M/s GSV Products vs Laxmi Pipes Limited

The present Application has been filed on 02.09.2024 by Ms. Deepika Bhugra Prasad, Resolution Professional (hereinafter referred to as the “RP”) under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “Code” or “IBC”), seeking approval of the Resolution Plan of Mr. Anuj Goyal (hereinafter referred to as the “Successful Resolution Applicant” or “SRA”), in respect of Laxmi Pipes Limited (hereinafter referred to as the “Corporate Debtor”) which has been approved with 99.26% voting share of the Committee of Creditors (hereinafter referred to as the “COC”) in the 17th Meeting dated 28.05.2024.

The averments made by the Applicant/Resolution Professional in the present application and as presented by the Ld. Counsel are summarized as under:-

We have heard the Learned Counsel for the RP and have carefully pursued all the pleadings placed on the records. It is noted that the CoC approved the Resolution Plan of Mr. Anuj Goyal by 99.26% votes and as such it is not necessary for us to go into details of the commercial wisdom of CoC. We proceed to examine the plan in light of provisions contained in sections 30(2) and 31 of the Code r.w. Regulation 38 of the IBBI (CIRP of the Corporate Debtor) Regulations, 2016. The Resolution Professional has placed on record the compliance certificate in Form-H. It shows that the fair value of the assets of the Corporate Debtor is Rs.31,39,07,381/- whereas, the liquidation value of the corporate debtor is Rs.23,39,70,208/-. The Resolution Plan value as proposed by the successful Resolution Applicant is of Rs.30,42,66,847/-.

In order to obtain the approval of the Adjudicating Authority, the Resolution Plan should adhere to the following requirements as per section 30(2) of the Code and Regulation 38 of the CIRP Regulations thereunder:-

Such other requirements of the Resolution Plan as detailed in IBBI (Resolution Process for Corporate Person) Regulations, 2016 which are not covered above, are as under:

a. The Resolution Plan should include a statement as to how it has dealt with the interest of all stakeholders including financial creditors and operational creditors of the corporate debtor. [CIRP Regulation 38 (1A)]

b. The Resolution Plan should include a statement giving details as to whether the Resolution Applicant or any of its related parties has at any time failed to implement or caused the failure of implementation of any other Resolution Plan which was approved by the Adjudicating Authority. [CIRP Regulation 38 (1B)]

c. The Resolution Plan should contain the term of the plan and its implementation schedule. [CIRP Regulation 38(2)(a)]

d. The Resolution Plan should also demonstrate that it addresses the cause of default; is feasible and viable; has provisions for its effective implementation; has provisions for approval required and timeline for the same. Further, that the resolution applicant has the capability to implement the Resolution Plan. [CIRP Regulation 38(3)]

During the course of the hearing, the Resolution Professional was required to place on record the amount payable towards EPFO dues. As per the details provided, the EPFO dues, amounts to Rs.14,52,924/-, and the SBI (the Member of the CoC having 99.26% vote) has undertaken to pay the said amount in full immediately upon crystallization and confirmation of such dues. In the context, an Affidavit has also been filed by the SBI having undertaken to pay the said amount. It has also been submitted therein that the approved Resolution Plan provides for a payment of Rs.30 Crore to SBI together with reimbursement of Rs.25 Lakh towards the CIRP cost, the liability of which was by and large borne by the Bank. It is stated that the amount payable to SBI under the Resolution Plan is more than adequate to ensure settlement of EPFO dues. In confirmation thereof, the RP has also filed an Affidavit, which is taken on record.

In view of the provisions of the Code as summarized hereinabove in Para 4, the Resolution Plan is examined as follows:-

The workmen dues for 24 months and gratuity is proposed to be paid in full. Further, as against the total admitted dues of Operational Creditor (other than workmen, gratuity and PF dues) at Rs.7,90,84,619/-, the Resolution Plan provides for payment of an amount of Rs.2 Lakh only which is 0.25% of their admitted claim. As provided under Section 30(2)(b) of the Code, the repayment of debts of an Operational Creditor should not be less than amount to be paid to such Creditor under Section 53 of the Code or the amount that would have been paid to such Creditor if the amount is distributed under the Resolution Plan had been distributed in accordance with Section 53(1) of the Code.

In the present case, the liquidation value of the Corporate Debtor is Rs.23.39 Crore, whereas the Resolution Plan value is Rs.30.42 Crore against the total admitted claim of Rs.62.27 Crore including a debt of Rs.53.72 Crore admitted in favour of the Secured Financial Creditor (SBI) alone. Even if this Liquidation Value or the plan value were to be distributed strictly in accordance with the priority set out under Section 53 of the Code, the entire amount would be fully absorbed by the higher-priority stakeholders, particularly the Secured Financial Creditors, leaving no residual amount for the Operational Creditors. Despite this, the Resolution Plan provides for payment to the Operational Creditors (other than workmen dues, PF and gratuity), though the amount is quite nominal at Rs.2 Lakh, which is 0.25% of their admitted claim.

Thus, as regards the payment of the dissenting creditor or the Operational Creditor, the Resolution Plan is complaint of the provisions of Section 30(2)(b) read with Regulations 38(1)(a) and 38(1)(b) of the CIRP Regulations.

The table below also gives the shareholding the Corporate Debtor:-

The plant of the Corporate Debtor is a closed unit. The plant has been shut down since March, 2023. The Corporate Debtor has two assets left on the date of initiation of the CIRP which is land and building and plant and machinery.

The Resolution Plan provides for reconstitution of the Board on its approval by the Adjudicating Authority. It also provides that from the NCLT approval date till the Board reconstitution date, management of the Company will be supervised by the Monitoring Committee comprising of 1 (one) Representative of Secured Financial Creditors and 02 (Two) Representative of the Resolution Applicant and 01 (one) Resolution/Insolvency Professional (who shall be its Chairman); and from the date of the Reconstitution of the Board, the management of the Company would be in the hands of the Board of Directors. Thus, we find that adequate provisions have been made for the management of the affairs of the Corporate Debtor after approval of the Resolution Plan and as such, the provisions of Section 30(2)(c) of the Code r/w CIRP Regulation 38(2)(b) of the CIRP Regulations has been complied with.

a. The Resolution Plan adequately deals with the interest of all stakeholders, including Financial Creditors and Operational Creditors of the Corporate Debtor. Thereby, the plan is in compliance with CIRP Regulation 38(1A) of the CIRP Regulations.

b. It is submitted that neither the Resolution Applicant nor any of its related parties have at any time failed to implement or contributed to the failure of implementation of any other Resolution Plan which was approved by the Adjudicating Authority. Thereby, the plan is in compliance with CIRP Regulation 38(1B) of the CIRP Regulations.

It is to be noted that the Resolution Applicant is having experience in Manufacturing of Power & Distribution of Transformers and Trading of Iron & Steel/ Ferrous and Non-ferrous metals. He is also running NBFC namely Mudraksh Investfin Pvt Ltd. and regularly participating in various bank auctioned properties through SARFAESI/ DRT /NCLT /High court etc. for the past 15 years and having vast experience for dealing arbitration matters. The Resolution Plan stated that the amount of Rs. 100 lacs will be inducted as equity and Balance amount as quasi equity/ loan to Corporate Debtor by Resolution Applicant or its Associates/ nominee/ SPV or consortium or joint ventures or any of appropriate structure as may be decided by Resolution Applicant. Proposed shareholding pattern after the allotment of Equity share capital is:-

Funds will be inducted from their own resources. The Resolution Applicant(s) has sufficient net worth and current assets to source the funding of this Resolution Plan.

The Relief and Concessions are sought by the Resolution Applicant in Schedule VIII of the Resolution Plan. The Resolution Applicant is seeking certain reliefs and concessions which are in the nature of prayer and not a condition precedent for the implementation of the Resolution Plan. The relief and concession as sought by the SRA are dealt with here as under:-

 To exempt/grant relief to the company from the provisions of section 41(1), 79, 115 JB of the Income tax act including but not limited to losses on account of impairment of fixed assets, Inventories and/or any other loss due to restructuring.

 No income tax will be attracted/payable on account of capital gain arising out of the transfer of shares/Assets as envisaged in this Resolution Plan to Resolution Applicant, if any;

 To the extent permitted under Income Tax Act and permitted under IBC to allow the company to carry forward its unabsorbed business losses/Capital Loss related to period up to effective date (even if there is delay in filing the return) beyond statutory time limit of 8 assessment years under Section 72 of IT Act 1961 and set off in subsequent years; in as much as in calculation of the period of limitation of 8 years under section 72(3) of Income Tax Act for carry forward of losses, the years during which the net worth remained negative, be excluded. Further Company/ Resolution Applicant allow to file the Income Tax return which yet to be file related to year prior to effective date and losses computed under the said return also to be allowed to carry forward.

Any right of subrogation, reimbursement, recompense, under any corporate guarantee, letters of comfort or similar instruments of debt or any obligation provided by any promoter, affiliate or Related Party of the Company shall stand extinguished and become null and void as of the Tribunal’s Approval Date.

As regards to the unpaid liabilities after the approval of the plan and the claims not filed at all with the RP during the CIRP, the law has been well settled by the Hon’ble Supreme Court in the case of Ghanshyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited and Ors. Reported in MANU/SC/0273/2021 in the following words:

In view of the above, all unpaid liabilities and those which are not included in the said resolution plan would stand extinguished.

After the corporate debtor is taken over by the new management, no inquiry, investigation, litigation etc. will be made against it in relation to the period prior to the CIRP.

As regards allowing carry forward losses, it is to be noted that following the process of the CIRP and on extinguishment of the unpaid liabilities, the financial accounts are to be recasted by providing a suitable accounting entries whereby, the extinguished liabilities together with the extinguished share capital of the previous management would get converted into the Capital/General Reserve and as such the accumulated losses, if any, will have to be first of all set off against such a Reserve. For balance amount, if any, the SRA can approach the Income Tax Authorities.

As regards other reliefs and concessions sought by the resolution applicant, we direct the said successful resolution applicant to approach the concerned statutory authorities for those concessions and those authorities will consider the same as per the provisions of law under the relevant Acts keeping in view the intent and object of the IBC.

The relief which is not specifically provided should not be treated as being allowed. Even if no reliefs or concessions are granted by the authorities concerned then also SRA is bound to implement the resolution plan effectively without taking shelter of refusal by authorities concerned by non-implementation of the plan.

The proviso to sub-section (1) of Section 31 of the Code, 2016 states that before passing any Order for approval of the Resolution Plan, the Adjudicating Authority should also satisfy that the Resolution Plan has provisions for its effective implementation. In view of the discussions and findings as made hereinabove, we are satisfied that Resolution Plan in question meets the requirements as referred to in Sub-Section (2) of Section 30 of the IBC and the Resolution Plan also contains the provisions for its effective implementation, and in the result, we hereby approve the Resolution Plan submitted by Mr. Anuj Goyal for the Corporate Debtor and proceed to pass the following Order:

As a result, the Application bearing IA(IBC)(PLAN)13/2024 stands allowed.