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TMI Blog2023 (11) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Puro Naturals JV; IA No.963 of 2022 and I.A. No.112 of 2022 filed by Respondent Nos.1 and 2 objecting to the Resolution Plan. The Adjudicating Authority by the impugned order rejected IA No.2165 of 2021 field by the RP - Ritesh R Mahajan for approval of the Resolution Plan and IA No. 963 of 2022 and 112 of 2022 filed by Respondent Nos.1 and 2 for rejection of the Resolution Plan submitted by Puro Naturals JV, were allowed. The Company Appeal (AT) (Ins.) Nos.661-663 of 2023 has been filed by the Successful Resolution Applicant Puro Naturals JV challenging the impugned order. Company Appeal (AT) (Ins.) No.651 of 2023 has been filed by Ritesh R Mahajan, RP challenging the impugned order and Company Appeal (AT) (Ins.) No.1005 of 2023 has been filed by 38 Sugarcane Farmers and creditors of the Corporate Debtor, who have come up in this Appeal challenging the impugned order rejecting the Resolution Plan. 2. Brief facts necessary to be noticed for deciding these Appeal(s) are: (i) Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor - Shivaji Cane Processors Limited was initiated by an order dated 18.02.2021 passed by the Adjudicating Authority on an Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extract the main reason given by the Adjudicating Authority for rejecting the Resolution Plan. The reasons as contained in paragraph 13 of the judgment are as follows: "13. The counsel for the Resolution Professional has sought to distinguish the above case by arguing extensively that the Resolution Plan only assigns the personal guarantees and does not extinguish the same. However, the argument is without any merit for two reasons. Firstly, the argument is in complete defiance of record and is factually incorrect, as the Resolution Plan in fact and indeed seeks to not just assign but extinguish the personal guarantee and securities in the garb of assignment in favour of a third party. Secondly, without prejudice to the above, such assignment is without consent of Dissenting Financial Creditors which cannot bind the Dissenting Financial Creditors. In a recent judgment, the National Company Law Tribunal, Indore Bench has in its order dated January 06, 2023 in the matter of Naveen Kumar Sood RP of Ujaas Energy Ltd & Anr v/s. Ujaas Energy Ltd & Ors has upheld the said settled position of law in the following terms: "...10. Be that as it may we are not going in details of the plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by The Kolhapur Urban Co-Op Bank Limited, I.A. No. 112 of 2022 filed by Shree Warna Sahakari Bank Limited are "allowed" and IA No. 2917 of 2021 filed by Dombivli Nagari Sahakari Bank Ltd. are rendered "infructuous and disposed of"." (vii) Aggrieved by the impugned order, these three Appeal(s) have been filed as noted above. 3. We have heard Shri Amar Dave, learned Counsel appearing for the Successful Resolution Applicant (in Company Appeal (AT) (Ins.) No. 661-663 of 2023); Shri Krishnendu Datta, learned Senior Counsel appearing for RP (in Company Appeal (AT) (Ins.) No. 651 of 2023); Shri Siddharth S. Chapalgaonkar, learned Counsel appearing for Sugarcane Farmers, who have filed Company Appeal (AT) (Ins.) No.1005 of 2023; and Shri Sumant Batra, learned Counsel appearing for Respondent Nos.1 and 2 - dissenting Financial Creditors. 4. We shall proceed to notice the submission raised on behalf of the learned Counsel for the Appellant(s) together. The learned Counsel for the Appellant challenging the impugned order contended that very basis of order of the Adjudicating Authority, i.e., reliance on the judgment of NCLT, Indore Bench in Naveen Kumar Sood RP of Ujaas Energy Ltd. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that there were other grounds apart from the ground of extinguishment of securities and personal guarantee of the Financial Creditors to object the Resolution Plan. It is submitted that the payment to the dissenting Financial Creditor is not in accordance with Section 30, sub-section (2) as well as Regulation 38 of the CIRP Regulations, 2016. Under the Resolution Plan, the payment to the Financial Creditors are being made upfront within 90 days, whereas the payment to dissenting Financial Creditors shall be made in three years, which payment is contrary to the scheme of the IBC. The learned Counsel has referred to clauses of Resolution Plan, i.e., Clause C-3 provisions for secured Financial Creditors of the Corporate Debtor. The learned Counsel for the Respondent has also placed reliance on judgment of Hon'ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Assocaition & Ors. vs. NBCC (India) Limited and Ors. - passed in Civil Appeal No.3395 of 2020. The learned Counsel for the Respondent further submits that according to the Resolution Plan all securities and personal guarantees are sought to be extinguished on mere payment of Rs.2 crores whereas the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Secured Financial Creditors, is proposed in the following manner (i) Rs.20,48,71,434/- (Rupees Twenty Crore Forty Eight Lakhs Seventy One Thousand Four Hundred and Thirty Four only) towards the repayment of the debt; (ii) Rs.2,00,00,000/- (Rupees Two Crore) towards assignment of balance debt after adjusting the settlement amount. b. The Resolution Applicant proposes to pay an aggregate amount of Rs.22,48,71,434/- (Rupees Twenty Two Crores Forty Eight Lakhs Seventy One Thousand Four Hundred and Thirty Four Only). This amount is split in two portions, as detailed hereinabove. The first portion will be adjusted towards the debt and thereafter the balance debt will be assigned by the Secured financial Creditor for an aggregate consideration of Rs.2.00 Crore to the entity identified and nominated by the Resolution Applicant. c. The assignment of debt will be of balance outstanding debt along with all the underlying securities, guarantees etc. The cost of assignment will be borne by the Resolution Applicant. d. The Resolution Applicant, will pay the aforementioned amount in the following manner : (i) Out of the aforesaid amount of Rs.20,48,71,434/- (Rupees Twenty Cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red Financial Creditors'. Clause-IV deals with 'Release of security on the assets of Corporate Debtor' and Clause-V, which deals with 'dissenting Financial Creditors' are as follows: "III. Extinguishment of Claims of Secured Financial Creditors: a. Liability of Corporate Debtor for Secured Financial Creditors shall be restricted to the Claims notified and accepted by Resolution Professional and forming parts of Information Memorandum and other email communication as sent by the Resolution Professional. All other claims of Secured Financial Creditors other than those mentioned in Information Memorandum shall be extinguished as per Extinguishment of Claim (C -13 of this Resolution Plan) with no recourse to the Corporate Debtor and/ or Resolution Applicant. b. Other than as specified in PART C-I above, any and all other claims or demands made by or liabilities or obligations owed or payable to (including any demand for any losses or damages, principal, interest, compound interest, penal interest, liquidated damages, notional or crystallized mark to market losses on derivatives and other charges already accrued/ accruing or in connection with any third party claims) any actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssly agreed that the Secured Financial Creditors shall execute the necessary relinquishment deed for release of the security as may be applicable under this Resolution Plan. Further, the Secured Financial Lenders shall, upon receipt of the payment from the Resolution Applicant, issue the No Objection Certificate for modification/satisfactions/ part payment and execute the Form CHG 1 for modification or Form CHG 4 for satisfaction, as the case may be within 7 days of receipt of the payment. In case of any delay or failure to issue NOC and/or execute Charge related forms, any related penalties shall be borne solely by such Secured Financial Creditor. It is required as a part of the Resolution Plan that the existing Secured Financial Creditors shall cease to have any charge on the Current Assets of the Company and they shall release their charge within 7 days of payment of upfront amount after the approval of the Resolution Plan by NCLT. 2. The Resolution Applicant will be entitled to raise fresh Financial Resources / Debts for the revival/overhauling /fresh capex/expansion of the business of Corporate Debtor, from time to time. Any fresh/new Lenders/ Financial Creditors will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to be paid to them in accordance with Sec 53(1) in the event of Liquidation of the Corporate Debtor. ii In terms of the code, if there are any dissenting Financial Creditors, then in such circumstances they shall be paid in accordance with Sec30(2) along with Sec 53(1) of the Code. iii The upfront payment will be made 1 day before the payment to the assenting creditor. At the same time payment of instalment will be made 1 month before the due date of instalment to the assenting Financial Creditor. In view thereof payment will eb made as per 30(2), 53(1) and in priority to the assenting financial creditor. iv In the event, Resolution Applicant choose to make entire payment upfront, then in that event payment will be made as purchase consideration for assignment of debt and debt of dissenting financial creditor will also be assigned." 9. Before we proceed further, it is relevant to notice that Adjudicating Authority itself has noted the approval of the Resolution Plan, vote share of dissenting Financial Creditor as well as the liquidation value and fair value of the Corporate Debtor and proposed pay out in paragraphs 2 (e), (f) and (g), which are as follows: "2e. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paragraph 2(g) of the order of the Adjudicating Authority as quoted above. 11. The two principal questions, which have arisen for consideration in these Appeal(s) are to the following effect: (I) Whether Resolution Plan providing for extinguishment of security interest and the guarantees of the Financial Creditors including dissenting Financial Creditors is contrary to the provision of Section 30, sub-section (2) and the CIRP Regulations? (II) Whether the payment, which have been proposed to the dissenting Financial Creditors in the Resolution Plan, is contrary to the provisions of Section 30, sub-section (2) and CIRP Regulations? Question No.(I) 12. The first question is as to whether Resolution Plan could have contained any provision for extinguishment of security interest and the guarantees of the Financial Creditors, which was given by Promoters to secure the debt of the Corporate Debtor. Various clauses of the Resolution Plan as extracted above, clearly notes that Resolution Plan specifically dealt with securities and guarantees of the Financial Creditors and the Plan envisage extinguishment of securities and guarantees also in addition to pay out to secured Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicating Authority committed error in rejecting the Application for approval of the Resolution Plan on the ground that plan could not have contained a provision for extinguishment of personal guarantee of the personal guarantors. Plan allocates a plan value for extinguishment of personal guarantee which has been accepted by the Financial Creditors by a vote share of 78.04%. We, thus, are of the view that the order of the Adjudicating Authority dated 06.01.2023 is unsustainable. In result, we allow the Appeal and set aside the order dated 06.01.2023 passed by the Adjudicating Authority. We hold that the Resolution Plan submitted by the Appellant did not contravene any of the provisions of Section 30(2)(e) of the Code. The Adjudicating Authority shall proceed to pass a fresh order in IA 190 of 2021 praying for approval of the Resolution Plan along with necessary directions. Adjudicating Authority shall endeavour to pass fresh order on IA 190 of 2021 within a period of three months from the date when copy of this order is produced before it." 14. This Tribunal took the view that Resolution Plan providing for extinguishment of personal guarantee as approved by the CoC, did not contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad 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 Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor- (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Creditor has to be made prior to payment to the assenting creditors, be it upfront payment or payment by installments. The submission of the learned Counsel for Respondent Nos.1 and 2 that they were entitled for upfront payment and provision of not providing upfront payment violates the provision of IBC and CIRP Regulations cannot be accepted. The provisions of Resolution Plan in C-3(V) providing for payment to dissenting Financial Creditors are not in contravention of any provisions of Section 30, sub-section (2) or CIRP Regulations. We, however, have already noticed the clarification made by the Successful Resolution Applicant before the Adjudicating Authority that entire payment to the dissenting Financial Creditors shall be paid upfront within 90 days from the date of approval of the Plan. The learned Counsel appearing for Successful Resolution Applicant has also made same submission before us that entire payment to the dissenting Financial Creditor shall be made upfront within 90 days, which clarification was given before the Adjudicating Authority also. The Successful Resolution Applicant having himself come out to make entire payment to the dissenting Financial Creditor wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, when, for the purpose of discharge of obligation mentioned in the second part of clause (b) of Section 30(2) of the Code, the dissenting financial creditors are to be "paid" an "amount" quantified in terms of the "proceeds" of assets receivable under Section 53 of the Code; and the "amount payable" is to be "paid" in priority over their assenting counterparts, the statute is referring only to the sum of money and not anything else. In the frame and purport of the provision and also the scheme of the Code, the expression "payment" is clearly descriptive of the action of discharge of obligation and at the same time, is also prescriptive of the mode of undertaking such an action. And, that action could only be of handing over the quantum of money, or allowing the recovery of such money by enforcement of security interest, as per the entitlement of the dissenting financial creditor. 121.2. We would hasten to observe that in case a dissenting financial creditor is a secured creditor and a valid security interest is created in his favour and is existing, the entitlement of such a dissenting financial creditor to receive the "amount payable" could also be satisfied by allowing him t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have looked into the Resolution Plan, Clause C-11, which deals with 'concession and relief sought', is as follows: "C-11: Concession and relief Sought The Resolution Applicant, will approach all the concerned authorities for reliefs and concessions, if any hindrance is faced by the Resolution Applicant from any authority at later stage will approach the Tribunal after the sanction of the plan. The carry forward losses are permitted under Section 79 of The Income Tax Act, 1961" 25. The Adjudicating Authority with regard to concession and relief has already observed that the Resolution Applicant will approach the concerned Authority after the sanction of the Plan, if any hinderance is faced by the Resolution Applicant. Thus, no further orders are required with regard to relevant concession and relief. We having held that Resolution Plan being fully in compliance with the provisions of Section 30, sub-section (2) and Regulation 38 of the CIRP Regulations, we are satisfied that Resolution Plan deserves to be approved by the Adjudicating Authority itself and Adjudicating Authority committed error in rejecting the IA No.2165 of 2021 filed by the RP for approval of the Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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