Hari Vittal Mission vs Ravi Sethia & Ors.

Per Bidisha Banerjee, Member (Judicial):

This court convened via hybrid mode.

Brief Background 2.1 An Application under section 10 of the Insolvency and Bankruptcy Code, 2016 ('Code') was filed by Suasth Health Care Foundation ('Corporate Debtor'). Subsequently, vide order dated 31 August, 2021 Corporate Insolvency Resolution Process (‘CIRP’) was initiated against the Corporate Debtor.

This is an application filed by Hari Vitthal Mission, the Financial Creditor of the Corporate Debtor (‘Applicant’), against the Mr. Ravi Sethi Resolution Professional (‘RP’) of the Corporate Debtor (‘Respondent No.01’), Nishkala Healthcare Private Limited (‘Respondent No.02’) and Committee of Creditors of Susath Healthcare Foundation, represented by Yes Bank (‘Respondent No.03’) inter-alia seeking for the following reliefs;

The Applicant is admittedly a ‘Financial Creditor’ of the Corporate Debtor, who had filed a claim of Rs.62,16,33,563/- with the Interim Resolution Professional (‘IRP’) of the Corporate Debtor. However, the claim of the Applicant was partially admitted by the Interim Resolution Professional (now the RP) [at page 25 of the Application].

The Applicant was initially allowed to participate in the meeting of the Committee of Creditors (‘CoC’) of the Corporate Debtor. However, the Applicant was, all of a sudden declared as a related party of the Corporate Debtor by the Resolution Professional and as such was excluded from the CoC meetings.

Being aggrieved with the decision of the Resolution Professional, the Applicant duly filed an application challenging the illegal and/or unlawful declaration of the Applicant as a related party of the Corporate Debtor before this Adjudicating Authority which was numbered as I.A. No. 390 of 2022. However, the said Application, being I.A. No. 390 of 2022 was dismissed by this Adjudicating Authority by an order dated 23 September, 2022.

Aggrieved by the order dated 23 September 2022 passed by this Adjudicating Authority, the Applicant preferred an appeal before the Hon’ble National Company Law Appellate Tribunal (AT)(Insolvency) No. 1206 of 2002. The appeal is yet to be finally heard by the Hon’ble NCLAT.

During the pendency of the appeal while the right of the Applicant to figure in CoC is yet to be determined by the Hon’ble NCLAT, the Resolution Plan in respect of the Corporate Debtor as submitted by the Respondent No. 2; Resolution Plan so submitted by Respondent No. 2 has been approved by the Committee of Creditors and an application under Section 30(2) of the Insolvency and Bankruptcy Code, 2016 has been filed by the Resolution Professional which has been numbered as I.A. No 1381 of 2022.

Since the Resolution Plan has already been approved by the Committee of Creditors apropos which an application for approval of such Resolution Plan has already been filed before this Adjudicating Authority, the Resolution Plan no longer remains a confidential document and the same is now part of public records. As such, the Applicant duly requested the Resolution Professional by email dated 04 November, 2022 to furnish a copy of the Resolution Plan.

The case of the Applicant in requesting for a copy of the Resolution Plan of the Resolution Applicant is squarely covered by the judgment of the Hon’ble National Company Law Appellate Tribunal in Association of aggrieved workmen of Jet Airways (India) Limited v. Jet Airways (India) Limited^{11.2022 SCCOnline NCLAT 222}.

Thereafter, the Resolution Professional by an email dated 21 November 2022 stated that the resolution plan can be only provided to the applicant if the Applicant falls within the ambit of the above-mentioned judgment and only when there is an application filed by the Applicant challenging the resolution plan [Annexure-F].

The Resolution Professional should inform the Applicant what is the treatment of the admitted claim/debt of the Applicant provided under the resolution plan and if no reply is received from the resolution professional, it will be assumed that the resolution applicant i.e., respondent no. 2 is not making any payment to the Applicant and the Applicant is being paid NIL under the resolution plan.

It is now settled principle of law, as held by the Hon’ble National Company Law Tribunal, Chennai Bench in Dr. Periasamy Palani Gounder v. Radhakrishnan Dharmarajan^{22.Company Appeals (AT) (CH)(Insolvency) No. 164, 176, 218 & 219 of 2021} that claim of a related party Financial Creditor cannot be discriminated from unrelated Financial Creditors. It is also a settled principle of law as has been settled by the Hon’ble Supreme Court of India in Committee of Creditors of Essar Steel Ltd. v. Satish Kumar Gupta^{33.(2020) 8 Supreme Court Cases 531} that a Financial Creditor cannot be paid ‘NIL’ under the Resolution Plan. The Resolution Plan will be contrary to law if it proposes to completely wipe out the admitted debt of the Applicant and proposes to pay ‘NIL’ to the Applicant.

Reference is made to the following decisions;

The Applicant states and submits that the Resolution Plan submitted by the Respondent No. 2 presumably discriminates between the Applicant Financial Creditor and the other Financial Creditors. If the Applicant is paid "NIL" by the Resolution Applicant in the Resolution Plan, then the Resolution Plan is contrary to law and deserves to be set aside.

Reply by the Respondent No.01, i.e, Mr. Ravi Sethi Resolution Professional in IA (IB) No. 1563/KB/2022

The Applicant had provided a refundable deposit to the Corporate Debtor in lieu of securing preferential allotment of beds in the hospital of the Corporate Debtor for persons recommended by the Applicant. In lieu of such refundable deposit, the Applicant has been categorized as an unsecured financial creditor.

In pursuance to the order dated September 23, 2022, by this Adjudicating Authority the Applicant has been adjudged as a related party to the Corporate Debtor.

The Resolution Plan does not differentiate about the payment being made to the Applicant on the ground that the Applicant is a related party to the Corporate Debtor. The Resolution Plan does not provide NIL payment to the Applicant because it is a related party. The line of argument provided by the Applicant is completely baseless and unfounded.

As per the Resolution Plan under Part II- Clause 2.3 (iii) [Ref: Annexure C @ pg. no. 18 of the Supplementary Affidavit] clearly stipulates that the Applicant has been classified as an unsecured financial creditor of the Corporate Debtor and therefore, no payment is proposed to be made to the Applicant under the Resolution Plan. Further, it is also important to note that pursuant to the provisions of Part II- Clause 2.3 (iii) of the Resolution Plan, SREI Equipment Finance Limited (‘SEFL’), despite being a related party to the Corporate Debtor is being paid certain amounts on the ground that it was a secured financial creditor having a residuary charge over the assets of the Corporate Debtor.

The law recognises sub-classification of financial creditors as secured and unsecured and differential payments to each sub-class of creditors. It is submitted that the extant law clearly allows that differential treatment can be provided to the different sub-classes of creditors. Secured and unsecured financial creditors are valid and recognised sub-classes under the class of financial creditors

The CoC, in its commercial wisdom, is free to classify the creditors as secured and unsecured and thereafter determine the amounts to be paid to each class and sub-class of creditors so long as it is in accordance with the provisions if the Code and the CIRP Regulations. It is therefore submitted that while agreeing on the manner of distribution of the resolution proceeds under a resolution plan, a separate treatment can be provided to different sub-classes of creditors, as may be agreed by the CoC (‘Essar Steel’).

In pursuance to regulation 38 (IA) of the CIRP Regulations, the interest of all stakeholders is to be balanced and NIL payments will not adequately satisfy the requirement of regulation 38 (IA) of the CIRP Regulations, some minimum amount must be paid to operational creditors.^{55.Hammond Power Solutions Private Limited v. Sanjiy Kumar Nayak & Ors [2020 SCC NCLAT 199].} In relation to the said judgment, it is important to submit and highlight that no other judgment actually holds that provision of NIL payment to any stakeholder is against the applicable law.

There are several precedents which clearly hold that NIL payment can be provided to stakeholders. Contrary to the submissions of the Applicant, the Hon’ble NCLAT in the matter of Dharmindra Constructions Pvt. Ltd. & Anr. v. Rajendra Kumar Jain Resolution Professional of Kudos Chemie Ltd. & Ors^{66.[CA (AT) (Ins) No. 1477 of 2020]}. has held in paragraph 7 as follows:

In the instant case, other than workmen and employees, operational creditors relating to government dues and other operational creditors were both paid NIL. The Hon’ble NCLAT has specifically considered and dealt on this issue and clearly held that the same is not in violation of section 30 (2) (b) of the Code

In Chandriah v. Sunil Kumar Agarwal^{77.[CA (AT) (Ins) No. 22 of 2022]} the Hon’ble NCLAT specifically distinguished Hammond Power Solutions Private Limited (Supra), and held that even if NIL is allocated, it does not mean that all stakeholders’ interests have not been dealt with. The Hon’ble NCLAT in paragraphs 25 and 26 held that:

Hence, in light of the above, it is abundantly clear that the Resolution Plan having duly dealt with the interest of all stakeholders is fully compliant with the provisions of the Code and the CIRP Regulations. Secondly, in the instant case, the Resolution Plan has clearly dealt with the interests of all stakeholders and also provided valid reasons for proposing NIL payments to the Applicant, as a separate sub-class of financial creditors. Accordingly, the aforementioned contention of the Applicant is completely baseless and misconstrued.

The Applicant has mistakenly referred to section 53 of the Code in relation to the current issue. They have also alleged that the Respondent is looking to provide an explanation for the allocation based on section 53 of the Code. It is being made crystal clear that the Resolution Professional does not take support of section 53 of the Code for any of its arguments. In fact, the Resolution Professional reiterates and emphasizes that section 53 of the Code is only applicable in a liquidation scenario. In the current case, the Company is presently under resolution.

Paragraphs 77, 88, 128, 145 of the Essar Case [SCC version being: (2020) 9 Supreme Court Cases 53] clearly stipulate that:

Accordingly, the minimum amounts payable to such classes of creditors, basis the calculation provided under the provisions of the Code, may be NIL. In such cases, the Resolution Applicant can stipulate that no payments would be made to such class of creditors if the same is in compliance with the provisions of the Code.

Reply by the Respondent No.02, i.e, Nishkala Healthcare Private Limited (Successful Resolution Applicant) in IA (IB) No. 1563/KB/2022

There is no provision under the Code which mandates that payment needs to be made to all stakeholders. The only protected class under the Code for distribution of resolution the plan amounts are the dissenting financial creditors and the operational creditors which are required to be provided at least the liquidation value payable to them.

It is further submitted that unsecured financial creditor objecting to the resolution plan fall in neither of the category. Unsecured financial creditors are entitled to nil liquidation amounts. Therefore, such unsecured financial creditors cannot demand that they be paid over and above their entitlements. The resolution plan has not discriminated against the related parties,

Secured financial creditors and unsecured financial creditors do not belong to the same class of stakeholders.

Time and again, the Hon’ble Supreme Court has given the primacy to the CoC’s commercial wisdom and has observed that so long as statutory provisions are complied with, the Adjudicating Authority should not examine the commercial aspects of the resolution plan.

The Hon’ble Supreme Court has stated in K. Sashidhar v. Indian Overseas Bank & Ors.^{88.(2019) 12 SCC 150} that

Reply by the Respondent No.03, i.e, Committee of Creditors of Susath Healthcare Foundation, represented by Yes Bank in IA (IB) No. 1563/KB/2022

It is the commercial wisdom of the CoC which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.

The Successful Resolution Plan is in compliance with the Code and the CIRP Regulations and it is the commercial wisdom of the CoC that should be accorded primacy. Treatment of Applicant as unsecured financial creditor is in compliance with the Code and the CIRP Regulations

The Resolution Plan does not distinguish between the financial creditors on the basis of whether they are related party or not, the Applicant has basis its incorrect understanding of the provisions of the Code.

The Applicant has stated that it should be considered as a dissenting financial creditor. It is submitted that even assuming, whilst denying that the Applicant herein was admitted as a member of the CoC and dissents to approval of Successful Resolution Plan, the Applicant would have a voting share of approximately 19% in the CoC. As per Section 30(4) of the Code, the requisite threshold for approval of the Resolution Plan is 66% of the voting share. Accordingly, in the present instance, even assuming that the Applicant was admitted as a member of the CoC, the Resolution Plan would still have been approved by a majority of approximately 81% of the CoC members. Plan would still not be in contravention of the Code and any allegation to the contrary is liable to set aside.

This is an application filed by Shankar Mukherjee, a member of Suspended Board of Directors (‘Applicant’), against the Mr. Ravi Sethi Resolution Professional (‘RP’) of the Corporate Debtor (‘Respondent No.01’), Yes Bank Limited (‘Respondent No.02’), Axis Bank Limited (‘Respondent No.03’) and Consortium of Nishkala Healthcare Private Limited & Ujin Pharma Chem (‘Respondent No.04’) inter-alia seeking for the following reliefs;

The Applicant is a member of the suspended Board of Directors of the Corporate Debtor, aggrieved by the approval of a resolution plan in respect of the Corporate Debtor. The Respondent No. 4 (i.e., SRA) has illegally claimed to itself in clause 2.2 (c) (i) of Part II of the resolution plan ‘sole discretion’ to determine the manner of final distribution of the amount i.e., Rs.73,00,000/-

Such discretion is not available to the Respondent No. 4 (i.e., SRA) as the manner of distribution proposed under the said plan has to be fully disclosed therein so that the same is clearly visible and apparent to this Adjudicating Authority.

Similarly, the Respondent No. 4 (i.e., SRA) has illegally proposed to institute favourable treatment towards some operational creditors who are doctors and potentially discriminate among them as well as against other operational creditors by entering into “arrangements/agreement with the operational creditors, being the doctors”, for payments of purportedly “mutually agreed amounts.”

Respondent No.4 has proposed to “pay Rupees Twenty Seven Lakhs only (27,00,000) towards the Operational Debt (other than debt owed to Employees and Workmen), i.e. towards Admitted Other Operational Creditor Debt , Admitted Government and Statutory Authority Debt on a pro rata basis,” whereas the Respondent No.4 has proposed to pay “NIL” amount to unsecured related party financial creditor against its admitted claim of Rs.60,37,46,150/- (Rupees Sixty Crore Thirty Seven Lakh Forty Six Thousand One Hundred and Fifty only).

No reason has been accorded in the resolution plan for such undue preference towards these operational creditors over the unsecured financial creditor, neither any basis been provided for paying “NIL” amount to an unsecured financial creditor.

Therefore the resolution plan is liable to be set aside by this Adjudicating Authority as it does not effectively deal with the interests of all stakeholders of the Corporate Debtor, and as such does not comply with section 30(2)(e) and section 30(2)(f) of the Code.

Purported commercial wisdom of the CoC cannot be exercised contrary to law and settled principles of law. It is discriminatory to propose “NIL” payment under the resolution plan to the unsecured financial creditor while proposing a high payment to the admitted other operational creditors who rank lower on the waterfall mechanism under section 53(1).

There exists no intelligible differentia in the resolution plan for privileging the admitted other operational creditors over the unsecured financial creditor in such a manner contrary to the scheme of section 53(4) of the Code.

The Applicant is not disputing the necessity of paying these operational creditors in priority over the financial creditors insofar as the timings of the payments under the resolution plan are concerned for the purpose of compliance with Regulation 38(1) of the CIRP Regulations.

A harmonious reading of the object of the IBC to ‘balance the interests of all the stakeholders’, section 30(2), section 30(4), section 53 of the IBC and Regulation 38 of the CIRP regulations will necessarily preclude the Respondent Nos. 2 and 3 from arbitrarily exercising any purported commercial wisdom to approve the said resolution plan wherein the amount proposed to be distributed to the creditors clearly fails to balance the interests of the stakeholders.

Furthermore, a careful appreciation of the minutes of the 15 Meeting of the CoC will indicate deterioration in the value of the assets of the Corporate Dbetor during the currency of the CIRP. The explanation offered by the RP for the disparity in valuation figures is plainly untenable in light of facts and prima facie findings emanating from an Order dated 06 December, 2017 passed by the Hon’ble High Court at Bombay. The RP had also failed to continue the business operations of the Corporate Dbetor during the CIRP.

Operations of the Corporate Dbetor had been suspended by the RP in August, 2022, and salaries have not been paid to a number of employees/workmen. The diminution in the value of the assets of the Corporate Dbetor makes it plain and evident that the Respondent No.1 (i.e., the RP) has failed to preserve the value of the assets of the Corporate Dbetor and violated his duty under section 25(1) of the Code

The impugned resolution plan violates section 30(4) and section 30(2) of the Code by failing to specify the manner of distribution in respect of a sub-class of the Operational Creditors. The SRA has not stated in the impugned plan the manner of distribution it has proposed for Operational Creditors who are Employees and Workmen of the Corporate Debtor.

Reply by the Respondent No.01, i.e, Mr. Ravi Sethi Resolution Professional in IA (IB) No. 1567/KB/2022

The distribution of resolution amounts is in compliance with the provisions of the Code and the CIRP Regulations. The Applicant has repeatedly suggested that the Resolution Plan discriminates the Applicant only because it is a related party. In light of the aforementioned contention of the Applicant, it is humbly submitted that the Resolution Plan does not provide NIL payment to Hari Vittal Mission (‘HVM’) because it is a related party.

HVM has been classified as an unsecured financial creditor of the Corporate Debtor and therefore, no payment is proposed to be made to HVM under the Resolution Plan.

The Resolution Plan, while dealing with the payment to be made to the stakeholders of the Corporate Debtor, does not discriminate against HVM by virtue of it being a related party of the Corporate Debtor. The Resolution Plan, in no uncertain terms, stipulates that the reason for proposing no payments to HVM is only because of it being an unsecured financial creditor of the Corporate Debtor.

The law recognises sub-classification of financial creditors as secured and unsecured and differential payments to each sub-class of creditors

Further, the provisions of the Code and the CIR Regulations envisage the creation of a sub-class of secured financial creditors and unsecured financial creditors. The Form H, which is required to be submitted in with the provisions of regulation 39 (4) of the CIRP Regulations, clearly provides for a classification of financial creditors as secured financial creditors and unsecured financial creditors.

Accordingly, the CoC, in its commercial wisdom, is free to classify the creditors as secured and unsecured and thereafter determine the amounts to be paid to each class and sub-class of creditors so long as it is in accordance with the provisions if the Code and the CIRP Regulations.

The provisions of section 30 (2) of the Code, while referring to section 53 (1) of the Code only stipulates a manner of calculation of arriving at a minimum amount to be paid to the operational creditors or dissenting financial creditors, which shall not be less than the amounts payable to such creditors in the event the proceeds are distributed in accordance with the priority mentioned under section 53 (1) of the Code.

Accordingly, the minimum amounts payable to such classes of creditors, basis the calculation provided under the provisions of the Code, may be NIL. In such cases, the Resolution Applicant can stipulate that no payments would be made to such class of creditors if the same is in compliance with the provisions of the Code.

The Applicant has alleged that the amounts to be paid to operational creditors should be in compliance with section 30 (2) of the Code and the distribution of such amounts must be fair and equitable. In light of such allegation by the Applicant, it is humbly submitted that the Resolution Plan is fully compliant with the provisions of the Code.

It is abundantly clear that a resolution applicant, while submitting a resolution plan, can commercially determine and provide the relevant amounts to be paid to the relevant stakeholders of the corporate debtor after a review of the factual scenario. Accordingly, in the instant case, the Resolution Applicant is well within its rights to allocate and provide for certain amounts to be paid to the doctors and essential vendors and employees of the Corporate Debtor, so long as the payments being made are in accordance with the provisions of section 30 (2) of the Code.

Further, the CoC, upon a review of the Resolution Plan and after due negotiations and discussions on the feasibility and viability of the Resolution Plan, the payment structure and the timelines, in its commercial wisdom has approved the Resolution Plan by a majority of 100% of the voting share of the CoC.

The payments envisaged under the Resolution Plan for payment of provident fund dues are in compliance with the provisions of applicable laws. The Resolution Professional has duly ensured maximisation of the value of the Corporate Debtor.

It is pertinent to note that the valuation of the Corporate Debtor was affected on account of the issue regarding the registration of the lease deed with City and Industrial Development Corporation (“CIDCO”). The Applicant, in the instant case, has wrongly alleged that the interim order of the Hon’ble Bombay High Court had resolved the dispute. The order of the Hon’ble HC has simply recorded that the matter is pending before the PUC of the CAG. [Ref: Annexure A-7 @ pg. no. 200 of the Application].

It is important to highlight that despite the suspension of works and the impending obstacles faced by the Resolution Professional, the revised Resolution plan submitted by the Resolution Applicant provided better and improved commercial terms to the stakeholders.

Reply by the Respondent No.03, i.e, Axis Bank Limited (on behalf of CoC) in IA (IB) No. 1567/KB/2022

The Successful Resolution Plan has been approved by the 100% majority vote of the CoC through e-voting which concluded on October 6, 2022.

It is a settled law that if a resolution plan is compliant with the provisions of the Code and the CIRP Regulations, it is the commercial wisdom of the requisite majority of the CoC (i.e. 66% by voting share) to accept a resolution plan.

The allegations by the Applicant that the Successful Resolution Plan is not in compliance with the provisions of the Code are entirely baseless and unsubstantiated and devoid of merit. The Successful Resolution Plan is in compliance with the Code and the CIRP Regulations and therefore it is the commercial wisdom of the CoC that should be accorded primacy and the Captioned Application shall be dismissed.

The liquidation value of the Corporate Debtor is not sufficient to pay the secured creditors who rank prior to dues of Employees under the waterfall mechanism in Section 53 of the Code. Therefore, the liquidation value to Employees would have been NIL. However, in respect of the admitted employee debt of INR 1,46,00,00,000, the clause 2.2(c)(i) of the Successful Resolution Plan provides for payment of IN 73,00,000 i.e., 50% of the admitted employees debt, which is higher than the amount mandatorily required to be paid under Section 30(2)(b) read with Section 53 of the Code.

The Applicant has further made false and baseless statement that the Successful Resolution Plan does not provide any statement as to gratuity dues that are already payable by the Corporate Debtor. It is submitted that the Clause 2.2(c)(i)(e) of the Successful Resolution Plan stipulates that the Gratuity amounts payable to the employees who leave the employment of the Corporate Debtor post the approval date will be paid by the Corporate Debtor in accordance with the provisions of Applicable laws [Clause 2.2(c)(iii)(e) of Part II on Pg. 22 of the Resolution Plan].

The Applicant has made similar false and frivolous allegations in respect of provident fund dues. It is submitted that the Clause 2.216(i)(d) of the Successful Resolution Plan provides that the payment towards outstanding contribution in relation to provident funds has to be made in priority to the Financial Creditors [Clause 2.2(c)(tt)(d) of Part I on Pg.22 of the Successful Resolution Plan].

The Resolution Applicant in the Successful Resolution Plan has provided separate treatment to secured and unsecured financial creditor, which is not contrary to the Code or the CIRP Regulations.

Reply by the Respondent No.04, i.e, Nishkala Healthcare Private Limited (SRA) in IA (IB) No. 1567/KB/2022

There is no requirement under the Code that all operational creditors be paid pro rata. As long as the provisions of the Code are met, the distribution in resolution plans is considered to be fair and equitable. It is also a settled principle that there is no requirement for proportionate distribution of claims of Operational creditors [Essar Steel (Supra)].

Further, the distributions under the Resolution Plan are based on security interests as well as the post resolution plan role of such creditors. There is no requirement that each group of stakeholders must be given a particular amount under the resolution plans.

Under the Section 53 the waterfall mechanism can be used as a guiding factor for determining the entitlements. It is pertinent to mention that operational creditors find no mention in Section 53 primarily because Section 53 distribution is meant for distribution of liquidation proceeds and not the distribution under resolution plans.

It is also pertinent to mention that in the present case, unsecured financial creditors are entitled to nil liquidation amounts. Therefore, such unsecured financial creditors cannot demand that they are entitled.

The resolution plan under consideration complies with all relevant requirements under the law as required under Section 30(2) of the Code.

The I.A. has been filed by Param Commercial Private Limited under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) against Mr. Ravi Sethia, the Resolution Professional of the Suasth Healthcare Foundation, Yes Bank Limited and Axis Bank Limited seeking the following reliefs:

a. An order directing the respondents to allow the applicant and its financial partner to conduct a site visit of the hospital to get a better perspective and provide an improved proposal to the respondents so that the Corporate Debtor can be pulled out of the CIRP;

b. An order directing the respondents to allow the Applicant to submit a revised and improved proposal which can be considered by the Respondents.

c. Ad-interim orders;

d. Such further or other order or orders be passed and/or direction or directions be given as this Hon’ble Tribunal may deem fit and proper.

Param Commercial Private Limited (“Param Commercial”)holds 48.99% of the shares in the Corporate Debtor. It is submitted that the Corporate Debtor is an MSME and hence, Param Commercial is eligible to submit a proposal under section 12A of the Code as well as submit a Resolution Plan with respect to the Corporate Debtor under section 240A of the Code. 14.2 The Resolution Plan submitted by Param Commercial on 05 July 2022 was rejected by the Committee of Creditors on 21 July 2022. Thereafter, Param Commercial submitted a proposal under section 12A of the Code for withdrawal of CIRP on 28 September 2022, the proposal for withdrawal of CIRP was rejected by the CoC. 14.3 It is submitted that aggrieved by response of the CoC, Param Commercial filed an Interlocutory Application registered as I.A. (IB) No. 1308/KB/2022 which is still pending adjudication. In the meantime, Param Commercial sent an email to the Resolution Professional on 28 December 2022, requesting for permission to visit the the hospital along with the financial partner of Param Commercial. Since no reply was received by Param Commercial, it sent another email on 03 January 2023 requesting for a site visit to be provided to Param Commercial along with its financial partner.

The learned Counsel submitted that a proposal under section 12A of the Code can be given at any stage of the proceeding including the liquidation stage. He placed reliance on the judgment passed by the Hon’ble NCALT in V. Navaneetha Krishnan v. Central Bank fo India, 2018 SCC OnLine NCLAT 904 and Satyanarayan Malu v. SBM Paper Mills Ltd., 2018 SCC OnLine NCLT 32358. 14.5 It is further submitted that Param Commercial is genuinely trying to resuscitate the Corporate Debtor and hence a site visit will be helpful in correcting the deficiencies which were existing in the earlier proposals submitted by it to the CoC. 14.6 The learned Counsel submitted that in view of the above circumstances, direction be given to the Resolution Professional to allow Param Commercial to visit the hospital along with its financial partner on a day and at a time convenient to the Resolution Professional and/or its representative so as to provide Param Commercialwith an opportunity to improve its proposal in the interest of maximization keeping in mind the intent and object of the Code. For the proposition that every opportunity ought to be afforded to an MSME to revive the Corporate Debtor under the provisions of section 240-A of the Code, the learned Counsel placed reliance on the celebrated decision of the Hon’ble Supreme Court in Swiss Ribbons Private Limited vs Union of India (2019) 4 SCC 17 [Pr. 111 to 115].

Submissions on behalf of Respondent No.01 (i.e., the Resolution Professional) in I.A. (IB) No. 187/KB/2023 15.1 The learned Senior Counsel submitted that the CIRP was initiated on 31 August 2021 and Form G was published on 03 January 2022, wherein the last date of submission of Expression of Interest (“EoI”) was 24 January 2022. The Final List of Prospective Resolution Applicants was issued on 18 February 2022 and the Resolution Professional issued the Request for Resolution Plan (“RFRP”) on 26 March 2022. The last date for submission of Resolution Plans was 15 May 2022.

It is submitted that Param Commercial sent a letter expressing its interest to submit it’s Resolution Plan on 28 May 2022. On 17 June 2022, the Resolution Professional replied to Param Commercial stating the last day of submission of EoI and that the CIRP was to be completed in a time bound manner.

On 05 July 2022, Param Commercial submitted its Resolution Plan. The Resolution Professional sent a letter to Param Commercial stating that it is not an eligible Prospective Resolution Applicant. Thereafter, Param Commercial submitted Financial Proposal on 28 September 2022. The said proposal was considered in the 12th CoC meeting held on 06 October 2022 and was rejected by the CoC. Another Financial Proposal was submitted on 05 December 2022 which was rejected on 06 December 2022. The CoC, after deliberating and discussing the proposals, unanimously rejected both the financial proposals submitted by the Param Commercial. This decision of the CoC has been communicated to the Param Commercial.

It is submitted that it is important to note that section 12A of the Code provides a discretionary right to the adjudicating authority to permit the withdrawal of an application for initiation of CIRP if the application for withdrawal is approved by the committee of creditors with a voting share of 90%. The learned Senior Counsel placed reliance in the case of Hem Singh Bharana v. M/s Pawan Doot Estate Private Limited [CA (AT) (Ins) No. 1481 of 2022] wherein the Hon’ble NCLAT while referring to the order of the Hon’ble Supreme Court in the case of Vallal Rick v. M/s Siva Industries and Holdings Limited and Ors. [CA Nos. 1811-1812 of 2022] has clearly held that “From the above judgment of the Hon’ble Supreme Court, we are unable to find any ratio that even if a Resolution Plan is approved by the CoC and the Application is pending consideration for approval, the Promoters are entitled to file Settlement Proposal.”

Thereafter, Param Commercial sent emails on 28 December 2022 and 03 January 2023, to the Resolution Professional requesting permission to visit the Hospital with it’s financial partner.

The Respondent No. 1, vide its e-mail dated January 06, 2023 has duly replied to the Applicant. In the said e-mail, it was highlighted that as per the provisions of the Code read with the applicable regulations and the RFRP, a site visit was provided to eligible prospective resolution applicants for a particular period of time stipulated under the RFRP. In the instant case, the Applicant is not an eligible resolution applicant and the period for site visit, as stipulated under the RFRP, has also expired. It was also highlighted that the financial proposal submitted by the Applicant has been rejected twice by the CoC and the application for approval of the resolution plan is pending before the Adjudicating Authority

Submissions of the Committee of Creditors (i.e., Respondent No.02 & Respondent No.03) in I.A. (IB) No. 187/KB/2023

The learned Counsel submitted that the dates and events have been mentioned by the learned Counsel appearing on behalf of the Resolution Professional. It is submitted that the CoC in its commercial wisdom has already considered and rejected the Original Proposal submitted under section 12A of the Code as well as the Revised Proposal submitted by Param Commercial.

It is submitted that the present I.A. has been filed by Param Commercial as a dilatory tactic devised to prejudice and cause delay in the CIRP of the Corporate Debtor and hence should be dismissed prima facie.

It is submitted that the Hon’ble Supreme Court in the case of Vallal RCKv. Siva Industries and Holdings Limited and Ors., AIR 2022 SC 2636 has inter alia held that the Adjudicating Authority or the Hon’ble NCLAT cannot sit in an appeal over the commercial wisdom of CoC in accepting or rejecting a withdrawal proposal as per section 12A of the Code. The interference would be warranted only when the Adjudicating Authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute.

It is submitted that a bare perusal of the reasons for rejection of the Original Proposal submitted under section 12A of the Code as well as the Revised Proposal as set out in emails dated 06 October, 2022 and 07 December 2022 respectively sent by YES Bank Limited to the Resolution Professional would undoubtedly prove that the decision of the CoC to reject each of the said proposals is based on sound commercial reasons and cannot be termed as capricious, arbitrary, irrational or de hors the provisions of the Code or the regulations thereunder. 16.5 The CoC has unanimously approved a resolution plan which proposes to pay the entire amount upfront upon approval of this Adjudicating Authority. The Resolution Professional has filed an I.A. for approval of the Resolution Plan before this Adjudicating Authority. 16.6 The learned Counsel has placed reliance on the judgment passed by the Hon’ble NCLAT in Hem Singh Bharana supra., paragraphs 15,16 and 22). 16.7 In the present case, given that the CoC has approved a resolution plan, any further consideration/ negotiation of a settlement proposal for withdrawal of proceedings as per section 12A of the Code would not be plausible or viable in light of the NCLAT judgment stated above.

Rejoinder by the Applicant to the Reply of Respondent No. 1 in I.A. (IB) No. 187/KB/2023

The learned Counsel submitted that the the Respondents have contended that a proposal made under Section 12A of The Code cannot be considered after approval of the Resolution Plan by the CoC and have relied on the decision of the Hon’ble NCLAT in Hem Singh Bharana v. M/s Pawan Doot Estate Private Limited [CA (AT) (Ins) No. 1481 of 2022]. 17.2 The learned Counsel submitted that reliance on such decision is wholly misplaced and inapplicable to the present fact situation in that the said decision was passed in a fact situation where the application for approval of the Resolution Plan was heard and subsequently reserved for orders by the Learned Adjudicating Authority, New Delhi. (Refer Pages 2 & 3 Pr. 2 (iv) of the decision) Admittedly, in the present case, arguments in support of approval of the Resolution Plan have not been concluded.

The said decision was passed in a fact situation where the prayer made in the application was for entertaining the proposal made by the promoters under section 12A of the Code by deferring consideration of the Resolution Plan by the Adjudicating Authority. This will be evident from the question framed by the Hon'ble NCLAT. The applicant reiterates that it is only interested in visiting the hospital and submit an acceptable proposal.

The case relied upon by the respondent has been pronounced/rendered by a two-member bench of the Hon'ble NCLAT whereas a three-member bench of the Hon'ble NCLAT vide a judgement dated 28.08.2019 in Shweta Vishwanath Shirke and Others v. Committee of Creditors and Another 2019 SCC OnLine NCLAT 1049 had held that it is always open to an applicant to withdraw an admitted application on the basis of which any CIRP has been initiated.

The instant matter is at a stage where the Resolution Plan has not been approved by the Adjudicating Authority. The distribution of resolution amounts to Hari Vitthal Mission ('HVM') is contrary to the provisions of the Code and the CIRP Regulations;

The payments being made to the Operational Creditors are at the sole discretion of the Resolution Applicant, which is contrary to the provisions of section 30 (2) of the Code; The payments envisaged under the Resolution Plan for payment of provident fund dues are non-compliant with the provisions of applicable laws; The Resolution Professional has failed to maximise the value of the Corporate Debtor

We have heard the learned Counsel appearing on behalf of Param Commercial, the learned Senior Counsel appearing on behalf of the Resolution Professional and the learned Counsel appearing on behalf of the CoC and perused the records.

The present I.A. has been filed by Param Commercials so that it can be given an opportunity to visit the hospital in order to place a better proposal under section 12A of the Code, which would be agreeable to the CoC.

The timeline with respect to the CIRP has been given by the Resolution Professional. The last date for submission of EoI was 24 January 2022 and the last date for submission of Resolution Plan was 15 May 2022, whereas Param Commercial submitted its request to submit it’s Resolution Plan on 28 May 2022 and filed it’s Resolution Plan on 05 July 2022, despite the fact that the Resolution Professional had rejected it’s request to file such plan. The Resolution Plan filed by Param Commercial was rejected by the CoC.

Thereafter, Param Commercial filed two proposals under section 12 A of the Code, which were also rejected by the CoC.

At this stage, the CoC have approved the Resolution Plan on 06 October 2022 and the Resolution Professional has filed an I.A. for approval of the same.

Param Commercial being the shareholder of the Corporate Debtor was aware of the CIRP and the timelines that were followed according to the Code, yet it did not follow the said timelines. It wasn’t cautious about the timeline and filed it’s Resolution Plan as well as the Proposals for withdrawal after the approval of the Resolution Plan by the CoC. The CoC has considered both the proposals and rejected the same. Going through email rejecting the proposals vide emails dated 06 October 2022 and 07 December 2022 (filed with the notes of submissions) it is seen that ample reasons have been given for rejecting the proposals under section 12A of the Code.

Be that as it may, this I.A. has been filed only to seek permission to visit the hospital in order to submit a better proposal. If the CoC were of the view that a better proposal could be given by Param Commercial, the same would have been submitted at the time of arguments or an opportunity would have been granted to Param Commercial to submit a better revised proposal, but it was not. At this stage, where the Resolution Plan is before us for the approval, and the proposal for withdrawal under section 12A of the Code have been rejected twice by the CoC using its commercial wisdom, we are of the view the prayers in this I.A. cannot be allowed. Param Commercial cannot be given an opportunity time and again which will also stall the CIRP of the Corporate Debtor.

Whether applicant Hari Vittal Mission has been rightly denied any share of Resolution Amount

It is a settled proposition that:

Ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but 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. [Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta (2020) 8 Supreme Court Cases 531].

In course of arguments, Ld. Sr. Counsel Mr. Ramji Srinivasan appearing for the RP in the matter would draw our attention to Paragraphs 77, 88, 128, 145 – 147 of the Essar Steel decision [(2020) 8 SCC 531 to contend that:

Ld. Counsel would place the following Paragraphs from the decision to support his contention that the applicant a related party financial creditor has been rightly provided “NIL” in the plan. The extracts would be the following:

Placing the above it was urged that this Tribunal cannot substitute its wisdom for the Committee of Creditors.

Ld. Sr. Counsel Mr. Joy Saha would strenuously urge that the analogy given in Para 72 of the Judgment militates against the arguments put forth by the Sr. Counsels for RP and SRA, the extract being herein under:

Law is fairly well-settled that this Adjudicating Authority cannot substitute its wisdom for the CoC. But at the same time, we may not lose sight of the content of Para 88 which provides:

We would note that the reference is misplaced. The claim of the present application is not that it should be paid the same amount that stands allocated in favour of the OC, but that at least a minimum that could have been provided to a dissenting FC (given the fact that the applicant once in CoC was ousted on the ground of “related party” to CD and was thus not allowed to vote). Later the RP has considered it as an unsecured Financial Creditor, we would further note that 30(2)(b) envisages that the resolution plan should provide for “payment of debts of financial creditors, who do not vote in favour of the resolution plan” and as in Explanation I the distribution that “shall be fair & equitable to such creditors”. In terms of the judgment in Essar Steel (Supra) a balance has to be struck of interest of all stakeholders, including related party financial creditor, or an unsecured financial creditor like the present applicant. There is nothing in the code that deprives them.

In a batch appeals starting with Dr.Periasamy Palani Gounder CA (AT) CH Ins 164/2021 in the matter of Dharani Finance Ltd. CA (AT) (CH) Ins. 176/2021, the RP had challenged the resolution plan, “On the ground that the Resolution Plan is violative of the IBC and Article 14 of the Constitution”; “and there has been a material irregularity in the exercise of the powers by the RP, and the Appellant who is also an Operational Creditor has not been provided for”. It was held as under:

The NCLAT considered the arguments that,

After due consideration various pronouncement of Apex Court and other Hon’ble Courts, the Hon’ble NCLAT held in the batch cases as follows:

It also observed that:

In the light of the above proposition, it would not be fair to suggest that only the left out operational creditors are eligible to agitate if their share is nil in the plan. The related party financial creditors who could have been in the CoC but have been deprived to vote, should not deserves NIL payment as a matter of course.

In M/s SP Enterprises vs. M/s Electrosteel Steels Limited &Ors. [Civil Appeal No. 1133 of 2019] Hon’ble Apex Court ordered as under:

Thus, it is explicit that in the extent this Tribunal finds that a balance is not struck of interest of all stakeholders the matter (here resolution plan) can be sent back to the CoC to take a call.

In Hammond Power Solutions Private Limited vs. Sanjit Kumar Nayak and Others [2020 SCC OnLine NCLAT 199], Hon'ble NCLAT noted,

(emphasis added)

What we infer from the foregoing discussions is that:

The IBC treats related parties as a separate category for specified purpose so that they are excluded from the CoC and are as such not able to impede and interfere with the resolution process. (Section 21) and are disqualified from being resolution Applicants [Section 29(A)].

However, there is nothing to show that Section 53 treats them as a different class and excludes them altogether from the ambit of its reach.

None of the provisions whether its Regulation 38(1-A) (supra) or the Section 30(2) of IBC specifically negates the claim of a related party financial creditor who is not allowed a place in the CoC and is hence not allowed to vote.

Admittedly, the RP has treated the applicant as an unsecured financial creditor, and in terms of the distribution of assets under Section 53, the financial debts of an unsecured creditor ranks at fourth place.

We are given to understand that the admitted claim of all the stakeholders is 628.30 crores. The amount proposed by SRA is 180 crores. While the commercial wisdom of CoC is paramount, we are of the opinion that a balance is required to be struck among all the stakeholders.

In the aforesaid backdrop, to ensure fairness qua all the stakeholders, we deem it appropriate to send the resolution plan back to the CoC to review the distribution so as to balance the interest of all stakeholders as required in section 30(2) – Explanation 1, and see that a provision can be made for payment to the applicant from the proceeds.

The CoC will be at liberty to consider any other proposal including that of resolution applicant in IA 187/KB/2023 on the basis of its viability, feasibility and merits. IA (IB) No. 1381/KB/2022 shall be put back on board for considering along with the revised distribution, if any.

Since IA (IB) No.1567/KB/2022 has been preferred seeking intervention in I.A. (IB) No. 1381/KB/2022, in terms of the order passed in I.A. (IB) No. 1563/KB/2022 and I.A. (IB) No. 1381/KB/2022, we feel that no separate order is required to be passed in this application.

This order will accordingly govern all the three I.A.s.

With the aforesaid directions all the IAs accordingly stand disposed of.

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