Edelweiss Asset Reconstruction Company Limited vs Perfect Engine Component Private Limited

ORDER

A. Brief Background of the Corporate debtor

B. Background of the Resolution Applicant

*Application for condonation of delay in filing of claim of one Operational Creditor under regulation 13 amounting to Rs. 3,60,426/- is filed before Hon’ble NCLT(i.e. IA No.3583 of 2024 was withdrawn and Disposed off vide order dated 12.07.2024 of this Tribunal)

# Amount provided over time under the Resolution Plan and includes estimated value of non-cash components. It is not NPV.]

The interests of existing shareholders have been altered by the Resolution plan as under:

Sl. No	Category of Share Holder	No. of Shares held before CIRP	No. of Shares held after the CIRP	Voting Share (%) held before CIRP	Voting Share (%) held after CIRP
1	Equity	3,10,000	NIL	100	NIL
2	Preference	NIL	NIL	NIL	NIL

11. Sources of Funds

During the 12th meeting of the Committee of Creditors (CoC), also stated that the “Resolution Applicant seems to be strong considering the size of the business and that the said RA has relevant experience in the same industry. Further the plan value offered is more than the net worth of the RA. Accordingly, the implementation of the Resolution Plan seems to be feasible and viable”.

Payments proposals of the various stakeholders under the Resolution Plan:

Summary of Payment terms under the Proposed Plan

( Rs. in Crore)

Particulars	Timelines from Effective Date	Instrument used for Payment	Amount in Cr.	Remarks
Total Committed funds by RA,	Within 90 days (Upfront)	Bank Transfer	17.07	The RA will deposit the committed funds in the Designated account of CD as per payment timelines proposed in this plan. All the payments/ dues payable to respective creditors will be paid from the said designated account as per the timelines proposed in this Resolution Plan.
CIRP Cost (as approved/ratified by COC)	Within 30 days	Bank Transfer	-	As per details received from RP, there is no outstanding CIRP cost payable.
Operational Creditors	Within 30 days	Bank Transfer	0.541	As per detailed chart in 3.4.1
Value available for Financial Creditors			16.529
Dissenting Financial Creditors	-	-	-	Edelweiss Asset Reconstruction Company Limited (EARCL) being only financial creditor, the clause would not apply.
Financial Creditors (secured)	Within 90 days	Bank Transfer	16.519	The complete payment would be made within 90 days
Unsecured Financial Creditor	Within 90 days	Bank Transfer	0.010	The complete payment would be made within 90 days

The Payment mechanism for each class of Creditor(s)/ Stakeholder is tabled below:

(Rs. in Crore)

Sr. No.	Category of Creditor	Admitted Claims	Amount provided in the Plan	Remarks
1	Insolvency Resolution Process Cost	Actual	0.00	Though, as per latest information , there is no CIRP cost pending. Amount payable, if any, would be paid in priority to any other payment within 30 days
2	Workmen and Employees	0.53	0.541	Within 30 Days
3	Operational Creditors for supply of Goods/ Services	9.35
4	Government /Statutory Authorities	0.58
5	Dissenting Financial Creditors	-	16.519	The payment is provided for Financial Creditors, who are part of COC and doesn’t include any related party, who has provided financial debt to the CD.
6	Secured Financial Creditors	350.80
7	Unsecured Financial Creditors	15.74	0.010	The payment is towards unsecured financial debt of related party
8	Any Other Operational Creditor	-	-	-
9	Preference Shareholders	-	-	NA

Existing Equity share Equity capital shall be written off 10 Shareholder - - fully. No claim has been s filed by existing Shareholders.

a. Insolvency resolution process cost

The unpaid CIRP Costs, if any, in terms of Section 5(13) of the Code or Regulation 31 of CIRP Regulations duly approved by the COC will be paid in full and in priority to any other creditors of the company within 30 days from the Effective Date. Since there is nothing mentioned as unpaid CIRP Cost, hence none has been provided. If and when there is any pendency arising on account of CIRP cost left unpaid, the same shall be paid from the total committed funds provided by the RA. Remaining amounts shall be payable to the stakeholders proportionately.

b. Payment to Operational Creditors

As per the Information Memorandum and Financial Statements for the Year 2023, it seems Liquidation Value of the encumbered assets may not be sufficient to cover the debt of Financial Creditors of the Company in full. In that scenario, the Liquidation Value due to the Operational Creditors or the other creditors or stakeholders, government dues, taxes etc. and other creditors and stakeholders would be NIL and therefore they may not be entitled to receive any payment on that account. However, the Resolution Applicant in order to take care of the interest of all stakeholders proposes to bring in a payment to Operational Creditors. The payment mechanism of respective category are as follows

Category Composition Admitted % Amount Claims proposed Payable (INR) to be (INR) paid

against

			admitted claim
OC-1	Workmen and Employees	5,306,349	100%	5,306,349
OC-2	Vendors for Goods and Services	93,460,473	0.1%	93,460
OC-3	Government Authorities/Statu tory Bodies	5,790,179	0.1%	5,790
	Total	104,557,0 01	-	54,05,600

The payments will be made within 30 days. Post acceptance of these payments, no OC (irrespective of class or category) shall have any right whatsoever for its past dues against the Corporate Debtor. All proceedings shall automatically stand abated from the Effective Date.

The claims remaining unverified/unadmitted till the date of submission of plan shall be deemed to have been rejected by the RP and no payments would accrue against them.

Any amount otherwise payable to any Operational Creditor from above, but not paid due to any reason (including non-submission of relevant documents, etc.), shall be kept in a separate bank account (to be claimed within next 2 years). The total amount allocated above for the payments to OC’s shall be coordinated by the Resolution Professional in proportion to the total claims so made, or as per applicable provisions, if a different treatment is prescribed.

The Resolution Applicant, through an affidavit, has affirmed that the dues owed to the workmen for a period of twenty-four months and to the employees for a period of twelve months, in compliance with Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016, amount to a total of ₹53,06,349. The Applicant further undertakes that these payments are either provided for or will be made over and above the provisions set out in the Resolution Plan, in compliance with the order of the Hon’ble

(i)

The workmen and employees are entitled to receive the amount of provident fund and gratuity in full since they are not part of the liquidation estate under Section 36(4)(b)(iii).

(ii)

The workmen are entitled to receive their dues from the Corporate Debtor for period of 24 months as per provision of Section 53(l)(b) at least to minimum liquidation value envisaged under Section 30(2)(b) read with Section 53(1).

15. Financial Creditors

The RA proposes to make the total payment of Rs. 17.07 crores against dues of Financial Creditors. RA would deposit the same, as and when due (as per proposed payment terms) in the designated bank account of CD within specified timelines.

As per the proviso to Section 21(2) of the Code, “a related party shall not have any right of representation, participation or voting in a meeting of the committee of creditors.” Accordingly, its pertinent to note here that related parties having a financial debt doesn’t get any right of participation or voting in the COC meeting. Thus, the question of dissent or assent upon a plan wouldn’t arise.

In term of IBC, a Resolution Plan is amongst other things, required to pay liquidation value due to the Dissenting Financial Creditors and provide that such payment is made before any recoveries are made to the Financial Creditors, who have voted in favour of the Resolution Plan.

The Dissenting Financial Creditors will be entitled to receive an amount as they would have received in the event of Liquidation, in priority to the creditors voting in favour of the Resolution Plan within 45 days from Effective Date.

As the COC comprises of only one eligible Financial creditor, the situation of having a dissenting financial creditor would not arise.

The Resolution Professional will disclose the liquidation value to the monitoring committee to fix the amount of liquidation value due and payable to the dissenting Financial Creditors. The amount is proposed to be paid within 45 days of Effective Date in priority to the creditors voting in favour of the Resolution Plan

The Financial Creditors other than Dissenting Financial Creditors i.e. who have voted in favour of the Resolution Plan will get paid within a period of 90 days from the Effective Date. Based on above the payments proposed for Financial Creditors shall be as follows

Name of Financial Creditor	Amount Admitted	Proposed in the plan	Remarks	Quantum and timelines
Edelweiss Asset Reconstructi on Company Limited	3,507,995,9 72	165,194,4 00	Secured	Within 90 days
Shrem Investments Private Limited	157,471,651	100,000	Unsecured related party	Within 90 days

The Liquidation Value due to the Dissenting Financial Creditors if any will be discussed with the Monitoring Committee and to be paid within 45 days of Effective Date in priority to the creditors voting in favour of the Resolution Plan.

The Resolution Professional to make entire financial commitment within 90 days from the effective date and would accordingly be out of pocket by the entire Resolution plan value by putting the entire amount in the designated bank Account. We propose that the distribution methodology undertaken by the RP/COC is as per the provision of law and all the creditors/stakeholders be paid their net dues against their deliverables (including issuing No Dues Certificate, release letter etc., This includes all the process/procedures for the acquisition of the CD (including but not limited to release of all charges)

c. Any Other Creditors or Contingent Liabilities

Any claims not received by cut-off date shall be extinguished and will not be payable and shall stand to be extinguished and NIL amount be paid against it. No interest on any claim (both financial and operational) as on CIRP Commencement Date shall be paid by the RA. However, Additional claims from any creditor(s) (which were not part of the Information Memorandum, verified/admitted subsequently by the RP including related to any statutory departments like EPFO, GST etc., if any till Effective date) shall not be taken into consideration and shall deemed to be extinguished.

13. Implementation Schedule:

Implementation of the Resolution Plan shall commence from the NCLT Approval Date. Subject to Clause 3.9 The Resolution Plan is effective for a term of 90 days. The Resolution Applicant will undertake the following steps to implement the Resolution Plan in the indicative timeline provided below:

Activity	Reference	Days	Term of Plan
Receipt of Letter of Intent from the CoC and constitution of Caretaker Committee	-	R
Issuance of Performance Security – Performance Security will be provided within 3 days of issuance of LOI	pt15 of RFRP	R+3	15% of payment proposed
Approval from Adjudicating Authority	-	T	0

Physical possession of the assets of the Corporate debtor from the RP	3.8.2	T	0
Infusion of Equity Capital	3.10.3	T+7	7
First Meeting of Monitoring Committee	3.8.2	T+7	7
Appointment of Board of Directors	3.8.4	T+15	15
Finalisation and signing of Deeds, Definitive Agreements etc.	3.8.10	T+30	30
Payment for CIRP Process Cost	3.3.1	T+30	30
Payment to Operational Creditor	3.4.1	T+30	30
Payment to Dissenting Financial Creditors	3.5.4	T+45	45
Release of Performance Bank Guarantee	3.5.9	T+90	90
Payment to Financial Creditors voted in favour of Resolution Plan	3.5.6	T+90	90
Financial Creditors to release Encumbrances (including making filings with ROC/ sub-registrar of assurances and other governmental agencies for recording such release), execute re-conveyance deeds, issuance of no-dues certificates and redeliver documents in relation to the Resolution Plan and Handover of Documents of the assets of the Corporate debtor	3.5.8 & 3.10.11	T+91	91

The RA would infuse funds in the designated bank account as per the terms of this resolution plan. The amounts shall be distributed as per the terms of this Resolution Plan. The bank will be operated by the erstwhile RP, as per the directions of the MC.

14. Earnest Money Deposit

The Resolution Applicant has submitted Earnest Money Deposit I of INR Rs.10,00,000/- and Earnest Money Deposit II of INR 50,00,0 00(Indian Rupees Fifty Lakhs Only) along with this Resolution Plan.

15. Monitoring Committee

The Monitoring Committee shall comprise of 5 (Five) members comprising of the following:

a)

1 (One) Nominee/Representative of the Financial Creditor

b)

3 (Three) Nominee/Representative of the Resolution Applicant (i.e. one representing the new Shareholders, one of the Directors and one Advisor/Monitoring Agency) and

c)

The Erstwhile Resolution Professional.

The Monitoring Committee shall be constituted within 7 (Seven) Business Days of NCLT Approval Date and pending constitution of the Monitoring Committee, the Resolution Professional shall be authorised to exercise all his powers and shall observe all its duties in accordance with the Code.

16. Avoidance Transactions

As per the requirements of Regulation 38(2) (d) of the CIRP Regulations, avoidance transactions application filed by the Resolution Professional, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan to its logical end by the Chairman of monitoring Committee and the proceeds shall be distributed to the Secured Financial Creditors in the manner approved by the COC while approving this Resolution plan.

The Resolution Applicant states in Affidavit and Resolution Plan that the Resolution Plan specifying disbursement of amounts recoverable from PUFE transaction to Creditors: Clause 3.9.8 of the Resolution Plan at Page no. 26 (Page No. 409 of IA. No. 20 of 2024) states as under: “3.9.8: The IM doesn’t have any information about any avoidance proceedings. The RA would seek a complete immunity from any proceedings or effects of any avoidance proceedings initiated by erstwhile RP during the CIRP process or any time later. The success of the plan is independent of the results of these proceedings. Any future monetary inflows resulting from these proceedings, if any, will be directly allocated to the members of the Committee of Creditors (COC). Any expenses incurred in relation to these proceedings will not be the responsibility’ of the RA or the monitoring committee. Owing to the lack of pertinent information, the RA will not partake in these proceedings”.

17. The compliance of the Resolution Plan is as under:

Observation and Findings:

“This Court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. A reference in this respect could be made to the judgments of this Court in the cases of K. Sashidhar v.Indian Overseas Bank and Others, Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta and Others3, Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Others4, Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another5, and Jaypee Kensington Boulevard Apartments Welfare Association and Others v. NBCC(India) Limited and Others6

“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”.

“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.

“Para 42- Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and section 32 read with section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar (supra).”

“there is no provision in the Regulations or Code which provides that the bid of any Resolution Applicant has to match the liquidation value. It further articulated that the object behind prescribing such a valuation process is to assist the CoC to take decisions on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is just to test the Resolution Plan with reference to provisions of Section 30(2) of the Code.”

“with respect to any statutory dues owed/claims raised in relation to the period prior to the 2019 Amendment, the resolution plan shall still be binding on the statutory creditors concerned, and the statutory dues owed to them, which were not included in the resolution plan, and such claims shall stand extinguished.”

I. "The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plan would go haywire and the plan would be unworkable.

II. 87. We have no hesitation to that the word "other stakeholders" would squarely cover the Central Government any State Government or any local authorities. The legislature, noticing that on account of obvious omission certain tax authorities were not abiding by the mandate of I&B Code and continuing with the proceedings, has brought out the 2019 amendment so as to cure the said mischief…

III. In view of the above we hold that the Resolution Applicant cannot be saddled with any previous claim against the Corporate Debtor prior to initiation of its CIRP..."

IV. Consequently, all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.”