TMI Blog2023 (4) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant has made a clear disclosure that his claim pertains to an arbitration award dated 19.3.2015 and that an execution application thereof is filed by the Appellant and also an application under section 34 of the Arbitration and Conciliation Act, 1996 filed by the corporate debtor were pending adjudication. Therefore, it is clear that the Appellant made a clear disclosure about the arbitration award as well as the pendency of execution application and application under section 34 filed by the corporate debtor. On examining the various e-mail communications exchanged between the earlier Successful resolution Professional and R-1 and the Appellant, it is clear from the e-mail sent by Shri Ashish Vyas the then Resolution Professional on 29.6.2019 that the claim of the Appellant to the extent of Rs.16,78,15,035 was admitted in the CIRP. Thereafter, there was change in the Resolution Professional and by another e-mail dated 21.5.2020 sent by the Resolution Professional/R-1 Shri Vijendra Kumar Jain it is seen quite clearly that he sought details of the claim amount and its quantum, along with KYC particulars, which were sent by the Appellant. The same e-mail also notes that ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench) in IA No. 07/MB/2021 in CP (IB)No. 3448/MB/2018. The Adjudicating Authority, by the Impugned Order has approved the Resolution Plan under section 30(4) of the IBC with respect to the corporate debtor Transparent Energy System Pvt. Ltd. . 2. The conspectus of the case is that, on an application under section 9 of the IBC, the corporate debtor was admitted into Corporate Insolvency Resolution Process (in short CIRP ) vide order dated 8.3.2019 and pursuant to the admission order a public announcement was made on 9.3.2019 by the Internal Resolution Professional (in short IRP ) about the initiation of CIRP of corporate debtor and calling upon creditors to file claims in the CIRP. The Appellant filed its claim on 3.6.2019 and vide its communication dated 16.6.2020 provided the Resolution Professional Vijendra Kumar Jain with detailed computation of principal and interest amount claimed by the Appellant along with KYC documents. 3. The Appellant has stated that in response to the public announcement and filing of claims in Form B vide communication dated 3.6.2019, he received an e- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ashish Vyas of the details of his claim and disclosing that since he had secured arbitral award dated 19.3.2015 for Rs.68,36,288.36, he filed an application for execution of the arbitral award and that another application under section 34 of the Arbitration and Conciliation Act, 1996 was filed by the corporate debtor, which is pending before Commercial Court, Vadodara. He has stated that thus, the Appellant has made appropriate disclosure before the Resolution Professional about the existence of the section 34 application against the arbitral award, and he argued that since there was no stay on the arbitral award and the Appellant had submitted the details of his claim including a copy of the arbitral award and excel sheet showing the total amount of claim along with KYC documents, there was no reason for his entire claim to have been admitted. He has further argued that the Resolution Professional vide e-mail dated 29.6.2019 had informed him that the Appellant s claim was admitted as per the books of the corporate debtor, and when he received an e-mail dated 21.5.2020 from Shri Vijendra Kumar Jain, the new Resolution Professional asking him to inform the total claim amount includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave accepted such a statement that the arbitration award is void ab initio and that the entire process between the award and distinction and unlawful . These statements in the resolution plan were statements without any legal bases and therefore the Resolution Professional was duty bound to examine the resolution plan and see that it satisfied the provision of section 30(2), which action was not diligently and dutifully taken by the Resolution Professional. 8. The Learned Counsel for Appellant has referred to the reply of Respondent No. 2/Successful Resolution Applicant to argue that the resolution plan makes a distinction between various categories of the operational creditors for making payments, which is seen from as given in Annexure R/2-7 annexed with the reply of R-2, and which is an extract from the approved resolution plan. He has further argued that the basis of making categories such as F, G, H, I, J, K and L is not explained as to what such categories mean and why the Appellant s claim as operational creditor was placed in category H and the total amount to be paid to the Appellant was kept as zero . He has further argued that the Resolution Professional was dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, RP of Alok Industries and Ors. [MANU/NL/0437/2021] decided on 4.10.2021, wherein this Tribunal has held that there is no embargo on the classification of operational creditors into separate/different classes for deciding the way in which the money is to be distributed, as such an action would be covered within Collective Commercial Wisdom of the Committee of Creditors. The relevant observation in this judgment is as hereunder:- 72. In reality, there is no embargo for the classification of Operational creditor(5) into separate/different classes for deciding the way in which the money is to be distributed to them by the 'Committee of Creditors' because of the fact, undoubtedly, they do have the subjective final discretion of 'Collective Commercial Wisdom' in relation to (1) The amount to be paid (2) The quantum of money to be paid, to a certain category or the incidental category of creditors, of course, nicely balancing the interests of the 'Stakeholders' and the 'Operational Creditors', as the case may be. Suffice it for this Tribunal to pertinently make a significant mention that it cannot be lost sight of that the 'Appellant's' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim was considered and included in the proposed resolution plan, which was to provide zero payment to the Appellant, this resolution plan was approved by the Committee of Creditors and the Adjudicating Authority. She has further referred to the fair and liquidation value of the corporate debtor done by a registered valuer, which was Rs. 15,29,34,330 and Rs.11,43,51,143 respectively, and this information is included in the additional affidavit filed by R-1 in paragraph 4 (additional affidavit submitted vide dy. No. 41799 dated 9.12.2022). On this basis, she has claimed that there is no malafide action on the part of R-1 and all the facts were put up before the Resolution Applicant through the Information Memorandum, and the proposed resolution plan was considered and approved by the Committee of Creditors in its commercial wisdom. 13. The Learned Counsel for Appellant has argued in rejoinder that if a fair and liquidation value of the corporate debtor was so small as is claimed by the Resolution Professional, how was it possible that other operational creditors received reasonable payments, whereas the Appellant received zero payment. 14. The following issues arise for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the third arbitrator had resigned and his post was vacant. TESPL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 in District Court at Ankleshwar in 2015 on numerous grounds including the patent illegality and deficiency in the process of making the award only by the two arbitrators. A copy of the petition of TESPL for challenging the award is enclosed as Annexure D. The award challenge petition was transferred to Vadodara Commercial Court in 2017 due to introduction on Commercial Courts and in 2019 it has been remanded back to District Court of Ankleshwar District Courts due to dissolution of Commercial Courts in Gujarat. In 2018, Kanoria Chemicals has filed application for execution of award before Pune Civil Court and it is pending for hearing. In the month of June 2019, TESPL received claim as per IBC code from KCIL and it was forwarded to the IRP who was then in-charge. The updated Information Memorandum received by the Resolution Applicant (RA) on 28.05.2020 includes the claim from KCIL with a specific remark about pending award challenge petition. The said claim has been admitted by the Resolution Professional (R) based on the arbitrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant submitted his claim in Form B to the Resolution Professional vide communication dated 3.6.2019 (attached at pp. 141-147 of the Appeal Paperbook), wherein the Appellant has made a clear disclosure that his claim pertains to an arbitration award dated 19.3.2015 and that an execution application thereof is filed by the Appellant and also an application under section 34 of the Arbitration and Conciliation Act, 1996 filed by the corporate debtor were pending adjudication. Therefore, it is clear that the Appellant made a clear disclosure about the arbitration award as well as the pendency of execution application and application under section 34 filed by the corporate debtor. We also note that there is no stay in any of the two proceedings as stated above. We also note that vide e-mail dated 29.6.2019, the claim of the Appellant to the extent of Rs.16,78,510.35 was stated to be admitted as per books of the corporate debtor and thereafter by an e-mail dated 21.5.2020 sent by R-1, details about the claim made by the Appellant were sought from the appellant, whereafter the appellant submitted all related documents along with Excel sheet showing the calculation of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like to give the benefit of doubt to R-1 on this score on the basis that with the change of the Resolution Professional perhaps the documents and papers were not transferred in full or in time to R-1 from the previous resolution Professional, yet we are of the view that once the Appellant had submitted complete details about the arbitration award, and the calculation of claimed amount in excel sheet and KYC documents, the admitted amount of the claim should have been communicated to the Appellant, while observing so, we are conscious of the fact that the appellant sent several emails in follow-up to the Resolution Professional. The work of updating and verification and final determination of the amount of claims is to be done by the Resolution Professional as per Regulations 12, 12A, 13 and 14 of the CIRP Regulations. The list of creditors shall be maintained by the Resolution Professional and made available to the persons filing the claims in accordance with sub-regulation (2) of Regulation 13 and based on the record submitted by the parties it is clear that the Appellant could not get to know the amount of his claim finally admitted by the Resolution Professional despite continuo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the committee of creditors, always gone into whether operational creditors are given roughly the same treatment as financial creditors, and if they are not, such plans are either rejected or modified so that the operational creditors rights are safeguarded. It may be seen that a resolution plan cannot pass muster under Section 30(2)(b) read with Section 31 unless a minimum payment is made to operational creditors, being not less than liquidation value. Further, on 05.10.2018, Regulation 38 has been amended. Prior to the amendment, Regulation 38 read as follows: ―38. Mandatory contents of the resolution plan. (1) A resolution plan shall identify specific sources of funds that will be used to pay the (a) insolvency resolution process costs and provide that the [insolvency resolution process costs, to the extent unpaid, will be paid] in priority to any other creditor; (b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and (c) liquidation value due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o arbitrators, when the third arbitrator has resigned and his post was vacant. The objectionable portion in resolution plan which relates to the manner in which Appellant s claim was dealt with, further goes on to state as follows:- The RA, being fully aware of the facts of the dispute between TESPL and KCIL, has considered this claim on the following background a) The basis of the claim is the arbitration award which has been challenged by TESPL and the challenge petition is pending. b) The arbitration award is void ab initio as it has been made by two arbitrators after resignation of third arbitrator and without following the mandatory process of deliberations among the members of the arbitral tribunal. c) The entire process of making the award has been defective and unlawful. d) The outgoing arbitrator, in his letter of resignation, had specifically elaborated about the blatantly defective award making process followed by the other two arbitrators and the resultant miscarriage of justice as grounds for his resignation. xx xx xx xx The RA, in light of the above facts, has given NIL value to this claim in the Resolution Plan. xx xx xx xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y H has been provided zero payment. Looking at the claims of operational creditors such as Pawan Agency, Mattes Engineering GmbH, Solutions Techniques, Rudra Enterprises and Mr. J.G. Pendse, we note that even their claims were admitted, but the record submitted by R-1 does not make clear as to what amount or percentage of their admitted claims these operational creditors were paid, but it is clear that these operational creditors were paid some amount which was more than zero . Since there was no stay in the execution proceedings or any order of the competent court regarding varying the arbitration award insofar as the arbitral award in favour of response to section 34 application, we are of the view that the Appellant should be paid appropriately, and looking to the facts of this case and submitted documents, it should be the highest of the percentages (of admitted claim) that the operational creditors F, G and I categories have been paid. 25. In the present case, the said judgment is distinguished on the basis that the Appellant did not deserve zero payment since the arbitration award by the competent court was neither quashed, stayed or varied, as there was no contrary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors of the corporate debtor before it went into insolvency resolution is now disqualified as per sections 164 and 167 of the Companies Act, 2013 and therefore, the management of the company after insolvency resolution cannot be handed over to the same person. We pursued sections 164 and 167 of the Companies Act, 2013. Section 164 lays down conditions under which a person shall not be eligible for appointment as director of a company. It is clear that Shri Ashok Atre is himself neither of unsound mind nor an undischarged insolvent and also that he is not convicted or disqualified by any court or tribunal to hold the office of a director of a company. The section 167 gives the conditions in which the office of director shall become vacant and noticeably Shri Ashok Atre has not vacated the office of director under any of the conditions mentioned in section 167 of the Companies Act, 2013. We further notice section 240-A of the IBC, which is as follows:- 240-A. Application of this Code to micro, small and medium enterprises. (1) Notwithstanding anything to the contrary contained in this Code, the provisions of clauses (c) and (h) of section 29A shall not apply to the resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IBC shall not apply in respect of a resolution applicant in the present CIRP of the corporate debtor, and therefore, there is no disqualification or ineligibility attached to Shri Ashoke Atre or any member of the previous management of the corporate debtor in playing as a prospective resolution applicant in the CIRP of the corporate debtor. 30. On the basis of discussion in the aforesaid paragraphs, we decided the three issues stated in paragraph 14 of this judgment as follows:- (i) The Appellant was incorrectly classified as an operational creditor with payment of zero amount on the basis of prejudicial and objectionable analysis of arbitration process by Successful Resolution Applicant as stated in the Resolution Plan. Therefore, the Applicant should be paid an amount equal to the amount permissible to the operational creditor receiving maximum percentage of payment against admitted claim, from among all the various categories of operational creditors in the resolution plan. (ii) The Successful Resolution Applicant was entitled to submit a resolution plan, since it is permitted under section 240-A of the IBC to submit a resolution plan in respect of the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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