Indiabulls Real Estate Company Pvt. Ltd. vs Crest Steel And Power Pvt. Ltd.

Per: Satya Ranjan Prasad, Member (Technical)

This Application MA No.125/2020 in CP (IB) No.1664/MB/2017 (in the matter of Crest Steel & Power Limited, has been filed by Mr. Kshitiz Chhawchharia, Resolution Professional of Crest Steel & Power Pvt. Ltd., (referred to as 'Corporate Applicant/Corporate Debtor''), under section 30(6) read with section 31(1) of the Insolvency & Bankruptcy Code (IBC), seeking approval by this Adjudicating Authority for the Resolution Plan submitted by a consortium of Nithia Capital Resources LLP and Mr. Jai Saraf, for resolution of the corporate applicant.

The Corporate Debtor is a Company, incorporated on 25.05.2004, with the Registrar of Companies, Chhattisgarh. The Corporate Debtor had entered into a Leave & Licence Agreement dated 14.11.2013, with the Operational Creditor, to take certain premises on lease. Thereafter, the Corporate Debtor sent a Notice for termination of the aforesaid lease on 30.11.2016. However, since the Corporate Debtor sought to terminate the aforesaid Agreement within the lock-in period, it was claimed by the Operational Creditor that the Corporate Debtor was liable to tender license fees for the unexpired period. In light of the aforesaid, the Operational Creditor filed an Application under Section 9 of the said Code, read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, on 28.11.2017, bearing Company Petition no. CP(IB) No. 1664/MB/2017. The aforesaid Petition was admitted by the National Company Law Tribunal, Mumbai Bench vide order dated 11.03.2019. Mr. Ashish Singh [IBBI Reg. No. IBBI/IPA-002/IP-N00416/2017-18/11230] was appointed as the IRP.

Although, the Interim Resolution Professional was appointed vide Order dated 11.03.2019 by NCLT, Mumbai Bench, the said order was received only on 22.04.2019 and accordingly there was a delay in initiating the CIRP process owing to the aforesaid reason, under the IRP. This being the case, the RP subsequently earlier moved an application, before the NCLT, Cuttack, inter alia, seeking the insolvency commencement date to be declared as 22.04.2019. Subsequently, vide Order dated 13.08.2019 it was held that the CIRP commencement date ("CIRP Commencement Date") shall be on and from 22.04.2019. The first COC meeting was convened on 22.05.2019, wherein the COC resolved to appoint the Applicant as the Resolution Professional, thereby replacing the earlier IRP.

Thereafter, an application was preferred by SBI, the lead lender for appointment of the present Applicant as the RP and this Tribunal by its order dated 09.07.2019, which was communicated to the Applicant on 17.07.2019, replaced the IRP and appointed the Applicant as the Resolution Professional of the Corporate Debtor.

In light of the aforesaid Order dated 22.04.2019, the CIRP commenced on 22.04.2019 and accordingly the period of 180 days from the aforesaid date was due to expire on 10.09.2019. However, the Resolution Professional preferred an Application bearing IA No. 95/CTB/2019 for extension of the CIRP period by 90 days under the provision of Section 12(2) of the Code. The aforesaid Application was allowed vide Order dated 05.09.2019, and thereafter the CIRP period was then scheduled to conclude on 17.01.2020. Subsequently, the Resolution Professional preferred an application bearing CA (IB) No. 77/CTB/2019 for exclusion of 57 days from the CIRP period. Considering the grounds mentioned in the aforesaid Application, the same was allowed vide Order dated 16.01.2020, and resultantly the CIRP period was scheduled to conclude on 14.03.2020.

Thereafter, the Resolution Professional preferred another Application bearing IA No. 65/CTB/2020 for exclusion of 21 days from the CIRP period. The aforesaid Application was allowed vide Order dated 12.03.2020, and resultantly the CIRP period was scheduled to conclude on 04.04.2020.

Subsequently, a public announcement in respect of initiation of the CIRP and calling for submission of claims under Section 15 of the said Code was made by the IRP on 22.04.2019 by:

Copies of the public announcements were made available on the website of the Insolvency and Bankruptcy Board of India and published in the newspapers as mentioned above and on the website of the Corporate Debtor.

The IRP constituted a Committee of Creditors ("CoC") of the Corporate Debtor pursuant to Section 21 of the said Code and pursuant to Section 29 of the Code read with Regulation 36(2) of the CIRP Regulations, an Information Memorandum (hereinafter referred to as "IM") was prepared by the Resolution Professional (hereinafter referred to as the "RP") in such form and manner containing such relevant information as specified under the CIRP Regulations for formulating a Resolution Plan.

The RP has stated that as on date of filing of the IA, the verified and admitted financial debt of Corporate Debtor stood at ₹3118.73 crore (para 1.1(i) of Part B at page 18 of the Resolution Plan).

M/s Kakode & Associates with their partners i.e., Mr. Anil Pai Kakode (Plant & Machinery), Mr. Sunil Apte (Land & Building) and Mr. Vishnu Upadhyay (Financial Assets) were appointed as the registered valuers qua the Corporate Debtor.

The CoC appointed M/s RBSA Advisors as Process Advisor for evaluating the resolution plans.

Initially the RP received the following six resolution plans, which were discussed at the tenth meeting of the CoC that was convened on 10.12.2019:

Subsequently, by the seventeenth meeting of the CoC, which was convened on 04.03.2020, the RP informed that the SRAs had submitted their revised Resolution Plans incorporating their final bids as made on 24.02.2020 on 03.03.2020. Then officials of M/s RBSA Advisors presented their evaluation of the bids of each of the SRA, therein ranking Nithia Capital Resources Advisors LLP and Mr. Jai Saraf as the best resolution plan based on the evaluation matrix approved by the CoC, followed by Sunil Kumar Agarwal LLP and lastly, Orissa Metaliks Ltd.

The RP, along with his advisors, evaluated Nithia's plan. He also obtained written clarifications on several aspects. The matter was also discussed at various meetings of the CoC held on 07.01.20120, 22.01.2020, 06.02.2020, 24.02.2020, 04.03.2020 and 12.03.2020. After concluding that Nithia's Resolution Plan conformed to the law, the RP presented the plan to the CoC for consideration and approval.

Based on the discussions at the CoC meeting of 25.03.2019, the RA submitted a revised plan on 23.03.2020, which was found to be compliant with the IBC. The Resolution Applicants state that they do not suffer from the ineligibilities set out in section 29A of the IBC.

The CoC at its 20th meeting held on 24.03.2020 approved Nithia's Resolution Plan by a majority of 96.34%, which is more than the statutory minimum of 66%. The CoC also authorized the RP to file necessary application under section 30(6) of the IBC for approval of this Adjudicating Authority under section 31(1) of the IBC.

The RP has also submitted a detailed checklist showing compliance with the various provisions of the IBC and the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

For the purposes of the Resolution Plan, the resolution applicants are:

The Resolution Applicants have proposed to implement this Resolution Plan (or any part hereof) through a special purpose vehicle ("SPV") (which is in compliance with Section 29A of the IBC) incorporated for this purpose by the Resolution Applicants.

Pursuant to the Resolution Plan, an SPV will be incorporated in which the Resolution Applicants will initially either directly (or indirectly through intermediate holding company(ies)) hold 100% of the equity of the SPV (with an option to divest up to 49% of the equity at any time prior to or on or after the Closing Date). It is clarified that any change in the shareholding of the Company within a period of 1 (one) year from the Closing Date will require the approval of the lenders who are continuing with the Company as lenders, by majority of 66% by value.

The Resolution Applicants state that there is fundamental value in the Company, which through financial and operational restructuring can create value for all Stakeholders. The Business of the Company suffered from amongst other things, economic downturn and the financial stress prevalent in the iron and steel industry and over-leveraging and the Resolution Applicants intend to optimize the capital structure to address the basic cause of financial distress.

The Resolution Applicants will use a combination of volume increase, productivity improvements, cost efficiencies; process improvements and automation; alignment of management and workers' interest to the performance of the Company. Improvement in volume and productivity of the Company will be done through completion of incomplete projects and new capital expenditure programmes (through internal accruals of the Company or equity infusion).

The Resolution Applicants propose to appoint senior personnel with a long track record of procurement in the steel industry, for the procurement of raw materials and key materials. Procurement function will be carried out on an arms-length basis and all contracts with related and affiliated parties will be terminated and/or brought under arm's length.

The Resolution Applicants also propose to appoint senior personnel with an extensive experience in marketing and selling of these products which will be backed by the production planning team. Production planning team will assist the operations team on the target production levels on a weekly, fortnightly, monthly and quarterly basis. The Resolution Applicants will also appoint production planning and quality control team to assist the marketing head on maintaining quality and timely delivery of products.

The Company will sell its products in the market through all channels viz., directly to steel manufacturers and stockists, however, the Resolution Applicants are going to dispense with all the current arrangements of selling products through existing Promoter related affiliates or Promoter connected parties.

The Resolution Applicants will try to achieve the best realizations on the products. However, in the business plan, selling prices of finished products in the projected financials have been considered based on historical trends which are sustainable on long-term keeping in perspective of all steel cycles.

Currently, there are no operations as the plant is shutdown. Prior to such shutdown also, the operations were suffering due to lack of sufficient working capital which was a constraint to achieve optimum capacity utilizations and economies of scale. The plant is said to have some inventory balance in the form of raw material, work-in-progress, finished products and stores and spares. As per the Resolution Plan, it has been sought to maintain that level of inventory till the Resolution Applicants take over the operations of the Corporate Debtor. The Resolution Applicants propose an amount of ₹20 Crore out of the Fund Infusion to meet the working capital requirement of the Corporate Debtor.

During initial period of operations, the Resolution Applicants propose to sell products on spot basis, which will help in building up sufficient raw material balance in the plant. Going forward, the Resolution Applicants will gradually increase credit to customers and balance the requirement of working capital in the plants. The Resolution Applicants endeavor to build up optimum level of working capital in the company to achieve the maximum utilization of capacities.

Furthermore, the Resolution Applicants are proposing to incur the following capital expenditure:

The Resolution Plans provide for the interests of all Stakeholders (ref: Section 1.2 (Financial Proposal) of Part B (Financial Proposal) and Section 2 (Treatment of Stakeholders) of Part B (Financial Proposal) of the Resolution Plan).

The Resolution Plan provides for amounts (in Rs./ crore) to various classes of stakeholders as follows: -

The Resolution Applicants propose to make a total payment of an amount not exceeding ₹316,00,00,000 (Rupees Three Hundred and Sixteen Crore Only) ("Upfront Payments") for resolution of the Corporate Debtor / Corporate Applicant in terms of the provisions of the IBC.

Furthermore, it is proposed that the Upfront Payments shall be utilized for the full and final satisfaction and discharge of all Claims and debt against the Corporate Debtor of all the Stakeholders (including the Financial Creditors, Dissenting Financial Creditors, Operational Creditors (including Workmen and Employees and Government and Statutory Authorities), Other Creditors or any other Person to whom any amount is due be paid pursuant to this Resolution Plan, if any, excluding the CIRP Cost). The manner of distribution of the Upfront Payments shall be as follows:

It is submitted by the Resolution Applicants that the manner of distribution of the Upfront Payments shall be ultimately as determined by the COC, in accordance with Applicable Law. Upon approval of this Resolution Plan by the Adjudicating Authority in accordance with the Code, such manner of distribution will be binding on all the Stakeholders of the Corporate Debtor.

The Excess CIRP Costs will be paid in full and in priority to any other Creditor of the Corporate Debtor. Based on the information available in the Virtual Data Room, the Resolution Applicants understands that the estimated CIRP Cost for the period till March 3, 2020 is approximately ₹22 Crore (Rupees Twenty-Two Crore Only). The Resolution Applicants do not anticipate the CIRP Costs to exceed ₹25 Crore (Rupees Twenty-Five Crore Only) till the Effective Date. Any CIRP Costs will be paid out of the internal accruals of the Corporate Debtor on the Closing Date. In case the cash flows of the Corporate Debtor on or before the Closing Date are not sufficient to meet the entire CIRP Cost, then such Excess CIRP Cost upto ₹25 Crore shall be paid by the Resolution Applicants. In case the CIRP Cost is above ₹25 Crore, the same shall be proportionately deducted from the Upfront Payment to FCs.

The Resolution Applicants proposes to split / demerge the Corporate Debtor into 2 (two) separate and distinct legal entities pursuant to a scheme of demerger ("Demerger"). The Demerger will, inter alia, has been stated to be beneficial as it will allow the businesses and activities of the Demerged Company and the Resulting Company to be carried on more economically, conveniently and advantageously following the Demerger and the same will have beneficial results for the Demerged Company and the Resulting Company, their Stakeholders and all concerned.

The Company shall undertake a capital reduction, whereby all the equity shares and preference shares of the Company held by any Person on a fully diluted basis shall stand cancelled and extinguished, without any pay-out, or cash consideration to the Financial Creditors, Operational Creditors, Employees and Workmen, statutory creditors, Other Creditors, other third parties, the existing shareholders and any other Person, under the provisions of the Companies Act, 2013 ("Capital Reduction"). The face value of the equity shares so cancelled shall be transferred to the capital reserve of the Company.

The Corporate Debtor would not involve either a diminution of liability in respect of unpaid share capital, if any, or payment to any shareholder of any unpaid share capital. The Corporate Debtor is undergoing CIRP; therefore, the existing value of the share capital of the Corporate Debtor is NIL.

The Capital Reduction of the Corporate Debtor shall be effected as an integral part of this Resolution Plan by the NCLT order without any further act, deed or instrument. Implementation of the Resolution Plan in terms of the NCLT order shall be deemed to be due compliance of all provisions of Applicable Law in this regard (including Section 66 of the Companies Act, 2013). However, all applicable forms shall be filed with the appropriate authorities along with prescribed filing fee.

Further, the Corporate Debtor would not involve either a diminution of liability in respect of unpaid share capital, if any, or payment to any shareholder of any unpaid share capital. The Corporate Debtor is undergoing CIRP; therefore, the existing value of the share capital of the Corporate Debtor is NIL.

Simultaneous with the step above, the SPV along with the Incoming Shareholders (who shall be compliant with Section 29A of the IBC) shall together subscribe to equity shares of the Company for such amount as may be determined by the Resolution Applicants in their sole and absolute discretion.

Pursuant to the same, the SPV along with the Incoming Shareholders shall hold 100% (one hundred per cent) of the share capital of the Corporate Debtor and acquire control of the Corporate Debtor.

After the Demerger as set out hereinbelow, the SPV along with the Incoming Shareholders shall hold 95% of the share capital of the Demerged Company and the Financial Creditors who vote in favour of the Resolution Plan shall hold 5% of the share capital of the Demerged Company in the manner specified in Section 1.2.1 (Summary Proposal) of Part B (Financial Proposal) of the Resolution Plan. It is clarified in the Plan that that the Demerged Company shall hold 100% of the Resulting Company.

Further, on and from the Closing Date, all existing directors of the Company shall be deemed to have resigned and vacated their office, and the board of directors of the Company shall be re-constituted by the Resolution Applicants in accordance with Applicable Law (including the applicable requirements of appointing independent directors)

During the period between the Effective Date and the Closing Date, a monitoring committee shall be constituted (“Monitoring Agency”) which shall comprise of (i) 2 (Two) representatives of the Financial Creditors; ii) 2 (Two) representatives of the Resolution Applicants; (iii) Insolvency Professional (iv) 1 (One) external expert nominated by the Resolution Applicants and the Approving Financial Creditors. All decisions of the Monitoring Agency shall be taken by way of majority decision, which majority shall comprise of at least one representative of the Resolution Applicants.

The Resolution Applicants shall (prior to the Effective Date) agree on the fees, costs and expenses which may be incurred by the Monitoring Agency in discharging its duties as set out above and for continuing the Business of the Company and legal fees that may be incurred by them from the Effective Date till the Closing Date (the “Monitoring Agency Costs”). The Monitoring Agency Costs shall be funded on a monthly basis from the cash flows of the Corporate Debtor. In the event such cash flows are insufficient, any Excess Monitoring Agency Costs shall be borne by the Resolution Applicants.

The Monitoring Agency shall supervise the implementation of the Resolution Plan. The Resolution Applicants, acting under the supervision of the Monitoring Agency shall be required and entitled to do all such acts, deeds, matters and things as may be necessary, desirable or expedient in order to implement and give effect to this Resolution Plan in accordance with its terms. The powers of the board of directors of the Company shall remain suspended until the Closing Date and shall be exercised by the Monitoring Agency.

It is clarified that other than the Upfront Payments (to be paid in accordance with this Resolution Plan), the Company and/or the Resolution Applicants shall not make any payments (including interest) to the Financial Creditors, Operational Creditors, Workmen and Employees, and/ or the Other Creditors until the Closing Date.

The Monitoring Agency shall stand dissolved and shall be divested of its powers and responsibilities without any further action or deed required from the Company, the Resolution Applicants, the Monitoring Agency, the Adjudicating Authority or any other person.

Acquisition of Control on the Closing Date, the Resolution Applicants shall acquire control over the Company through the SPV in the manner set out in Section 3 (Acquisition as a Going Concern) of Part B (Financial Proposal).

The board of directors of the Company (reconstituted in accordance with Section 2.1 (Formation of Board and Credentials of Board Members) of Part A (Business Plan) of the Resolution Plan) shall put in place an adequate mechanism for supervising the implementation of the Resolution Plan (to the extent outstanding) post the Closing Date. For this purpose, a committee of the reconstituted board of directors of the Company will be constituted, for supervising the implementation of the Resolution Plan (to the extent outstanding) post the Closing Date.

We have perused the present Application and the Resolution Plan. We have also heard at length Mr Joy Saha, learned Senior Counsel for the RP.

The IAs have been filed under section 30(6) of the IBC seeking approval of this Adjudicating Authority under section 31(1) of the IBC. Section 31(1) ibid mandates that the Adjudicating Authority shall by order approve the resolution plan if it is satisfied that such resolution plan as approved by the CoC under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30.

The Tribunal's observations are as follows: -

The Resolution Plan is presented as per the requirements of section 30(2) of the IBC. The following table captures the position:

We have examined the relevant clauses of the Resolution Plan and find the same to be in conformity with the law. Further, the Resolution Plan has provisions for its effective implementation.

The RA has sought certain reliefs, concessions and dispensations in the Resolution Plans. These are ordered as follows: -

In re: Resolution plan of CREST STEEL AND POWER PVT. LTD

The final list of admitted claims from creditors has been submitted and marked as Annexure H.

True copy of the duly accepted and acknowledged Letter of Intent and the Performance Security shared by the Successful Resolution Applicant are annexed as Annexure Q.

The RP declared that Resolution Plan met all the Statutory requirements as required in IBC 2016 and the applicable Rules framed by IBBI. RP also reported that the Plan was evaluated, examined and vetted by himself and was placed before the CoC for its consideration along with his report. A compliance certificate in Form H issued by the Resolution Professional has been submitted and marked as Annexure R.

On perusal of the documents on record, we are satisfied that the Resolution Plan is in accordance with sections 30 and 31 of the IBC and also complies with regulations 38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. No circumstances exist that militate against grant of approval for the Resolution Plan.

The Resolution Plan placed on record in respect of the corporate applicant, is hereby approved. The same shall be binding on the respective corporate applicant, its members, creditors, guarantors, employees and other stakeholders, as also the Resolution Applicants.

As far as the question of granting time to comply with the statutory obligations or seeking sanctions from governmental authorities is concerned, the Resolution Applicant is directed to do the same within one year as prescribed under section 31(4) of the Code.

Therefore, subject to the observations made in this Order, we hereby accord our approval to the Resolution Plan. The approved Resolution Plan shall form part of this Order.

The order of moratorium which has come into effect from 22.04.2019 by virtue of the orders of admission passed on that date by the Adjudicating Authority under section L4 of the IBC shall cease to have effect from the date of passing of this Order.

In ^case of ^{non-compliance} of this ^order, the CoC shall forfeit *re EMD amount aheady paid by the Resolution Applicant, in addition to any other action ^as may ^{be required} to ^{be taken under} the law. The ^Successful Resolution Applicant shall also not be entitled to withdraw from ^the appr ^ov ed ^Res olution Plan.

^{The Resolution Professional shall forward all records relating to the conduct} of the CIRP and the Resolution Plans to the IBBI as mandated by the Insolvency & Bankruptcy Board of India (Insolvency Resolution ^Process for Corporate Persons) Regulati ons, 20L6.

The RP shall ^{stand discharged} from his ^duties with ^effect from the ^date of this Order. He shall, however, perform his duties in terms of the Resolution Plan as approvedby this Adjudicating Authority.

The Resolution Applicant shall ^{have access} to all the Corporate Debtor's records, documents, ^assets and premises with effect from the date of this Order, to finalize the further line of action required for starting the business operations of the Corporate Debtor.

Liberty ^{is hereby} grantedfor moving applications, ifrequired, in connection with implementation of this Resolution Plan.

A ^{copy of} this ^{Order be sent by the Registry} to ^{the Registrar} of ^Companies, Raipur, chhattisgarh, inter alia for updating the status of the corporate Debtor.

The Application being MA No,125/crB/2020 ^along with the ^main Company Petition in TP No.205lCTB/2019 [earlier, CP (IB) No.1664/ MB / 20L71 are disposed of accordingly.

The Registry is ^directed to ^send e-mail ^copies of the order forthwith to ^al1 the parties and their Ld. Counsel for information and for taking necessary steps. The parties shall l:Je a copy of this order with the Registrar of Companies, Chhattisgarh, Raipur.

^{Certified Copy of this order may be issued, if applied for, upon compliance} of all requisite formalities.

^{Ordered accordingly.} File ^{be consigned to the record.}