Edelweiss Asset Reconstruction Company Limited vs CLC Industries Limited

PER : AVINASH K. SRIVASTAVA, MEMBER (TECHNICAL)

The present interlocutory application bearing IA No.2236 (PB) 2021 is moved on behalf of Mr. Subhash Kumar Kundra, Resolution Professional (“RP”/“Applicant”) of CLC Industries Limited (CIN: L7488DL1991PLC138153), under the provisions of Sections 30(6) and 31(1)of the Insolvency & Bankruptcy Code, 2016 [hereinafter referred to as “the Code” or “IBC”] read with regulation 39(4) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) for approval of the Resolution Plan in respect of CLC Industries Limited (“Corporate Debtor”) and seeking following reliefs:

The underlying Company Petition CP (IB) No.933(PB)2019 filed by Financial Creditor, Edelweiss Asset Reconstruction Company Limited under Section 7 of the Code for initiation of Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor was admitted by this Adjudicating Authority vide its order dated 03.01.2020 (“Admission Order”). On that date, i.e., 03.01.2020 (“Insolvency Commencement Date”) Mr. Subhash Kumar Kundra (IBBI Registration No. IBBI/IPA-002/IP-N00399/2017-18/11174) was appointed as IRP who was later appointed as RP in the 2^nd CoC meeting dated 20.02.2020, the voting results of which were declared on 29.02.2020. The decision of CoC was filed in I.A. No. 1956/2020, same was taken on record by this Adjudicating Authority on 03.02.2023.

The Applicant/RP has submitted that the public announcement in FORM-A was published on 08.01.2020 in Financial Express (English), Navshakti (Marathi) and Business Standard Newspaper (English and Hindi). It is submitted that in terms of Regulation 6 (2) (c) of CIRP Regulations, the last date for submission of proof of claim was specified as 20.01.2020.

The details of claims submitted are as follows:

The RP submits that a total of 19 (Nineteen) CoC meetings have been held during CIRP period as follows:

In terms of Regulation 27 of the CIRP Regulations, the resolution professional engaged two registered valuers namely Kunal Karamsey/Dharmesh Trivedi and RBSA Advisors to determine the fair & liquidation value of the corporate debtor in accordance with Regulation 35 of the CIRP Regulations, 2016, the appointed registered valuers have submitted their reports providing the average fair value of the Corporate Debtor as Rs. 236,05,00,000/- (Rupees Two Hundred Thirty-Six Crore Five Lakh only) and average liquidation value of Rs. 125,66,00,000/- (Rupees One Hundred Twenty-Five Crore Sixty-Six Lakh only) as per Form-H annexed with the application as Annexure A-31.

In the second CoC meeting, the applicant/RP proposed to appoint the Transaction Auditor under Section 25(2)(j) of the Code and placed the quotations before the CoC. The CoC resolved to appoint Grant Thornton India LLP for conducting the Transaction Audit. The Transaction Auditor was appointed on 29.02.2020. The transaction audit report was submitted on 21.12.2020.

Pertinently, the CoC in its 3rd meeting held on 17.03.2020, set out the eligibility criterion considering the scale of business of the Corporate Debtor along with other requirements of the eligibility and approved the eligibility criterion for the PRA to submit a Resolution Plan.

The applicant submits that Form-G was originally published on 20.03.2020 and was further extended on 04.04.2020, 01.05.2020, 03.06.2020, 01.07.2020 & 15.09.2020. The applicant submits that those Prospective Resolution Applicants (PRAs) who had already submitted EOIs pursuant to the Form G dated 20.03.2020 and its extensions were not needed to resubmit the same. Form-G dated 15.09.2020 has been annexed with the application as Annexure-A7.

The Applicant submits that in terms of provision of Section 25(2)(h) of the Code read with regulation 36A(1) of CIRP Regulations, Form-G was again published on 15.09.2020 in Hindustan Times, Financial Express and Jansatta newspapers for inviting Expression of Interest (“EoI”) whereby PRAs were invited to submit the EoI for submitting a resolution plan of the Corporate Debtor on or before 07.10.2020. The last date for issuance of provisional list of prospective resolution applicants was 17.10.2020 and last date for issuance of final list of prospective resolution applicants was 01.11.2020. The last date for the issuance of information memorandum, evaluation matrix and request for resolution plans to prospective resolution applicants was 17.10.2020 and the last date for submitting resolution plans to the resolution professional was 25.11.2020

The applicant submits that it informed the CoC that the following PRAs were finalized who meet the eligibility criterion:

a. RSWM Limited

b. Odyssey Global Pvt. Ltd

c. Prudent ARC Ltd.

d. Shree Krishna Structures Pvt. Ltd

e. Manjeet cotton Pvt ltd & Vitthal Corporation Limited

f. HSPS Textiles Pvt ltd, Inderjeet Kaur Pahwa, Paramjit Singh Pahwa, Gurcharan Singh

g. Donear Industries Limited

h. Harsha Vardhan Reddy

The applicant submits that it received the following EOIs post the publication of Form G:

a. Shree Krishna Structures Pvt ltd

b. Manjeet Cotton Pvt ltd & Vitthal corporation limited

c. HSPS Textiles Pvt ltd, Inderjeet Kaur Pahwa, Paramjit Singh Pahwa, Gurcharan Singh

d. Donear Industries Limited

e. Harsha Vardhan Reddy

f. Sangam (India) Limited

The resolution plan was however submitted by:

a. Manjeet Cotton Pvt. Ltd & Vitthal Corporation Limited (In Consortium) (MCPL & VCL)

b. RSWM Limited

Thereafter, the two resolution plans were discussed from 8th to 12th meetings of CoC and on 15.02.2021 revised plans were submitted by the Resolution Applicants. The CoC evaluated the plans in the 13th meeting of CoC held on 17.02.2021 continued on 18.02.2021. On 18.02.2021 CoC once again requested the Resolution Applicants to revise/improve the plan. The consortium of MCPL & VCL submitted the revised plan on 22.02.2021 and the other Resolution Applicant conveyed that their plan revised on 15.02.2021 is final and they do not propose any revision.

In the 14th CoC meeting held on 22.02.2021, as per the evaluation matrix the resolution plan of Consortium of MCPL & VCL was declared as H-1 bidder and further the CoC decided to keep both revised resolution plans for voting, the applicant informed that both the plans are compliant as per the provisions of the Code. 4.9 The voting lines were opened on 01.03.2021, which were further extended till 26.03.2021. Kotak Mahindra Bank, one of the financial creditors of the corporate debtor, vide its email dated 19.03.2021 to the applicant and other members of CoC requested for conducting CoC meeting to re-negotiate both the plans. The applicant then issued notice to conduct the 16th CoC meeting on 02.04.2021. On conclusion of 16th CoC meeting, RSWM Limited submitted addendum to their plan. The CoC decided to scrap the voting lines initiated on 01.03.2021. 4.10 The applicant then circulated the revised scores on Evaluation Matrix on 04.04.2021 and voting lines started at 09:00 AM and ended on 05.04.2021 at 09:00 PM. Accordingly, the resolution plan of Consortium of MCPL & VCL was approved by members having 92.85% voting share in the CoC and thereby was approved by the requisite majority as stipulated under the Code. A copy of the voting results generated at 09:12:20 PM on 05.04.2021 is attached as 'Annexure A-29'. The CoC passed the following resolution:

Pursuant to Regulation 36B sub-regulation 4A of the CIRP Regulations, the Successful Resolution Applicant (SRA) has submitted a Performance Bank Guarantee for Rs. 22,50,00,000/- (Rupees Twenty-Two Crores Fifty lakhs) on 09.04.2021 in accordance with the provisions of the RFRP and the Resolution Plan. Further, the Monitoring Agency / Committee is hereby directed to ensure that the PBG is coterminous with the tenure of Resolution Plan and accordingly be renewed from time to time.

Pursuant to Regulation 39(4) of the CIRP Regulations, a Compliance Certificate from RP in Form-H is annexed to the application as 'Annexure A-31'. 4.13 That pursuant to section 30(6) of Insolvency and Bankruptcy Code, 2016 read with Regulations 37 to 39 of the CIRP Regulations, Resolution Professional by filing the present application is praying for approval of the Resolution Plan submitted by Resolution Applicant Manjeet Cotton Pvt Ltd & Vitthal Corporation Limited as approved by the Committee of Creditors of the Corporate Debtor with 92.85% voting under section 30(4) of IBC, 2016 in the 16th Meeting of CoC held on 02.04.2021. The application for approval of the resolution plan by this Adjudicating Authority was filed by the RP on 05.05.2021.

The SRA is Manjeet Cotton Pvt. Ltd & Vitthal Corporation Limited (In Consortium). 'Manjeet Cotton Private Limited' was incorporated on 21st October, 2005 and is the largest operating player in private sector in the Cotton Trade holding dominant share in domestic and export business having group turnover of Rs. 5000 crore during FY 17-18. 'Vitthal Corporation Ltd.' was incorporated on 9th October, 1988 and is working to commence a business of processing of sugarcane and produce sugar and other bye-products like ENA, spirit, co-gen, etc.

The activity timeline for implementation of the Resolution Plan is as tabulated below:

E= The date of approval of the Resolution Plan by NCLT

The Applicant has submitted the details of various compliances as envisaged by the Code and the CIRP Regulations which a Resolution Plan is required to adhere to are as follows:

Measures required for implementation of Resolution Plan in terms of Regulation 37 of CIRP Regulations:

The Applicant submits that the successful Resolution Applicant (both members of consortium) has submitted a certificate of eligibility under section 29A of the Code as required by Regulation 39(1)(a) of the CIRP Regulations and declared that the Resolution Applicant is eligible to submit the Resolution Plan. The certificate of the Resolution Professional is part of the Form-H at page 1236 of the application which reads as below:

The Applicant submits that the application of funds under the Resolution Plan as approved by CoC is tabulated as under:

An amount of Rs. 3.00 crore shall be kept as a Contingency Reserve for payment towards the Workmen and Employees Dues or other creditors. In case, if the payment are not required to be made over and above Rs. 2.75 crore as per applicable laws or upon approval of the Resolution Plan by the Adjudicating Authority, then such Contingency Reserve shall be distributed amongst the SFCs.

The nature of funds proposed to be raised by the SRA and sources of Funds are extracted below:

The Resolution plan size is ₹150,00,00,000/- (Rupees One Hundred Fifty Crores only). The Resolution Plan defines “Effective Date” or “Closing Date” shall mean the date on which the entire Upfront Payments to the Financial Creditors are effected in terms of the Resolution Plan and payments as envisaged under this Resolution Plan are effected towards CIRP Costs, Operational Creditors and other stakeholders of the Corporate Debtor and the management of the Corporate Debtor or the Seller is handed over to MCPL.

The Resolution Plan also provides for-

- a) Management of Company after resolution in Clause 3.9(b) of the Resolution Plan. - b) Term of the resolution plan at Clause 3.11@ page 56 of the Resolution Plan.

Any proceeds/ amount realized pursuant to Fraudulent and avoidance transaction application under sections 43, 45, 50 & 66, filed before this Adjudicating Authority shall be receivable by the CoC/SFCs and distributed amongst SFCs in such proportion as CoC may decide. Further, PUFE transaction cases, if any, shall be pursued by the CoC/SFCs.

The reliefs, waivers and concessions prayed for by SRA and as enumerated under the Resolution Plan approved by the CoC shall be dealt with as per law. Further, the SRA shall be legally authorized to seek appropriate orders from respective authorities/ courts/ tribunals for renewal of licenses/ withdrawal/ dismissal or abatement of the proceedings as the case may be, as per law. Further, the SRA shall be legally authorized to seek appropriate orders from respective authorities/ courts/ tribunals for renewal of licenses/ withdrawal/ dismissal or abatement of the proceedings as the case may be, as per law.

On hearing the submissions made by the Ld. Counsel for the Resolution Professional and after perusing the record, we find that the Resolution Plan of Consortium of MCPL & VCL was approved by 92.85% of voting share by the CoC members voting in favour of the Resolution Plan. As per the resolution of the CoC, the Plan meets the requirement of being viable and feasible for the revival of the Corporate Debtor. By and large, there are provisions for making the Plan effective after approval by this Adjudicating Authority.

In response to the IA- 1229/2022 filed by some of the workers of the Butibori Plant of the Corporate Debtor, the Resolution Professional provided the summary of dues of PF admitted in full including the amount determined under Section 7A, 7Q,14B and 15(2) of EPF Act as below:

In the instant case in the CoC approved resolution plan by 92.85% voting share, there is a clause no. 3.5 at page 1287 of the application which read as under:

At this juncture, we refer to the Judgement of Hon’ble NCLAT in the matter of “Jet Aircraft Maintenance Engineers Welfare Association versus Ashish Chhawchharia Resolution Professional of Jet Airways (India) Ltd. & Ors.” Company Appeal (AT) (Ins)No. 752 of 2021 dated 21.10.2022, which has been upheld by the Hon’ble Supreme Court vide order dated 30.01.2023. The relevant paragraph of Hon’ble NCLAT’s Judgement is extracted below:

In the light of the above Judgement and the stand taken by the SRA recorded in para 11.3 above, we asked RP to convene a meeting of the CoC to decide how they proposed to meet the claim of EPF dues. The CoC meetings were held on 8.12.2022, 15.12.2022 and on 17.02.2023 in which CoC recommended as follows:

In the 17^th CoC meeting dated 8.12.2022, the RP briefed the CoC members on the order dated November 25, 2022 wherein this Adjudicating Authority had indicated to the CoC to consider the issue arising out of the NCLAT judgement in the matter of Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia Resolution Professional of Jet Airways (India) Ltd. & Ors. Company Appeal (AT) (Ins) No. 752 of 2021 since the CoC did not have the benefit of this law at the time the plan was approved.

In the 18^th CoC meeting dated 15.12.2022, CoC was of the view that since the Resolution Plan in the matter of Corporate Debtor does not cover the unpaid amount of PF which is now required to be paid in full in terms of the law laid down by the Hon’ble NCLAT, therefore the same shall be borne by the SRA and the CoC decided that appropriate directions accordingly be sought from this Adjudicating Authority.

In the 19^th CoC meeting dated 17.02.2023, CoC decided as follows:

The Successful Resolution Applicant (SRA) in compliance of order dated 21.02.2023 passed by this Adjudicating Authority have filed their written submissions to put up their stand on the affidavit filed by RP stating that EPF dues are to be paid by the SRA. The relevant portion of the same are reproduced hereunder:

Mr. Abhinav Vashisht, Ld. Sr. Counsel appeared before us on 21.02.23, 15.03.2023, and on 20.03.2023 and vehemently argued that the EPF dues which have become payable in full will have to be borne by the CoC members by taking a proportionate cut in their shares, as in terms of clause no 3.5 of the Resolution Plan a limit of Rs150 Crore is what is provided for in the plan by the SRA. This has been consciously affirmatively accepted by the CoC members, notwithstanding that EPF dues are now to be paid in full as per Hon’ble NCLAT’s order in the matter of Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia Resolution Professional of Jet Airways (India) ltd. & ors. Company Appeal (AT) (Ins) No. 752/2021 as upheld by Hon’ble Supreme Court in Civil Appeal No. 407/2023.

Further, in the hearing on 20.03.2023, Mr Abhishek Anand, Ld. Counsel for the CoC appeared before us and submitted on instructions that the CoC would abide by any decision of this Adjudicating Authority in this matter. Similar submission was made by Mr. Gaurav Mitra, Ld. Counsel for the RP.

Keeping in view the above submissions of the Ld. Counsels and more particularly the provisions of Clause no. 3.5 of the Resolution Plan as approved by CoC which states that “there shall not be any additional payment obligations on the SRA beyond Rs150 Crore. It is clarified that in no event, the Resolution Applicants and/or Purchasers and/or Corporate Debtor, payment obligations under the Resolution Plan shall increase beyond Rs150 Crore”, CoC cannot now resile from the approved resolution plan. The decision of the CoC is binding and it’s in their commercial wisdom.

We rely upon the Judgement passed by Hon’ble Supreme Court in the matter of “Vallal RCK versus M/s Siva Industries and Holdings Limited and Others, Civil Appeal Nos. 18111812 of 2022” whereby the Hon’ble Apex Court has answered the question as to whether ‘the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (hereinafter referred to as the “CoC”) or not’. We rely upon the following paragraph:

In the light of the above-quoted judgement, it is clear that the “Commercial wisdom of CoC” is given paramount status. This Adjudicating Authority is not endowed with the powers of jurisdiction or authority to analyse or evaluate the commercial decision of the CoC.

We hold that after utilising the amount of Rs.3 Crore included in the plan as Contingency Reserve for Workmen/Employees, the balance amount of EPF dues i.e. about Rs 26 Crore will be defrayed by the RP by making proportionate deduction in the share of the Secured Financial Creditors.

As a result, we direct the RP to include in the Resolution Plan the full amount of provident fund and gratuity till the date of commencement of the insolvency. The said amount payable to Workers / Employees be paid to after changing the inter-se distribution amongst the creditors by the RP. By this we only confirm what has been approved by the CoC.

On perusal of the documents on record, we are satisfied that the Resolution Plan is otherwise in accordance with Sections 30 and 31 of the IBC and also complies with regulations 38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The reliefs, concessions and waivers sought by the SRA will be dealt with strictly as per law.

As far as the question of granting time to comply with the statutory obligations/seeking sanctions from governmental authorities is concerned, the SRA is permitted to do the same within one year as prescribed under section 31(4) of the Code or within such period as provided for in such law, whichever is later.

In case of non-compliance with this order or withdrawal of the Resolution Plan within the stipulated time, in addition to other consequences which follow under law, the CoC shall forfeit the Performance Bank Guarantee, already paid by the SRA.

Subject to the observations made in this Order, the Resolution Plan size of Rs150 Crore in question is hereby approved. The Resolution Plan shall form part of this Order.

The Resolution Plan is binding on the Corporate Debtor and other stakeholders involved so that the revival of the Debtor Company shall come into force with immediate effect.

The Moratorium imposed under section 14 of the Code shall cease to have effect from the date of this order.

The Resolution Professional shall submit the records collected during the commencement of the proceedings to the Insolvency & Bankruptcy Board of India for their record.

Accordingly, IA No.2236/2021 is allowed.

Liberty is hereby granted for moving appropriate application if required in connection with the implementation of this Resolution Plan.

A copy of this Order shall be filed by the Resolution Professional with the Registrar of Companies, NCT of Delhi & Haryana.

The Resolution Professional shall stand discharged from his duties with effect from the date of this Order, save and except those duties that are enjoined upon him for implementation of the approved Resolution Plan.

The Resolution Professional is further directed to hand over all records, premises/ factories/documents and all other relevant records, available with it to the Resolution Applicant to finalize and co-operate on the further line of action required for starting the operation and implementation. The Resolution Applicant shall have access to all the records and premises through the Resolution Professional to finalize the further course of action required for starting and running the operations of the Corporate Debtor.

The Registry is directed to send copies of the order forthwith to IBBI, all the parties and their Ld. Counsels for information and for taking necessary steps.

Certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.

File be consigned to the record.