TMI Blog2022 (3) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan by a vote of not less than 66 % of voting share of the financial creditors after considering its feasibility and viability, the manner of distribution proposed which would take into account order of priority amongst the creditors as laid down in sub-section 1 of Section 53. The constitution of COC has been done by taking the claim of Bank of India (Financial Creditor) as ₹ 41.50 Crores. It is seen that the Competent Authority of Bank of India vide OTS Letter dated July, 29 2017 approved a OTS of the Corporate Debtor at ₹ 19.30 Crores, against which the Corporate Debtor paid an amount of ₹ 9,70,21,000/- to the Bank of India. Despite such a payment having been made, the representative of Bank of India continued to claim that the amount proposed by the Bank of India at ₹ 41.49 Crores be included as due as financial debt due from the Corporate Debtor, there are a series of communication (attached at PP. 126 135 of the Appeal Paperbook) which culminated in this issue being discussed in the first meeting of the CoC held on December, 22 2017 - since the voting share of Bank of India even with the reduced claim shall be around 80% we do not thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamination of the Resolution Plan by the Resolution Professional and inadequate allocation for salary, pension and gratuity amounts of workmen/employees in the approved Resolution Plan. 2. In brief the facts of the case are that the Appellant was appointed as Manager R D (Railway Projects) by the Respondent/Corporate Debtor M/s Applied Electro Magnetics Pvt. Ltd. on 07.05.2008 and given a basic salary alongwith house rent allowance, PF, Gratuity and LTA and he joined the Corporate Debtor on duty on 07.05.2008. The Appellant has further stated that he continued to work well and consequently the Respondent kept on revising or increasing his salary package even though the payment of salary and other perks was not systematic and beset with delays. The Appellant has further stated that despite repeated requests for payment of pending salary and related amounts the Respondent paid no heed. A final demand was made by the Appellant vide notice dated 17.08.2017 in Form-3 under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Rules,2016 which was served upon the Respondent on 18.08.2017, wherein the Appellant made a demand of ₹ 66, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the light of the PF Authority s order, and the Resolution Plan was approved by the Adjudicating Authority vide impugned order dated 02.04.2019, which the Appellant has assailed by claiming it to be not inconsonance with the provisions of the IBC. 5. In this Appeal, the Appellant has alleged irregularities committed by the Resolution Professional in the constitution of Committee of Creditors (in short COC ), not carrying out forensic audit, preferential transactions carried out by the erstwhile management of the corporate debtor, among other allegations, and prayed for setting aside the impugned order thereby rejecting the Resolution Plan submitted by the Successful Resolution Applicant. The Appellant has also prayed for sending the matter for investigation of irregularities committed by the Resolution Professional to Serious Fraud Investigation Office or investigation and necessary action. 6. We heard the arguments submitted by the Ld. Counsels for the parties and also perused the record. 7. The Ld. Counsel for the Appellant has argued that the approved Resolution Plan does not comply with Section 30(2)(e) as the workmen/employees have not been paid their dues in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation value which was admissible to the operational creditor would have been NIL, hence, the amounts payable to workmen/employees on account of salary, PF and gratuity dues had to be reduced. He has further stated that in such an event, Section 36(4) will be applicable and the amounts of pension fund, gratuity fund and provident fund will have to be kept out of the liquidation estate and then payment will have to be done in accordance with the waterfall mechanism given in Section 53. His argument is that since the plan was approved by 100% voting in the CoC, the commercial wisdom of the CoC in approving such a Resolution Plan cannot be questioned and the distribution therein to various stakeholders cannot be changed by either the Adjudicating Authority or the Appellate Tribunal. 11. The Ld. Counsel for the Committee of Creditors has supported the arguments put forward by the Ld. Counsel for the Resolution Professional and has said that in view of the NIL liquidation value of the Corporate Debtor even the secured financial creditor such as the banks have had to take a large haircut of about 80%. The Ld. Counsel for the Resolution Applicant has also supported the arguments s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et the legitimate liabilities of the employees. (vii) No action was taken regarding forensic audit as opined by the then IRP (At Pg. 427 Para 5 of the Appeal Paper Book) which was denied by the CoC. (viii) The claim of Bank of India as financial creditor was wrongly shown as 41.50 Crores instead of ₹ 31.80 crores (since Bank of India had received ₹ 9.70 Crores as payment towards One Time Settlement). In such a situation the voting share of Bank of India was artificially inflated and thus, constitution of CoC as well as allocation of voting shares was wrong. 13. To appreciate the issues raised by the Appellant in the appeal, we peruse Section 30(2)(b) of the IBC as it stood at the time of approval of the Resolution Plan i.e. on 02.04.2019. This provision is as follows:- 30. Submission of Resolution Plan xxx (2) The Resolution Professional shall examine each Resolution Plan received by him to confirm that each resolution plan xxx (b) provides for the payment of the debts of the Operational Creditors in such manner as may be specified by the board which shall not be less than the amount to be paid to the Operational Creditors in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the insolvency initiation date is shown as ₹ 0.59 crores. This class of debt and the debt of secured financial creditor Bank of India should rank equally in payment. After payment of full CIRP costs of ₹ 0.18 crores from the Liquidation amount of ₹ 6.1 crores, the payment to workmen for a period of 24 months and security creditors has to be made. The actual claim of the Bank of India is ₹ 31.80 crores instead of ₹ 41.50 crores and the claim of workmen for 24 months period preceding insolvency initiation date is ₹ 0.59 cores. Hence the remaining amount of ₹ 6.10 crores (-) 0.18 crores = ₹ 5.92 crores has to be distributed between them proportionately. Since the Bank of India has been offered ₹ 9 crores as settlement of its claim which is about 28% of its claim amount, the workmen should also be given 28% of ₹ 0.59 crore which is equal to ₹ 0.1652 crore. Therefore the workmen should get an additional Rs. (0.1652-0.09) crores = ₹ 0.8834 crores to be distributed among them as per their proportionate shares. 17. In the scheme for payments according to section 53 as it stood on the date of passing of the approval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the CoC has to approve a Resolution Plan by a vote of not less than 66 % of voting share of the financial creditors after considering its feasibility and viability, the manner of distribution proposed which would take into account order of priority amongst the creditors as laid down in sub-section 1 of Section 53. Hon ble Supreme Court has held in the case of K Shashidhar Vs. Indian Overseas Bank Ors. Civil Appeal No. 10673 of 2018 as follows:- 31 . There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the COC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made non justiciable. 20. Ld. Counsel for the Appellant has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the Corporate Debtor paid an amount of ₹ 9,70,21,000/- to the Bank of India. Despite such a payment having been made, the representative of Bank of India continued to claim that the amount proposed by the Bank of India at ₹ 41.49 Crores be included as due as financial debt due from the Corporate Debtor, there are a series of communication (attached at PP. 126 135 of the Appeal Paperbook) which culminated in this issue being discussed in the first meeting of the CoC held on December, 22 2017 (Notice and Minutes of meeting attached at PP. 189 203 of the Appeal Paper Book). It is clear that the then IRP Mr. Navin Kumar Jain also raised the objection of the inflated claim of Bank of India being considered in the constitution of CoC and the voting rights therein but the matter was not taken to its logical conclusion by the next RP. Be that as it may, since the voting share of Bank of India even with the reduced claim shall be around 80% we do not think it would affect the overall voting pattern in the CoC when the resolution plan was approved with a 100% vote share, since any percentage of voting for approval more than 66% would have achieved the same result. 24. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Date. 25. In the same report and attached annexure, submitted to the Adjudicating Authority regarding constitution of CoC, the IRP has made comments regarding related parties, claims of Mr. Naresh Aggarwal, MD and Ms. Kavita Aggarwal (Daughter of Mr. Naresh Aggarwal) as financial creditor and conversion of operational debt into financial debt. Further in the meeting for discussing the claim of Bank of India representative has proposed that the amount being 41.49 Crores with an agreement the mandatory bring it back to the agreed legal claim from Applied Electro Magnetics which is OTS amount approved - the amount paid by AEM so far subsequent to OTS date in the first CoC meeting. These issues were discussed in the first CoC meeting held on 22.12.2017 (minutes attached at PP. 128 to 203 of the Appeal Paperbook) and the following has been recorded in Paragraph 7:- It was informed that some loans in the names of family members of Directors have been taken from DhanLaxmi Bank which were infused in the Company . 26. Again in Paragraph 10 it is noted in the minutes as follows: 10. Mr. Navin Kumar Jain pointed out that loans were taken from SM Finlease has been ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takeholders. We do not want to comment on the seriousness or otherwise of these issues as they require deeper examination which is not in the purview of this appeal which basically assails the approval of the resolution plan. Yet we are inclined to say that the Resolution Professional Mr. Vinay Talwar should have got a forensic audit carried out, as had been opined by the erstwhile RP Mr Navin Kumar Jain to give quietus to allegations of malpractices that had a bearing on the functioning of the corporate debtor. 30. We are, therefore, of the view that the approved resolution plan complies with the provisions of the IBC with slight modification in the amounts proposed to be paid to the workmen and employees in relation to their dues including provident fund which is as follows: The workmen should get an additional payment of ₹ 0.1652 crores ₹ 0.09 crores = ₹ 0.8834 crores to be distributed among them as per their proportionate shares. The payment of provident fund amounts should be in accordance with the judgment of this tribunal in the matter Sikander Singh Jamuwal Vs. Vinay Talwar Ors. [CA (AT) (Ins) No. 483 of 2019]. With the above-stated modific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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