M/s. S.K. Ganguli vs D. Thakkar Construction Private Limited

Per: Shri Chandra Bhan Singh, Member (Technical)

This is an Application under Section 30(6) and Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code) filed by the Resolution Professional seeking approval of the Resolution Plan submitted by the Resolution Applicant, which is approved by 70.65% of the voting share of the members of the Committee of Creditors (hereinafter referred to as ‘CoC’).

The facts leading to the Application are as under:

(in Crores)

(in Crores)

(in Rupees)

The Applicant states that two Registered Valuers were appointed to determine the Fair Value and Liquidation Value of the Corporate Debtor:

The Applicant states that the liquidation value and fair value as per the valuation reports submitted by the valuers is as under: (Amount in Rs. Lakhs)

Average Liquidation Value of the Corporate Debtor is Rs. 1,708.80 Lakhs and the average Fair Value is Rs. 2,202.39 Lakhs.

During the period of CIRP the RP issued Form-G on 29.08.2019 inviting Expressions of Interest (EOI), the last date for receiving the expression of interest was 14.09.2019 and the last date of submission of resolution plan was till 14.11.2019. The Applicant further submits that he received EOIs from 3 Prospective Resolution Applicants (PRAs).

The Applicant states that, upon taking charge by the Applicant, a Nationwide lockdown was declared on account of COVID-19 pandemic, which impacted the majority part of calendar year of 2020. In 11^th CoC Meeting dated 20.06.2020, the members decided that the second advertisement for inviting EoI. Form G inviting EoI was published on 01.07.2020 in Business Standard (All India Edition), Sakal (Nagpur Edition) and Navshakti (Mumbai Edition), the last date for receipt of EoI was 16.07.2020 and last date of receipt of Resolution Plan was 17.08.2020. The copy of Form G dated 01.07.2020 was also published on IBBI Website.

The Applicant further states that, he received EOIs from 5 Prospective Resolution Applicants (PRAs) within the stipulated time period, however, only 3 Resolution Plans were received by the Applicant on 05.10.2020 which is the extended last date of receipt of Resolution Plan. The three Resolution Plans/ Financial bid as on 05.10.2020 were as follows:

The Applicant submits that, during the 20^th Meeting of CoC held on 22.03.2021, the Resolution Plan submitted by Mr. Anuj Badjate was examined by legal counsel of the RP and found to be compliant with provisions of the Code.

The RP submits that after due verification of the eligibility of the successful Resolution Applicant in terms of Section 29(A) of the Code, the CoC in its 21^st meeting held on 15.04.2021 considered the revised and final Resolution Plan of Mr. Anuj Badjate and approved the Plan with a voting share of 70.65% and compliance certificate was in Form “H” was issued by the Resolution Professional.

The salient features of the Resolution Plan are as under:

The details of the proposed payments are as follows:

E) DISBURSEMENT OF AMOUNT SHALL BE CARIED OUT IN ACCORDANCE WITH AND IN THE ORDER OF PRIORITY SET OUT IN THE TABLE BELOW:

Schedule for payment of Total Cash Consideration to Stakeholders

* This amount includes Rs. 3.10 crores of Fixed Deposits (FD) in the name of the CD held by Union Bank of India (UBI). An Application has been filed against UBI bearing IA 2080 of 2020 for violation of provisions of section 14 and for not releasing the said assets under the control of the Resolution Professional which is pending adjudication. It is submitted by the PRA that in case the said funds are either not released by UBI or any amount lesser than the said amount of FDs is realised by UBI, then the amount under the plan shall stand proportionately reduced.

The Resolution Applicant proposes to appoint suitably qualified and experienced persons, key personnel and other officer for operations of the Corporate Debtor in terms of Section 30(2)(c). The Plan also provides for implementation of provision of the Resolution Plan as stated above as per Section 30(2)(d). The Resolution Applicant has given a declaration that the Resolution Plan does not contravene any provisions of the law for the time being in force. The Resolution Plan is in compliance of the Regulation 38 of the Regulations in terms of Section 30(2)(f) as under:

It is beneficial to refer to the observation of the Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors.: (2019) SCC OnLine SC 1478 as under:

In view of the above ruling of the Apex Court, the Resolution Applicant takes over the Corporate Debtor with all its assets and liabilities as specified in the Resolution Plan subject to orders passed herein. As already indicated the Resolution Plan has been approved by the CoC in its meeting held on 15.04.2021 with 70.65% votes.

The counsel for the Applicant relied on the judgement of Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and Ors.: Civil Appeal No.8129 of 2019 the Hon’ble Supreme Court held that it is not open to the Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Section 30(2) or 61(3) of the I&B Code. The Hon’ble Court observed as under:

In view of the above ruling of the Apex Court, the legislature has given paramount importance to the commercial wisdom of committee of creditors (CoC) and the scope of judicial review by the Adjudicating Authority (AA) is limited to the extent provided under section 31 of Code and of the Appellate Authority is limited to the extent provided under sub-section (3) of section 61 of the Code, is no more an untouched-matter.

The counsel for the Applicant relied on the judgement of Venus Recruiters Private Limited v. Union of India and Ors.: CM Appl. 36026/2019 the Hon’ble Delhi High Court observed that:

In view of the above ruling of the Delhi High Court, it can be easily derived that, the Resolution Professional in case it is so proposed in the Resolution Plan will continue to discharge his duties regarding the pending applications to the main petition even though the Resolution Plan is approved.

In K. Sashidhar v. Indian Overseas Bank & Others: 2019 SCC Online SC 257 (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 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 (supra) 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:

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 Resolution Plan is feasible and viable. Adequate provision is provided for future claims of Operational Creditors if any the by Resolution Applicant. The CIRP cost has already been paid and will be paid if any as certified by the Resolution Professional and CoC. The Resolution Plan balances the interest of all the stakeholders and thus it deserves to be approved.

We are of the considered opinion that the distribution of the payments to the Creditors, Financial or Operational, as the case may be, shall be subject to orders to be passed in the respective Interlocutory Application within the ambit of the Code. We are thus inclined to dispose of this Application in the following terms. Hence ordered.

Per: Chandra Bhan Singh, Member (Technical).

The present IA 931/2021 in CP(IB)-4513/(MB)/2018 has been filed by M/s Edelweiss Asset Reconstruction Company Limited acting in the capacity of Trustee of EARC (Applicant) who is the Financial Creditor for a corporate guarantee dated 23.01.2015 which was given by the Corporate Debtor. In this Application the Applicant, M/s Edelweiss Asset Reconstruction Company has objected to the classification of the Applicant in a class separate from other unsecured Creditors as done by the Respondent No.1 who is the Resolution Professional and consequent distribution and allocation of funds made in the Resolution Plan by the Resolution Applicant.

The Bench notes that the Resolution Plan is already before this Bench for consideration, after the approval of the CoC with the requisite majority. The Bench further notes that the Applicant being one of the members of the CoC, in its commercial wisdom has decided to abstain from voting. The concern of the Applicant is that as an unsecured Financial Creditor the admitted claim is Rs.64,00,55,634/-. However, under the Resolution Plan the offer is a meagre sum of Rs.10 Lakh amounting to 0.16 per cent of the admitted claim whereas other unsecured Financial Creditors are proposed to be offered one percent of their admitted claims. The Applicant also feels that its claim has been conveniently reduced by almost 99.84 per cent in an unjust manner.

In this regard the Bench notes that in the present case there are three classes of Creditors in the category of Unsecured Financial Creditors:

It is pertinent to note here that the IBC itself differentiates between the creditors even if they are similarly placed. For instance, Section 30(2)(b) of the Code provides for different treatment and pay-out to a Financial Creditor who has voted in favour and a Financial Creditor does not vote in favour of a Resolution Plan. The Code provides that in the event a Financial Creditor does not vote in favour of the Resolution Plan, it should be offered an amount more than the liquidated value irrespective of what is being paid to the other similarly placed Financial Creditors who have voted in favour of the Plan. Here the Bench notes that the Applicant, M/s Edelweiss Asset Reconstruction Company Limited has abstained from voting and, therefore, has not voted in favour of the Resolution Plan. It is in this context that the amount offered to him is Rs.10 Lakh which is more than the liquidation value.

The Applicant contends that it has about 19.4% voting share in the CoC and that the recoveries in the Resolution Plan is not commensurate with its voting percentage. The Bench here would like to mention that there is no provision in the Code which mandates that a Financial Creditor is to be compensated in the ratio of percentage of its voting share as a CoC member. It is a settled law that the amount offered by the prospective Resolution Applicant to the CoC members is a matter of deliberation, discussion and depends on the market forces where the acceptance, rejection, any amendment depends on the CoC’s commercial wisdom and such decision is non-justiciable. It should be appreciated here that the decision of distribution among the CoC members is within the ambit of the commercial wisdom and the collective decision of the CoC. All that the Adjudicating Authority is to see here is, whether the Resolution Plan provides for :-

The Bench notes that all of this has been followed in the Resolution Plan while taking a decision on the Resolution Plan by the CoC and the Resolution Professional. The Adjudicating Authority cannot overstep the decision of the CoC which has the prerogative with the requisite majority to decide on the inter se distribution among the Creditors based on commercial wisdom of the majority of creditors who determine through negotiations with the prospective Resolution Applicant as to how and in what manner the corporate resolution has to take place.

Moreover, the Bench notes that since the Applicant has abstained from voting on the Plan, the vote is treated as ‘negative/ dissenting’ and accordingly in terms of Section 53 of the Code the dissenting Financial Creditors are to be offered their respective liquidation value which is ‘NIL’ for the Applicant in the present case. However, the Applicant in the Resolution Plan has been offered Rs.10 Lakh which is more than the liquidation value of ‘NIL’.

In this regard reliance has been placed by the Applicant on the decision of Hon'ble Supreme Court in the case of Kalparaj Dharamshi & Anr versus Kotak Investment Advisors Ltd & Anr [Civil Appeal Nos 847-848; 2929-2950 and 3138-3139 of 2020 ] wherein it has referred to the Bankruptcy Law Reforms Committee (‘BLRC / Committee”) Report of 2015 and held at para 138 as under:-

In view of the above, IA 931/2021 filed by the Applicant, in CP(IB)-4513/MB/2018 is not allowed and “dismissed”.