M/s. Midas Impex Private Limited vs Prince SWR Systems Private Limited

PER: MS. LAKSHMI GURUNG, MEMBER (JUDICIAL)

This I.A. is filed by, Mr. Amit Chandrasekhar Poddar, the Resolution Professional of M/s. Prince SWR Systems Private Limited ('the Applicant') under section Section 30(6) of the Insolvency and Bankruptcy Code, 2016 ('the Code') read with Regulation 39(4) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, ('CIRP Regulations') 2016 seeking following reliefs:

Before filing the present application, the applicant has also filed I.A bearing No.854 of 2022 seeking exclusion of 30 days to conclude the CIRP period which was getting expired on 02.04.2022. Vide order 13.05.2022, this tribunal had allowed the said application and the CIRP period was extended upto 02.05.2022 and the present plan approval application has been filed on 30.04.2022 and therefore prayer (c) has become infructuous.

M/s. Prince SRW Systems Private Limited ('the Corporate Debtor') was incorporated as a company limited by shares under Companies Act, 1956 on 29.03.1995. The authorized share capital is Rs. 12,50,00,000/- and paid-up share capital is Rs. 9,87,76,000/-. The Corporate Debtor has its registered office at A101/102, 1st floor, Sunshine Plaza, Naigaon Cross Road, Dadar East, Mumbai- 400014.

The Corporate Insolvency Resolution Process ('CIRP') of the Corporate Debtor was initiated by this Tribunal vide Order dated 16.04.2021 under Section 7 of the Insolvency and Bankruptcy Code, 2016 and Mr. Hirachand Bafna was appointed as the Interim Resolution Professional ("IRP").

Subsequently a Public announcement for submission of claims was made on 03.05.2021 in the Free Press Journal (English) Navshakti (Marathi).

Pursuant to receipt of claims, the IRP constituted a Committee of Creditors ("COC") and the report Certifying Constitution of CoC was filed by the erstwhile IRP and the first CoC meeting was held on 29.05.2021. The RP, pursuant to change in the CoC formation due to classification of few creditors from other creditors to Unsecured Financial Creditors, filed revised report dated 13.01.2022, certifying constitution of CoC in terms of regulation 17(1) of the CIRP Regulations, on 22.01.2022. A copy of revised CoC report are annexed as Exhibit H to the Application.

A summary of claims admitted by the Applicant (updated as 02.04.2022) is as under:

Amount in Rs.

The breakup of the claims of CoC with their voting percentage updated as on 02.04.2022 is as under:

The Applicant submits that 28 (Twenty-Eight) CoC meetings have been held during CIRP period.

Subsequently on 18.10.2021 the Applicant was appointed as the Resolution Professional (“RP”).

The Applicant submits that, in accordance with Regulation 27 & 35 of IBBI (CIRP), Regulations 2016, below mentioned Registered Valuers have been appointed to determine the Fair Value and Liquidation Value of the Corporate Debtor.

Further, the above mentioned valuers have submitted their Valuation Reports to the Applicant. Copies of the Valuation Reports submitted by the Registered Valuers are annexed as Annexure L to the Petition. A summary of the Fair Market Value, Liquidation value and Average Valuation determined by the Valuers are reproduced herein under:

(Rs. In Lakhs)

For Plant and Machinery, the 1st valuer i.e Mr. Govind Panchal gave total fair valuation of 508.88 and Liquidation value of 369.29. The Second valuer i.e. Mr. Kunal K. Vikamsey gave total fair market valuation of 1737.37 and total Liquidation value of 99.74. As there was significant difference in the both the valuations the CoC directed the Applicant to appoint third valuer to conduct valuation of Plant and Machinery. Accordingly Mr.Anil Bhaskar Kakode was appointed who gave average fair value of 1687.11 and Liquidation value of 1012.26. The Valuation given by the second and third being the closest is considered in the table given above and Accordingly the average fair market value is 1712.24 and Liquidation value is 1006.00.

As 180 days of CIRP was getting over on 27.10.2021 the erstwhile IRP filed an interlocutory Application No. 2478 of 2021 seeking extension and exclusion of CIRP. This Tribunal vide its order dated 26.10.2021 granted extension and exclusion up to 01.02.2022.

Further the Applicant filed an Interlocutory Application No.49 of 2022 for exclusion of period spent for legal proceedings. This Tribunal vide its order dated 19.01.2022 granted exclusion of 60 days computation of CIRP Period.

Further, the advertisement for inviting Expression of Interest (“EoI”) in Form G was published on 16.07.2021 in six newspapers namely:

i. Free Press Journal – Mumbai Edition.

ii. Navshakti- Mumbai Edition.

iii. Silvassa Mirror- Silvassa – Daman Edition

iv. Janadesh- Silvassa/ Daman Edition.

v. Business Standard- Hyderabad Edition.

vi. Praja Darbar- Hyderabad Edition.

Pursuant thereto two (‘PRA’) were shortlisted however no resolution plans were received within the stipulated time therefore a second Form G for inviting resolution Applicant was published on 29.10.2021 in the same newspapers as mentioned hereinabove. The last date for submitting EOI was on or before 13.11.2021. In response of the same the Resolution Professional received 8 EOI.

In the Resolution Professional issued RFRP, Evaluation Matrix and Information Memorandum to the PRA.

Further in the 8th COC meeting held on 15.12.2021, it was decided to extend the last date for submission of Resolution Plan from 28.12.2021 to 03.01.2022 which was further extended to 10.01.2022.

By 10.01.2022 the Applicant received 3 resolution Plans from the following resolution Applicants:

Further During the 9th CoC meeting held on 11.01.2022 the Applicant informed the CoC that the Applicant had received on 29.12.2021 email from Mr.Nihar Chedda the VP strategy of Prince Pipes and Fittings limited showing interest in acquiring the Corporate Debtor.

As Prince Pipes and Fittings limited was found to be ineligible to participate in the resolution process of the Corporate Debtor the CoC decided to go ahead with existing resolution Plans.

Further on the request of the Applicant the Resolution Applicants submitted revised legally complaint Resolution Plans which were considered and deliberated by the members of the CoC. After various rounds of negotiations, the Resolution Plans were put for e-voting on 30.03.2022.

The Applicant herein accordingly filed Interlocutory Application No.854 of 2022 seeking exclusion of 30 days.

Further on 11.04.2022 the e-voting was concluded and the Resolution Plan submitted by Chemtrade Overseas Private Limited was approved by the members of the CoC with 97.29% majority vote. Accordingly, Chemtrade Overseas Private Limited was declared as the successful Resolution Applicant. Further, the revised resolution plan submitted by Chemtrade Overseas Private Limited is annexed as Exhibit A to the Company Petition.

Pursuant to the same the Resolution Professional issued a Letter of Intent ('LoI') to SRA on 13.04.2022 and the said LoI was accepted unconditionally by the SRA. A copy of Letter of Intent dated 13.04.2022 is annexed as Exhibit CC.

The Applicant has filed a Compliance Certificate i.e. Form- 'H' dated 29.04.2022 in compliance with Regulation 39(4) of the CIRP Regulations, 2016, which has been annexed to the petition as Exhibit BB.

It is pertinent to note that Prince Pipes and Fittings Limited Filed Interlocutory Application No. 894 of 2022 on 04.04.2021 seeking direction from this Tribunal, to direct the Applicant to convene a meeting of the Committee of Creditors and place the Resolution Plan submitted by Prince Pipes and Fittings Limited for consideration. This Tribunal directed the Applicant herein to file an Affidavit in reply to the Interlocutory Application. In the meanwhile, the resolution plans submitted by the resolutions applicants were put for e-voting and successful Resolution Applicant was declared on 11.04.2022 wherein this tribunal directed the Applicant to seek views from all members of the COC of the Corporate Debtor as to whether they want to consider the resolution plan submitted by Prince Pipes and Fittings Limited herein. The CoC members with majority voting share informed the Applicant herein that the Resolution Plan submitted by Prince Pipe and Fittings Limited maybe put before COC members for further deliberations provided Prince Pipe and Fittings Limited is eligible under Section 29A of IBC. Further this Tribunal vide its order dated 10.01.2024 has dismissed the Interlocutory Application No. 894 of 2022 Prince Pipes and Fittings Limited.

Earlier summarized payment schedule proposed to made by the SRA.

During the course of the hearing on 25.09.2024 this Tribunal was apprised that CIRP Cost has exceeded the estimated cost of Rs.1.05 crores as provided in the Resolution Plan. Vide order dated 25.09.2024 the Tribunal directed the Applicant to clarify following:

Pursuant to the above order dated 25.09.2024, an Additional Affidavit dated 10.01.2025 was filed stating as follows:

ii) The net worth Certificate dated 12.11.2021 issued by Chartered Accountant certifying the net worth of the Resolution Applicant is annexed as Exhibit F to the said Affidavit.

iii) The claims of employees as received and admitted during CIRP was Rs. 1,64,67,151/-. The SRA had proposed to pay a total amount of Rs. 50,25,639/- to the employees in its Resolution Plan. Further the Authorised Representative of the employees submitted their revised claim of Rs.3,87,24,008/- in the last week of December, 2021, which was rejected by the Resolution Professional as the claim was filed belatedly. Thereafter, the Authorised Representative of the employees approached this Hon'ble Tribunal through Interlocutory Application No. 78/2022. This tribunal vide its order dated 16.03.2022 allowed the application and directed the Resolution Professional to consider belated claims on merits. Accordingly, the Resolution Professional after verification of claims admitted a claim of Rs. Rs.3,22,02,387/- against the claim amount of Rs.3,87,24,008/- thereby making total admitted claim to Rs.324,08,275/-. Out of Rs.3,22,02,387/- gratuity amount was estimated at Rs.1,51,02,777/- and other than gratuity was estimated to Rs.1,70,99,610/-.

iv) It is submitted that the Resolution Professional took constant follow ups from the representatives of the employees but they were unable to provide the precise calculations for the gratuity amount payable to them. Therefore, on the basis of available information and data, which was shared with the staff of the Corporate Debtor at Mumbai office and with the representations of the employees for their objections if any, however no objections were received. Thereafter, the gratuity amount has been finalised at Rs.1,23,06,575/- and other than Gratuity at Rs.2,01,01,700/-.

vi) It was further submitted that as per waterfall mechanism under section 53 of the Code, the amount due to the employees fall under section 53(i)(c) which is after payment to Secured Financial Creditors as the secured Creditors are getting only 28.56% the employees are not entitled to any amount as per the provisions of Section 53 of the Insolvency and Bankruptcy Code, 2016. However, they will be paid a sum of Rs.50,25,639/- as already mentioned in the original Resolution Plan over and above the full gratuity of Rs.1,23,06,575/-.

According to the revised Form H dated 09.01.2025, the amounts provided for the stakeholders under the Resolution Plan are as under:

(Rs. in Lakh)

The SRA has offered estimated CIRP Cost at Rs.2.95 crores which is not included in the above mentioned table

The SRA further proposes to infuse additional amounts of Rs 5,00,00,000/- for making the plant operational and Rs. 10,00,00,000/- towards working capital for running of the plant which will be infused as equity funds.

Considering the above, the total revised Resolution Plan amount is Rs.70.17 crores

The SRA has offered to make upfront payment of Rs.20,12,85,000 within 30 days and payment of the balance amount within 90 days from the date of approval of the resolution plan by the Adjudicating Authority from the funds available with the SRA, its group companies, directors and affiliate which would be infused as equity funds on behalf of the SRA.

The Performance Guarantee of Rs.5 crores as stipulated in the RFRP has been paid by SRA. An amount of Rs.75,00,000/- was paid as plan participation fee as stipulated in the terms of the RFRP and was deposited with the Resolution Plan vide DD No 801578 dt.07.01.2022 and the balance amount of Rs 4,25,00,000/- was paid within 7 days of issuance of LOI.

The Resolution Applicant Chemtrade Overseas Private Limited was established in the year 1992, is a leading and reputed exporter, importer, indenter, supplier of basic chemicals and pharmaceutical intermediates including: Agro Chemicals, Paints and Coatings, API & Bulk Drugs Pigments & Printing links, Breweries & Beverages, Plywood & laminates, Dyes & Intermediates Polymers & Elastomers, Herbal & Biotech Resins & Adhesives, Perfumes & Cosmetics Textile Auxiliaries, Butylamine, Cyclohexylamine, Methylamine, Ethylamine, Ethylhexylamine, Isopropylamine, Propylamine and others.

The Implementation of the plan will be under the supervision of a Monitoring Committee which shall consist of Resolution Professional or an Insolvency Professional, one representative from Financial Creditors and one representative of the SRA to monitor and supervise the implementation of the Resolution Plan. The monitoring committee will be formed within 10 days of approval of plan by the Hon'ble Adjudicating Authority. The SRA proposes that Mr Ashish Shah shall be the authorised representative of the SRA for being part of the Monitoring Committee.

The powers of the suspended Board of directors of the Corporate Debtor shall stand extinguished on approval of the Resolution Plan. The SRA shall appoint new Board of directors consisting of Mr Ashish Shah and Mr. Viral Shah.

As a part of the Resolution plan the restructuring of the authorised and paid up capital shall be as under: The resources available under the Resolution Plan are insufficient to pay even the Financial Creditors fully, thus the amount payable to any shareholder is NIL. Hence as a part of the Resolution Plan the paid up capital and the right of all shareholders shall be fully extinguished and the paid off share capitals are deemed to be nil and cancelled.

The authorised equity share capital consisting of 1,17,00,000 equity shares of face value of Rs 10 amounting to Rs 11,70,00,000 proposed to be 6,00,00,000 equity shares of face value Rs 10 amounting to RS 60,00,00,000/-. The authorised preference share capital consisting 8,00,000 preference shares of Rs 10 each amounting to Rs 8000000/- shall be kept same.

Details of PUFE application filed/ pending are as follows:

Vide order dated 15.09.2023 in I.A No. 2729/2021, this tribunal annulled the trademark transferred in favour of Mr. Piyush Chedda and Mrs. Rupal Chedda and further directed the suspended directors to refund amount of Rs.25,95,437/- transferred by the suspended directors after CIRP. The said order is challenged before Hon'ble NCLAT which is pending.

There are various litigations pending before NCLT, DRT and other courts details of which are given in the Annexure I to the Plan.

All the claims pertaining to pre CIRP period which are not part of the Resolution Plan shall stand extinguished in terms of Ghanshyam Mishra and Sons Private Limited vs Edelwisse Assets Reconstructions Company Limited.

Any offences shall be settled subject to 32A of IBC.

Any proceedings against the directors of the corporate Debtor in their individual capacity cannot be permitted to be withdrawn.

Pursuant to Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Successful Resolution Applicant has prepared a Compliance Certificate dated 09.01.2025 in Form H which is annexed to the Application.

On perusal of Form-H, it is seen that the Resolution Plan is in compliance with the mandatory compliances as stipulated under Section 30(2) of the Code. The Resolution Plan also meets the requirements of Regulations 37, 38, 38(1A) and 39 (4) of the IBBI Regulations, 2016.

The SRA has submitted an Affidavit dated 30.03.2022 in Annexure B of the Application stating that Resolution Applicant nor any other person who is a connected person (as defined under the IBC) are ineligible under Section 29 A of the IBC. The Resolution Plan is not in contravention of any of the provisions of Section 29A of the Code and is in accordance with law.

In K Sashidhar v. Indian Overseas Bank & Others (2019) 12 SCC 150, 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 Committee of Creditors of Essar Steel India Limited through Authorised Signatory Vs. Satish Kumar Gupta & Ors (2020) 8 SCC 531, 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 has approved.

In view of the law laid down by Hon’ble Supreme Court, the commercial wisdom of the COC is to be given paramount importance for approval / rejection of the resolution plan. As the Resolution Plan meets the requirements of the I & B Code and the IBBI Regulations, the same needs to be approved. Accordingly, the Resolution Plan is approved with the following directions:

ii) Any amount out of the action taken against other persons for Preferential/ Fraudulent Transactions u/s. 43 and 66 of the IBC, 2016 as found in the Audit Report and also Unauthorized Transaction post CIRP order, shall be appropriated towards the unsatisfied claims of Secured Financial Creditors.

iii) The Memorandum of Association (MoA) and Articles of Association (AoA) shall accordingly be amended and filed with the concerned Registrar of Companies (RoC), 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.

iv) The moratorium under Section 14 of the Code shall cease to have effect from this date.

vi) The Applicant shall forthwith send a certified copy of this Order to the CoC and the Resolution Applicant, respectively for necessary compliance.

Accordingly, the Resolution Plan in 1227 of 2022 is hereby allowed and approved.