Asset Reconstruction Company (India) Limited And Ors. vs Rustagi Impex Private Limited

M.M. Kumar, CJ

This order shall dispose of the following CAs:

i. C.A. No. 77(PB)/2019 filed by the Resolution Professional (for brevity 'RP') under Section 30 & 31 of the Insolvency and Bankruptcy Code, 2016

(for brevity 'the Code') with a principal prayer to approve and accept the resolution plan approved by the Committee of Creditors (for brevity 'CoC')

submitted by the H1 Resolution Applicant. The resolution plan has been filed by Technopack Industries in the Corporate Insolvency Resolution

Process (for brevity 'CIRP') of the Corporate Debtor.

ii. C.A. No. 947(PB)/2019 filed by the Income Tax Department seeking appropriate directions for allowing the claim of the department.

Brief facts of the case necessary for disposal of the above mentioned applications may first be noticed. Asset Reconstruction Company (India)

Limited filed C.P. No. IB -77(PB)/2018 against M/s. Rustagi Impex Private Limited under Section - 7 of the Code. We admitted the petition under

Section-7 of the Code on 10.05.2018 (Annexure-A/1). As a consequence, the CIRP commenced and moratorium in terms of Section - 14 was

imposed. In pursuance of Section - 15 of the Code the IRP made public announcement inviting claims on 14.05.2018.

In pursuance of the announcement made the IRP received claims from various financial creditors and operational creditors. In the 1st meeting of

the CoC it was resolved to replace the IRP with another resolution professional and Shri Shailesh Bhalchandra Desai was appointed as RP by the

Tribunal vide order dated 19.07.2018 (Annexure- A/2). The IRP and RP have taken up various other processes as enjoined upon them under the

Code. The RP has convened 8 meetings of the CoC upto 19.02.2019.

The RP has further disclosed that in compliance of Regulation 27 read with Regulation 35 of the IBBI (Insolvency Resolution Process for

Corporate Persons) Regulations 2016, he appointed two registered valuers namely - R.K. Associates Valuers & Techno Engineering Consultants (P)

Ltd. and Peritus Advisory (P) Ltd. to ascertain the fair value and liquidation value of the Corporate Debtor. It is also submitted that the RP appointed

Ernst & Young LLP to conduct forensic audit of the transactions done by the Corporate Debtor from 01.04.2011 to 31.03.2018.

It is further submitted that the RP made a publication for calling of Expression of Interest (EoI) in Form-G as prescribed under Regulation 36A.(5)

of the Insolvency Resolution Process for Corporate Persons Regulations, 2016. The publication was carried out in the newspapers namely Business

Standard (English Edition, New Delhi) and Jansatta (Hindi Edition, New Delhi) on 30.07.2018. The CoC in its 2nd meeting held on 10.08.2018

approved the evaluation matrix for the bids to be submitted by the prospective resolution applicants in accordance with Section 25(2)(h) of the Code. It

is further submitted that no prospective resolution plan was received by the stipulated last date and subsequently, an addendum was published in the

newspapers extending the last date for submission of EoI to 31.08.2018. Since no EOI was received till the last date, the CoC in its 4th meeting

resolved to liquidate the corporate debtor.

It is pertinent to mention that a resolution was passed in the 4th meeting of CoC dated 19.10.2018 whereby it was resolved to file an application for

liquidation of the Corporate debtor. Accordingly, CA-1160(PB)/2018 was filed before the Adjudicating Authority-NCLT praying for liquidation of the

corporate debtor. This Bench vide an order dated 29.11.2018 dismissed the application for liquidation and passed the following order:

ORDER

CA-1160(PB)/2018

This is an application under Section 33 of the Insolvency and Bankruptcy Code has been filed by ARCL through its Resolution Professional. The

ARCL is the sole financial creditor constituting the committee of creditors as it has acquired the assets of the corporate debtor by assignment

agreement. The petition was admitted on 10.05.2018 and the period of 180 days has come to an end on 06.11.2018.

It is appropriate to mention that the total debt owed by the corporate debtor is Rs. 126.71 crores. The fair value of the assets of the Corporate

Debtor on the basis of average of two reports has been stated to be Rs. 12,23,78,246/- and the liquidation value is Rs. 8,57,40,089/-.

On the last date of hearing, we have observed that the 'expression of interest' was floated on 30.07.2018 by issuing notices in English Daily

'Business Standard' (Delhi Edition) and Hindi Daily of 'Jansatta' (Delhi Edition). In addition, the notices were also published on the website of the RP

as well as IBBI. We have been apprised that no resolution plan applicant came forward and thereafter the committee of creditors comprising of single

financial creditor namely ARCL decided to issue an other advertisement. Accordingly, the advertisement was repeated in the same newspaper on

16.08.2018. The repeated advertisement reads as under:-

EXPRESSION OF INTEREST

RUSTAGI IMPEX PRIVATE LIMITED

EXTENSION OF DATE FOR SUBMISSION OF RESOLUTION PLAN

The last date of submission of Expression of Interest as specified in the advertisement dated 30th July 2018, as available on the website of the

Resolution Professional stands extended up to 31st August 2018 All terms and conditions of the EoI remains the same.

Having perused the aforesaid advertisement, we are not left with any doubt that such a public notice would not attract attention of anyone as it is

put on an insignificant portion of the newspaper. We are satisfied that such a public notice would not meet the requirement of sending reasonable

information to all concern. Therefore, it is required to be in bold elaborate form similar to the one issued earlier on 30.07.2018. Hon'ble the Supreme

Court has repeatedly emphasised that resolution is the rule and liquidation is an exception. In that regard we may place reliance on the observation

made by Hon'ble Supreme Court in the recent judgement rendered in the case of Arcelor Mittal India Private Limited v. Satish Kumar Gupta &Ors.

(Civil Appeal No. 9582 decided on 04.10.2018.). In para 83 the following pertinent observations have appeared:-

83.............However, we cannot forget that the consequence of the chopper falling is corporate death. The only reasonable construction of the Code

is the balance to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debtor otherwise being

put into liquidation. We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the

outcome of the corporate insolvency resolution process. If there is a resolution applicant who can continue to run the corporate debtor as a going

concern, every effort must be made to try and see that this is made possible.

In view of the above, and in order to advance the basic object of the Insolvency and Bankruptcy Code couple with the facts that the period of 270

days is not over; and that the huge haircut is likely to be suffered by the stakeholders we deem it appropriate to direct that a proper public notice by

inviting the resolution plan be issued preferably in newspaper of wider circulation. It may be published even in newspapers different than the one

already utilised like English daily 'Indian Express' (Delhi Edition) and Hindi Daily 'Punjab Kesari'. The RP shall comply with the aforesaid directions at

the earliest but not later than one week. In the interest of justice and for the aforesaid reasons, we also extend the period from 180 days to 270 days

w.e.f. 06.11.2018.

A copy of the order be given dasti to the counsel for the parties.

In compliance of the directions issued by the Adjudicating Authority-NCLT, the CoC in its 5th meeting held on 03.12.2018 revised and approved the

minimum eligibility criteria for submitting resolution plans. RP carried out publication in the newspapers namely Indian Express and Punjab Kesari on

04.12.2018 mentioning the last date for submission of EoI and the Resolution plan.

In the 6th meeting of CoC held on 05.02.2019, the RP apprised the members that it had received two resolution plans on the last date fixed to

submit the plan. In the same meeting of CoC, the two resolution plans were discussed and the CoC asked both the plan applicants to make certain

amendments to the plan and submit revised resolution plans.

In furtherance of the same 7th CoC meeting was convened on 12.02.2019 and both the resolution plan applicants were invited to attend the

meeting. The revised resolution plans submitted by both the applicants were placed for consideration and deliberation of the CoC. The CoC keeping in

mind the commercial viability insisted upon both the resolution plan applicants to further revise their resolution plans but to no avail. The CoC then

decided not to pursue the resolution plans submitted and rejected both the plans giving both the resolution plan applicants further time to submit revised

resolution plan.

In the 8th meeting of CoC held on 18th/19th February, 2019 the CoC deliberated upon three resolution plans submitted (one addition to the earlier

two resolution plan applicants) Accordingly on the recommendation of the CoC, Technopack Industries was notified as the H1 Resolution Applicant in

the CIR Process. Having been determined as the H1 Resolution Applicant, the CoC has held extensive negotiations and consultations with the H1

Resolution Applicant to amend its plan. Pursuant to the negotiations, the H1 Resolution Applicant submitted a revised Resolution Plan dated

18.02.2019 and the same is placed on record (Annexure A/5). The single member CoC approved the resolution with an affirmative voting share

percentage of 100% which is much more than the minimum threshold of 66% as required under Section- 30(4) of the Code. A true copy of the

minutes of the 8th meeting is also placed on record (Annexure A/4). The aforesaid resolution plan approved by the CoC has now been placed before

us for seeking our acceptance and approval in terms of the Code and Regulations framed there under.

The Resolution Professional has also ascertained that the Resolution Applicant is eligible to submit the resolution plan and does not fall foul of the

provisions of Section-29A (Annexure A/7). Also as per Regulation 39(4) of the IBBI (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 a compliance certificate in FORM - H has been placed on record (Annexure A/6).

Objections have been received from the Income Tax Department regarding the rejection of their claims by the RP.

Having heard the learned counsels for the Resolution Professional and the Resolution plan applicant we find that it would be first necessary to

ascertain whether the requirements of the statute and subordinate legislation have been fulfilled or not.

According to the scheme of the Code a resolution applicant is required to submit a resolution plan to the RP prepared on the basis of information

memorandum. The information memorandum is a document envisaged under Section 29 and it is required to contain such relevant information as may

be specified by the Insolvency and Bankruptcy Board of India. Accordingly, in Regulation 36 of the CIRP Regulations details have been provided with

regard to the contents of information memorandum. On the submission of resolution plan the RP is under mandatory obligation to examine each

resolution plan received by him under Section 30(2) of the Code and he is to confirm that each resolution plan provides for all item listed under Section

30(2) (a) to (f). If the aforesaid conditions as envisaged by Section 30(2) are fulfilled then such a resolution plan is to be presented to the CoC. The

CoC may then approve a resolution plan by a vote of not less than sixty six percent of voting share of the financial creditors, after considering its

feasibility and viability along with other requirements as may be specified by Board. Under Section 30(6) the RP is obliged to submit the resolution

plan as approved by the CoC to the Adjudicatory Authority.

As per the requirement of Section 29 of the Code read with Regulation 36 of the CIRP Regulations an information memorandum prepared and a

certification regarding the same was furnished by the RP to the CoC as well as before this Tribunal.

When the resolution plan as approved by the CoC is placed before the Adjudicatory Authority-NCLT then it is to record its satisfaction as per the

requirement of Section-31(1) of the Code as to whether the conditions as referred to in sub-section 2 of section 30 have been fulfilled. On its

satisfaction the Adjudicatory Authority-NCLT is to approve the resolution plan which is to be binding on the Corporate Debtor and its employees,

members, creditors, guarantors and other stakeholders involved in the resolution plan. As per section 31(3) of the Code a further provision has been

made that after the approval of a resolution plan the moratorium order passed under Section 14 would cease to have effect and the RP is under

obligation to forward the whole record relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Insolvency

and Bankruptcy Board of India to be recorded on its database. The conclusion of the aforesaid discussion is that Adjudicatory Authority-NCLT must

be satisfied that the resolution plan conforms to the requirements given in Section 30(2) of the Code.

It is pertinent to notice the mandatory requirements of Section 30(2) of the Code for a resolution plan to fulfil. Firstly, the resolution plan approved

by the CoC must provide for payment of insolvency resolution process cost in a manner specified by the Board in priority to the payment of other

debts of the corporate debtor. With the application i.e. C.A. No. 322(PB)/2019, the RP has placed on record a copy of the CoC approved resolution

plan (Annexure A/5) of the highest bidder i.e. H1 Resolution Applicant -Technopack Industries. Clause 6.4 of the Resolution Plan provides for the

payment of the CIRP cost in priority to the payment of any other debts of the company the same is in accordance with the provisions of Section 30(2)

and Regulation 38 of the CIRP Regulations. The Plan identifies the specific sources of fund that would be used for such payment. Therefore this

condition stands satisfied.

Secondly the resolution plan must provide for payment of the debts of operational creditors in such a manner as may be specified by the Board

which are not to be less than the amount to be paid to the operational creditors under Section-53 in the event of liquidation of the corporate debtor. It is

appropriate to mention that Section 53 of the Code envisaged the waterfall and the priorities in which distribution of assets of a Corporate Debtor is to

take place in case of liquidation. The RP in the resolution plan (supra) has stated that the resolution plan provides for the payment to operational

creditors which are not less than liquidation value. The plan also identifies the specific sources of funds which are to be used for such payment. The

resolution plan declares that Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 is complied with in as

much as priority is accorded to Operational Creditors in making payments over Financial Creditors. In this regard reference may be made to Clause

6.3 of the resolution plan. The same read as under: 6.3 Resolution of dues of Operational creditors ..... To look after the interest of all the

stakeholders, the Resolution Plan provides for sum of Rs. 20.01 Lacs for settlement of claims of operational creditors, admitted/not-admitted by the

Resolution Professional. The aforesaid provision in Resolution Plan provides for payment of dues of the corporate debtor. However, it does not accord

priority to the operational creditor for payment of their dues over financial creditors as required by Regulation 38(1) of the IBBI (Insolvency

Resolution Process for Corporate Persons) Regulations 2016. The third requirement is that resolution plan must provide for the management of the

affairs of the corporate debtor after approval of the resolution plan. There is specific provision made for the management and control of the company

after the approval of the resolution plan by the Adjudicating Authority. A detailed mechanism regarding the management & control is discussed in

Clause 8 of the plan. The resolution applicant has provided for the reorganized board of directors for managing the affairs of the company. The board

is proposed to be constituted within 30 days from the receipt of required regulatory approvals. Clause 6.8 of the Resolution plan provides for the

continuity of employment of the existing employees and workmen and creation of fresh opportunities. Therefore, the third condition stand fully

complied with.

The fourth condition envisaged by Section 30(2) is that it must provide for implementation and supervision of the resolution plan. A reference in

that regard has been made to Clause 9 of the resolution plan. The said clause as provided in the plan reads as under:

SUPERVISION, MONITORING AND IMPLEMENTATION OF THE RESOLUTION PLAN

A Committee comprising of the Resolution Professional, a nominee of ARCIL and a nominee of the Resolution Applicant shall be appointed as the

Monitoring Agency for supervision and monitoring of implementation of the Resolution plan for the term of the Resolution Plan. The Monitoring

Agency may seek such information from RIPL/resolution Applicant as me be required for supervision, monitoring and implementation of the

Resolution Plan. The Monitoring Committee will assist the resolution applicant by taking all necessary steps for smooth implementation of the plan.

Thus, the fourth condition also stands satisfied.

The fifth condition requires the RP to confirm that the resolution plan did not contravene any of the provisions of the law for the time being in

force. In FORM-H (Annexure- A/6) as well as the comprehensive compliance certificate (Annexure-A/7) submitted by the RP as per the

requirements of Regulation 39(4) of the CIRP Regulations it has been certified that the resolution plan did not contravene any of the provisions of the

law for the time being in force and is in compliance with the provisions of the Code and the CIRP Regulations.

The resolution applicant also confirms that it is not disqualified under Section 29A of the Code to submit a resolution plan and any other law

applicable which further shows that the resolution plan conforms to the provisions of the law for the time being in force and did not contravene any

such provision. The RP in the FORM-H submitted by him has certified the same.

The sixth requirement is that it conforms to all such requirements which may be specified by the Insolvency and Bankruptcy Board. The aforesaid

statement has been made by the RP in para 4 of the FORM-H (Annexure-A/6). In view of the above we are satisfied that all the requirements of

Section 30(2) are fulfilled and no provision of the law for the time being in force has been contravened.

However, it is necessary to refer to the provisions of Regulation 38 & 39 of CIRP Regulations to conclude that the requirements specified therein

are also fulfilled. A perusal of Regulation 38 would clearly show that by virtue of mandatory contents of the resolution plan as discussed in the

preceding paras in relation to Section 30 and 31 of the Code all the requirements of Regulation 38 stand fulfilled. Even the requirement of Regulation

39 has been satisfied as the RP has submitted that the resolution plan of H1 resolution applicant as approved by the CoC to this Tribunal along with

the compliance certificate in FORM-H as per the requirements of Regulation 39(4) of the CIRP Regulations meet all requirements of the Code and

the CIRP Regulations and that the resolution plan has been duly approved by the CoC. There is no scope for argument left that shareholder, or parties

to joint venture agreement or anyone holding similar document need to accord sanction in view of the provisions of Regulation 39(6) of the CIRP

Regulations which clarifies that the resolution plan as approved by the CoC must take effect notwithstanding the requirement of consent of the

members or partners of the Corporate Debtor under the terms of the constitutional documents of the Corporate Debtor, shareholders' agreement, joint

venture agreement or other document of a similar nature.

It is also made clear that the statutory dues shall be treated as operational debts and be equated with similarly situated operational creditors in view

of the judgement rendered by the Hon'ble Appellate Tribunal in the case of Pr. Director General of Income Tax/Admn. & TPS vs. Synergies Dooray

Automotive Ltd. & Ors. [Company Appeal (AT) (insolvency) No. 205 of 2017] decided on 20.03.2019. The claims of the Income Tax Department to

be admitted in view of the said judgement.

In view of the above we accept and approve the CoC approved resolution plan of H1 Resolution Applicant -Technopack Industries subject to few

directions.

As a sequel to the above discussion we pass the following directions:-

(i) The Resolution Plan is not in accordance with the provisions of Regulation 38(1) of the IBBI (Insolvency Resolution Process for Corporate

Persons) Regulations. According to the aforesaid provision the amount due to the operational creditors under a Resolution Plan mandatorily requires to

accord priority in payment over financial creditors. In From-H the amended provision has been reproduced and the amendment made providing for the

priority in payment to the operational creditor has not been reflected. Even the RP has ignored this aspect. Therefore we direct that the amount due to

operational creditors under the Resolution plan must be given priority in payment over the financial creditors. To that extent the Resolution Plan is

modified.

(ii) C.A. No. 322(PB)/2019 - The application filed by the Resolution Professional for accepting the resolution plan submitted by Resolution Applicant-

Technopack Industries is accepted subject to directions given in para (i) above. The Resolution Applicant-Technopack Industries may file appropriate

applications before the Public Authorities/Government Authorities and it is needless to say that their applications would be duly considered in

accordance with law. We make it clear that we are not expressing any opinion on the claim concerning reliefs and concession nor any part of this

order shall be understood in that spirit.

(iii) The Resolution Professional shall forward all records relating to the CIR Process and the Resolution Plan to IBBI to be recorded at its data base

in terms of Section-31(3) (b) of the Code.

(iv) The approved 'Resolution Plan' shall become effective from the date of passing of this order.

(v) C.A. No. 947(PB)/2019 filed by the Income Tax Department stands disposed of in above terms.