus, the Appellant (IDBI) is having 1/6thcharge over the trademarks of the Corporate Debtor, we have examined this finding. 58. The MoU was executed much before the Insolvency Petition and was executed solely to record a private understanding between the lenders of the Corporate Debtor to enable the sale of the trademarks by the Appellant with the others lenders agreeing not to seek restrain on such sale in the DRT proceedings filed by them against the Corporate Debtor. The Respondents have failed to counter the averments that the MOU in clause 2(b) records that the Appellant was to affect the sale of trademarks. This is because the trademarks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Issue No. (ii) Whether the criteria for FCs category A and B is based on sound principle? 61. Admittedly, the Resolution Applicant has divided the Financial Creditors into two categories i.e. category A and B, this categorization was made on the basis of core-assets and non-core assets of the Corporate Debtor over which the Financial Creditors have got some security interest. Category A are those assets which are required for the Corporate Debtor for running the business and non-core assets are those assets which are not required for running the business. There are 37 Financial Creditors of the Corporate Debtor who fall under the category A and there are 8 Financial Creditors who fall under the category B. The Appellant (IDBI) and other Financial Creditors are in category A. The Financial Creditors category B are granting to retain the security created in their favour should be given less in distribution in category B to the extent value of securities they are entitled to retain. There is no answer to this favour for FCs of category B. 62. According to the Resolution Applicant the categorization was made on the basis of the core-assets and non-core assets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that Canara Bank whose claim was ₹ 827,13,48,319 which constitute 10.11% in the total admitted claim of the Financial Creditors and the Canara Bank was allotted ₹ 124,24,16,833 and its share in the upfront amount is 35.50% which is over and above the pro rata entitlement of the bank in the upfront amount. There is a discrimination between the Financial Creditors in the matter of allotting amount from out of the upfront amount. For the ready reference, the table setting forth the pro-rata shares of admitted claim and the total payment offered to the Financial Creditors is as under: - 66. It is a settled law, the resolution plan cannot discriminate between two sets of creditors similarly situated, as we have already discussed. The Respondents are unable to convince us that on pro-rata basis why the Canara Bank is getting more amount in comparison to the Appellant. Therefore, we hold that the resolution plan is discriminatory between two set of creditors similarly situated and is in violation of the IBC. Issue No. (iv) Whether once the Resolution Plan is approved by the CoC, it cannot be questioned even if it discriminates between two set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that let the liquidation value that has been relied upon to arrive at the calculation by the RA, be shared. IDBI mentioned that a methodology can be used by the RA but the methodology cannot be discriminatory. The RA said that this is absolutely not discriminatory. IDBI said that this aspect of discrimination needs to be looked into by the CoC legal counsel, otherwise this is discriminatory. 69. With the aforesaid, it is apparent that the Appellant has raised the objection at the time of consideration of resolution plan before the CoC in 20th CoC meeting held on 10.12.2018. 70. As we have already held that the criteria of categorization of the FCs is not based on sound principal. The Appellant has an exclusive security/charge over the trademarks of the Corporate Debtor. The Resolution plan is discriminate between two Financial Creditors who are similarly situated. In such a situation the Appellant can question the Resolution plan even it is approved by the CoC. Issue No. (v) Whether the Appellant was required to challenge the subsequent order dated 03.06.2019 whereby the Resolution Plan has been approved by the Adjudicating Authority? 71. As we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid amended provisions i.e. the priority and value of the security interest of a secured creditor has not been considered and as per the Regulation 38, the Appellant being a dissenting Financial Creditor shall be paid in priority over the Financial Creditor who voted in favour of the resolution plan. 76. We find that the resolution plan is not in conformity with the amended section 30(4) of the IBC and Regulation 38 (1) of IBBI (Insolvency Resolution Process for Corporate Persons), Regulations, 2016. Therefore, we are of the view that the impugned order is not sustainable in law as well as on facts as we have already discussed above. 77. We are of the view that there is discrimination in allocation of resolution fund. Thus, the approval of resolution plan by the CoC and subsequently approval of resolution plan by the Adjudicating Authority vide order dated 03.06.2019 is not sustainable in law. The Appellant was not required to challenge the subsequent order dated 03.06.2019. Thus, the impugned order as well as the order dated 03.06.2019 are hereby set aside. 78. The matter is remitted back to the CoC with the direction to distribute the resolution amount in conformity w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
