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Judgment
Justice Anant Bijay Singh
Preamble:
The Present Appeal is filed by Government of India, through Office of the Deputy Commissioner, GST & Central Excise, Balasore Division, Odisha being aggrieved and dissatisfied vide Order date 30.01.2020 passed by the Adjudicating Authority (National Company Law Tribunal, Cuttack Bench, Cuttack) in CP (IB) No. 251/KB/2017, whereby, the Adjudicating Authority had dismissed the application bearing CA (IB) Nos. 157/CTB/2019, 162/CTB/2019 and 176/CTB/2019 connected with TP No. 42/CTB/2019.
Brief Facts:
The facts giving rise to this appeal in short is as follows:-
the Corporate Insolvency Resolution Process (“CIRP”) was initiated against the corporate entity M/s Ferro Alloys Corporation Limited (FACOR) at the instance of ‘Rural Electrification Corporation Limited (“RECL”) by way of an application under Section 7 of IBC against Ferro Alloys Corporation Limited (“FACL”)- Corporate Debtor.
While granting the said facility, a Corporate Guarantee agreement was executed by FACL was in favour of REC and shares were also pledged by Corporate Debtor and Corporate Guarantor in favour of REC.
Later, the Corporate Debtor defaulted in making payment and its account was classified as Non-Performing Asset (NPA) by the Financial Creditor and thereafter, the Financial Creditor also invoked the Corporate Guarantee and called upon FACL to repay the outstanding amount.
The Application filed by REC against the Corporate Guarantor under Section 7 of IBC was admitted by Hon’ble NCLT and was appointed as Interim Resolution Professional (“IRP”) who was subsequently confirmed as the Resolution Professional by Committee of Creditors (“CoC”) erstwhile RP Mr. K.G. Somani was replaced by Mr. Bhuvan Madan as RP of Corporate Debtor.
Further, in response, the Application submitted its claim to the RP on 17.10.2019 to the tune of Rs. 348.57 crores which was acknowledged by the Resolution Profession (Respondent herein) on 26.09.2019 vide his email.
Subsequently, an additional claim was raised on 17.10.2019 of Rs. 497.94 lakhs which was duly acknowledged by the Respondent.
Further, the case of the Appellant is that the cumulative claim of the Appellant for the tune of Rs. 353.61 crores. Further, the case of the Appellant that vide email dated 03.10.2019, the Respondent admitted the claim of Rs. 238. 56 crores kept Rs. 110 crores under review. However, while modifying the admitted claim vide his email dated 23.10.2019, the Respondent informed that he had kept Rs. 220.57 crore as admitted as Contingent Claim and Rs. 7.96 crores under review and rejected Rs. 125.02 crores.
Further the case of the Appellant is that the claims of the Department was discussed in the 29th CoC meeting held o 30.10.2019, whereby, the RP has categorized the claims of the Department under 4 different headings :--
Amount Admitted,
Admitted Liability as Contingent Claim,
Not Admitted and
Claim under Review.
Further, the case of the Appellant is that on enquiring regarding the basis of classification of claims, it was stated by the Respondent-RP that, in cases wherein the Corporate Debtor had filed an appeal with higher authorities, the same had been admitted as contingent liability.
On the other hand, on enquiring regarding rejection of claims, it was stated that the claim has not been admitted in those matters where there is any difference in the amount claimed vis-à-vis amounts verifiable from the order copy and interest accrued upto the Insolvency Commencement Date (“ICD”).
Further, case of the Appellant is since the improper classification of claim was not proper and contrary to law, this office raised its objection on 04.11.219 and requested the Resolution Professional to admit the claims of the Department where the order is in favour of the department and there is no stay provided by the Court.
Further, case of the Appellant is that the aforesaid objections were raised in the 30th CoC meeting on 07.11.2019. However, the assurance of the Respondent- RP to rectify the classification against the objections made in the meeting were neither reflected in the minutes nor complied.
Appellant’s Submissions:
Further, during the course of the arguments Appellant submitted that the RP has deliberately excluded Departmental Claims under some pretext or another and has finally admitted the claims as late as on 11.11.2019 by which date the Resolution Plan was considered.
It was further submitted during course of the arguments that there is a delay in admitting the claims as late as on 11.11.2019-12.11.2019. Perused the claims of the Department and the same has jeopardized during the CIRP Process.
Consequently, huge statutory dues running to the tune of Rs. 353.61 Crores of the Dept submitted and out of which the belatedly admitted claim of Rs. 220.58 Crores was never factored in by the Resolution Applicant while preparing the Resolution Plan.
It was submitted that the information memorandum which was prepared for the potential resolution applicants was materially defective and incomplete chiefly owing to such delayed admittance of claims and wrongful categorization the claims by the RP.
Further, case is that Resolution Plan which was approved by the CoC and approved by the Hon’ble NCLT was not made any allocation for the admitted claim of the department of Rs. 220.58 crores, owing to the failure of Resolution Professional in delaying the admittance till preparation of the bids itself.
Learned Counsel for the Appellant further in his Additional Written Submissions submitted during the course of the arguments while assailing the Impugned Order submitted that the Resolution Plan completely extinguishes the statutory dues of the Department in as much as it fails to make any allocation towards statutory dues owed by the Corporate Debtor which are in the nature of indirect taxes which have already been passed on to the buyer.
It was further submitted that the Hon’ble NCLT has ignored the ruling of the Hon’ble Apex Court in the matter of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, Civil Appeal No. 8766-67/2019 decided on 15.11.2019 wherein it has been held in Para 46 that “the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors”.
Based on his submissions, it is submitted that the Impugned Order is to be set aside and the Appeal be allowed.
Respondent’s Submissions:
Learned Counsel for the Respondent No. 1 in his ‘Reply Affidavit’, ‘Written Submissions’ and also during the court of arguments submitted as follows:-
The position with respect to consideration and verification of claims as on the ICD is clear in view of Regulation 13 of the CIR Regulations, which mandates that the insolvency resolution professional or the resolution professional, as the case may be, shall verify the claims of the creditors of the corporate debtor as on insolvency commencement date.
Thus, claim of the Appellant to the tune of Rs. 27,80,96,126/-towards interest for the period after the ICD till the date of filing their claim i.e. 18 September 2019 is not verifiable in terms of the clear provisions of the Code and is bound to be rejected.
Further, it is not a case where the entire claim of interest of the Appellant has been rejected, rather it is only the interest portion which accrued after the ICD which has been rejected. Therefore, portions of the amounts claimed which were not even payable as on the ICD were rightly rejected by the Resolution Professional.
Respectfully, immediately upon receiving the claim from the Appellant on 18 September 2019, the Resolution Professional immediately acknowledged the same on 26 September 2019. It is pertinent to highlight that the Appellant itself was significantly delayed in filing its claim, having filed the claim for the first time more than 2 years after the ICD. Thereafter, the Resolution Professional initiated the process of claim verification, however since the claim of the Appellant was based upon various show cause notices, demand notices and orders issued over a period of time, it was a time consuming process to collate the said information and verify the amount claimed by the Appellant from the records of the Corporate Debtor.
Accordingly, the Resolution Professional based on the preliminary assessment admitted an amount of Rs. 238.56 Crores on 3 October 2019 and kept the remaining amount of Rs. 110 crores under review and it was duly disclosed on the website of the Corporate Debtor. It is pertinent to mention that the GST Authority on 17 October 2019 filed an additional claim of Rs. 4.97 Crores which was also immediately acknowledged by the Resolution Professional.
Thereafter, upon further verification, the Resolution Professional on 23 October 2019 admitted an amount of Rs. 220.57 Crores as contingent claim, rejected claim of Rs. 125.02 Crores and kept the remaining of Rs. 7.96 Crores under verification. Finally, on 12 November 2019, an amount of Rs. 220.57 Crores was admitted and Rs. 133.04 Crores was rejected by the Resolution Professional which has been duly reflected in Form H submitted along with the application for approval of the resolution plan.
It is therefore evident that Respondent No. 1 was constantly working on the verification process of the claim filed by the Appellant and was in regular touch with the Appellant seeking more information or clarification on the information submitted along with the claim form, and also clarifying the methodology adopted by him while verifying the claim of the Appellant.
Further, it is highlighted that the status of such claim verification was regularly updated and uploaded on the website of the Corporate Debtor and also on the Virtual Data Room ("VDR"), duly accessible to the Resolution Applicants. It is also imperative to note that the Appellant's representative was invited to the last three meetings of the COC (being 29", 30", 31 meeting held on 30 October 2019, 6 November 2019 and 11-12 November 2019), in its capacity of the largest operational creditor in accordance with the requirement under Section 24(3)(c) of the Code, wherein substantial discussion on the resolution plans including the plan of SPTL as approved by COC took place.
Moreover, the Appellant's representative was also provided access to the resolution plans for their review prior to the discussions in the meeting until the final approval of the SPTL's resolution plan and thus they had ample opportunity to raise objections regarding treatment of their claims under the resolution plan. However, without having done so, the Appellant approached the Adjudicating Authority by filing an application under Section 60(5) which has been rightly rejected by way of the Impugned Order.
It is submitted that in line with the provisions of the Code read with the Regulation 36 of the CIR Regulations (as it then existed), the information memorandum is to be provided to the members of the COC within two weeks of the appointment of the Resolution Professional and to each prospective resolution applicant latest by the date of invitation of resolution plan under clause (h) of sub-section (2) of Section 25 of the Code. Accordingly, Mr. K G Somani, the Erstwhile Resolution Professional of the Corporate Debtor, prepared the information memorandum.
Thereafter, when the Respondent No. 1 was appointed vide Order dated 8 July 2019, initially only 30 days' time period i.e. till 7 August 2019 was provided by the NCLT to conduct the CIR Process, for which neither was the Respondent No. 1 was required to nor had sufficient time to prepare a fresh information memorandum and relied upon the one prepared by Mr. Somani. However, the Respondent No. 1 proactively invited fresh clams and updated the list of creditors accordingly.
Further, as stated above as well in the context of the Appellant, all such information pertaining to new claims received or updation in the existing claims received was duly disclosed on the website of the Corporate Debtor and updated list of creditors was regularly uploaded thereof. The said information was also consistently uploaded on the VDR as well which was accessible to both the members of the Committee of Creditors and the prospective resolution applicants.
Thus, it is wrong to allege that the information memorandum was incomplete due to delay in admittance of claim of the Appellant by Respondent No. 1.
It is contended that the resolution plan of SPTL as approved by the COC is fully compliant with the mandatory contents contained in Section 30(2) of the Code. Particularly, in the context of the operational creditors, a resolution plan is required to comply with Section 30(2)(b) which provides that payments to operational creditors shall not be less than the amount to be paid to the operational creditors in the event of a liquidation than the amount payable to operational creditors if the resolution plan proceeds were to be distributed in accordance with the priority under Section 53, whichever is higher. Further, Regulation 38 of the CIR Regulations require that the amount payable to operational creditors under the resolution plan shall be given priority over financial creditors. That apart, the Code deliberately does not stipulate any condition on payment terms under a resolution plan.
In the present case, the liquidation value payable to operational creditors is NIL as the entire liquidation value would get exhausted towards payments of CIRP costs, workmen dues and the dues owed to the secured financial creditors.
Further, in light of the existing jurisprudence as settled by the Hon'ble Supreme Court in the decisions of K Shashidhar v. Indian Overseas Bank, 2019 SCC Online SC 257 and also in Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta & Ors., 2019 SCC Online SC 1428, the commercial decision of the COC is paramount and the same is not to be interfered with by NCLT as has been rightly done by way of the Impugned Order.
Based on these submissions it was submitted that there is no merit in this Appeal and the Appeal is fit to be dismissed.
Findings:-
After hearing Counsel for the Parties and perusing the records and Written Submissions and Reply Affidavit filed on behalf of the Parties and from the perusal of the Impugned Order dated 30.01.2020 passed in CA (IB) No. 162/CTB/2019 connected with TP No. 42/CTB/2019 arising out of CP (IB) No. 251/ KB/ 2017 by the Adjudicating Authority (National Company Law Tribunal, Cuttack Bench), whereby, the Resolution Plan was approved by the Committee of Creditor and the Tribunal dismissed the Appeal.
The Resolution Plan was approved by 95.15 % of voting share in 31st Committee of Creditors Meeting dated 13.11.2019. Thus, as per the requirement of Section 30(2)(b) of the Code, the operational creditors of the Corporate Debtor including the Appellant herein, are entitled to a minimum payment of their liquidation value which is Nil in the present case, and therefore the resolution plan of SPTL which proposes NIL payments towards the claims of operational creditors, cannot be called in question on the ground that it contravenes provisions of Section 30(2) of the Code.
Taking this fact and also Judgment passed by the Hon’ble Supreme Court in the case of “Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited & Ors.” Reported in MANU/SC/0273/2021, wherein, the Hon’ble Supreme Court of India has held as under:-
“95.In the result, we answer the questions framed by us as under:
(i)That once a resolution plan is duly approved by the Adjudicating Authority Under Sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;
(ii)2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;
(iii)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.”
There is no merit in the instant Appeal, the Appeal is hereby dismissed. No order as to costs.
Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Ld. Adjudicating Authority [National Company Law Tribunal, Cuttack Bench], forthwith.