TMI Blog2023 (12) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... ose dues are upto Rs.10 lakhs and those whose dues are more than Rs.10 lakhs? - HELD THAT:- It is not the case of the Appellant that amount proposed to the Operational Creditor in the category of employees is less than the amount, which they would have received in event of liquidation of the Corporate Debtor. Hence, there are no error in the distinction of payment as contained in paragraph 3.3.2 of the Resolution Plan. The distribution to the employees, whose liquidation value was NIL falls within the commercial wisdom of the CoC and the said clause of Resolution Plan cannot be impugned on the said ground, nor the said proposal for payment is violative of Section 30, sub-section (2) (b) of the Code. Whether the Adjudicating Authority erred in issuing directions for redetermination of the CIRP cost by the CoC? - HELD THAT:- In the present case, it has not been shown that CIRP cost, which has been determined by the Resolution Professional for running the business of the Corporate Debtor was required approval of CoC under Section 28 of the Code. The Adjudicating Authority by the impugned order in paragraph 6.2 has held that CoC shall be competent to determine the quantum of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued and direction to pursue the avoidance applications by the CoC as issued therein is fully justifiable and does not warrant any interference at the instance of the Appellant. Appeal allowed in part. - [ Justice Ashok Bhushan ] Chairperson , [ Barun Mitra ] Member ( Technical ) And [ Mr. Arun Baroka ] Member ( Technical ) For the Appellant : Mr. S.R. Jariwala, FCA, Ms. Purti Gupta, Ms. Henna George, Advocates. For the Respondent : Mr. Abhijeet Sinha, Mr. Dhrupad Vaghani, Mr. J. Rajesh, Mr. Jaitegan Singh Khurana, Mr. Aditya, Mr. Tushar Goel (SRA) for R-18. Mr. Arpan Behl, Mr. Ishan, Mr. Kaustubh Singh Advocates for SRA. Ms. Pooja Mahajan, Ms. Mahima Singh, Ms. Shreya, Ms. Arveena Sharma, Advocates for R-2. Ms. Sanjana Pandey for R-3,8,11,15. JUDGMENT ASHOK BHUSHAN, J. This Appeal by Suspended Directors of the Corporate Debtor has been filed challenging the order dated 17.04.2023 passed by the National Company Law Tribunal, Mumbai Bench-IV in MB-23/MB-IV-2019 approving the Resolution Plan submitted by Successful Resolution Applicant. The Adjudicating Authority in its order dated 17.04.2023 while approving the Resolution Plan has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Section 53 of the Code and dues. To be deleted 2. 6.2 We find that exorbitant increase in CIRP cost is attributable to monthly losses in the manufacturing operations of the Corporate Debtor during the CIRP period due to low capacity utilization and high employee costs. We clarify that our observation in relation to CIRP cost should not be taken as our approval of CIRP cost claimed by the Resolution Professional in the submissions before us and CoC shall be competent to determine the quantum of CIRP cost payable under the Plan. To be deleted 3. 6.5 We clarify that the Resolution Professional shall ensure that no claim in relation to avoidance transaction, where any of promoters/ KMPs falling under employees category, is pending for adjudication before the Adjudicating Authority before releasing the amount payable to such promoters/ KMPs under the plan. The amounts so detained shall be subject to appropriation towards amount found recoverable from such promoter/ KMP in accordance with the order passed by the Adjudicating A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng under employee category, is pending for adjudication before the Adjudicating Authority before releasing the amount payable to such promoters /KMPs under the plan. The amounts so detained shall be subject to appropriation towards amount found recoverable from such promoter/KMP in accordance with the order passed by the Adjudicating Authority. 5. We have heard Shri S.R. Jariwala, Fellow Chartered Accountant ( FCA ) appearing for the Appellant; Ms. Pooja Mahajan, learned Counsel appearing for the Resolution Professional; Shri Abhijeet Sinha, learned Counsel appearing for Successful Resolution Applicant as well as learned Counsel appearing for the Financial Creditors. 6. The Appellant submits that Adjudicating Authority committed error in issuing direction to CoC to redetermine CIRP cost after approval of Resolution Plan, which is not sustainable in law. The Resolution Plan having been approved, the determination of CIRP cost is to be done by the Resolution Professional, which has already been determined by the Resolution Professional, there was no occasion to issue a direction to the CoC to redetermine the CIRP Cost. It is contended that CoC has already approved the salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the Resolution Professional and the liquidation value payable to the employees is NIL . The amount which was proposed for payment to the employees under Clause 3.3 of the Resolution Plan, does not violate any provision of law. The liquidation value of the employees being NIL , no objection can be taken to the amount proposed in the Resolution Plan to the employees, which was maximum of INR 5 crores as was earmarked in the Plan. It is submitted that Appellants are not merely Operational Creditors, but also related party to the Corporate Debtor. Hence, the Resolution Plan can provide for a differential treatment as against other Operational Creditors (employees and workmen). The Appellants belong to a class distinct from other employees. The contention of the Appellants claiming parity in treatment with the employees and workmen is misconceived and legally untenable. The learned Counsel, however, submits that Appellants were the employees of the Corporate Debtor and were assisting in the operations of the Corporate Debtor during the CIRP period. The CoC has already approved the dues of the Appellants during the CIRP period in the first CoC Meeting held on 3rd May, 2018. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as directed subject to appropriation towards amount found recoverable from such promoters/ KMPs in avoidance application, is violative of Section 30, sub-section (2) of the Code and unsustainable? (IV) Whether the Adjudicating Authority erred in issuing direction to CoC to pursue the avoidance application pending for adjudication before the Adjudicating Authority? 11. The first question to be answered as to whether there is any discrimination in Resolution Plan in making payments to employees of the Corporate Debtor differently from those whose dues are upto Rs.10 lakhs and those whose dues are more than Rs.10 lakhs. The Resolution Professional has filed reply in the Appeal and has given the details of claims submitted in CIRP of the Corporate Debtor and claims admitted. It has been pleaded by the Resolution Professional that no claim of workmen was received by the Resolution Professional. In paragraph 4.9 and 4.10 of the reply, following have been stated: 4.9. It may be noted that during the corporate insolvency resolution process ( CIRP ) of the Corporate Debtor, the Answering Respondent received a total claim of INR 11.05 Crores from the employees of the Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party has examined the said submission and in paragraphs 198 to 203 laid down following: 198. Another factor taken into consideration by the Appellate Tribunal has been in relation to the so-called discrimination in the resolution plan in relation to a related party of the corporate debtor. 199. Learned counsel for the appellant in Civil Appeal No. 1827 of 2022 has referred to several decided cases to submit that therein, even when certain dues of related parties were admitted, the resolution plans not providing for any payment to such related parties were upheld by this Court; and that the principles of non-discrimination would not be applicable to the decision of CoC. It has been argued on behalf of the resolution professional that none of the statutory requirements are of any mandate that a provision has to be made in the resolution plan for payment to the related parties. According to the learned counsel, the need is, essentially, to ensure that the plan provides for payment to financial creditors (including dissenting financial creditors) entitled to vote. Thus, the plan in question cannot be said to be standing in contravention of any mandatory requirements. Per co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are met, any proposition of differential payment to different class of creditors in the resolution plan is, ultimately, subject to the commercial wisdom of CoC and no fault can be attached to the resolution plan merely for not making the provisions for related party. 203. On the facts of the present case, we find no reason to discuss this matter any further when it is noticed that the promoter and erstwhile director, the contesting respondent before us, has been holding the position of Chairman of the said related party. Suffice it would be to observe for the present purpose that the Appellate Tribunal has erred in applying the principles of non- discrimination and thereby holding against the resolution plan in question for want of provision for related party. 13. The above judgment fully supports the contention of Respondent that with regard to payment to related party there can be no discrimination nor any parity can be claimed by the related party with regard to similar category creditors. The above judgment makes it clear that distinction between payment to related party , i.e., Appellants before us, cannot be found fault with. It is to be noted that it is the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Adjudicating Authority in respect of a resolution plan; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) The implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force (f) confirms 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. 15. It is not the case of the Appellant that amount proposed to the Operational Creditor in the category of employees is less than the amount, which they would have received in event of liquidation of the Corporate Debtor. Hence, we do not find any error in the distinction of payment as contained in paragraph 3.3.2 of the Resolution Plan. The distribution to the employees, whose liquidation value was NIL falls within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (g) amend any constitutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties; (j) make any change in the management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or (m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor. (2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub- section (1). (3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of 1 [sixty-six] per cent. of the voting shares. (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed discussions, the CoC approved the audited CIRP cost to the extent of INR 92.41 Crores (including the amounts payable to the Appellants). Copy of the minutes of the 43rd CoC meeting is annexed as details of the outstanding dues of the Appellants during the CIRP period is annexed as Annexure R1. 20. The audited Report has also been approved by the CoC towards the CIRP cost to the extent of INR 92.41 crores, as submitted by learned Counsel for the Resolution Professional, we are of the view that no approval of the CoC was required for payment of the said CIRP cost. The audited Report was obtained by Resolution Professional to satisfy himself and to obtain a confirmation of his determination of the CIRP cost by an Auditor, which having been done, no further approval of the CoC was required for payment of CIRP Cost. We, thus, are of the view that directions issued by the Adjudicating Authority in paragraph 6.2, empowering the CoC to redetermine CIRP cost deserves to be set aside and is hereby set aside. 21. Now coming to Question No.(III), by which Adjudicating Authority directed the Resolution Professional not to release the payment of CIRP cost, till the disposal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible after receipt of this order. 23. Now coming to the last question, as to whether the Adjudicating Authority committed error in assigning the CoC to pursue the avoidance applications under Section 43, 45, 49 66 of the Code in MA 269 of 2019. The direction in this regard, which has been issued in paragraph 9 of the impugned order, is as follows: 9. The MA 269/2019 pertaining to adjudication of avoidance transactions u/s 43, 45, 49 66 of the Code, pending before the Adjudicating Authority, shall be pursued by Committee of Creditors and the proceeds of recovery in pursuance thereto shall be distributed amongst the Financial Creditor. If any balance is left after satisfaction of their admitted claim the same shall be distributed amongst other creditors in accordance with section 53 of the Code. 24. After approval of the Resolution Plan, the Adjudicating Authority is fully empowered to issue any direction, as to how the avoidance applications has to be pursued and direction to pursue the avoidance applications by the CoC as issued therein is fully justifiable and does not warrant any interference at the instance of the Appellant. 25. In view of the foregoing discu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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