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Judgment
The present application has been filed under Section 30(6) read with Section 31(1) of the Insolvency & Bankruptcy Code, 2016 (‘the Code’) read with Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’) by Mr. Maligi Madhusudhana Reddy, Resolution Professional (‘RP’) of M/s. KVR Industries Private Limited (‘Corporate Debtor’), seeking approval of the Resolution Plan submitted by Mr. Bhumai Reddy Gari Mohan Reddy, Mr. Rajendra Kumar Goel and Mr. Naveen Srinivasa Yalamanchili (‘Consortium’) as approved by the Committee of Creditors (‘CoC’) on 04.04.2023 with 100% voting shares through e-voting.
Briefly stated, the facts as averred by the applicant in the application are as follows:
a) That the Corporate Insolvency Resolution Process against the Corporate Debtor was initiated vide order dated 18.02.2022 and Mr. Purushotam Behra was appointed as Interim Resolution Professional (“IRP”) by this Tribunal.
b) That the IRP prepared a list of Creditors after verification of claims received pursuant to the Public Announcement dated 21.02.2022 from the last date of receipt of the claims and constituted Committee of Creditors on 15.03.2022.
| Sl. No | Particulars | Claims received Rs. | Claims Admitted Rs. | Voting share % |
|---|---|---|---|---|
| 1. | Financial Creditors – Unrelated | 65,84,00,000 | 27,27,00,000 | 53.86% |
| 2. | Financial Creditors – Unrelated | 23,36,00,000 | 23,36,00,000 | 46.14% |
| 3. | Operational Creditors (including Govt dues) | 10,92,44,856 | 6,98,25,962 | --- |
| Total | 100,12,44,856 | 57,61,25,962 | 100% |
That as per the order passed by this Tribunal in IA/53/2022 & IA/54/2022, the financial creditor representing 53.86% of voting share considered as a related party and accordingly the COC is reconstituted on 23.08.2022 and the final list of claims and voting share are as below:
| Sl.no | Particulars | Claims received Rs. | Claims Admitted Rs. | Voting share % |
|---|---|---|---|---|
| 1. | Financial Creditors – Related | 65,84,00,000 | 27,27,00,000 | --- |
| 2. | Financial Creditors – Unrelated | 23,36,00,000 | 23,36,00,000 | 100% |
| 3. | Operational Creditors (including Govt dues) | 10,92,44,856 | 6,98,25,962 | --- |
| Total | 100,12,44,856 | 57,61,25,962 | 100% |
That the Interim Resolution was replaced by Mr. Maligi Madhusudhana Reddy, the Applicant here in as the Resolution Professional, vide order dated 07.09.2022.
That the Resolution Professional has appointed valuers for all the three classes of assets: 1) Plant and Machinery 2) Land and Building & 3) Securities of Financial Assets and the details of fair value and liquidation value of the Corporate Debtor in terms of the IBC are as below:
| Sl.No. | Asset Class | Fair Market Value (Rs.) | Liquidation Value (Rs.) |
|---|---|---|---|
| 1. | Land and Building | 7,44,70,000 | 5,35,30,000 |
| 2. | Plant and Machinery | 16,06,50,724 | 10,81,70,793 |
| 3. | Securities of Financial Assets | 1,40,03,106 | 1,38,63,106 |
| Total | 24,91,23,830 | 17,55,63,899 |
The percentage of liquidation value over the fair market values is 70% and the details of the valuation are stated in Compliance Certificate “Form II”.
That the Resolution Professional has published the Expression of Interest (‘EOI’) in Form G on 27.09.2022 and received 22 requests seeking the detailed information and other relevant information.
That the Resolution Professional received 7 EOI’s and published the provisional list of Applicants as on 22.10.2022 and circulated the Information Memorandum and RFRP on the same day as per the Regulation 36 of the IB Code.
That the Resolution Professional has declared the final list of Resolution Applicants for submission of Resolution Plans on 31.10.2022. That the last date for submission of Resolution Plan as per RFRP was 27.11.2022 and the Resolution Applicants have requested the COC and the Applicant to grant an extra time due to pending litigations before the NCLT and NCLAT and accordingly in the 6th COC meeting, granted time to PRA’s and extended time in their upcoming COC meetings.
The Applicant had filed an Application before this Tribunal for exclusion of the period since there was a stay from this Tribunal from 13.04.2022 to 22.08.2022 (131 days) and the same was allowed by this Tribunal. Further the Applicant filed an application for extension of 90 days on 30.11.2022 to complete the CIRP by 26.03.2023 and the same was allowed.
That the Resolution Professional upon the decision of the COC meeting, issued/published the EOI in Form G on 07.02.2023 for inviting PRA’s in continuation of the existing PRA’s to participate more applicants and circulated the revised list of PRA’s on 16.02.2022 and issued revised RFRP on 16.02.2023 to all the PRA’s and circulated the final list of PRA’s on 22.02.2023.
That the following Resolution Applicants have submitted their Resolution Plans to the Resolution Professional in sealed covers and through password protected emails as per given below:
| Sl.No. | Name of the Resolution Applicant | Resolution Plan in sealed cover received (Date & Time) |
|---|---|---|
| 1. | Mr. Bhumireddy Gari Mohan Reddy, Mr. Rajendra Kumar Goel and Mr. Naveen Srinivasa Yelamanchili (Consortium) | 1st March, 2023 @ 6.42 pm through mail. 02.03.2023 @ 4.02 pm through physical. Revised Plan received on 1st April 2023 by email. |
| 2. | PP Bafna Ventures Pvt. Ltd. | 2nd March, 2023 @ 2.25 pm via physically. Revised Plan received on 1st April 2023 by email. |
| 3. | Value Wise Consultancy Pvt. Ltd. | 2nd March, 2023 @ 9.28 pm through mail. 06.03.2023 @ 12.20 pm through post. Withdrawn in 12th COC. |
That the Resolution Professional submitted the details of PRA’s who have submitted their resolution plans to M/s. Accuris Fintech Private Limited, an independent investigation/due diligence agency for conducting due diligence/eligibility U/s. 29A of the IBC, 2016 and received the due diligence report on their eligibility criteria.
That the Resolution Professional conducted the 12th COC meeting held on 21.03.2023 via physical and virtual mode and explained & informed the COC members that after verification of all the Plans received form the Resolution Applicants, a detailed report from each plan is submitted to the COC members for their consideration.
That the Resolution Professional again sought extension of 60 days beyond 270 days, as the sole COC required time to obtain the necessary approvals from their higher authorities and the same was allowed by this Tribunal to end the CIRP by 25.05.2023.
That the Resolution Professional conducted the 13th COC meeting and provided the e-voting facility which opened at 8.00 pm on 04.04.2023 and closed at 8.00 pm on 06.04.2023 and after detailed deliberations from their end along with the compliances, evolution matrix, due diligence details, case history and proposed schedule along timelines, the COC approved the revised Resolution Plan submitted by “Mr. Bhumireddy Gari Mohan Reddy, Mr. Rajendra Kumar Goel and Mr. Naveen Srinivasa Yalamanchili (consortium) with 100% voting share through e-voting.
That the Resolution Applicant has submitted an undertaking stating that the Resolution Applicant is eligible under Section 29A of the Code.
The settlement amount to be paid by the Resolution Applicant/or the Corporate Debtor shall be as follows:
| A | B | C |
|---|---|---|
| 1 | Settlement Amount Tranche 1: Rs. 2,60,00,000 (Rupees Two Crores and Sixty Lakhs Only) | Settlement Amount Tranche 1 Date: Within 30 days from the date of approval of the Resolution Plan by NCLT |
| 2 | Settlement Amount Tranche 2: Rs. 2,60,00,000 (Rupees Two Crores and Sixty Lakhs Only) | Settlement Amount Tranche 2 Date: Within 120 days from the date of approval of the Resolution Plan by NCLT |
| 3 | Settlement Amount Tranche 3: Maximum of Rs. 20,50,00,000 (Rupees Twenty Crores Fifty Laksh Only) | Settlement Amount Tranche 3 Date: Within 180 days from the date of approval of the Resolution Plan by NCLT |
| Total settlement Amount | Maximum of a) Rs. 25,70,00,000 (Rupees Twenty-Five Crores and Seventy Lakhs only) obtained by adding Total Settlement Amount 1,2 and 3 Tranches. Note: 1) The said amount shall be the maximum outlay of the Resolution Applicant under this plan and shall be subject to the applicable interest calculated/mentioned under each heads/rows as mentioned above. 2) The Resolution Applicant undertakes to bring in funds in the form of equity/quasi equity/ long term & short-term debts interest bearing instruments to meet the repayment obligations that may be required for the implementation of the Resolution Plan. Resolution Applicant also submits that the requisite funds required for implementation of this plan is available at their disposal at the time of submission of Resolution Pla. 3) The sources of funds for the above-mentioned payments shall be as follows: a) For Settlement Amount Tranche 1; to be infused by RA. | |
| b) For Settlement Amount Tranche 2: to be infused by RA. c) For Settlement Amount Tranche 2: to be infused by RA. Cash flows from operations if any, of the Corporate Debtor/from sale of non-core assets of the Corporate Debtor shall also be utilized. |
On the settlement date Tranche 1 and subject to provisions of this Resolution Plan, settlement amount tranche 1 shall be distributed to the creditors by following the procedure herein prescribed and by such other procedure prescribed by the COC pursuant to vote under section 30(4) of the IB Code (“Distribution Waterfall”) as mentioned below:
| Sl.No. | Particulars | Distribution Waterfall (in Rs.) |
|---|---|---|
| 1 | Insolvency Resolution Process Cost of the Insolvency Professional (To be paid in priority) Note: No information has been provided in the information memorandum on the cost incurred and remain unpaid towards Insolvency Resolution Process Cost. Insolvency Resolution Process Cost, if any shall be paid out at actual and the same shall be negative adjustment to the payment allocated to the Secured Financial Creditors. | 45,00,000 or At Actuals (Rupees Forty-Five Lakhs Only) |
| 2 | Employee and Workmen (To be paid in Priority) Note: The allocated amount under this head for distribution is to be paid on a paripassu basis based on respective Verified Amount of Employee and Workmen. It is understood from the information memorandum that there are no Claims received and admitted for Employees and | 11,16,639/- (Rupees Eleven Lakhs Sixteen Thousand Six Hundred Thirty-Nine Only) |
| Workmen. In the event the unpaid dues for employees and workmen is less or nil, the balance shall be distributed to the Secured Financial Creditors. | ||
| 3 | The amount to Financial Creditors Note: The allocated amount under this head for distribution is to be paid on a paripassu basis based on respective Verified Amount of Financial Creditors. Notwithstanding anything mentioned in this Resolution Plan the amount will alter with a negative adjustment if any applied towards Settlement Amount Tranche 3 as mentioned in Clause 5.1.7 and 5.1.8 (1) above if there is unpaid insolvency resolution process cost. | 23,36,00,000/- (Rupees Twenty-Three Crores Thirty-Six Lakhs only) |
| 4 | Amounts to Unsecured Financial Creditors | 1,36,35,000/- (Rupees One Crore Thirty-Six Lakhs and Thirty-Five Thousand only) |
| 5 | Operational Creditors: Creditors Government/Statutory Dues (To be paid in priority) Note: The allocated amount under this head for distribution is to be paid on a paripassu basis based on respective Verified Amount of Operational Creditors: Government/Statutory Dues. | |
| 6 | Operational Creditors: Creditors other than Workmen, employee and government/statutory Due (To be paid in priority) Note: The allocated amount under this head for distribution is to be paid on a paripassu basis based on respective Verified Amount of Operational Creditors: Other than Workmen, employee and government/statutory dues. The amount stated herein shall include the amount payable towards the corporate guarantee exposure as mentioned in Clause 5.1.21 irrespective of whether a claim is made towards | 16,84,711/- (Rupees Sixteen Lakhs Eighty-Four Thousand Seven Hundred and eleven only) |
| such exposure or not by the beneficiary of such corporate guarantee issued. | ||
| Grand Total Note: Notwithstanding anything mentioned in this Resolution Plan the amount will alter with a negative adjustment towards Settlement Amount Tranche 3 as mentioned in Clause 5.1.7 and 5.1.8(1) above if there is any unpaid insolvency resolution process cost. | 25,68,93,257/- (Rupees Twenty-Five Crores Sixty-Eight Lakhs Ninety-Three Thousand and Two Hundred fifty-seven only) |
That the Successful Resolution Applicant has submitted the 10% of bid amount as performance guarantee by way of account transfer on 13.04.2023 in the CIRP account of corporate debtor and the same has been converted into fixed deposit by Resolution Professional.
The RP submitted the Compliance Certificate in Form-H under Regulation 39(4) of the Regulations showing the compliances of the Plan with mandatory requirements under the Code. The Regulations and the Plan were approved by the CoC.
The constitution of the Monitoring Committee consisting of Three (3) members for implementation of the Resolution Plan as proposed by SRA and approved by the CoC, as given below: -
Mr. Maligi Madhusudhana Reddy, Resolution Professional, shall be the Chairman of the Monitoring Committee.
One Representative of the Successful Resolution Applicant.
One Representative of the Secured Financial Creditors.
The Resolution applicant has sought for certain reliefs and concessions at Clause 16 of the Plan, seeking grants from government/ and respective authorities.
Therefore, in view of the above facts mentioned, the Resolution Professional praying the Hon’ble Tribunal to pass an order for approving the Resolution Plan submitted, which has been approved by COC with 100% voting rights, under section 31(1) of the Insolvency and Bankruptcy Code, 2016.
We have heard the Ld. Counsel for the Applicant and perused the record. It has been found that the Resolution Plan, as presented by the Resolution Applicant, satisfies all requirements set forth in the IBC, 2016—most notably, Section 30 (2) of the IBC Code, Regulation 38 (1A), and any applicable CIRP Regulations. It doesn't violate any legal requirements. It addresses every stakeholder's interest.
The applicant has prayed for number of waivers in the Resolution Plan. As to the relief and concessions sought in the Resolution Plan, we may refer to judgement of Hon’ble Supreme Court in the matter of Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) 13 SCC 308, the relevant part of the judgement is reproduced herein below: -
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, quasi-judicial 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 sub-section (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."
In view of the aforesaid judgement of Hon'ble Supreme Court, we direct the Successful Resolution Applicant to file necessary application before the necessary forum/ authority in order to avail the necessary relief and concessions, in accordance with respective laws.
Section 30 (2) of the Code as amended up to date enjoins upon the Resolution Professional to examine each Resolution Plan received by him to confirm that such plan –
a)provides for the payment of insolvency resolution process costs in the 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 the 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 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
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 - For the purpose of the above provision is as under:
- (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients if the proceeds are insufficient to meet the debts in full; and - (ii) The term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 (18 of 2013). - 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) Confirms to such other requirements as may be specified by the Board.
Section 30(4) of the Code reads as follows:
"(4)The committee of creditors may approve a resolution plan by a vote of not less than sixty-six percent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board."
The Resolution Professional shall forward the Resolution Plan, as authorized by the CoC, to the Adjudicating Authority in accordance with Section 30(6) of the Code. Section 31 of the Code addresses the Authority's acceptance of the Resolution Plan in the event that it is satisfied that the Resolution Plan satisfies the conditions stipulated in Section 30(2) of the Code as approved by the CoC under Section 30(4). Therefore, the Adjudicating Authority has the responsibility to ensure that the Resolution Plan, as approved by the CoC, satisfies the aforementioned standards.
On perusal of the Resolution Plan, it is observed 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 certified through affidavit that the Resolution Plan is not in contravention to any of the provisions of law, for the time being in force, as specified u/s 30(2)(e) of the Code.
In accordance with Section 30(2)(a) through Section 30(2)(f) of the Code and Regulations 38(1), 38(1-A), 38 (1-B), 38(2), and 38(3) of the Regulations, the RP has complied. The Plan also stipulates that upon the adoption of the Resolution Plan, the Company shall continue as a going concern and conduct business as usual.
Along with the Plan, the RP has submitted a Compliance Certificate in Form-H. Upon examination, the same is discovered to be in order. According to Regulation 38(1A) of the Regulations, the Resolution Plan contains a statement detailing how it has addressed the interests of the stakeholders in accordance with the Code and the Regulations.
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 Court observed that the role of the NCLT is 'no more and no less'. The Hon'ble 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 CoC of Essar Steel (Civil Appeal No.8766-67 of 2019 decided on 15.11.2019) the Hon’ble Apex Court clearly laid down that the Adjudicating Authority would not have power to modify the Resolution Plan which the CoC in their commercial wisdom have approved. In para 42 Hon’ble Court observed as under:
“Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and section 32 read with section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar (supra).”
The Hon’ble Supreme Court of India, in the recent ruling in re Vallal RCK vs M/s Siva Industries and Holdings Limited & Ors, has held as under: -
21.This Court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. A reference in this respect could be made to the judgments of this Court in the cases of K. Sashidhar v. Indian Overseas Bank and Others, Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta and Others, Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Others, Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another, and Jaypee Kensington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others.
27.This Court has, time and again, emphasized the need for minimal judicial interference by the NCLAT and NCLT in the framework of IBC. We may refer to the recent observation of this Court made in the case of Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another:
“95.... However, we do take this opportunity to offer a note of caution for NCLT and NCLAT, functioning as the adjudicatory authority and appellate authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, the IBC was introduced in order to overhaul the insolvency and bankruptcy regime in India. As such, it is a carefully considered and well thought out piece of legislation which sought to shed away the practices of the past. The legislature has also been working hard to ensure that the efficacy of this legislation remains robust by constantly amending it based on its experience. Consequently, the need for judicial intervention or innovation from NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC...”
The instantaneous Resolution Plan is determined to comply with Section 30(2) of the Code and Regulations 37, 38, 38(1A), and 39 (4) of the Regulations in light of the discussions and the legislation so settled. The Resolution Plan is in compliance with the law and does not violate any of the clauses of Section 29A of the Code. Hence ordered.
ORDER
The Resolution Plan annexed to the Application is hereby approved. It shall become effective from this date and shall form part of this order. It shall be binding on the Corporate Debtor, its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is due, guarantors and other stakeholders involved in the Resolution Plan.
The Memorandum of Association (MoA) and Articles of Association (AoA) shall accordingly be amended and filed with the Registrar of Companies (RoC), Andhra Pradesh for information and record. The Resolution Applicant, for effective implementation of the Plan, shall obtain all necessary approvals, under any law for the time being in force, within such period as may be prescribed. iii. The moratorium under Section 14 of the Code shall cease to have effect from this date. iv. The Applicant shall supervise the implementation of the Resolution Plan and file status of its implementation before this Authority from time to time, preferably every quarter.
The Applicant shall forward all records relating to the conduct of the CIRP and the Resolution Plan to the IBBI along with copy of this Order for information. vi. The Applicant shall forthwith send a copy of this Order to the CoC and the Resolution Applicant.
Accordingly, IA(IBC)/165/2023 in CP (IB)/204/7/AMR/2019 is allowed and disposed of.