Barkha Agarwal vs Kunal Structural Developers & Industries Private Limited

PER: SH. ASHOK KUMAR BHARDWAJ, MEMBER (J)

The captioned application has been preferred under Section 30(6) read with Section 31 of the IBC, 2016 read with Regulation 39(4) of the IBBI (CIRP) Regulations, 2016, by Mr. Pramod Kumar Sharma, the Resolution Professional of Kunal Structural Developers & Industries Private Limited (under CIRP) for approval of the Resolution Plan approved by the Committee of Creditors in its 6^th Meeting, held on 25.12.2022, by 100% voting.

The Authorized Share Capital of the CD (under Insolvency) is Rs.1,00,00,000/- (Rupees One Crores only) and its Paid-Up Share Capital is Rs.25,00,000/-. In terms of the order dated 23.05.2022 passed in CP No. (IB)-723(ND)/2020, this Tribunal ordered initiation of CIRP qua the CD and declared moratorium in terms of the Section 14(1) of IBC, 2016.

It is submitted by the Applicant/RP in its Application that in terms of the Public Notice No. ROC/DELHI/248(1)/STK-7/6217 dated 29.10.2019, issued under Section 248(1) of the Companies Act, 2013, the Registrar of Companies, NCT of Delhi, Haryana struck off the name of the CD from the Register of the Companies and published the notice to the effect in the Official Gazette, having the effect of removal of the name of CD from the Register of Companies and its dissolution.. However, in terms of the order dated 24.08.2023, passed in Company Appeal No. 170/252/ND/2022, by NCLT Court- V the CD could be restored to the Register of Companies. In para 11(a) of the order, the NCLT directed that the restoration of the name of CD shall have the ramification as if it was never struck off. Thus, at this stage when we are examining the captioned petition, the CD exists.

Though the Company was struck off in the year 2019, however, the Applicant, at whose instance, the CIRP was initiated did not disclose this fact to this Adjudicating Authority. Moreover, the Corporate Debtor did not file its reply during the hearing of the Application on Admission nor at any subsequent stage it brought this fact to the knowledge of this Authority. Nevertheless, we are conscious of the fact that the Hon’ble NCLAT in the matter of “Mr. Hemang Phophalia Vs. The Greater Bombay Co-Operative Bank Limited & Ors. - Company Appeal (AT) (Insolvency) No. 765 of 2019”, had held that the CIRP can be initiated in respect of the struck off Company.

In the aforementioned backdrop, the Applicant made publication in terms of the provisions of Sections 13 and 15 of IBC, 2016 read with Regulation 6 of CIRP Regulations, 2016. In discharge of his function, in terms of the provisions of Regulation 27 of the CIRP Regulations 2016, the Applicant also appointed Registered Valuers to ascertain the Fair and Liquidation Value of Current and Non-Current Assets of the Corporate Debtor, in accordance with the Regulation 35 of the CIRP Regulations, 2016. The Liquidation and Fair Value of the CD was assessed as Rs. 2.6377 Crores and Rs.3.425 Crores (as per the averments made in para 6 of the application) respectively. The Applicant whose appointment as RP could be confirmed by this Adjudicating Authority, had prepared a list of Creditors. He also prepared the Information Memorandum and issued Invitation for Expression of Interest in Form G. It also issued the Evaluation Matrix and the request for Resolution Plan. With reference to the Invitation for EOI published on 06.08.2022, the RP received the EOI from two PRAs viz. Consortium of Pioneer Projects and Pioneer Engineering Industries and Amit Kumar Agrawal. When the Consortium of Pioneer Projects and Pioneer Engineering Industries was found eligible to submit the plan, Mr. Amit Kumar Agrawal was found ineligible. By the last date for submission of Resolution Plan i.e. 05.10.2022, the SRA viz. Consortium of Pioneer Projects and Pioneer Engineering Industries could submit its plan. The CoC decided that the Successful Resolution Applicant shall furnish the PG of INR 20,00,000/- (Rupees Twenty Lakhs Only) either by way of interest Free Deposit or by Bank Guarantee from any scheduled bank in favour of the CD within 07 working days of approval of Resolution Plan by the CoC. The validity of PG was to be 270 days, renewable from time to time till the date of the implementation of the plan.

In its 4th meeting held on 16.11.2022, the CoC resolved for filing an IA before this Adjudicating Authority for extension of the period of CIRP by 90 days. In the wake, IA-5665/2022 was preferred before this Adjudicating Authority, in which an order dated 12.11.2022, according the extension as prayed viz. by 90 days was passed.

In paras 14 and 15 of the captioned application, the SRA has given the highlights of the Resolution Plan, the estimated total amount proposed to be infused qua the CD and the crux of the final Resolution Plan. In para 17 of the application, the Applicant has averred that the plan meets the mandatory requirements of the Regulation 38(1) and (2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Paras 15 to 17 of the applications reads thus: -

As can be seen from para 19 of the application, the CoC in its 5^th meeting decided that the sole Resolution Applicant shall submit a revised Resolution Plan as per the negotiation held between the RA and the CoC members. Thus, the SRA submitted the revised Resolution Process for final consideration of the CoC. A true copy of the plan has been enclosed as Annexure-8 to the application. An averment has been made in para 18 of the application that pursuant to the 6th CoC meeting dated 25.12.2022, the Resolution Plan was approved by the CoC with 100% voting in favour of the plan. The copies of CoC meeting (1st to 6^th) are enclosed as Annexure-7 to the application. The Resolution passed in 6^th meeting of CoC reads thus: -

It is the stand taken by the RP in para 20 of the application that as the debt due to one of the FCs namely, Ms. Hema Jain had already been discharged by the Suspended Director in a settlement arrived in the criminal proceedings initiated by the FC, the name of the said FC was removed from the CoC after due intimation to the members of CoC and in due deference to Regulation 13 and 17 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. According to the Applicant, he has filed a certificate in Form (H), prescribed under Regulation 39(4) of the aforementioned regulations along with receipt of Bank Guarantee of Rs. 20 Lakh, valid upto 10.08.2023 towards Performance Security as required under Regulation 36B (4A) of the Regulations. The certificate in Form H and a copy of the Bank Guarantee has been enclosed as Annexure-10 (Colly) to the application.

We have perused the certificate in (Form-H) furnished by the Applicant in terms of the provisions of Regulation 39(4) of the Regulations. It is seen from 18^th and 19^th row of the table mentioned in Part-2 of the plan that the Fair Value of the CD is 3.425 Crores and its Liquidation Value is Rs.2.6377 Crores. In Clause-4 of the Certificate, the Applicant has certified that the Resolution Plan complies with all the provisions of IBC, 2016 and the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). In said part of the certificate, the RP has also stated that the SRA has submitted an affidavit confirming its eligibility under Section 29A of the Code to submit the Plan. It is also authenticated by the RP that the contents of the affidavit are in order. In 3^rd clause of Part-4 of the certificate, the RP has asserted that the plan was approved by the CoC with 100% vote share of the Financial Creditors. The list of Financial Creditors and their vote share has been mentioned in Part-5 of the Plan. The said part reads thus: -

In “Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited & Anr.” in (Civil Appeal No. 3224 of 2020) decided on 13.09.2021, Hon’ble Supreme Court viewed that the negotiations between the Resolution Applicant and the CoC are brought to an end after the CoC’s approval and the only conditionality remains is the approval of the Adjudicating Authority, which has a limited jurisdiction to confirm or deny the legal validity of the Resolution Plan. The relevant excerpts of the para 153 of the Judgement reads thus:

In the wake of the view taken by the Hon’ble Supreme Court as above, we may refer to Section 30(2) of IBC 2016, which read thus:

In terms of the aforementioned provision of the Code, the Resolution Professional need to examine each Resolution Plan received by him to confirm that the Plan – (i) provides for the payment of Insolvency Resolution Process cost in a manner specified by the board in priority to the payment of the other debts of the Corporate Debtor; (ii) provides for the payment of debt of Operational Creditor in such manner as specified by the board, which should not be less than the amount to be paid to such creditor in the event of liquidation of a corporate debtor under Section 53 or the amount that would have been paid to such creditor, if the amount to be distributed under the Resolution Plan had been distributed in accordance with order of priority in sub Section 1 of Section 53, whichever is higher and provides for the payment of debt of Financial Creditor, 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 liquidation of the Corporate Debtor; (iii) provides for management of the affairs of the Corporate Debtor after approval of the Resolution Plan; (iv) provides for implementation and supervision of the Resolution Plan; (v) does not contravene any of the provision of the law for the time being in force. It is seen from Part-9 of the certificate given by the RP that the Plan is fully compliant of the provisions of Section 30(2) of the IBC, 2016. In the said part, the Applicant has also stated that the RA is eligible to submit the Resolution Plan. The part reads thus: -

As can be seen from Part-7 of the Plan, the CD had only Unsecured Financial Creditors. A provision has been made to pay them the 24.39% amount of their admitted claim. When the claimed amount is Rs.7,21,48,100/-, the Plan provides for only Rs.1,76,00,000/- to be paid to the Unsecured Financial Creditors. Nevertheless, the proposal regarding the distribution of the plan value/bid amount amongst creditors is the subject to be addressed to by the CoC, as it is the issue covered by the Commercial Wisdom of the CoC. In Kalpraj Dharamshi & Anr. vs. Kotak Investment Advisors Ltd. & Anr. (Civil Appeal Nos.2943-2944 of 2020), Hon’ble Supreme Court categorically ruled that the Commercial Wisdom is not to be interfered with by this Adjudicating Authority. The relevant excerpt of the judgment reads thus:

The affidavit under Section 29A of IBC is enclosed at page nos. 91-96 of the Plan. The relief and concessions sought in terms of the plan are mentioned in chapter-12 (page no. 89-90) thereof.

Nevertheless, the SRA has given an undertaking that irrespective of the grant of relief and concessions by this Adjudicating Authority, the Plan would be implemented. The relevant excerpt of the undertaking placed on record at page nos. 97-98 of the Plan reads thus: -

The relief and concession sought by the Applicant reads thus: -

As can be seen from Section 31(4) of IBC 2016, the Resolution Applicant shall pursuant to the Resolution Plan approved under sub-Section 1 of Section 31 of IBC 2016 shall obtain the necessary approvals required under any law for the time being in force within a period of one year from the date of the order passed under Section 31(1) of IBC 2016. Besides, in terms of the provisions of Section 14 of the Code, even during the period of CIRP, the license, permit, registration, quota, concession, clearances, or similar grant or right given by the Central Government/State Government, Local Authority, Sectoral Regulator or any other Authority constituted under any other law for the time being in force shall not be suspended or terminated on the ground of Insolvency subject to the condition that there is no default in payment of current dues arising for the use or continuance of the license, permit, registration, quota, concession, clearance or similar grant or right during the moratorium period. Thus, when even during the moratorium period, the facilities mentioned above are made available to the CD only when there is no default in payment of the current dues, on approval of the Resolution Plan, the SRA/CD cannot be put on better footings. For convenient reference, the Explanation is reproduced herein below:

In any case, in terms of the provisions of Sections 13 and 15 of the IBC 2016 read with Regulation 6, 6A, 7, 8, 8A, 9 and 9A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, all the claimants such as Operational Creditors, Financial Creditors, Creditors in Class, Workmen and Employees and other Creditors can raise their claims before the IRP/RP. The claims are dealt with by IRP in terms of the provisions of Section 18(b) of the IBC, 2016 and by RP in terms of the provisions of Section 25(b) thereof read with Regulations 12(A), 13 and 14 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Thereafter, the RP prepares an Information Memorandum in terms of the provisions of Regulation 36(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Memorandum contains inter alia a list of creditors containing the range of creditors, the amounts claimed by them, the amount of their claim admitted and the security interest if any in respect of such claims. As has been provided in Regulation 36(1) of the Regulations (ibid), the Information Memorandum is required to be submitted in electronic form to each member of CoC, on or before 95^th day from the Insolvency commencement date. As has been provided in Regulation 36(A) of the Regulations the RP publish brief particulars of the invitation for Expression of Interest in Form G of Schedule I to the Regulations at the earliest i.e. not later than 60^th day from the Insolvency commencement date, from interested and eligible Prospective Resolution Applicants to submit Resolution Plans. As can be seen from Regulation 36(B) of the Regulations, the RP shall issue Information Memorandum Evaluation Matrix (IMEM) and request for Resolution Plans, within 5 days of the date of issue of provisional list of eligible Prospective Resolution Applicants (required to be issued under Regulation 36(A)(10) of the Regulations). It is with reference to such Information Memorandum Evaluation Matrix that the RP issues request for Resolution Plan. The request for Resolution Plan details each step in the process and the manner and purposes of interaction between the Resolution Professional and the Prospective Resolution Applicant. The Resolution Plan submitted after consideration of the IMEM and RFRP is then examined by the Committee of Creditors. Nevertheless, it needs to satisfy the requirements of Regulation 37 and 38 of the extant Regulations. Once the plan is approved by the CoC, in terms of the provisions of Regulations 39 of the aforementioned Regulations, it virtually becomes a contract entered into between the CD represented through RP, SRA and the Creditors of the CD. On being approved by this Adjudicating Authority, by operation of Section 31 (1) of the Code, the plan becomes binding on the Corporate Debtor and its employees, members, creditors (including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being enforced such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the Resolution Plan. Thus, Section 31(1) of IBC, 2016, takes care of most of the relief/concession/waiver solicited by the Resolution Applicant.

Besides, in terms of the provisions of Section 32(A) incorporated in the Code by Act No.1 of 2020, w.e.f. 28.12.2019, for an offence committed prior to the commencement of the Corporate Insolvency Resolution Process, the liability of the CD ceases and the CD is not liable to be prosecuted from the date of approval of Resolution Plan by this Adjudicating Authority, if the Resolution Plan results in change of management or control of the CD to a person who was not promotor or in the management or control of the CD or a related party of such a person or a person with regard to whom the concerned Investigating Agency has reason to believe that he had abated or conspired for the commission of the offence and has submitted or filed a report or a complaint to the relevant statutory authority or Court. In such cases, where the prosecution is instituted against the CD, during CIRP, the CD stands discharged qua the same from the date of approval of the Resolution Plan. Nevertheless, every person who was a designated partner as defined in clause (j) of Section 2 of the Limited Liability Partnership Act, 2008, “an officer who is in default” as defined in Clause (60) of Section 2 of Companies Act, 2013 or was in any manner in charge of, or responsible to the CD for the conduct of his business or associated with the CD in any manner and was directly or indirectly involved in the commission of an offence as per the report submitted or complaint filed by Investigating Agency shall continue to be liable to be prosecuted and punished for such an offence committed by the Corporate Debtor notwithstanding the Corporate Debtors’ liability ceases after approval of the plan.

In the wake of the provisions of Section 32(A)(2), no action is taken against the property of the Corporate Debtor in relation to an offence committed prior to the commencement of the Corporate Insolvency Resolution Process of the CD, where such property is covered under Resolution Plan approved by this Authority under Section 31, which result in the change in the control of the CD to a person who was not a promotor or in the management or control of the Corporate Debtor or related party of such person or a person with regard to whom the Investigating Agency has reason to believe that he had abated or conspired for commission of the offence and has submitted or filed a report or complaint to the relevant statutory authority or Court.

The action against the property of the Corporate Debtor as referred to in Section 32(A) of the Code includes the attachment, seizure, retention or confiscation under such law as may be applicable to the Corporate Debtor. One may also be not oblivious of the fact that in the backdrop of provisions of Section 31(3)(a) of the IBC, 2016, the moratorium order passed by the Adjudicating Authority under Section 14 ceases to have effect.

In sum and substance, the SRA/CD would be entitled to no other relief/concession/waiver except those, which are available to it as per the provisions of Section 31(1) and 32(A) of IBC, 2016.

Thus, the relief and concession sought by the SRA except those admissible to it in terms of the provisions of Section 31 and 32(A) of IBC are nixed.

Paras 8.3 to 8.3.8 of the Plan provides for implementation, supervision and monitoring of the Resolution Plan. The paras read thus: -

The para 7.2 of the Plan provides that the Resolution Applicant shall bring the fund for payment to creditors in accordance with the timeline provided under clause 6.5.3. The para provides for funding with regard to repair/refurbishment (Rs.25 Lakh) within 180 days from the cut-off date. The plan also provides for working capital margin of Rs.25 Lakh to be brought within 360 days from the cut-off date. The schedule regarding payment of the amount to the creditors has been mentioned in para 6.5.3 of the plan. The paras 6.5.2, 6.5.3 and 7.2 of the Plan reads thus: -

As per the stand taken in the application for approval of the Resolution Plan as also in Form-H, the SRA has furnished the Performance Bank Guarantee dated 12.01.2023 for Rs.20 Lakh issued by Union Bank of India which is valid till 10.08.2023. The covering letter to Bank Guarantee has been placed at page 429 of the application filed for approval of the Resolution Plan.

In the backdrop of aforementioned factual position, discussion, analysis and findings, the IA(IBC)-1190/2023 filed by the RP for approval of the Resolution Plan is allowed. The Plan submitted by the SRA, certified by the RP is approved. The SRA shall furnish the updated Performance Bank Guarantee which should remain valid till the implementation of the Resolution Plan. The SRA and the monitoring committee shall ensure that the Plan qua Resolution of Insolvency of CD, submitted by it is implemented in letter and spirit, with due deference to all the terms and conditions thereof. The Plan shall be binding on the Corporate Debtor and its employee, members, creditors (including the Central, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authority to whom the statutory dues are owed), Guarantors and other Stakeholders involved in the Resolution Plan. The Moratorium declared under Section 14 of IBC 2016 shall cease to have effect forthwith. The Resolution Professional shall forward all the records relating to the conduct of the CIRP and the Resolution Plan to IBBI to be recorded on its data base (Section 31(3)(b) of IBC 2016). The RP shall also forthwith send a copy of this order to the participants and the Resolution Applicant. He would also send a copy of this order to the ROC concerned within 15 days of this order. The RP shall intimate each claimant about the principle or formulae, as the case may be, for payment of debts under the Plan. The SRA shall act in terms of the provisions of Section 31(4) of IBC 2016. The Monitoring Committee shall file the progress report regarding implementation of the Plan before this Adjudicating Authority, every month.