Kausar Textile Pvt Ltd vs Reward Real Estate Company Limited

This Application has been filed on 26.07.2024 by the Resolution Professional (“RP/Applicant”) under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (“Code”) on behalf of the Committee of Creditors (“CoC”) seeking approval of the Resolution Plan submitted by the Successful Resolution Applicant (“SRA”), Wellworth Finvest (India) Private Limited and approved by 100% of the voting share of the members of the CoC of the Corporate Debtor viz. Reward Real Estate Company Limited (“Corporate Debtor”).

The Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor was initiated vide an order dated 25.09.2023 of this Tribunal in C.P.(IB) 469 (MB)/2023 on an application filed by Kausar Textile Private Limited (“Financial Creditor”) under Section 7 of the Code.

Mr. Modilal Dhanraj Pamecha was appointed as Interim Resolution Professional (“IRP”). The IRP made a public announcement in the newspapers (in Mumbai) in Form-A on 09.12.2023 inviting the creditors to submit their claims on or before 21.12.2023. The IRP constituted the CoC based on the claims received by him on 27.01.2024 and the first meeting of the CoC was held on 06.01.2024, wherein the IRP was confirmed as the Resolution Professional.

The Applicant submits that till the date of filing of the present Application, a total of 5 (Five) CoC meetings have been held from time to time.

At the 1st CoC meeting held on 06.01.2024 , it was reported that the notice for initiating the CIRP was sent to various government authorities. Additionally, emails were sent to the suspended directors of the Corporate Debtor on 07.12.2023 and 01.01.2024 requesting documents and information regarding the company's operations.

Subsequently, upon verification of the claims, the CoC was reconstituted by the Applicant on 27.01.2024 with the following Unsecured Financial Creditors:

In the 2^nd CoC meeting held on 02.02.2024, the Applicant further discussed the invitation for Expression of Interest (“EOI”) in Form G, the Request of Resolution Plans (“RFRP”) and the Evaluation Matrix. Also 2 valuers (“Registered Valuers”) were appointed as Valuers for “Land & Building. The Fair Market Value of the Corporate Debtor was determined to be Rs. 37,97,00,000/- (Thirty-Seven Crore Ninety-Seven Lakhs Only). The Liquidation Value of the Corporate Debtor was determined to be Rs. 31,36,00,000/- (Rupees Thirty-One Crore Thirty-Six Lakhs Only).

In the 3^rd CoC meeting on 24.04.2024, the Applicant informed the members that, after the publication of Form G on 05.02.2024, 31 EOIs were received, and the details were tabled and recorded. Out of these, Wellworth Finvest (India) Private Limited met the conditions and deposited the Rs. 1 lakh Earnest Money Deposit, making them eligible as PRA. Accordingly, the Information Memorandum, Evaluation Matrix, and RFRP were sent to them on 21.03.2024. The Applicant also requested members to contribute towards CIRP costs, as the Financial Creditor had failed to deposit the Rs. 5 lakh fees as directed in the Admission Order.

Pursuant thereto, an Interlocutory Application bearing IA No. 2839 of 2024 was filed by the Applicant seeking extension in the CIRP period by 90 days with effect from 05.06.2024 on account of receipt of Resolution Plan which was under consideration by the CoC. The said Application was allowed and CIRP was extended by 90 days vide order dated 06.06.2024.

In the 5th CoC meeting on 02.08.2024, the members were updated on the claim under verification for Rs. 66,91,63,284 filed by Shapoorji Pallonji and Company Pvt. Ltd. The claim was still under verification due to missing documents and the fact that the matter was pending before the Arbitral Tribunal. Despite requesting additional information, the claimant failed to provide the necessary documents. The Applicant also informed the members about two belated claims, advising the claimants to file as per CIRP regulations and to provide reasons for the delay. The Applicant reiterated the request for CIRP cost contributions, including the Rs.5 Lakh deposit required from the Financial Creditor, as directed by this Tribunal.

Accordingly, upon conclusion of the voting lines and after garnering the requisite approval of 66% from the CoC, the Applicant had issued the Letter of Intent on 06.08.2024 to Wellworth Finvest (India) Private Limited declaring it as the Successful Resolution Applicant (“SRA”) on behalf of the CoC of the Corporate Debtor. Pertinently, the SRA also deposited Rs. 2,00,000/- (Rupees Two Lakhs only) as security deposit prescribed under the RFRP.

Overview of Resolution Applicant – The SRA is a company incorporated under the Companies Act, 1956 on 24.12.2012 with ROC, Mumbai with an authorized share capital of Rs. 5,00,00,000 and paid-up share capital of Rs. 2,05,20,000. The registered office of the SRA is at 25, Floor-2, Plot-59/61, Arsiwala Mansion, Nathalal Parikh Marg, Colaba, Mumbai -400005. It is a company engaged in the business of lending and advancing money and assets of all kinds or giving credit on any terms or mode and with or without security to any individual, firm, body corporate and interest in acquiring stressed assets in the real-estate sector. It is also interested in purchasing any movable or immovable property including industrial, commercial, residential or farm lands, plots, building, houses, apartments.

Corporate Debtor is a company incorporated on 20.01.2004. It is classified as non- govt company and is registered at Registrar of Companies, Mumbai. Its authorized share capital and paid-up capital is Rs. 30,00,00,000/-. It is involved in real estate activities.

After considering all the aspects, the RA has proposed total payment of Rs. 45,00,00,000 payable to Un-secured Financial Creditors including CIRP Cost as under:

The Resolution Professional has annexed Form H under Regulation 39(4) of the CIRP Regulations to certify that the Resolution Plan as approved by the CoC meets all the requirements of the Code and its Regulations. The relevant extracts, as otherwise stated elsewhere in the order, are as follows -

* If there are sub-categories in a category, please add rows for each sub-category. Amount provided over time under the Resolution Plan and includes estimated value of non-cash components It is not NPV.]

On perusal of the Resolution Plan, we find that the Resolution Plan provides for the following:

Payment of CIRP Cost as specified u/s 30(2)(a) of the Code.

Repayment of Debts of Operational Creditors as specified u/s 30(2)(b) of the Code.

For management of the affairs of the Corporate Debtor, after the approval of Resolution Plan, as specified U/s 30(2)(c) of the Code.

The implementation and supervision of Resolution Plan by the RP and the CoC as specified u/s 30(2)(d) of the Code.

The RP has complied with the requirement of the Code in terms of Section 30(2)(a) to 30(2)(f) and Regulations 38(1), 38(1)(a), 38(2)(a), 38(2)(b), 38(2)(c) & 38(3) of the Regulations.

The RP has filed Compliance Certificate in Form-H along with the Plan. On perusal the same is found to be in order. The Resolution Plan has been approved by the CoC by majority of 100%.

This Tribunal directed the Resolution Professional to obtain confirmation from SRA that the total value stated at para 42 is Rs. 45,48,50,000/- and not Rs. 45,48,00,000/-, and also sought following clarification from him:

a. the status of claims of the Operational Creditors stated to be under verification at page no. 257 of the present Application;

b. whether the charge stated to be in favour as Indian Overseas Bank at page no. 258 of the present Application has been satisfied prior to initiation of CIRP;

c. Whether any contingent liability on account of guarantees extended by the Corporate Debtor was disclosed in the Notes to Accounts of the Audited Financial Statements?

d. Whether any claim was made by the RP upon the debtor in relation guarantees invoked against the corporate debtor by the beneficiaries

The Resolution Professional appeared in person and was also represented by the counsel. The Resolution professional explained that the claim of Operational Creditor i.e Shapoorji Pallonji was kept under verification on want of information and such claimant has filed an application No.5858 of 2024 which is pending before this Tribunal for further direction. We note that this Tribunal has already passed an order dated 07.01.2025, allowing the said application, directing the Resolution Professional to admit the claim of the Applicant. The Successful Resolution Applicant has filed an affidavit dated 28.1.2025 stating that “the Revised Resolution Plan dated 29.7.2024 has kept a provision of contingency fund of Rs. 1 crore in case of unknown needs and claims. Since, the claim lodged by Shapoorji Pallonji has been kept under “conditional/contingent claim” subject to the outcome of the pending arbitration proceedings, the SRA undertakes to utilize the said contingency fund of Rs. 1 Crore to meet the requirements of claim lodged by Shapoorji Pallonji in accordance with the terms of the Resolution Plan as Operational Creditor in case Shapoorji Pallonji becomes successful arbitration proceedings.” It is further stated that vide email dated 17.01.2025, the Resolution Professional informed the SRA that pursuant to order dated 07.01.2025 passed in IA 5858/2024 as per the verification of documents and records maintained with the Corporate Debtor, the claim lodged y Shapoorji Pallonji to the extent of Rs.66,91,63,284/- has been admitted as “conditional/contingent claim”. It is pertinent to note that the claim has been defined in Section 3 (6) of the Code includes disputed right to payment as well. Accordingly, the claim of Shapoorji Pallonji must be admitted as claimed from Operational Creditor and dealt with in accordance with the proposals dealing with other Operational Creditors. Hence, we direct the payments to Shapoorji Pallonji be made out of the contingency fund in the same ratio as the other Operational Creditors are proposed to be paid in the plan and the balance, if any, shall continue in the contingency fund to be dealt with in accordance with the plan.

As regards to charge, there is no debt outstanding in the name of the bank in whose name charge over the properties of the Corporate Debtor is registered in the records of Registrar of Companies and as per his information, such loan has already been paid since the last financial statement. Further, it was clarified that the said charge was to be deleted in the records however, due to inadvertence it remained in existence.

It was further clarified that the debt arising out of invocation of Corporate guarantee extended by the Corporate Debtor to various creditors were admitted after due verification of the deed of guarantee and documents submitted by such creditors. It was also explained that the existence of such guarantees was confirmed from the erstwhile directors, however we find that none of such guarantee is acknowledged/disclosed as Contingent Liability in the audited financial statements of the Corporate Debtor. Further, the Resolution Professional could not furnish any explanation as to why counter claim was not filed in cases where the CIRP of Principal Debtor had commenced. We note that no person has objected to admission of claim of these financial creditors, accordingly, we do not consider it appropriate to look beyond the submission made by the Resolution Professional in this regard even though such Corporate Guarantees were not found acknowledged as contingent liabilities in the last available Financial Statements and such claims have been admitted merely on basis of documents produced by an interested party i.e. claimant. We consider it appropriate to request IBBI to look into this aspect and issue necessary advisory to the Insolvency Professional to deal with such scenarios. A copy of this order be sent to IBBI for their information.

In K Sashidhar v. Indian Overseas Bank & Others (in Civil Appeal No.10673/2018 decided on 05.02.2019) the Hon’ble Apex Court held that if the CoC had approved the Resolution Plan by requisite percent of voting share, then as per section 30(6) of the Code, it is imperative for the Resolution Professional to submit the same to the Adjudicating Authority (NCLT). On receipt of such a proposal, the Adjudicating Authority is required to satisfy itself that the Resolution Plan as approved by CoC meets the requirements specified in Section 30(2). The Hon’ble Apex Court further observed that the role of the NCLT is ‘no more and no less’. The Hon’ble Apex Court further held that the discretion of the Adjudicating Authority is circumscribed by Section 31 and is limited to scrutiny of the Resolution Plan “as approved” by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which the Adjudicating Authority can reject the Resolution Plan is in reference to matters specified in Section 30(2) when the Resolution Plan does not conform to the stated requirements.

In view of the discussions and the law thus settled, the instant Resolution Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38, 38 (1A) and 39 (4) of the Regulations. The Resolution Plan is not in contravention of any of the provisions of Section 29A of the Code and is in accordance with law. The same needs to be approved. Hence ordered.

The Resolution Plan along with the Addendum thereto annexed to the Application is hereby approved. It shall become effective from this date and shall form part of this order with the following directions:

Accordingly, IA No. 81/2024 is allowed.