In Re: Landmark Housing Projects Chennai Private Limited

Per: Justice (Retd.) S. RAMATHILAGAM, MEMBER (JUDICIAL)

IA(IBC)/417(CHE)/2022 is an application which is moved by the Resolution Professional of the Corporate Debtor viz., M/s. Landmark Housing Projects Chennai Private Limited under Section 30(6) & 31 of the Insolvency and Bankruptcy Code, 2016 (in short 'IBC, 2016') read with Regulation 39 (4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (in short, 'Regulation') seeking approval of the Resolution Plan submitted by the successful Resolution Applicant, who are the promoters of the Corporate Debtor. It was submitted that the Corporate Debtor is an MSME.

In an Application filed under Section 9 of IBC, 2016 by a Operational Creditor, this Adjudicating Authority vide order dated 29.04.2021 passed in IBA/1423/2019 initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor viz. M/s. Landmark Housing Projects Chennai Private Limited and the Applicant herein was appointed as Interim Resolution Professional (IRP).

It was submitted that the Applicant upon appointment, had effected the public announcement on 04.05.2021 about the commencement of the CIRP as against the Corporate Debtor and called for claims. Thereafter, the Applicant upon due verification of claims received had constituted the Committee of Creditors (CoC) with HDFC limited as secured Financial Creditor along with one K.S. Sreenivasan as Financial Creditor and in pursuance of which, 5 CoC meetings were conducted during the CIRP period. It was submitted that these CoC meetings were convened by the Resolution Professional wherein significant issues on Information Memorandum, Request for Resolution Plan (RFRP), Evaluation Matrix, appointment of Registered Valuers, Publication of expression of interest, presentation of resolution plans by resolution applicants, discussion and negotiation of resolution plans and approval of resolution plan, and relevant observations were discussed and decided.

However, it was submitted that vide order of this Tribunal on 23.02.2022 in IA/670/2021, the financial creditor namely Mr. K.S. Sreenivasan was removed from the CoC after due perusal of the audit report of Ms. Sripriya Kumar, Independent Chartered Accountant in pursuance of the ad interim order dated 07.01.2022 which was obtained to determine the actual assets and liabilities of the Corporate Debtor.

It was submitted that meanwhile, during the period of CIR Process, the Resolution Professional made public announcement in Form G in two newspapers on 12.07.2021 inviting Expression of Interest (EoI) from Prospective Resolution Applicants (PRAs). The Resolution Professional received EoIs from ten Resolution Applicants (RA) and all of them have not sent further details for their eligibility to be selected as proposed resolution applicant. It was submitted that in spite of RP having sent three reminders to all the prospective RA there is no further response from these prospective RA. Further, it was submitted that pursuant to the third COC meeting held on 12.10.2021, RP has published form G on 01.11.2021 inviting EOIs in leading newspapers in all editions. Four persons had expressed their interest by email for EOI. However, only one Resolution Applicant had given resolution plan. The said plan was placed in the COC meeting held on 10.1.2022 and the same was rejected by the COC.

The Learned counsel for the Applicant had further submitted that in the COC meeting held on 10.01.2022, for 3rd time Form G was published in newspaper dated 25.1.2022 and in response to the same four People had expressed their willingness and given their consent as proposed resolution applicants. However, only one person namely M/s Bommidala Enterprises Pvt Ltd had submitted Resolution plan along with DD amounting to Rs.2 crore as EMD. Parallelly, it was submitted the Corporate Debtor had also submitted its Resolution Plan dated 01.03.2022 for placing it in the ensuing COC meeting.

It was submitted that on the next COC meeting i.e. on 24.03.2022, the resolution plan submitted by M/s Bommidala Enterprises Pvt Ltd and the Resolution Plan of the Corporate Debtor were placed for COC's consideration and both the plans were thoroughly discussed among members of COC. It was mentioned that the COC members except M/s. Hemant Metha and 8 others have accepted the Resolution Plan of the Corporate Debtor.

It was submitted by the Learned Counsel for the Applicant that the said M/s. Hemant Metha and 8 others conditionally accepted the Resolution Plan subject to their claim being accepted by the Corporate Debtor to be settled as a goodwill gesture as per the minutes of the CoC. However, it was submitted that the Corporate Debtor expressed the willingness to accept claims as approved by the Adjudicating Authority in accordance with law. Based on the voting share and the approval of the revival plan by the CoC, the Resolution Professional has placed this application for accepting the CoC approved Resolution Plan.

It was submitted that the total claims admitted from 27 creditors aggregates upto Rs.176,28,76,960/- and the details of the creditors and the claims accepted by the RP are as mentioned below;

It was submitted that the primary reason for the indebtedness for the Corporate Debtor is due to slow performing Real estate market cash flow from the projects or delayed surplus from the interest and financial criticalness, financial crunch, delay in the execution of projects, cost over runs, etc. Further, it was submitted that the resource available for the Corporate Debtor for revival is that the Corporate Debtor is presently having running projects namely Geethanjali and Ayna, the Project Geethanjali at Annanagar west is developed with project finance from secured financial creditor viz. HDFC Limited. The Project at Ayna is developed with project finance from as secured financial creditor, JM financial. This project requires a sum of Rs. 6,00,00,000/- towards its completion and handing over to buyer/prospective buyer. By completing this project spending Rs.6 crore, it was submitted that the Corporate Debtor will be able to generate a sale consideration of Rs.16,91,00,000/- from the buyer/prospective buyer. Further, it was submitted that the Corporate Debtor on completion of project Grange is entitled to refundable deposit of Rs.10,00,00,000/- from the landowners.

It was submitted that the Corporate Debtor's SPV M/s. Landmark Housing Projects India Pvt Ltd has entered into joint venture agreement with Beauty Etoile Pvt Ltd and under the said joint venture the Corporate Debtor is entitled to receive 12% of the sale proceeds as recovery of its investment of this project. Further, it was submitted that the Corporate Debtor will also be entitled 14% of the sale process and this amount will be adjusted again the security deposit given by M/s. Beauty Etoile Pvt ltd. It was submitted that the amount receivable is percentage of sale process received by M/s. Beauty Etoile Pvt ltd out of the project. In all, it was submitted that a sum of Rs.96,91,00,000/- will be available with the Corporate Debtor for distribution to the secured financial creditor, financial creditors and operational creditor over period of 18 months.

The following Financial Creditors have raised objection to the Resolution Plan.

The Learned Counsel for the Applicant submitted that post initiation of the Corporate Insolvency Resolution Process, the Applicants lodged their claims by filing their respective Form C claims with the 1st Respondent thereby resulting in the Applicants having been included as Financial Creditors in the 2nd meeting of the Committee of Creditors. The Learned Counsel for the Applicants state that 5 meetings of the Committee of Creditors have been held so far and that the Applicants are constrained to approach this Tribunal as there has been gross violation of their rights having been committed blatantly by the 1st Respondent in the proceedings at the 5th meeting of the Committee of Creditors which was held on 24.03.2022.

It was submitted that in the 5th meeting of the Committee of Creditors which was held on 24.03.2022, the 1st Respondent has illegally and unlawfully put to vote a revival resolution plan presented by the 2nd Respondent completely discounting and disregarding the voting share of the Applicants in the Committee of Creditors.

It was submitted that by very perusal of the minutes of the 5th meeting of the Committee of Creditors, it is evident that the Revival Plan has been approved only with a voting percentage of 48.53% wherein the provisions of section 30 (4) of the Insolvency & Bankruptcy Code 2016, requires the Committee of Creditors to approve a resolution plan, by vote of not less than sixty six percent of the voting share of the Financial Creditors.

It was submitted that the said minutes of the 5th meeting of the Committee of Creditors expressly records that right of the Applicant as a Financial Creditor and its voting rights to the extent of 51.47% on one hand and on the other hand approves a Revival Plan which fails to meet the basic thresholds as specified and laid down under the Insolvency & Bankruptcy Code 2016. Thus, it was submitted on these grounds alone, the entire resolution passed by the Committee of Creditors and the Revival Plan itself ought to be struck down as the 1st Respondent, the Committee of Creditors and the 2nd Respondent has misinterpreted and misunderstood the basics of the provisions of the Insolvency & Bankruptcy Code 2016.

In reply the RP has filed his counter and has stated that the objections raised by these Applicants are frivolous. It was submitted that the IRP in accordance with Section 18(c) of IBC, 2016 is required to duty bound constitute the CoC and the IRP on being receipt of the claims has constituted and reconstituted the CoC from time to time.

It was submitted that the erstwhile management, the directors and promoters of the Corporate Debtor were not providing the necessary cooperation as mandated under Section 19(1) of IBC, 2016 and the RP / IRP could not take over the management of the affairs as mandated under Section 17 and complete his duties to the fullest capacity as mandated under Section 18 of IBC, 2016. It was submitted that the claims were only conditionally admitted and the said admission was subject to verification of records and books of the Corporate Debtor.

It was submitted that the RP was able to complete the verification of claims and determine the amount of claim as mandated under Regulation 13 and 14 only on presentation of the financial information including the books of accounts of the Corporate Debtor. Therefore, it was submitted that at this stage, the RP in accordance with Regulation 14(2) revised the amount of the claim as soon as it became “practicable” and “when the came across additional information wanting such revision”.

It was submitted that to this effect, in the notice to the 5th meeting of the CoC and in the agenda the RP had included the item under the head "Reconstitution of CoC". It was submitted that based on the information originally available with the RP, the voting percentage was shared prior to the 5th CoC meeting on verification of claims and determination of amounts as mandated under Regulation 14(2), the admitted claims were accordingly revised and subsequently the vote share in the reconstituted CoC was altered. Therefore, it was submitted that in effect the vote share of multiple Financial Creditors changed and consequently, the total vote share under Mr. Hemanth Mehta reduced from 51% to 9% as filed in the Report. Thus, it was submitted that the Resolution Plan is approved by a majority of 91% voting share.

It was further submitted that the Resolution Plan was, agreed in principle by Mr. Hemanth Mehta group as well and the only objection that came from them was that he sought their entire claim to be admitted as in the claim for pre-verification with the records available.

In relation to the objections raised by the Learned Counsel for the Financial Creditor of Mr. Hemanth Mehta group, we find it apt to refer to the Regulation 13 and 14 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 which is as follows;

In the present case, it is seen that Mr. Hemanth Mehtha groups claim amounting to Rs.53,79,18,093/- was admitted subject to verification of accounts by the RP. Subsequently, the RP has requested them to provide proof and books of accounts to substantiate the claims and even after repeated requested the said Mr. Hemanth Mehta group has failed to provide any material fact to substantiate their claim. It could be seen that the RP after verifying the books of accounts of the Corporate Debtor, it was found that Rs.6,98,11,899/- was due and payable by the Corporate Debtor to the said Mr. Hemanth Mehta group and since they have failed to provide any proof to substantiate their claim, the RP was constrained to reduce the voting right in favour of Mr. Hemanth Mehta group to 9% in terms of Regulation 14(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The aforesaid fact is also captured in the 5th CoC meeting and the same is extracted hereunder;

Thus, it could be seen that the Resolution Plan has passed the muster of 66% and hence the objections raised by the Financial Creditors in this regard is not sustainable. Accordingly, IA(IBC)/373(CHE)/2022 stands dismissed.

From the averments made in the Application as well as in Form-H as filed by the Resolution Professional in relation to the procedural aspects, the same seems to have been duly complied with for which the Resolution Professional has issued a Certificate and it is not necessary for this Authority to go into the same.

As to the Relief and Concessions sought in the Resolution Plan, taking into consideration the Judgments of the Hon’ble NCLAT, and more particularly the decision of the Hon’ble Supreme Court of India in the matter of Embassy Property Developments Pvt. Ltd. –Vs- State of Karnataka & Ors. in Civil Appeal No. 9170 of 2019, we direct the Resolution Applicant to file necessary application before the necessary forum / authority in order to avail the necessary Relief and Concessions, if it is in accordance with law.

In so far as the approval of the Resolution Plan is concerned, this Authority is not sitting on an appeal against the decision of the Committee of Creditors and this Authority is duty bound to follow the much-celebrated Judgment of the Supreme Court in the matter of K. Sashidhar –Vs– Indian Overseas Bank(2019) 12 SCC 150, wherein in para 19 and 62 it is held as follows;

Further, the Hon'ble Supreme Court of India in the matter of Committee of Creditors of Essar Steels –Vs– Satish Kumar Gupta &Ors. in Civil Appeal No. 8766 – 67 of 2019at para 42 has held as follows;

Further the Supreme Court in the matter of K. Sashidhar v. Indian Overseas Bank and Ors. (2019) 12 SCC 150 has lucidly delineated the scope and interference of the Adjudicating Authority in the process of approval of the Resolution Plan and held as follows;

(emphasis supplied)

Also the Supreme Court of India in the matter of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors. (2020) 8 SCC 531 after referring to the decision in K. Sashidhar (supra) has held as follows;

(emphasis supplied)

The Supreme Court in its recent decision in Jaypee Kensington Boulevard Apartments Welfare Association &ors. v. NBCC (India) Ltd. &Ors in Civil Appeal no. 3395 of 2020 dated 24.03.2021 has held as follows;

Thus, from the catena of judgments rendered by the Supreme Court on the scope of approval of the Resolution Plan, it is amply made clear that only limited judicial review is available for the Adjudicating Authority under Section 30(2) and Section 31 of IBC, 2016 and this Adjudicating Authority cannot venture into the commercial aspects of the decisions taken by the Committee of Creditors.

On perusal of the documents on record, we are also satisfied that the Resolution Plan is in accordance with sections 30 and 31 of IBC, 2016. Thus, the Resolution Plan is hereby approved and is binding on the Corporate Debtor and other stakeholders involved so that revival of the Debtor Company shall come into force with immediate effect and the "Moratorium" imposed under section 14 of IBC, 2016 shall not have any effect henceforth. In case of non-compliance of this order or withdrawal of Resolution Plan, the performance guarantee amount already paid by the Resolution Applicant shall stand forfeited, in addition to the Resolution Applicant being liable for any other action as per law.

The Resolution Professional shall submit the records collected during the commencement of the Proceedings to the Insolvency & Bankruptcy Board of India for their record and also return to the Resolution Applicant or New Promoters. Certified copy of this Order be issued on demand to the parties concerned, upon due compliance. Liberty is hereby granted for moving any Application, if required, in connection with implementation of this Resolution Plan. The RP shall stand discharged from his duties with effect from the date of this Order. He shall, however, perform his duties in terms of the Resolution Plan as approved by this Adjudicating Authority.

The Resolution Professional is further directed to handover all records, premises / documents to Resolution Applicant to finalise the further line of action required for starting of the operation as contemplated under the Resolution Plan. The Resolution Applicant shall have access to all the records premises / documents through Resolution Professional to finalise the further line of action required for starting of the operation. Accordingly, IA(IBC)/417(CHE)/2022 stands allowed.