Bijendra Kumar Jha vs Kings Electronic Private Limited

Per: Kuldip Kumar Kareer, Member (Judicial)

The above captioned Application was filed under Section 30(6) and Section 31, of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code”) by the Resolution Professional (hereinafter referred as (“Applicant”), seeking approval of the Resolution Plan, submitted by the Resolution Applicant - Hayaansh Opticals Pvt Ltd., which was approved unanimously by the members of the Committee of Creditors (hereinafter referred to as ‘COC’).

The facts leading to the Application are as under:

a. Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor was initiated vide order dated 04.11.2019, under Section 9 of the Insolvency and Bankruptcy Code 2016 (hereinafter referred to as ‘the Code’) and Ms. Poonam Basak was appointed as Interim Resolution Professional who was later confirmed as Resolution Professional. Pursuant to the CIRP commencement order, the IRP published a public announcement dated 11.04.2019 as per Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) in Free Press Journal and in Navshakti, inviting claims from the creditors of the Corporate Debtor.

b. The claims received and accepted by Interim Resolution Professional are as under:

c. The IRP, constituted the Committee of Creditors with the following list of Creditors in their respective voting share (latest List of COC members):

d. In the third meeting of CoC held on 11.02.2020, the erstwhile RP appointed two Registered Valuers namely (1) Mr. Nishant Vakaria and Mrs. Aashima Narula for valuation of Land & Building and (2) Mr. Vishnu Upadhyay and Mr. Vineet Rathi for valuation of Financial Assets and Securities as per Regulation 27 of the CIRP Regulations to determine Business Valuation and Valuation of Land & Building of the Corporate Debtor in accordance with Regulation 35 of the CIRP Regulations.

e. Erstwhile RP published the Public announcement inviting EOI in Form G on 17.02.2020. The last date of submission of Resolution Plan was 26.06.2021.

f. In the Fourth Meeting of the CoC held on 05.08.2020, the erstwhile RP informed the CoC that four EOIs were received out of which three did not revert with the requisite information, as sought, and one party was found ineligible due to invalid MSME Certificate.

g. The COC in its Sixth meeting held on 30.10.2020 proposed to replace Resolution Professional with 88.91% votes. Subsequently, this Tribunal vide order dated 23.11.2021, appointed Bijendra Kumar Jha (the present Applicant) as the Resolution Professional (RP).

h. In the Eight CoC meeting held on 14.01.2022, it was resolved to issue a fresh Form- G for inviting EOIs from Prospective Resolution Applicants (“PRAs”). Pursuant to this, the Applicant published a fresh Public Announcement inviting EOI from PRAs on 15.01.2022, in Free Press Journal (English) and in Mumbai Lakshdeep (Marathi). The last date for submission of EOI was 30.01.2022 and The last date of submission of Resolution Plans was 16.03.2022.

Kundan Care Products Limited (Kundan Group)

Pyramid Tie-Up LLP

Infinitee Infracon

Hayaansh Opticals Private Limited

Ms. Sonali Khatri

j. In the Tenth Meeting of the CoC held on 14.03.2022, it was resolved to appoint additional two Registered Valuers(“RV”) for Plant & Machinery and one registered valuer for land & building. Valuation Details of the reports submitted by them is as under:

k. On 26.03.2022, the Applicant received two resolution plans from M/s Infinitee Infracon LLP and Hayaansh Opticals Private Limited. The Applicant circulated the plans to the members of the CoC. However, at the thirteenth Meeting CoC held on 09.06.2022, the CoC noted the change in the voting rights of the CoC members due to admission of additional claim amount. Therefore, the members of the CoC discussed and negotiated the Commercial aspect of the Resolution Plans with the Resolution Applicants. The Representatives of RA, Hayaansh Opticals Pvt Ltd and Infinitee Infracon LLP presented the commercial aspects of the Resolution Plan submitted by them to which the members of the CoC expressed certain concerns inter alia that the upfront payment was too less and the timeline for repayment was too long. In response, the representatives of both the RAs took note of the suggestions and stated that they would revert with modified Resolution Plans. Subsequently, modified plans were submitted by both the Resolution Applicants on 20.06.2022 which were immediately circulated to the members of the CoC.

In the Fourteenth CoC Meeting was held on 24.06.2022, wherein presentation was given by the representatives of the PRAs to the members of the CoC. The e-voting window opened on the next day i.e. 25.06.2022 and was initially scheduled to close on 05.07.2022. However, the e-voting window was extended till 08.07.2022. The outcome of the voting was in favour of the Resolution Plan submitted by Hayaansh Opticals Pvt Ltd with an approval voting majority of 92.54% as depicted below:

m. The Applicant thereafter issued Letter of Intent (LoI) to Hayaansh Opticals Pvt. Ltd. on 09.07.2022 and requested to transfer a sum of Rupees One Crore as Performance Guarantee. Consequently, the performance guarantee amounts of INR 1,00,00,000/- (Rupees One Crore Only) was received in the bank account of the Corporate Debtor on July 11, 2022.

The Salient Features of the Resolution Plan are as under:

The Corporate Debtor, inter alia, is in the business of retailing of household electronic goods. The Corporate Debtor was established in 1999 and is located at Eden Garden, Office No 301-304, 3rd Floor, Near Sai Baba Mandir, Takka Panvel Raigarh, Maharashtra 410 206.

The Company was incorporated in year 2018, with a vision to enter Distribution and Retail market of Opticals, Consumer Electronics, Mobile Phones, Cameras, etc. in Mumbai & Navi Mumbai.

The Company aspires to be amongst top five Smart Eye Wear and Consumer Electronics brands known for best quality and excellent service in Mumbai and Navi Mumbai. The Company intends to expand reach, by (i) providing widest range, (ii) being a customer-centric organization, (iii) implementing technology and standard operating processes, so that people see clearly, perform better, look great, feel confident and achieve various life goals successfully.

The said Prospective Resolution Applicant is eligible to act as a Resolution Applicant of the Corporate Debtor and is not ineligible on any count under section 29A of Insolvency and Bankruptcy Code and also satisfies the eligibility criterion as mentioned in clause (h) of sub-section (2) of section 25 of the Code.

The Applicant submits that the Resolution Plan provides for payment of total CIRP Costs of INR 0.30 Crores. Any excess amount over and above the INR 0.30 Crores shall be additionally borne by the Successful RA. In case of surplus for the proposed IRP Costs, such surplus shall be retained by the Corporate Debtor / RA for the business purpose.

As per Paragraph 7 (c) of the Resolution Plan, an amount of INR 39.43 Crores is proposed to be paid to the Financial Creditors as follows:

The aforementioned distribution is envisaged by the Successful Resolution Applicant and approved by the CoC to be paid as per the following time lines:

The claims of Operational Creditors as mentioned in the IM dated 14 February 2022 are as given below:

The cash flows in the Resolution Plan are not sufficient to service all the Financial Creditors, Employee & Workmen Dues in full, which rank higher in the payment waterfall prescribed under section 53 of the Code and provisions made thereunder. Accordingly, the Operational Creditors may be eligible to receive NIL payments towards their claims under the liquidation scenario.

The Resolution Plan proposes to pay an amount of Rs 0.01 Crs towards the Operational Creditors as depicted below. This amount shall be payable on pro-rata basis against the total claims admitted.

The Operational Creditors, whose claims have been verified and admitted, shall be paid within 30 days from the Approval Date of Adjudicating Authority / Appellate Authority. Such Operational creditors shall be paid in priority to the Financial Creditors under the Resolution Plan.

Despite NIL recovery potential for such creditors under the liquidation scenario, considering the importance of the Operational Creditors for the business and in an effort to maintain the Corporate Debtor as a Going Concern, the Resolution Plan has made full attempt in making partial payment of such liabilities, as specified above.

As per Paragraph 7(d) of Resolution Plan, the admitted dues of employee and workmen dues as per the information memorandum ("IM") dated 14.02.2022 were 2.69 crores. The Successful Resolution Applicant (SRA) proposed to make a payment of only Rs. 0.27 crores (10%) as full and final settlement towards the admitted claim which shall not carry any interest, penal charges.

Any existing agreements or contracts with any labour unions, representatives, etc. shall also stand cancelled forthwith.

During the course of the hearing, this Bench raised certain queries with respect to the payments to EPFO, Gratuity Dues, Employees and Workmen dues as per the judgement of Hon'ble NCLAT in Jet Airways and Government dues with respect to the Rainbow Papers. Pursuant to the above, the Applicant has filed an Additional Affidavit 29.03.2023 wherein the payment to the claim have been revised as follows:

The Successful Resolution Applicant has stated that an additional amount of Rs. 16,47,159/- along with the amount allocated in the Resolution Plan which total aggregates to Rs. 43,37,159/- will be paid out in full and final towards the employees dues which includes Gratuity and PF in full and in compliance of law laid down in Jet Airways judgement.

With respect to the government dues, the Applicant has submitted that in the current scenario since the GST dues are forming part of the Government dues and while the Rainbow Papers speaks of the Gujarat Vat alone, therefore, the Successful Resolution Applicant has not modified the Plan to this effect and it was also stated that the Maharashtra State Tax is only an Operational Creditor and its liquidation value is NIL.

- As per Paragraph 7(f) of the Resolution Plan, the Successful RA has proposed to make a payment of INR 0.04 Crores to the GST Department of Maharashtra against such admitted Net Claim Amount of INR 35.50 Crores.

- The Statutory Dues and other current liabilities whose claims have been verified and admitted, shall be paid within 30 days from the Approval Date of Adjudicating Authority.

During the course of the hearing, this Bench had raised the query regarding the treatment of PUFE applications in absence of any specific clause in the Plan. In this regard, the Applicant has filed an Additional Affidavit 29.03.2023 and submitted that the Successful Resolution Applicant has confirmed that the proceeds of the PUFE Applications shall be allowed to the CoC Members.

As per paragraph 7(g) of the Resolution Plan, it is proposed that all issued and paid up equity shares outstanding as on the CIRP Admission Date shall be cancelled. The Successful RA shall infuse funds as equity share capital in the Corporate Debtor. Such equity shares shall be issued at the face value of INR 10/- per share resulting in issuance of appropriate number of shares issued, subscribed and paid-up equity shares to the new shareholders

The compliance of the Resolution Plan is as under:

The CIRP has been conducted as per the timeline indicated as under:

Having perused the record, we find that the Resolution Plan broadly meets the requirement of the Code which are as under:

a. The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. Regulation 38(1).

b. The Resolution Plan has all the adequate means of supervising of the implementation of the Plan as required under Regulation 38(2) (c), of the IBBI, Insolvency resolution process for corporate persons, Regulation 2016.

c. Provides for the payment of CIRP Costs in priority to the repayment of any other debts of the Company (Regulation 38(1)(a)).

- d. Provides for the manner of implementation and supervision of the Resolution Plan and adequate means for implementation and supervision of the Resolution Plan. - e. The Resolution Applicant confirms that to the best of the knowledge of the Resolution Applicant, the Resolution Plan is not in contravention of the provisions of Applicable Law and is in compliance with the Code and the CIRP Regulations. - f. The Resolution Applicant confirms that the Resolution Applicant and its connected persons are not disqualified from submitting a resolution plan under Section 29A of the Code and other provisions of the Code and any other Applicable Law. - g. The plan provides for the management and control of the business of the Corporate Debtor during its term. - h. All the above factors demonstrate that the plan addresses the cause of default and the Resolution Applicant has the capacity to implement the Resolution Plan. - i. That the Resolution Applicant or any of its related parties has never failed to implement or contributed to the failure of implementation of any other Resolution Plan approved by the Adjudicating Authority at any time in the past. This is in compliance of Regulation 38(1)(b) of the Regulations.14. The Resolution Plan has been approved in the 14^th COC meeting held on 24.06.2022 with 92.54% votes through E-voting in accordance with the provisions of the Code.15. In K. Sashidhar v. Indian Overseas Bank & Others: 2019 SCC Online SC 257 (2019) 12 SCC 150 the Hon'ble Apex Court held that if the CoC had approved the Resolution Plan by requisite percent of voting share, then as per section 30(6) of the Code, it is imperative for the Resolution Professional to submit the same to the Adjudicating Authority (NCLT). On receipt of such a proposal, the Adjudicating Authority is required to satisfy itself that the Resolution Plan as approved by CoC meets the requirements specified in Section 30(2). The Hon'ble Court observed that the role of the NCLT is 'no more and no less'. The Hon'ble Court further held that the discretion of the Adjudicating Authority is circumscribed by Section 31 and is limited to scrutiny of the Resolution Plan "as approved" by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which the Adjudicating Authority can reject the Resolution Plan is in reference to matters specified in Section 30(2) when the Resolution Plan does not conform to the stated requirements.

In India Resurgence Arc Private Limited vs. Amit Metaliks Limited and Ors. (2021) the Hon'ble Apex Court held that the process of consideration and approval of resolution plan is essentially within the commercial wisdom of Committee of Creditors (CoC).The scope of judicial review remains limited under Section 30(2) of the Insolvency and Bankruptcy Code (IBC), 2016 by which the court would examine that the resolution plan does not contravene any statutory provisions and it conforms to such other requirements as may be specified by the Board. The court held that the process of judicial review cannot be stretched if all the above-mentioned requirements have been duly complied with and that dissenting financial creditor, expressing dissent over the value of security interest held by it, cannot seek to challenge an approved Resolution Plan. Lastly, it was held that Section 30 of the IBC, 2016 only amplified the considerations for the CoC while exercising its commercial wisdom so as to take an informed decision in regard to the viability and feasibility of resolution plan, with fairness of distribution amongst similarly situated creditors; and that the business decision taken in exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment.

The Hon'ble Apex Court at para 42 in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors.: (2019) SCC Online, has clearly laid down that the Adjudicating Authority would not have power to modify the Resolution Plan which the CoC in their commercial wisdom have approved.

In view of the above cited case law, it is clear that the legislature has given paramount importance to the commercial wisdom of committee of creditors (CoC) and the scope of judicial review by the Adjudicating Authority (AA) is limited to the extent of scrutiny provided under section 31 of Code and the direction of the Appellate Authority is limited to the extent provided under sub-section (3) of section 61 of the Code.

In view of the discussions, this Bench is of the considered view that the instant Resolution Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38, 38(1A) and 39(4) of the Regulations. The Resolution Plan is not in contravention of any of the provisions of Section 29A of the Code and is in accordance with law. The Resolution Plan is feasible and viable. The Resolution Plan balances the interest of all the stakeholders and thus it deserves to be approved.