M/s. Gupta Ji Electric Company vs M/s. Straight Edge Contracts Private Limited

I. Background of the Resolution Applicant

II. Summary of claims vis-à-vis provisions of the Resolution Plan

III. Term of Resolution Plan

IV. Concessions, Waivers and Exemption

"The Resolution Applicant requests the NCLT for the reliefs and concessions set out below for the successful implementation of the Resolution Plan. By approving this Resolution Plan, the NCLT shall approve the waivers, reliefs and concessions, as listed below:

i.

From the Effective Date, all inquiries, investigations and legal and quasi-legal proceedings/ prosecution, whether civil or criminal, suits, claims, disputes, proceedings in connection with Straight Edge Contracts Private Limited or affairs of Straight Edge Contracts Private Limited (including those initiated by Governmental Authorities), pending or threatened present or future in relation to any period prior to the Effective Date, or arising on account of implementation of this Resolution Plan shall stand withdrawn and dismissed and all liabilities and obligations therefore, whether or not set out in the balance sheets of Straight Edge Contracts Private Limited or the profit and loss account statements of Straight Edge Contracts Private Limited will be deemed to have been written off fully, and permanently extinguished and no adverse orders passed in the said matters should apply to Straight Edge Contracts Private Limited or the Resolution Applicant. Upon approval of this Resolution Plan, all new inquiries, investigations, notices, suits, claims, disputes, litigations, arbitrations or other judicial, regulatory or administrative proceedings will be deemed to be barred and will not be initiated or admitted against Straight Edge Contracts Private Limited and its new management in relation to any period prior to the Effective Date.

ii.

Upon approval of the Resolution Plan by the NCLT, all non-compliances, dues, breaches and defaults of Straight Edge Contracts Private Limited for the period prior to the Effective Date (including but not limited to those relating to tar), shall be deemed to be waived by the concerned Central Govt./ all State Governments / Semi-Govt. Authorities, including but not limited to ROC, Pollution board, Income Tax, TDS, GST, VAT Sales Tax, Environment Clearance, Electricity Board Authority, Sub-Registrar, etc. However, the Resolution Applicant shall make all necessary efforts to get the approvals/ legal compliances, renewed as per the prescribed norms under the applicable laws

iii.

Immunity shall be deemed to have been granted to Straight Edge Contracts Private Limited/Resolution Applicant and its directors and employees from all proceedings / prosecutions and penalties under all Applicable Laws for any noncompliance for the period prior to the Effective Date and no interest/penal implications and/or prosecution shall arise due to such non-compliance /default breach prior to the Effective Date. This includes, without limitation, waiver/extinguishment of penalties / interests on account of staggered payment of statutory liabilities of the workmen/ employees of Straight Edge Contracts Private Limited in accordance with the terms of this Resolution Plan.

iv.

This further includes Waiver/extinguishment of any tax, duty and legal liability pertaining for the period prior to the Effective Date under any state laws or central laws such as any future kind of existing and/or litigation/assessment/scrutiny/contingency.

v.

Waiver of any income-tax and Minimum Alternate Tax (MAT), liability or consequences (including interest, fine, penalty, etc), if any on CROSS, Resolution Applicant and its shareholders, upto approval of Resolution Plan, including but not limited to liabilities if any under Section 41 (1), Section 56, Section 43, Section 43 B, Section 28, Section 115JB and Section 79 of the Income-tax Act, 1961, without any impact on brought forward tax and book loss / depreciation, pursuant to this Resolution Plan.

vi.

Any requirement to obtain waivers from any Tax Authorities including in terms of section 79 of the IT Act shall be granted upon approval of this Resolution Plan on the Effective Date.

vii.

Any approvals that may be required from Central Government/ any State Government semi government / local Authorities (including tax authorities) in connection with the implementation of the Resolution Plan including on account of change in ownership / control of CROSS shall be deemed to have been granted on the Effective Date.

viii.

The Governmental Authorities, Electricity Board of Straight Edge Contracts Private Limited, Delhi, Electricity department of Straight Edge Contracts Private Limited and Delhi will provide the electricity connection/reconnection after the acquisition of Straight Edge Contracts Private Limited by the Resolution Applicant without payment of any dues related to the period up to the Effective Date to them by Straight Edge Contracts Private Limited.

ix.

Any authority, power of attorney, rights given by Straight Edge Contracts Private Limited to any person/representative up to the effective date shall become infructuous and void.

x.

Directions to be given that liberty be reserved to the Corporate Debtor, Resolution Applicant and to all other persons interested in the Resolution Plan to apply to the NCLT for any direction(s) that may be necessary for the purpose of carrying out the Resolution Plan.

xi.

This Resolution Plan once approved by the CoC and then the Hon'ble Adjudicating Authority / NCLT. along with such conditions as may be stipulated by the Hon'ble Adjudicating Authority shall be binding on the all claimants Creditors, members, promoter and all other parties in interest and each of their respective successors and assigns in accordance with Sections 31(1) and 238 of IBC. The Resolution plan should be read in its entirety and any modification by the COC/NCLT/NCLAT would be binding on the Resolution Applicant/ Straight Edge Contracts Private Limited, subject to specific concurrence of Resolution Applicant w.r.t such modification."

V. Supervision, Monitoring and Implementation of the Resolution Plan

Immediately upon Effective date, Monitoring Committee shall be constituted and RP shall convene meeting of the Monitoring Committee within 7 days of receipt of the order of the Hon'ble Adjudicating Authority approving this Resolution Plan. The Monitoring Committee shall be comprised of following members:-

(i)

Existing Resolution Professional as Chairman. (ii) One Authorised Representative on behalf of the Resolution Applicant. Resolution Applicant may also choose to nominate an Insolvency Professional registered with IBBI as its representative. (iii)One Representative to be nominated by the financial creditors of the Corporate Debtor.

"(2)

The resolution professional shall examine each Resolution Plan received by him to confirm that each Resolution Plan –

(a)

provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;

(b)

provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-

(i)

the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or

(ii)

the amount that would have been paid 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, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the Resolution Plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.

Explanation 1. — For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.

Explanation 2. — For the purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor-

(i)

where a Resolution Plan has not been approved or rejected by the Adjudicating Authority;

(ii)

where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or

(iii)

where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a Resolution Plan;]

(c)

provides for the management of the affairs of the Corporate debtor after approval of the Resolution Plan;

(d)

The implementation and supervision of the Resolution Plan;

(e)

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

(f)

conforms to such other requirements as may be specified by the Board.

Explanation. — For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the Resolution Plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.]"

39.

Another important aspect is that under Section 25 (2) (b) of IBC, 2016, the resolution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasijudicial and arbitration proceedings. Section 25(1) and 25(2)(b) reads as follows:

“25. Duties of resolution professional –

(1)

It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

(2)

For the purposes of subsection (1), the resolution professional shall undertake the following actions:

(a)...

(b)

represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi judicial and arbitration proceedings.”

This shows that wherever the corporate debtor has to exercise rights in judicial, quasi judicial proceedings, the resolution professional cannot short circuit the same and bring a claim before NCLT taking advantage of Section 60(5).

40.

Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right.”

a)

100% Shareholding has been vested with the Resolution Applicant/its nominees.

b)

Nominees of the Resolution Applicant have been appointed on the Board of Directors of the Straight Edge Contracts Private Limited and present directors are deemed to have vacated offices.”

35.

Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 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. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides : (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality. The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the I&B Code.

"38.

This Regulation fleshes out Section 30(4) of the Code, making it clear that ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such creditors to be the best resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants."