TMI Blog2023 (11) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... tions? - HELD THAT:- The present is a case where CoC deliberated over the issue and on such deliberation and inputs, the Successful Resolution Applicant submitted revised Resolution Plan and the Resolution Plan dealt with security interest and the personal guarantee also - Resolution Plan in question has consciously dealt with securities and personal guarantees given to the Financial Creditors including the dissenting Financial Creditors and the said clauses of the Resolution Plan do not contravene any provisions of Section 30, sub-section (2) as well as CIRP Regulations, 2016. The view of the Adjudicating Authority that Resolution Plan is contrary to provisions of Section 30, sub-section (2) is unsustainable and deserved to be set-aside. 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? - HELD THAT:- According to the scheme of the IBC, the payment to which a Financial Creditor, who does not vote in favour of the Resolution Plan is entitled for payment in accordance with sub-section (1) of Section 53, in the event of liquidation of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proval 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 Application under Section 7 filed by ASREC (India) Limited (Financial Creditor). Mr. Ritesh R. Mahajan was confirmed as RP. (ii) In response to Invitation for Expression of Interest ( EoI ), Puro Naturals JV a Joint Venture between three entities f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uish 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 since the said resolution plan contains a relief to extinguish the personal guarantee given to the lenders on the borrowings of the corporate debtor but the same is objected by Bank of Baroda. This Adjudicating Authority vide its order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed 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. Anr. vs. Ujaas Energy Ltd. Ors. has been knocked out in view of the fact that the said judgment has been set aside by this Appellate Tribunal by its judgment and order dated 21.08.2023 in Company Appeal (AT) (Ins.) No.26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 of the securities and personal guarantees are much more and dissenting Financial Creditors are not being paid amount under the Plan as per the value of their securities. It is further submitted that Resolution Plan does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above mentioned Secured Financial Creditors are secured by charge of assets, they are offered a higher amount than the other creditors. II. The Terms of payment of secured financial crditors: a. The Resolution of the debt of 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, gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 At the end of 36 months from the date of approval of the NCLT order approving the Resolution Plan 20% 44974287 7870500 52844787 At the end of 48 months from the date of approval of the NCLT order approving the Resolution Plan 20% 44974287 3373072 48347358 Total 100% 224871434 41601215 266472649 *Payout to Secured financial creditors amount Rs.4.49 Cr includes assignment of Rs.2.00 Crores. g. On approval of the Resolution Plan the entire debt of the Secured Financial Creditor will be settled and on assignment of debt at the end of four years there will be no liability remaining. 8. Clause-III, deals with Extinguishment of claims of secured 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 Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly extinguished and the Corporate Debtor or the Resolution Applicant shall at no point of time, directly or indirectly, have any obligation, liability or duty in relation thereto. d. In case of default by Resolution Applicant, consequences as per provisions of IBC, 2016 shall apply. IV. Release of Security on The Assets of Corporate Debtor / other Security Charged to Secure The Financial Debt: 1. All Charges of the Secured Financial Creditors will be automatically modified in accordance with the terms of the Proposed Resolution Plan as envisaged in the Resolution Plan. All requisite documents as required by law will be executed by the Resolution Applicant and the Secured Creditors to give effect to the Resolution Plan once approved by Adjudicating Authority. Further necessary formalities for modification of charge with ROC and sub registrar of assurances shall also be carried out within 60 days of the date of execution of documents. It is expressly 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant in favour of the Secured Financial Creditors by virtue of approval or implementation of the Resolution Plan. The existing credit facilities/charges created by the Resolution Applicant in favour of its own Financial Creditors shall remain unaffected / unchanged. 5. Afore-mentioned provision will apply to the other security as well as those which are furnished by Corporate Debtor or others to secure the aforementioned loans. 6. Resolution Applicant will have right of pre-payment of the amount envisaged under this Resolution Plan. If the Resolution Applicant exercises its right of prepayment, its lability towards the payment of interest shall be reduced/ waived off proportionately. V. Dissenting Financial Creditors: i Payment to the dissenting Financial Creditors: The dissenting Financial Creditors (i.e. those Financial Creditors who vote against, or abstain from voting for, the Resolution Plan approved by the CoC) shall be paid an amount not less than an amount 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: Sr. Particulars of Claim Type of Claim Admitted Amount (INR) Settlement Amount (INR) 1 CIRP Cost At actual 2 Secured Financial Creditors Secured 49,97,14,297 26,64,72,649 3 Unsecured Financial Creditors Unsecured 30,32,37,640 6,06,47,528 4 Operational Creditors Unsecured 8,01,9967 80,200 5 Workmen and Employees Unsecured 48,50,844 48,50,844 6 Other Creditors Unsecured 34,20,3574 3,42,036 7 Sugarcane arrears (Farmer s dues Unsecured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicating Authority has relied on judgment of NCLT, Indore Bench in Naveen Kumar Sood RP of Ujaas Energy Ltd. Anr. vs. Ujaas Energy Ltd. Ors. for coming to the conclusion that CoC can take any commercial decision relating to insolvency of the Corporate Debtor, but it cannot extinguish right of the particular Secured Creditor to proceed against the personal guarantor of the Corporate Debtor under the garb of its commercial wisdom. Against the order of NCLT, Indore Bench in the above case an Appeal being Company Appeal (AT) (Ins.) No.266 of 2023 SVA Family Welfare Trust Anr. vs. Ujaas Energy Ltd. Ors. was filed, which was allowed by this Tribunal vide its judgment dated 21.08.2023, setting aside the order of Adjudicating Authority. This Tribunal held in the aforesaid judgment that security interest of the dissenting Financial Creditors by virtue of personal guarantee of the ex-director of the Corporate Debtor could have been very well dealt in the Resolution Plan. After considering all relevant judgments, this Tribunal laid down following in paragraph 28 and 29: 28. The above judgment fully supports the submissions of the Appellant that security interest of dissentin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y dismissed. 3. Pending applications, if any, stand disposed of. 15. In view of the above very basis of the order of the Adjudicating Authority, rejecting the Resolution Plan submitted by the Successful Resolution Applicant having been knocked out by judgment of this Tribunal dated 21.08.2023, the order of Adjudicating Authority is clearly unsustainable. 16. The present is a case where CoC deliberated over the issue and on such deliberation and inputs, the Successful Resolution Applicant submitted revised Resolution Plan and the Resolution Plan dealt with security interest and the personal guarantee also. We, thus, answer Question No.(I) holding that Resolution Plan in question has consciously dealt with securities and personal guarantees given to the Financial Creditors including the dissenting Financial Creditors and the said clauses of the Resolution Plan do not contravene any provisions of Section 30, sub-section (2) as well as CIRP Regulations, 2016. The view of the Adjudicating Authority that Resolution Plan is contrary to provisions of Section 30, sub-section (2) is unsustainable and deserved to be set-aside. Question No.(II) 17. Section 30, sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms to such other requirements as may be specified by the Board. [Explanation. For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013(18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. 18. Regulation 38 of CIRP Regulations, which provides Mandatory contents of the Resolution Plan . Regulation 38(1)(b) is as follows: 38(1)(b). to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan. 19. According to the scheme of the IBC, the payment to which a Financial Creditor, who does not vote in favour of the Resolution Plan is entitled for payment in accordance with sub-section (1) of Section 53, in the event of liquidation of the Corporate Debtor and further dissenting Financial Creditor has to be paid in priority to the Financial Creditors who vote in favour of such Resolution Plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ors. and has referred to paragraph 118.2. In paragraph 118.2, the Hon ble Supreme Court has laid down following: 118.2. As noticed, the decision of this Court in Essar Steel [Essar Steel India Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] was delivered on 15-11-2019. A few days after this decision i.e. on 28-11-2019, amendment was carried out in clause (1) of Regulation 38 of the CIRP Regulations, which has direct co-relation with the aforesaid amended clause (b) of Section 30(2) of the Code. By way of this amendment of Regulation 38(1), the priority for the amount payable came to be specified, not only to the operational creditors but also to the dissenting financial creditors over their assenting counterparts. The aforesaid amendments and the expositions of this Court in Essar Steel [Essar Steel India Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] make it clear that the interests of dissenting financial creditors are duly taken care of, while providing for the minimum amount they are entitled to and, for that matter, in priority over the assenting financial creditors. 21. What was laid down by the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the security interest referred herein for the purpose of money recovery by dissenting financial creditor would only be such security interest which is relatable to the financial debt and not to any other debt or claim.] . In any case, that is, whether by direct payment in cash or by allowing recovery of amount via the mode of enforcement of security interest, the dissenting financial creditor is entitled to receive the amount payable in monetary terms and not in any other term. 22. In the present case, it not the case of Respondent Nos.1 and 2 that they are not receiving the payment, which they could have been entitled under Section 53, sub-section (1). What have been contended is that payment to them is not in priority as compared to the payment to assenting Financial Creditors. We have already noticed and considered this submission and found that payment as provided in Resolution Plan is in accordance with the priority to the dissenting Financial Creditors, hence, we do not find any substance in the above submission. 23. We, thus, are of the view that the order impugned passed by the Adjudicating Authority is unsustainable and deserves to be set aside and the App ..... 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