K Shaji & Ors. vs Anish Agarwal & Ors.

[Per: Justice Sharad Kumar Sharma, Member (Judicial)]

The Appellants, who are 24 in number, have invoked the provisions contained under Section 32, read with Section 61 of the I & B Code, 2016, by preferring the instant company appeal and agitating their grievances, being aggrieved by the impugned order dated 02.05.2024, that was passed by the Ld. NCLT Kochi Bench while considering IA(IBC)(PLAN)/01/KOB/2024, as preferred in CP(IB)/48/KOB/2022. The resultant effect of the impugned order was that the Resolution Plan, as submitted by Respondent No. 3 to the company appeal, was approved in the terms and conditions as referred to in the impugned order.

Before venturing on the factual and intricate matrix of the instant company appeal, a few facts which would be relevant to refer to herein at this moment are not in dispute, and rather have emerged during the course of argument, that out of the total 24 Appellants herein, almost 9 Appellants whose names appear at Serial Nos. 1, 2, 3, 8, 12, 13, 14, 15, and 16, had already unconditionally accepted the benefits as determined to be paid to them and other similar workmen in relation to their service dues pertaining to provident fund, gratuity, etc., without raising any objection to the quantification and the remittance of the amount to them. In that eventuality, insofar as the aforesaid nine Appellants are concerned, the issue emanating from the impugned order which has been subject to challenge at their behest may not be of much relevance and would stand closed qua those Appellants; but still, since the remaining Appellants contest the proceedings emanating from the impugned order dated 02.05.2024, we have to adjudicate upon the issue on its own merits.

Up to the stage of approval of the Resolution Plan by the impugned order dated 02.05.2024, all the proceedings that were carried out prior to it, since not being in controversy and not being a subject matter of challenge in any of the earlier proceedings, require only a brief reference for the purpose of placing basic facts on record and for better elucidation of the controversy which this Appellate Tribunal is required to deal with in the instant company appeal.

The facts which could be summarised are set out in the following manner; hence they are dealt with chronologically to provide brevity to the judgment, instead of making an elaborate discussion of factual aspects which may not be of much relevance at this stage of the appellate proceedings.

One aspect relevant to remark at this stage is that when claims were invited, the claims furnished by the Appellants were rejected in September 2023 by the Liquidator. The Appellants did not prefer any proceedings under Section 42 of the I & B Code, 2016, until approval of the Resolution Plan by the 9th CoC meeting on 11.12.2023, because even after rejection of the Appellants’ claims in September 2023, it took about nine months for the CoC to approve the Resolution Plan.

Hence, one question raised by the Respondents is whether, when the claims submitted by the Appellants were rejected by communication from the Liquidator in September 2023 and the Appellants thereby waived their right to prefer an appeal under Section 42, the Appellants could still challenge the approval of the Resolution Plan granted to Respondent No. 3 when the rejection of their claims itself was not challenged.

The Appellants’ contention is that they were employees of the Corporate Debtor since 11.11.1991 and that each Appellant had submitted a claim in Form E for benefits under various service heads (Provident Fund, Pension, Gratuity, etc.), contending that such amounts are assets of the employees and fall within the definition of debt to be distributed in full and should not have been included in the liquidation estate but distributed as per Section 53 read with Section 36(4)(a)(iii) of the I & B Code, 2016.

Ultimately, after hearing proceedings on IA(IBC)(PLAN)/01/KOB/2024 in CP(IBC)/48/KOB/2022 (filed under Section 30(6) of the I & B Code, 2016) seeking approval of the Resolution Plan for the Corporate Debtor, the Resolution Professional’s application was approved, resulting in approval of the Resolution Plan by the impugned order now challenged in the instant company appeal.

After hearing the Ld. Counsel for the parties, and particularly in the context of the grounds agitated by the Appellants to challenge the impugned order of 02.05.2024 granting approval to the Resolution Plan in favour of Respondent No. 3 (Chhattisgarh Outsourcing Private Limited, hereinafter called the SRA),

The Appellants submitted that the order approving the plan dated 02.05.2024 suffered from apparent legal and procedural vices: it was purportedly approved without reviewing the covenants of the plan and without considering the benefits to all stakeholders including workmen and employees in relation to gratuity, provident fund and interest thereon. They submitted that their total claim of Rs. 1060.50 Lakhs was admitted by the Resolution Professional at Rs. 534.72 Lakhs, and the amount proposed under the plan was further reduced to Rs. 446 Lakhs. As the Appellants admittedly did not challenge the RP’s partial admission/rejection of their claims under Section 42, the partial admission by the RP and denial of the balance could not be the basis of their present challenge.

The Appellants further contended that approval of the Resolution Plan itself was defective because it did not consider statutory claims and working capital reserves necessary for revival under the plan. They also alleged the approval was maliciously oriented and that the Successful Resolution Applicant intended to sell the Corporate Debtor’s assets, being engaged in real estate.

Further, the Appellants submitted that the approval proceedings suffered from vices due to lack of a monitoring committee to supervise implementation of the Resolution Plan. Reliance was placed on the principles in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (Writ Petition (Civil) No. 99 of 2018) and it was argued that debts in the shape of service benefits owed to employees had not been provided for in the Resolution Plan as required by the IBBI and by the Hon’ble Apex Court.

Lastly, they submitted there was apparent non-compliance with Section 30(2)(d) & (e) of the I & B Code, 2016, which would vitiate the entire approval proceedings under the impugned order.

In brief, and having regard to the following undisputed facts:

The Appellants contended that the proceedings were vitiated because they did not satisfy the statutory requirements for consideration of claims under Section 30, particularly as regards claims submitted by the Appellants under Regulation 19 of the IBBI (Liquidation Process) Regulations, 2016.

We are of the view that the parameters prescribed for raising claims under Regulation 19 (IBBI Liquidation Process Regulations) require any person claiming as a workman/employee to submit proof in Form E (Schedule II) as per Regulation 19(2), and an authorised representative may file proof for numerous workmen in Form F (Schedule II). Sub-Regulation 19(3) requires establishment of proof for existence of dues as per Schedule II. These requirements had to be satisfied for the Appellants’ claims to be considered by the Liquidator.

We have meticulously examined the records and the Tribunal’s findings. On the conjoint reading of Section 30 of the I & B Code, 2016 with Regulation 19 of the IBBI (Liquidation Process) Regulations, 2016, we find no case established by the Appellants that they made efforts to prove the substance of their claims by furnishing the proof of existence of dues as required by Regulation 19(1) read with 19(3) and Schedule II. There is nothing on record by way of the proof of claim required under Regulation 19 to substantiate their claims. Consequently, determination of the claims in the plan, as per the impugned order, cannot be faulted as cryptic; nor can the approval be questioned on the grounds advanced by the Appellants when they did not substantiate their claims under Regulation 19 read with Schedule II.

Giving a holistic approach to the controversy, particularly in light of the issues raised by the Appellants about consideration and quantification of their claims in the Resolution Plan, the statute requires consolidation and verification of claims under Section 38 and verification under Section 39. The Liquidator, after considering rival contentions and documents produced in accordance with Regulation 19(2 & 3), partially rejected the Appellants’ claim by order in September 2023, which was not challenged by the Appellants. Such partial rejection and non-challenge amounts to satisfactory consideration of the Appellants’ claims based on the documents accepted by them.

It is at that stage before the Liquidator or under Section 42 when the total claimed amount was not accepted in full and there was a partial rejection, that consideration of evidence would be presumed to have occurred. If not, the Appellants could have questioned the Liquidator’s determination under Section 40 after communication under Section 40(2) and appealed under Section 42; the Appellants did not do so. A reasonable corollary is that the limited/partial admission of claim by the Liquidator (reflected in the 11th CoC meeting on 11.12.2023) and later affirmed by approval of the Resolution Plan by the Ld. Adjudicating Authority in the impugned order dated 02.05.2024, cannot now be challenged as a procedural flaw under Chapter III. Acceptance of the procedure of partial admission is an acceptance of the Liquidator’s procedure.

Thus, the Appellants’ contention that they were not heard prior to approval of the plan by the 9th CoC meeting is estopped at this belated stage from challenging the determination of claims in the Resolution Plan affirmed by the impugned order. There is no specific law requiring workmen to be heard in the CoC meeting. The Appellants’ contention as to non-compliance of Section 30(2)(c) and (f) of the I & B Code, 2016, is of no avail at this stage, given the subsequent process and the fact that determination by the CoC (and later confirmation in the 9th CoC meeting on 11.12.2023) reflects commercial wisdom which cannot be re-examined de novo now that the CoC and the Ld. Tribunal (by the impugned order) have approved and affirmed the plan.

Having heard learned counsel and appreciated their arguments in the context of the findings recorded by the Ld. Tribunal in the impugned order, we find that approval of the Resolution Plan by the 9th CoC meeting on 11.12.2023 with 100% voting necessarily included approval of the amounts claimed by Operational Creditors (workers and employees), including EPFO and gratuity, admitted at Rs. 534.72 Lakhs and ultimately provided under the plan at Rs. 446 Lakhs. The relevant extract of admission of Operational Creditors’ claims under the plan is given hereunder: -

According to the findings recorded, it was observed that CIRP costs remaining unpaid after utilisation of available cash, which were payable under the Resolution Plan, were disbursed and adjusted from amounts proposed for settlement of Secured Financial Creditors. The amount payable to the Secured Financial Creditor was reduced to the extent of such adjustments in order to meet mandatory payments required under Section 53 read with Section 36(4)(a)(iii) of the I & B Code, 2016, i.e., sums payable towards workmen and employees from the Provident Fund, Pension Fund and Gratuity Fund, in order to meet the total resolution amount and its payability under Section 53.

The Ld. Tribunal, while considering the compliance certificate in Form H for affirmation of the Resolution Plan, dealt with the various payment covenants and the satisfaction required for remittance of dues under Regulation 38(1) and 38(1A) of the IBBI Regulations, 2016, which pertain to priority payment to Operational Creditors over Financial Creditors, and recorded specific findings in that regard.

The Ld. Tribunal rightly observed that, given the documentation before it, the compliance certificate in Form H and the Bank Guarantee under Regulation 36B(4A) portray justified acceptance of the Resolution Plan by the CoC. Eligibility formalities (including certificate under Section 29A) did not cast doubt on Respondent No. 3’s eligibility, nor was eligibility challenged by the Appellants in their challenge to the impugned order.

The Ld. Tribunal concluded that insofar as the Successful Resolution Applicant sought reliefs/waivers in relation to dues of government departments and authorities, the Tribunal could not grant such waivers and left it open to Respondent No. 3 to pursue appropriate legal processes for those waivers.

Based on the foregoing analysis, the Ld. Tribunal noted that Respondent No. 3 was to subscribe and provide the payment schedule totalling Rs. 2962 Lakhs, with priority to EPFO, Gratuity Fund and other government dues payable to workmen/employees classified as Operational Creditors. The impugned order records that Operational Creditors were given priority. The following observation is extracted: -

The Ld. Tribunal, after elaborate analysis, concluded that where the CoC approves a plan by a higher percentage of voting, it is imperative for the RP to submit it to the Ld. Adjudicating Authority for approval. This follows the ratio in K. Sashidhar v. Indian Overseas Bank & Ors. (Civil Appeal No. 10673 of 2018). Judicial review of plan approval is very limited, especially where CoC approval is by 100% voting; commercial wisdom of the CoC is not tested afresh by the Court.

Applying the aforesaid authorities, and the principles in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors., we are of the view that the impugned order approving the plan does not suffer from apparent error or vice warranting interference by this Appellate Tribunal. Further, Respondents do not dispute applicability of the Apex Court’s ratio on settlement of Provident Fund and Gratuity (see Civil Appeal No. 407/2023 in Jet Aircraft Maintenance Engineers Welfare Association), which was considered.

The Respondents, by reference to para 3(c) of the reply affidavit, contend that the plan itself provides for payment of statutory dues as required by law and under the Resolution Plan’s conditions governing payment to workmen and employees.

Having considered the findings in the impugned order, Respondent No. 3 has accepted liability and entitlement of the Appellants for Provident Fund and Gratuity as per statute and the plan. It is not in controversy that the entire EPF amount claimed of Rs. 91,60,270/- (as per the Apex Court’s pronouncement) has already been paid in full.

The only controversy remaining relates to payment of the Gratuity Fund and Earned Leave. The Appellants contend that books show a balance of Rs. 1,53,51,332/- payable towards Gratuity and Earned Leave (apart from Provident Fund). The plan observed this amount and the Parties’ counsel have suggested the actual amount may be approximately Rs. 1.86 Crores. They stated they would accept adjustment since the amount has been or will be adjusted from cash recovery of Secured Financial Creditors. Thus, the Appellants are not deprived of settlement of their admitted Gratuity claims, which have been accounted for in the CIRP and plan and will be paid in accordance with principles in Jet Aircraft Maintenance Engineers Welfare Association v. Ashish Chhawchharia.

We note that after affirmation of the plan by the impugned order, the appropriate recourse for enforcing payment under the plan is by invoking Section 423(3) of the Companies Act; the Appellants have not resorted to that remedy.

The Respondents, including the Successful Resolution Applicant, have admitted they will disburse the amounts settled under the approved Resolution Plan and, if there is any marginal increase, they agree to pay the same and the RP will disburse to the Appellants.

For the foregoing reasons, judicial interference with the adjudication of the Ld. Tribunal in approving a plan approved by 100% CoC voting is not warranted. Moreover, since Respondents accept any marginal differences in gratuity payable (subject to final determination by the RP), there is no ground for interference.

This judgment will apply only to the remaining Appellants who have not already received amounts under the plan without objection. Whatever entitlement is payable to the remaining Appellants will be paid in accordance with the Resolution Plan excerpts given above.

Payment will be ensured in accordance with the terms and conditions referred to in paras 31, 33, 43 of the Resolution Plan, regarding entitlement to Gratuity Fund and Earned Leave provisions, subject to satisfying any increase in amounts as per para 43 of the Resolution Plan, and such excess payments are to be adjusted from cash recovery from the Secured Financial Creditor.

Owing to the above exceptions, the instant appeal doesn't call for any interference, hence, this company appeal would stand dismissed with an assurance that the Resolution Professional will ensure to remit the amount in accordance with the terms of the Resolution Plan as extracted and referred to in the concluding part of this judgment. This ‘company appeal’ is accordingly ‘dismissed’.