TMI Blog2023 (6) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... s based on the established Principles of Creditors in the control framework. The Court provides the shareholders right to file a Claim only in the Liquidation Process as stakeholders and the advances of stakeholders as stated in Regulation 2(k) includes shareholders only because unlike CIRP, in Liquidation, distribution to stakeholders is in accordance with the waterfall mechanism. Shareholders are excluded from representation, participation or voting in the CoC and are represented in the CoC only through the Directors and can speak only through the Directors. This Tribunal, is of the considered view that once the CIRP is triggered, the Management of the affairs of the Corporate Debtor lies with the Interim Resolution Professional and the shareholders do not have a Right to file any claim in the CIRP but can only do so in the Liquidation Process. It is seen from the provisions of the Code that the Shareholders are excluded from representation, participation or voting in the CoC and are represented in the CoC only through the Directors - The CIRP proceedings are proceedings in rem, to the extent that once a Petition filed by a Financial Creditor/ Operational Creditor against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Order of the Learned Adjudicating Authority in the Approval of the Plan or in the rejection of application - appeal dismissed. - TA (AT) NO. 134/2021 (COMPANY APPEAL (AT) (INS) NO. 653/2019) WITH TA (AT) NO. 135/2021 (COMPANY APPEAL (AT) (INS) NO. 803/2019) - - - Dated:- 13-6-2023 - [ Justice M. Venugopal ] Member ( Judicial ) And [ Ms. Shreesha Merla ] Member ( Technical ) For the Appellant : Mr. T.K. Bhaskar, Advocate For Mr. Pranav G, and Mr. Mayan H. Jain, Advocates For the Respondent Nos.1 2/Resolution Professional : Mr. Sumant Batra, Advocate For Ms. Sarvapriya Roy and Mr. K. Moorthy, Advocates For the Respondent No.3 / Resolution Applicant : Mr. Rana Mukherjee, Senior Advocate For Mr. Kawsik Raghu Rajaa, and Mr. Anand Selvam, Advocates For the Appellant : Mr. T.K. Bhaskar, Sr. Advocate For Mr. Pranav G, and Mr. Mayan H Jain, Advocates For the Respondent Nos.1, 4 to 8 : Mr. E. Om Prakash, Senior Advocate For Ms. Madhusmita Bora, Advocate For the Respondent Nos.2 3/ Resolution Professional : Mr. Sumant Batra, Sr. Advocate For Ms. Sarvapriya Roy and Mr. K. Moorthy, Advocates For the Respondent No.13 : Mr. Yashraj Singh Deora, Advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 2nd Respondent s shall be only with the prior permission of this Hon ble Tribunal; h) Pass such other order or orders this Hon ble Tribunal may deem fit. 4. The Learned Adjudicating Authority while dismissing the Application has noted that MA 179/2019 was filed by the Resolution Professional seeking the approval of the Resolution Plan and Embassy Property Developments Private Limited ( EPDPL ) was voted as SRA. The Resolution Plan was approved vide Order dated 12/06/2019. The Adjudicating Authority in Para 23 of the Order has referred to the objections raised in MA/129/2019 by the Appellant herein and we find it relevant to reproduce the same here in: The Objector viz., Mr. Ravi Shankar Vedam is the shareholder of the Corporate Debtor viz., M/s. Tiffins Barytes Asbestos and Paints Ltd., and is the absolute owner of 35,590 shares and upon his father's intestate demise in April 2013, he and his brother viz., Mr. Sriram Vedam, inherited the 12,938 shares a n d therefore has a substantial interest in the Corporate Debtor. The objector has alleged that the Resolution Professional has not shared the documents with him which is in violation of the Principles of Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIRP was triggered only on the basis of this MoU dated 16/04/2016; that the font used in the MoUs is different, that the Stamp Papers don t match, that only one MoU has the Company Seal of the Corporate Debtor, Clause 3 is absent in the MoU filed in the Ballari Court, the handwriting of the witnesses are different, there is discrepancy in the Stamp used in the MoU filed before the Adjudicating Authority; that there was no time value of money when the money was purportedly disbursed to the Corporate Debtor; that CIRP was initiated fraudulently and with a malicious intent for a purpose other than the Resolution of Insolvency; that the SRA is admittedly the Co-Subsidiary of the 1st Respondent; that the RP is duty bound under Regulation 35 A of the Corporate Persons Regulations read with Section 25(2) (j) and Sections 43, 45, 49, 50 66 of the Code to form an opinion on whether the Corporate Debtor has been subjected to any of the Transactions covered therein; that the Resolution Professional is duty bound under Sections 20(1) and 20(2) (a) read with Sections 25(1) and 25(2) of the Code to protect and preserve the value of assets of the Corporate Debtor; that in the 3rd me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores, and that the refusal of Resolution Professional to conduct the Forensic Audit despite specific remarks made by the erstwhile Auditors, is in contravention of the provisions of the law for the time being in force. The Learned Counsel contended that the Adjudicating Authority ought not to have admitted the Application for initiation of CIRP by M/s. Udhyaman Investments Private Limited, in so far as the Application was in clear violation of Section 65 of the Code for suppression of material facts as the presence of Mr. Poobalan and his aides were involved in the functioning of the Company till 2018 and thereafter being a member of CoC, was in violation of Section 29A of the Code. It is submitted by Mr. T.K. Bhaskar that Mr. Poobalan was incharge of the day to day affairs of the Corporate Debtor Company and was working hand in glove with the Resolution Professional for their personal benefits and the Resolution Professional was determined to undervalue the Company. The Learned Senior Counsel placed reliance on the following Judgements: a. Dr. B.V.S. Lakshmi v. Geometrix Laser Solutions Private Limited C.A. (AT) (Ins) No. 38 of 2017 (judgment dt. 22.12.2017) (para 29 to 31) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an was approved, the Appellant had sent an e-mail asking for a Copy of the Resolution Plan and the Information Memorandum for which the Resolution Professional had duly replied stating that this information cannot be shared as it is confidential in nature; that all the Transactions entered into by Mr. Poobalan and his entities are through Banking channels and are reflected in the Books of Accounts of the Corporate Debtor; there is no document of proof that Mr. Poobalan was the signatory to any bank account and the same was given in an affidavit by Ms. Nandita Vedan, before the Hon ble Adjudicating Authority; that the CoC in their 5th Meeting rejected the Audit Report of the Statutory Auditor and has discussed the same elaborately; the Government of Karnataka challenged the direction issued by the Adjudicating Authority before the Hon ble High Court of Karnataka in W.P. No. 41029 of 2019 and obtained an Order of Stay, against which Special Leave Petitions ( SLPs ) were preferred and the Hon ble Supreme Court in SLP Nos. 22596/2019, 22684/2019 and in 22724/2019 stayed the Order passed by the Hon ble High Court of Karnataka. The Resolution Professional has appointed 2 registered val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt did not raise any issue, that various Creditors have approached different Courts seeking other reliefs, the MoU was entered into with the Financial Creditor on 16/04/2016, where by M/s Udhyaman Investments had given a loan of Rs. 11,50,00,000/-, at the request of the Company. 13. It is submitted that the MoU was entered into between the Company and Udhyaman, keeping in view, the mutual interest of both the parties. It was consented that the Company would pay to Udhyaman, a sum of Rs. 11,50,00,000/- with interest of 18% p.a. as recorded in the Joint Memo of Compromise , before the Learned Judicial Magistrate, Bellari in CC No. 1687/2014. 14. It is submitted that in CP/39/IB/CB/2018, it was stated before the Adjudicating Authority by the Financial Creditor, who had filed the Section 7 Application, that the Corporate Debtor had given a cheque to the Financial Creditor for an amount of Rs. 8,82,68,439/-, on 03/04/2014, which was dishonoured due to lack of funds. Therefore, CC No. 1687/2014 was filed by the Financial Creditor before the Learned Judicial First Class Magistrate, Bellari, under Section 138 of the Negotiable Instruments Act, 1881 and a Joint Memorandum of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Professional and that had the Forensic Audit been done, CIRP would not have been triggered against the Corporate Debtor and that the Tribunal ought not to have approved the Resolution Plan without reconstituting the CoC. Assessment : 18. At the outset, this Tribunal is of the earnest view that the question whether a shareholder of the Corporate Debtor has locus standi, to challenge the Resolution Plan, is to be adjudicated. In an Insolvency process, when an insolvency of Debtor is imminent, the fiduciary duty of the Directors and Managers, who are Agents of the Shareholders, shifts to the Creditors to preserve the value of the Enterprise for maximising the returns for Creditors. The Legislature in its wisdom, has curtailed the Rights of the Shareholders based on the established Principles of Creditors in the control framework. The Court provides the shareholders right to file a Claim only in the Liquidation Process as stakeholders and the advances of stakeholders as stated in Regulation 2(k) includes shareholders only because unlike CIRP , in Liquidation, distribution to stakeholders is in accordance with the waterfall mechanism. Shareholders are excluded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 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 purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Cod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30(2) (e) of the I B Code, 2016 and has approved the same, vide Order dated 12/06/2019 and therefore this Tribunal, is of the considered view that these issues raised by the shareholder when the CoC has approved the Plan with requisite Majority is not provided for in the Code and hence have no bearing. 25. The CIRP proceedings are proceedings in rem , to the extent that once a Petition filed by a Financial Creditor/ Operational Creditor against the Corporate Debtor is admitted, it becomes a collective Creditors Proceedings and all Creditors, pool their Security Interest, in a common manner and the same is distributed as provided for, under Section 30(4) of the Code, subsequent to the approval of the plan by the CoC. The Provisions of the Code does not provide for the shareholders to seek representation , participation , or otherwise and to agitate their views only through the Directors. 26. The High Court of Delhi in the matter of ICP Investments (Mauritius Ltd.) Vs. Uppal Housing Pvt. Ltd. Ors. reported in [(2019) SCC Online Del 12371] has held as follows: 20. It is felt that once the affairs of the Umang are taken over by an IRP, the Directors of Umang can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, then it would be for the liquidator or the administrator to decide whether or not to pursue the claims, and thus derivative action should not normally be brought on behalf of a company in liquidation or administration. It was further held that the controlling shareholder should not seek to circumvent the insolvency regime by starting a derivative action. (iv) Petroships Investment Pte Ltd. v. Wealthplus Pte Ltd., 2016 SGCA 17 where the Supreme Court of Singapore also held that a derivative action, enshrined in Section 216A of the Companies Act, 2006 of that country, is one where there exist directors who are capable of taking action to vindicate the company's right i.e. they remain in active management. It was held that whilst a company is a going concern, it is normally for the Board of Directors to authorize legal proceedings, as the power to manage is usually vested in the Board; however when a company enters into liquidation, the board is effectively functus officio and the liquidator is in the driver seat and the directors have no power to react to any notice, whether to prosecute, defend or discontinue an action on the company's behalf. 22. I must howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Corporate Debtor, it is evident from the Record that the Adjudicating Authority, vide Order dated 27/03/2019 in IA/503/2019 decided that Mr. Poobalan is not in any way related to the Corporate Debtor, but that his relationship was only as an Agency. The same can be seen from the Report of the Resolution Professional and it is significant to mention that an Appeal filed against Order dated 09/05/2019 was dismissed by this Tribunal in CA/803/2019. 30. The Learned Counsel for the Appellant has strenuously argued that had the Transaction Audit been carried out, the Resolution Plan would not have been approved. It is not in dispute that the Appellant is one of the largest shareholders of the Corporate Debtor and not having raised these issues earlier, at the later stage, contends that other shareholders and Directors have indulged in Fraudulent Transactions . We find force in the Contention of the Learned Senior Counsel Mr. E. Om Prakash, that these issues were never raised earlier, no action was taken and that there are other remedies in Law for any of these grievances. 31. The Hon ble Supreme Court in the matter of Arunkumar Jagatramka V. Jindal Steel Power Ltd. Anr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the Foundational Principles of the Insolvency and Bankruptcy Code, cannot be disturbed and this Tribunal is of the considered view that giving the Shareholder , the locus to challenge the approval of the Resolution plan tantamounts to disturbing the Foundational Principles of the Insolvency and Bankruptcy Code . Keeping in view the facts of the attendant case, the Judgments relied upon by the Appellant are not applicable to the matter on hand. 33. The Learned Counsel for the Appellant strenuously contended that in the matter of Embassy Property Developments Private Limited Vs. State of Karnataka Ors. reported in [(2020) 13 SCC 308], this Tribunal has been granted the jurisdiction to enquire into the matter of fraud in insolvency proceedings. Referring to the assertions of the Appellant that serious allegations of fraud have not been dealt with by the Adjudicating Authority, the record shows that the 5th CoC Meeting on 24/10/2018, deliberated on the financial statements, rejected the draft audit report and decided to appoint another auditor to conduct the Corporate Debtor. The CoC has rejected the conduction of a forensic audit by a vote of an overwhelming maj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny Ltd. Vs. Well-Do and exports Private Limited and Ors. reported in MANU/NL/01412019, as it was observed by NCLAT in the aforenoted Judgment that shareholders and Promoters who were ineligible under Section 29A, cannot raise their grievances, is untenable, keeping in view that the basic Principle laid down is that when a Shareholder and a Promoter is ineligible to file a Resolution Plan, (except, if an MSME), viewing from the same yard stick, their role cannot be extended in getting involved in the decision making on the commercial viability of disposing off assets etc., which clearly falls in the domain of the CoC, whose decision is final. Even with regard to distribution of assets of a Company, under Liquidation, as per Section 53(h), Equity shareholders have been placed at the bottom of the list of Priorities. Regulation 38 (1A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 notes that a Resolution Plan shall include a statement as to how it has to be dealt with the interest of all stakeholders, including Financial Creditors and Operational Creditors of the Corporate Debtor . The necessary and requisite condition was that the Resolution Plan h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f VITPL, the members are of the view that EPDPL though the offer was lesser than that of VITPL, the members are of the view that EPDPL commits to the Resolution Plan irrespective of the outcome of the Government in renewing the mining lease. There is no upfront cash Payment in the Resolution Plan of VITPL whereas the Resolution Plan of EPDPL contains upfront cash payment to Secured Financial Creditor and Workmen and Employees. The Results of the 1st Voting set is as follows : Financial Creditor Voting % EPDPL VITPL Indian Overseas Bank AASAAN Global Trade Jayashree Agencies Palak HR Udhayaman Investments Sujathaa Mehta 28.80 % 2.50 % 7.60 % 3.80 % 55.50 % 1.70 % Favour Against Favour Against Favour Against Against Against Against Against Against Against Total 100 % Votes in Favour Votes Against 91.90% 8.10% - 100.00% The Results of the 2nd Voting is as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction and authority in NCLT or Nclat as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order approving a resolution plan under Section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers by the resolution professional during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board. Significantly, the matters or grounds be it under Section 30(2) or under Section 61(3) of the I B Code are regarding testing the validity of the approved resolution plan by CoC; and not for approving the resolution plan which has been disapproved or d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nLine NCLT 713] the plan of the appellant therein with regard to CIRP of United Seamless Tubulaar (P) Ltd. In appeal, Nclat directed [Padmanabhan Venkatesh v. V. Venkatachalam, 2019 SCC OnLine NCLAT 285] , that the appellant therein should increase upfront payment to Rs 597.54 crore to the financial creditors , operational creditors and other creditors by paying an additional amount of Rs 120.54 crores. Nclat further directed, that in the event the resolution applicant failed to undertake the payment of additional amount of Rs 120.54 crores in addition to Rs 477 crores and deposit the said amount in escrow account within 30 days, the order of approval of the resolution plan was to be treated to be set aside. While allowing the appeal and setting aside the directions of Nclat, this Court observed thus : (Maharashtra Seamless case [Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, (2020) 11 SCC 467 : (2021) 1 SCC (Civ) 799] , SCC p. 487, para 30) 30. The appellate authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Solutions Private Limited , reported in 2022 (2 SCC 401) has clearly laid down that subsequent to the approval of the Resolution Plan of the CoC and before the approval by the Adjudicating Authority, no modifications / alterations can be called for as IBC is a time bound process. 45. At the cost of repetition, in the instant case, this Tribunal finds no infirmity in the Order of the Learned Adjudicating Authority in the Approval of the Plan or in the rejection of MA/120/2019. The Learned Senior Counsel, Mr. Rana Mukherjee has submitted that the Successful Resolution Applicant , in compliance with the timelines mentioned in the Plan has brought in funds amounting to Rs. 26.50 Crores on 20/07/2019 and Rs. 62,97,11,280 on 12/10/2021. Further having regard to the fact that the Resolution Plan is successfully implemented and for all the aforegoing reasons, we do not find it a fit case to interfere in the well reasoned Orders of the Adjudicating Authority and hence both these Appeals fail and are accordingly dismissed. No Order as to costs. Result : 46. In fine, both the Appeals, Company Appeal (AT) (Ins) No. 653/2019 and Company Appeal (AT) (Ins) No. 803/2019 are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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