TMI Blog2023 (8) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... CIRP on 31/01/2020. Kotak Bank has charged on Project Arun Auroville and sought for CIRP of Project Arun Auroville and therefore, the IRP constituted the CoC for Project Arun Auroville and the CIRP was limited to that project only - this Tribunal is of the considered view that there is no merit in the 1st issue raised by the Appellant that the Project wise CIRP was wrongly initiated or that the CoC was erroneously constituted, specifically keeping in view that the Order of project wise CIRP was never challenged. Further, the CoC on 29/10/2020 approved the eligibility criteria for a Prospective Resolution Applicant to provide a Resolution Plan in respect of Project Arun Auroville alone. Based on this eligibility criteria, public announcement was effected on 14/11/2020 clearly stipulating that the Resolution Plan was sought only for Project Arun Auroville . Having participated and attended the CoC Meetings, the Appellant had never exercised his choice of raising this issue - there are no substance in this matter in question. Disqualification of the SRA Consortium u/s 29A of the code - HELD THAT:- Admittedly, the Resolution Applicants, Mr. Kamal Pasha and Mr. Syed Fah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code. It is mainly for this reason that the non obstante clause, in the widest terms possible is contained in Section 238 of the Code, so that any vested right of either the Corporate Debtor or the Creditor, under any other law for the time being in force, cannot come in the way of the Code - It is also seen from the record that the Appellant had not filed any Suit to redeem the mortgage and the Bank / Financial Creditor has taken steps to recover the balance amount due from the Appellant after the approval of the Resolution Plan. The Hon ble Supreme Court in a catena of Judgments has laid down that the Commercial wisdom of the CoC is non-justiciable. This Tribunal finds it relevant to place reliance on the Judgment in the matter of KALPRAJ DHARAMSHI ANR. VERSUS KOTAK INVESTMENT ADVISORS LTD. ANR. [ 2021 (3) TMI 496 - SUPREME COURT ], wherein the Hon ble Apex Court has held that unless there is any violation of Section 30 (2) of the Code, the Commercial wisdom of the CoC is not be interfered with. Thus, there are no violation of the Provisions of Section 30(2) of the Code. Being a MSME, the appellant ought to have been given sufficient opportunity and due prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na Jain , Advocate , For R2 Mr. Srinandan K, Advocate , For R4 Mr. N.P. Vijaykumar , Advocate , For R1, R3 JUDGMENT ( Physical Mode ) [ Per : Shreesha Merla , Member ( Technical ) ] 1. Challenge in this Company Appeal (AT) (CH) (Ins) No. 431/2022 is to the Impugned Order dated 04/11/2022 passed in IA No. 252/2021 in C.P.(IB) 305/BB/2019, whereby and whereunder the Adjudicating Authority has allowed the Application filed by the Resolution Professional under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code ), seeking approval of the Resolution Plan submitted by the Consortium of Mr. S.M. Kamal Pasha and Mr. Syed Fahad, (hereinafter referred to as the SRA ). While allowing the Application for approval of the Plan, the Adjudicating Authority has dismissed the objections filed by the Appellant herein / Promotor of the Corporate Debtor to the Application preferred by the Resolution Professional. 2. Succinctly put, the main issues raised by the Appellant / Promotor of the Corporate Debtor is that the Adjudicating Authority had wrongly directed for project wise CIRP; that the CoC was improperly constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and set aside the RP s decision of reconstituting the CoC. It is submitted that the RP thereafter conducted the 5th Meeting on 11/08/2020, consisting of only the Financial Creditors of Arun Auroville Project. It is the case of the Appellant that Kotak Bank having majority voting share of 85 % in the CoC replace the RP and appointed a new Resolution Professional, who upon taking charge submitted a Report dated 10/10/2020 for constitution of a 2nd CoC for the CIRP of Arun Kaustubh , for which the Respondent Bank had no objection. IA 515/2020 was filed seeking approval of the Constitution of the 2nd CoC for Arun Kaustubh , but the same was withdrawn, as a result of which the Claims of Creditors other than those related to Arun Auroville were disregarded. Aggrieved by the sudden disbanding of the CoC for project Arun Parkwood, the Financial Creditors of that project filed two separate Applications, IA NO. 58/2021 59/2021, seeking to set aside the decision of the RP, but the same was rejected by the Adjudicating Authority , vide Orders dated, 19/03/2021, against which two separate Appeals were preferred and the same are pending. 4. The Learned Counsels appearing for the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be confined to one project in a Real Estate Company where the interest of homebuyers is also required to be fulfilled and liabilities of the Financial Creditors are to be met. This view has been reiterated by NCLAT, Delhi in the matte of Supertech Limited VS. Union Bank of India and Anr. in Company Appeal (Ins) No. 406/2022 whereby the concept of project wise CIRP was reiterated. For all these reasons, this Tribunal is of the considered view that there is no merit in the 1st issue raised by the Appellant that the Project wise CIRP was wrongly initiated or that the CoC was erroneously constituted, specifically keeping in view that the Order of project wise CIRP was never challenged. 6. Further, the CoC on 29/10/2020 approved the eligibility criteria for a Prospective Resolution Applicant to provide a Resolution Plan in respect of Project Arun Auroville alone. Based on this eligibility criteria, public announcement was effected on 14/11/2020 clearly stipulating that the Resolution Plan was sought only for Project Arun Auroville . Having participated and attended the CoC Meetings, the Appellant had never exercised his choice of raising this issue. Hence, we do not find any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court of Karnataka, dated 12/06/2019, they were never said to be disqualified as per Section 164 of the Companies Act, 2013 and that their DIN was restored and was active as on the date of submission of the Resolution Plan and hence they were not disqualified under Section 29A of the Code. 9. Admittedly, the Resolution Applicants, Mr. Kamal Pasha and Mr. Syed Fahad were Directors of other Companies which had defaulted in filing their Balance Sheets and Annual Returns for three years prior to 01/04/2014 and these Companies were struck off and the Resolution Applicants suffered disqualification, challenging which decision, the Resolution Applicants filed W.P. No. 43859 and 43860/2017 in which a Common Order was passed by the Hon ble High Court of Karnataka on 12/06/2019, wherein it was held that the provisions of Section 164 (2) (a) of the Companies Act, 2013 is prospective in nature and would not be applicable to default committed prior to 01/04/2014. The Union of India filed a Writ Appeal in W.A. No. 2866/2019 as against the Order passed in W.P. No. 56393/2017 and has not sought to challenge the Order, passed in favour of the Resolution Applicants. The Hon ble Court had direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the occurrence of any event of default as mentioned herein, the Addresses shall be jointly and severally liable to pay the Entire Outstanding Amount plus further interest and penal interest at the rate of 3 % per month is also any other penal interest and other charges as per the terms of this present and KMBL shall be entitled to enforce the Securities for recovery of its dues under the all applicable law to KMBL including SARFAESI Act. 11. It is also the case of the Appellant that Kotak Bank cannot use IBC as the recovery proceeding and if such high interest rates and penal interest was to be recovered, Kotak Bank could have initiated Suit Proceedings or Proceedings under the DRT or under the SARFAESI ACT, 2002 which are meant for recovery. The scope and objective of the IBC is revival and not recovery. It is submitted that CIRP was initiated on 31/01/2020, Kotak Bank submitted its Claim for Rs. 36,27,27,729/- and since the Appellant had already paid Rs. 2,00,00,000/- while the Petition was pending, the IRP had admitted the Claim for Rs. 34,27,27,729/-. But the SRA and the CoC had settled Kotak Bank s Claim for Rs. 46,00,00,000/- by showing the due and outstanding amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions where Section 34 of Civil Procedure Code, is not applicable. It is neither applicable to a situation where interest is payable as of right by virtue of an agreement not to a situation where payment of interest is barred by virtue of an Express Agreement. In the matter of Irrigation Department, State of Orissa Vs. G.Roy reported in [(1992) 1 SCC 508], the Hon ble Supreme Court held that this Interest Act, 1978 is applicable to a situation where the Agreement does not provide for grant of such interest nor does it prohibit such grant when the Agreement is silent as to award of interest. It is the case of the Appellant that in the present case, interest and penal interest and their rates have been set out in the Settlement Agreement dated 22/05/2018 and the same has been acted upon and claimed interest and penal interest till the Claim was admitted by the IRP. The Learned Counsel for the Appellant submitted that this situation will not fall under the Interest Act, 1978. The Learned Counsel relied on the matter of Kottayam District Co-Operative Bank Vs. Annie John rendered by the Hon ble High Court of Kerala and reported in [(2002) SCC Online KER 184] in support of his submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the amount due to the Creditors in the Information Memorandum and invite Expression of Interest from Prospective Resolution Applicants. It is contended by the Learned Counsels for the Respondents Nos. 1 3 that the Claim of the Creditors does not stop on the commencement of CIRP. The Learned Counsel appearing for the 2nd Respondent denied that the Bank was being paid an additional sum of Rs. 11,00,00,000/- over its admitted Claim of Rs. 34,00,00,000/-. The Learned Counsel drew our attention to Paras 14 14.1 of the Resolution Plan which states that the total amount due to the Bank as on 30/04/2021 is Rs. 53,51,00,000/-. Further, the Kotak Bank is the sole Creditor having charge over the entire project of Arun Auroville and is accepting Rs. 46,00,00,000/- so that all the other stakeholders, namely homebuyers, workmen, and the Operational Creditors get 100 % of their admitted Claims. The Learned Counsel placed reliance on the Judgment of NCLAT dated 14/11/2018 in Binani Industries Vs. Bank of Baroda and Anr. in Company Appeal (AT) (Ins) No. 32/2018, wherein the Financial Creditors were paid interest during the CIRP Period. 16. The moot question which arises for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the aforenoted terms of the Agreement, it is noted that penal interest charges were added to the amount due and payable. Clauses 28 29 of the Settlement Agreement read as hereunder:- 28. The Addressees, have handed over post-dated cheque each to KMBL. In respect of the Settlement Amount and KMBL acknowledges receipt of the same in terms of Schedule III attached herewith. Further, all the Addressees agree, confirm and undertake to maintain sufficient balance in their account for due clearance of aforesaid Cheques on respective dates as and when produced by KMBL for clearance on or after its due dates. 29. It is agreed by and between the parties that the Securities shall stand as a continuing security till the full and final realization of Settlement Amount by KMBL and it will be enforceable by KMBL for all monies which may at any time become due and payable by the Addresses to KMBL under the Loan Documents executed between the Addressees and Assignor and Addressees and KMBL respectively to read with above said Assignment Agreement. It is further agreed by and between the parties that the Securities shall also stand as a continuing security fo0r any additional fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar grant or right during moratorium period;] (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. [(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.] [(3) The provisions of sub-section (1) shall not apply to [(a) such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;] (b) a surety in a contract of guarantee to a corporate debtor.] (4) The order of moratorium shall have effect from the date of such order till the completion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 22. Section 63 of the Code refers to jurisdiction of the Civil Court, vis a vis the IBC, 2016. Section 63 reads as hereunder:- 63. Civil court not to have jurisdiction. No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code. 23. The right which vested with the Kotak Bank / The Financial Creditor by virtue of the Loan Agreement / Settlement Agreement cannot be interfered by the Code. It is mainly for this reason that the non obstante clause, in the widest terms possible is contained in Section 238 of the Code, so that any vested right of either the Corporate Debtor or the Creditor, under any other law for the time being in force, cannot come in the way of the Code. The whole scheme and objective of the Code is to bring the defaulter Companies back on their feet, but at the same time cannot fiddle with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refer to the following observations of this Court in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] : (SCC pp. 186-87, para 57) 57. Indubitably, the remedy of appeal including the width of jurisdiction of the appellate authority and the grounds of appeal, is a creature of statute. The provisions investing jurisdiction 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this Court has clarified, that the limited judicial review, which is available, can in no circumstance trespass upon a business decision arrived at by the majority of CoC. 169. In Maharashtra Seamless Ltd. [Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, (2020) 11 SCC 467 : (2021) 1 SCC (Civ) 799] , NCLT had approved [V. Venkatachalam v. Indian Bank, 2019 SCC OnLine 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 : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, for all the aforenoted reasons, we do not see any violation of the Provisions of Section 30(2) of the Code. 26. It is submitted by the Learned Counsel appearing for the SRA that out of an amount of Rs. 53,00,00,000/- an amount of Rs. 37,02,00,000/- has already been paid to the Creditors and the Plan has already been implemented. This Tribunal is conscious of the fact that speed is the essence of the IBC, 2016 and we do not wish to set the clock back. ISSUE : BEING AN MSME, THE APPELLANT OUGHT TO HAVE BEEN GIVEN SUFFICIENT OPPORTUNITY AND DUE PREFERENCE WITH RESPECT TO THE PLAN 27. Now, we address to the issue raised by the Appellant that despite being an MSME, the Plan submitted by the Promotor was not accepted. It is an admitted fact that the Appellant did not provide the net worth statement and never deposited the Earnest Money Deposit ( EMD ) Amount and did not meet the eligibility criteria. It is seen from the record that pursuant to the approval of the prospective Resolution Applicant criteria by the members of the CoC in the 8th CoC Meeting held on 29/10/2021, the RP proceeded to issue an Expression of Interest in Form G on 04/11/2020. The CoC in the 14th CoC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic discussions on the matter relating to project wise CoC Mr. Arun Kumar promoter director 01 July 2020 5 10 Aug 2020 Replacement of RP was discussed and approved Mr. Arun Kumar 10 August 2020 6 22 Sept 2020 Representative of suspended director enquired about project wise CoC and no significant objections were raised Mr. Arun Kumar and Mr. Anand Bhat 23 Sep 2020 7 17 Oct 2020 Status report filed by the RP to Hon ble NCLT indicating only the creditors of Arun Aurovilla was presented and no objections were raised. RP placed on record that an application will be filed for second CoC for Parkwoods and discussions on EOI and Form G to be placed for Arun Aurovilla Mr. Arun Kumar 20 Oct 2020 8 29 Oct 2020 Discussions on mode of operation if two CoC s were to be constituted and continued and need to file application befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Arun KumarM12 April 12 April 2021 16 20 Apr 2021 CoC directs Liquidation as the plan was not found to be viable. Mr. Arun Kumar 28 April 2021 17 10 May 2021 CoC proceeds to consider the Revised Resolution Plan with clear indication in all places that the same is for Project Arun Aurovilla only Mr. Arun Kumar 15 May 2021 18 08 July 2021 Formal rescinding of Resolution to liquidate the Corporate Debtor and final resolution plan as discussed directed to be placed before the CoC in the next meeting. Mr. Arun Kumar 10 July 2021 19 20 and 21 July 2021 Final Resolution Plan is placed for discussion.Objection received from the promoter on July 20, 2021 relating to disqualification of the SRA, plan value being less that liquidation vale and to return the documents pertaining to Project Parkwoods. The objections pertaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject is fully completed in all aspects. The Plan value is Rs. 53,42,00,000/- and it is submitted by the SRA that they would need to invest an additional Rs. 15,00,00,000/- over and above the sum of Rs. 54,00,00,000/-. Additionally, another Rs. 35,00,00,000/- would be required to make the Project viable and also to correct the deviations in the construction of the project as four pent houses were constructed without approval. It is seen from the table that all the dues of the Corporate Debtor company are settled to 100 % and the CoC in its commercial wisdom has unanimously approved the Resolution Plan. We do not see any force in the contention of the Appellant that the Resolution Plan is for a low amount less than the liquidation value and ought not to have been approved. 32. It is pertinent to mention that the Appellant addressed a letter dated 30/01/2021, requesting to submit a revival plan in partnership with the investors. The same is detailed as hereunder:- 30th January 2021 WITHOUT PREJUDICE To The Members of Committee of Creditors Arun Aurovilla Project (under CIRP) Of Arun Shelters Private Limited Bangalore Through The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wood project as well as the Arun Patios project of the company and willing to partner with me offering a good value proposition. This can resolve the insolvency situation of the Aurovilla project and address the liquidity issues of other projects. Therefore, I am confident that with new investors, there is ample scope of good value maximisation for all the stakeholders. In light of the above, I request CoC and RP to: allow me to submit a revival plan in partnership with investors. Alternatively, I would request the CoC and RP to go for another of EOI, inviting more resolution applicants for better value discovery and value maximisation. Therefore, I humbly request CoC and RP to kindly consider our request and take positive steps in the direction of resolution rather than liquidation or selloff of the project at a cheap price. This request is being made without prejudice to any/all other rights that are available to me under the extant provisions of IBC/other laws. Thanking you. Sincerely, Sd/- Arun Kumar M 33. Subsequent to this letter dated 30/01/2021, the Appellant still remained silent and did not take any steps and the CoC approved th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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