IDBI Trusteeship Services Limited vs Ornate Spaces Private Limited

Per: Prabhat Kumar, Member (Technical)

This is an Application filed on 12.10.2021 under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘the Code’) by the Resolution Professional (RP) on behalf of the Committee of Creditors seeking approval of the Resolution Plan submitted by the Resolution Applicant, which is approved by 80.86% of the voting share of the members of the Committee of Creditors (hereinafter referred to as ‘CoC’) of the Debtor Company viz. Ornate Spaces Private Limited (hereinafter referred to as ‘Corporate Debtor’).

The facts leading to the Application are as under:

The Average Fair Value and Liquidation Value as per Regulation 35 determined are as under: 1. Average Fair Value is ₹56,34,86,200/-. 2. Average Liquidation Value is ₹42,93,26,450/-.

After filing of the IA-2374/2021 seeking approval of the Resolution Plan submitted by Ashdan which was approved by the CoC in its 16^th meeting, this Bench passed various orders on 02.05.2023 in pending applications challenging the approval of the resolution plan. After considering the impact of these orders, by the CoC and the Resolution Applicant (RA), the RA proposed an Addendum along with an Explanatory Note to the Addendum on 21.06.2023 (Annexure G @ pg. 70 of the Additional Affidavit of the R.P. in I.A. 2374 of 2021 dated July 4, 2023). In the 20^th meeting of the CoC, the Addendum was rejected and the stake-holders filed various application(s) challenging the approval of the Resolution Plan. However, in order to give effect to the directions of this Bench, the counsel for the Resolution Applicant orally submitted on 07.08.2023 that the Resolution Applicant is ready to bear the entire additional financial impact of ₹41.00Cr., subject to keeping open the probability of negotiations between secured financial creditors and Resolution Applicant.

The Resolution Applicant viz. Ashdan Properties Private Limited (APPL) is a company incorporated in Maharashtra on 24.01.2020, and is part of Solitaire Group. It is engaged in the business of Real Estate Developments.

The Resolution Applicant has confirmed that -

The Resolution Applicant proposes to take over the management and ownership control of the Company by acquiring 100% shareholding of the Corporate Debtor. The Resolution Applicant proposes a total consideration of ₹329.28 crores (Rupees Three Hundred Twenty-nine crore and Twenty-eight lakh only) to all the stakeholders to be paid within a period of Five (5) years from the effective date of this resolution plan.

The structure of the payment to the stakeholders is given hereunder:

###The Claim has been admitted on the basis of clause 4.1 of development agreement dated May 18, 2020, wherein it has been agreed that the developer shall handover 152 flats each consisting of 650 sq. ft. carpet area. The claim has been admitted subject to refund of Rs. 27,00,00,000 bank guarantee encashed/invoked by the society.

*Out of ₹329.17Cr. as provided in the plan, ₹27Cr. will be offered to SFC only if BG invocation amount is refunded by UTI Society.

As per the resolution plan, CIRP Costs at actuals will be paid out upfront and in cash within the timelines as detailed under the Code pursuant to the approval of this Resolution Plan by the Adjudicating Authority. The Resolution Applicant / Corporate Debtor shall be entitled to recover the amount paid towards CIRP cost from the SFC Outlay on priority.

The dissenting Financial Creditors (i.e. those Financial Creditors who voted against or abstained from voting for the Resolution Plan approved by the CoC), as per Section 30(2) of the Code, are being paid an amount not less than an amount to be paid to them in accordance with Sec 53(1) in the event of Liquidation of the Corporate Debtor.

Payments to the Operational Creditors (Including Statutory Dues) and to Workmen and Employees have been given in priority of payment over financial creditors in terms of Regulation 38(1) of the CIRP Regulations. The Operational Creditors will be paid an amount of ₹1,00,000/- within 30 days from the date of approval of the Resolution Plan as full and final settlement (Clause 1.5.2 of the Resolution Plan @ Vol. 2 @ pg. 358 and 1(a)(i) of Financial Proposal @ Vol. 2 @ pg. 396);

The Operational Creditors have been paid an amount which is not less than the amount to be paid to such creditors in the event of liquidation of the Corporate Debtor under section 53 or the amount payable to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53 of the Code, whichever is higher.

In order to successfully implement the Plan and meet the priority obligations (set out in Regulation 38(1) of Regulations) and upon all the assumptions being true and correct and all the fundamental conditions being met, the Resolution Applicant, shall allocate 22% of Revenues [“receivables from sale of unsold units (unsold units mean the units on which there are no claims / third party rights as on date) and balance amounts to be received from sold units (if any), excluding pass through charges as may be defined in the definitive documents to be executed between the Corporate Debtor with the Home Buyers / existing customers”] and the outstanding debt (if any) owed to the SFCs will be converted to Preference Shares (“Financial Instrument”) (“SFC Outlay”) which shall be subject to deductions towards meeting any obligations as stated in the assumptions and fundamental conditions, if any.

The shares held by the existing shareholders of the Company shall be extinguished. In the estimate of the Resolution Applicant, the Liquidation Value that would be payable to the shareholders, would also be NIL. Accordingly, the existing shareholders, whether equity or preference, shall not be paid any amount for the transfer, cancellation or reduction of their share capital and any claims in relation thereto shall stand extinguished without any payment or recourse.

The Resolution Applicant has submitted that once the payments set aside in the Resolution Plan have been paid in full in terms of the said Plan -

The Effective Date of the Resolution Plan shall be the date when the Resolution Plan is approved by this Tribunal.

The Resolution Plan is valid for a term of Five years till all the payments are made to all the stakeholders as per the terms and conditions of the Resolution Plan. The obligations of the Resolution Applicant to implement the Resolution Plan shall become effective only from the Effective Date.

The Resolution Plan shall become binding on the Corporate Debtor and its employees, members, creditors, guarantors, Central Government, any State Government(s), any local authority and other stakeholders involved in the Resolution Plan on the Effective Date.

The Resolution Applicant has sought various reliefs and concessions as set out in the Resolution Plan (Clause 9, 10 and 11 of the Resolution Plan @ Vol. 2 @ pg. 387 onwards) from this Adjudicating Authority for issuing directions to regulatory and governmental authorities, ROC, homebuyers, MHADA, BMC etc. The Resolution Applicant has also sought reliefs and approval from RERA and revenue and tax authorities as well as certain other miscellaneous reliefs and concessions.

The Applicant has submitted that the Resolution Plan, as submitted by Ashan Properties Private Limited, approved with 80.86% voting of the members of the Committee of Creditors, has been examined and the Resolution Plan:

a. provides for payment of Insolvency Resolution Process Costs in a manner specified by the board in priority to the payment of other debts of Corporate Debtor;

b. provides for payment of the debts of the Operational Creditors in such manner as specified by Regulation 38(1) of the IBBI (Insolvency Resolution Process for Corporate Persons Regulations) 2016;

c. provides for management of the affairs of the Corporate Debtor after the approval of the Resolution Plan; and

d. does not contravene any of the provisions of the law for the time being in force.

The Applicant/Resolution Professional further submits that -

Resolution Plan is not subject to any contingency and is filed before the expiry of the period of CIRP provided in Section 12 of the Code, as this Bench had granted an extension in the CIRP period vide its order dated 17.03.2023.

The Applicant has filed application along with Form ‘H’ prescribed under Regulation 39(4) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and has appended a tabular summary of Applicant's determination of compliance of the Resolution Plan with various provisions and regulations under the Code and CIRP Regulations.

Section of the Requirement with respect to Resolution Plan Clause of Comp Code /Regulation Resolution Plan liance No. (Yes / No)

We heard the Counsel and perused the material available on record.

After filing of present application seeking approval of the Resolution Plan u/s 31 of the Code, financial creditors falling under the class of “Home-Buyers”, who had voted against the plan as a class also, filed Interlocutory Application(s) seeking rejection of the plan, and these applications are being dismissed/partly allowed by us by order(s) passed in each of IA separately prior to date of this order. The principal objections to the Plan raised by various stakeholders were addressed by the Resolution Professional as well as Successful Resolution Applicant and are being summarized in the following paras for clarity.

The SRA has clarified vide addendum dated 21.06.2023 that the existing flat buyers shall be liable to pay towards cost of flats at MSP (Minimum Selling Price) as stipulated in Clause 18(a)(VII) r/w Clause 5(k) of the Financial Proposal contained in the Resolution Plan. The withdrawal of 5% discount in case of cancellation of flat is not inequitable as the Successful Resolution Applicant shall have to incur selling expenses for sale of such canceled flat and it was submitted that said discount is offered to the continuing homebuyers considering the estimated saving accruing to the SRA in such case. As regards inequitable treatment qua secured financial creditors and amongst class itself on issue of interest, this Bench had already mandated 8% interest from the date of payment of each instalment of principal amount, and deduction of this interest component from the amount payable towards the cost of flat, thereby removing inequity qua secured financial creditors and amongst class itself on issue of interest. It was also clarified that the reduction in the money to be received by the Secured Financial Creditor proposed in addendum dated 21.06.2023 shall not be pressed, however, the SRA shall reserve the right to persuade the Secured Financial Creditor to absorb the additional financial impact arising from the orders in Interlocutory Application passed by this Bench. It was also pleaded by the Objectors that the addendum dated 21.6.2023 was rejected by CoC as it could not muster requisite vote, accordingly, the original Plan cannot be approved as it does not take into consideration the effect of the order passed by this Bench in various IAs. It was clarified by the SRA that the averments in the said addendum shall be binding on it and the Resolution Plan shall be implemented after incorporating modifications, except reduction in the money payable to the Secured Financial Creditors as proposed therein, in the CoC approved Plan.

Sai Samruddhi UTI Employees welfare Society (Society) also filed numerous Interlocutory Applications challenging the plan, and these applications are being dismissed us by order(s) passed in each of IA separately prior to date of this order.

As regards utilization of maximum permissible FSI in Clause 4.4 of the Resolution Plan, we find that, vide clause 4 of the Development Agreement dated 18.05.2010, “The Society hereby grants development rights to the Developer in respect of the said Property more particularly described in the Second Schedule hereunder written, to construct thereof at the Developer’s own entire costs and consequences by utilizing maximum FSI not exceeding 4 in any case, one or more new multi-storied buildings comprising of wing/s as may be permissible and as the Developer may deem fit for the consideration and on the terms and conditions as contained hereinafter”. Accordingly, there cannot be any dispute in so far as utilization of FSI up to 4 is concerned. As regards utilization of FSI beyond 4, in case it is available, it was clarified by the SRA that the FSI over and above 4 shall be available only after payment of additional charges to the appropriate authority, and in case the SRA proceeds to avail that, such availment shall be in concurrence with the Society.

As regards issue of plan seeking refund of ₹27,00,00,000/-, being amount of Bank Guarantee paid to the Society upon invocation of Bank Guarantee on account of failure of Corporate Debtor to fulfil its obligations under the Agreement with them, we find that the said money was to be utilized towards construction of the flats for the members of the Society, which has not been utilized by the Society so far towards its intended purpose. The clause 19 of the Development Agreement dated 18.05.2010 reads as “ It is further agreed that in the event of the Bank Guarantee being enforced by the Society the amount shall be utilized for completion of the Society’s area as per the sanctioned Plans and the Society shall maintain the regular account in respect thereof. Upon completion of the construction of Society’s area, an account shall be submitted by the Society to the Developer to refund and excesses and or to claim any deficit amount. In the event of the Bank Guarantee being enforced, the development rights to the Developer through this agreement would be stayed till the Society completes its area and gets the Occupation Certificate and the Developer to co-operate in this.” Accordingly the Society can not lay its hands on such money, more so, when the Plan contemplates delivery of constructed flats to the members. Accordingly, the stipulation in the Resolution Plan, in so far as it seek refund of Rs. 27,00,00,000/- from the Society is not violative of any provision.

As regards other issues, we find that in terms of Clause 4.2 of Development Agreement, the developed area over and above the Owners/Society area was made available as the “free sale area” or “the Developer area” which shall include residential premises, commercial premises, shops and parking and the Developer was given right to deal with that area subject to fulfillment of its obligation and will be dealt with by the Developer subject to the Clause 3 of the agreement. Further Clause 36 of the agreement permits the Developer to raise finances by creating charges etc. on the free sale component i.e. on the Developer constructed area as the Developer may deem fit. Further, Clause 14 of Tripartite Agreement dated 15.03.2010 entered between the Corporate Debtor, the Society and MHADA also permits the Developer/Society to create mortgage in respect of the saleable component by obtaining NOC from MHADA. Accordingly, we do not find any substance in the objection of the Society.

It is clarified that the objections of the Society/Objectors have been dealt with separately also vide order passed in each of their IAs, and this Order is passed after taking into consideration our findings in those orders also.

The Resolution Plan, filed vide IA-2374/2021 by RP, submitted by Ashdan Properties Private Limited is hereby approved. It shall become effective from this date and shall form part of this order. It shall be binding on the Corporate Debtor, its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is due, guarantors and other stakeholders involved in the Resolution Plan.

The Memorandum of Association (MoA) and Articles of Association (AoA) shall accordingly be amended and filed with the Registrar of Companies (RoC), concerned for information and record. The Resolution Applicant, for effective implementation of the Plan, shall obtain all necessary approvals, under any law for the time being in force, within such period as may be prescribed.

The moratorium under Section 14 of the Code shall cease to have effect from this date.

The Applicant and the Monitoring Committee shall supervise the implementation of the Resolution Plan and the Applicant shall file status of its implementation before this Authority from time to time, preferably every quarter.

The Resolution Applicant (RA) shall obtain necessary permission/approvals from the competent authorities. The renewable/extension shall be considered by the respective authorities in accordance and upon compliance with the procedure/formalities stipulated by the authorities.

The approval of the Resolution Plan shall not be construed as waiver of any statutory obligations of the Corporate Debtor and shall be dealt by the appropriate Authorities in accordance with law. Any waiver sought in the Resolution Plan, shall be subject to approval by the Authorities concerned. Further, any application for renewal or extension or restoration of any license or approval or connection from any authority shall be subject to payment of prescribed fee and/or deposit(s) and adherence to the procedure stipulated by such authority, however such authority shall not refuse/deny approval/extension/restoration merely on ground of previous defaults/non-compliance of the Corporate Debtor.

In terms of the judgement of Hon’ble Supreme Court in the matter of Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, “on the date of approval of the 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.”

In view of the above judgement, the applicant is entitled to waivers/ concessions/reliefs as expressly provided under the Code and under any other law for the time being in force.

The Applicant shall forward all records relating to the conduct of the CIRP and the Resolution Plan to the IBBI along with copy of this Order for information.

The Applicant shall forthwith send a copy of this Order to the CoC and the Resolution Applicant for necessary compliance.

With the above directions, the Resolution Plan of the Applicant is hereby approved. Accordingly, IA-2374/2021 is allowed and disposed of.