M/s Tata Hitachi Construction Machinery Company Private Limited vs M/s Universal Industrial Equipment And Technical Services Private Limited

Per: Suchitra Kanuparthi, Member (Judicial)

I.A No. 773 of 2021 in CP (IB) No. 2541 of 2019 is filed by the RP under section 30 of IBC hereinafter refer to as Code seeking approval of the Resolution Plan of M/s Saral Industries (“Resolution Applicant/ RA”) in respect to the Corporate Debtor which is approved by the CoC with 90.57 % voting in its 13^th meeting on 06.03.2021.

The CIRP against the Corporate Debtor was initiated vide an order dated 18.12.2019 on the application filed by Tata Hitachi Construction Machinery Company Private Limited under section 9 of IBC. The IRP appointed and issued public announcement on 25.12.2019.

The detail of CIRP are as follows;

The constitution of COC as on 13.01.2021 is as follows;’

The COC was reconstituted on 22.06.2020 as follows;

The applicant was approved and confirmed the Resolution professional on 12.02.2020. In the second meeting of CoC the applicants / RP appointed Registered valuer i.e. Mr. Abhishek Joshi Mr. Girish B. Pawar and Mr. RV Kalyani Rajesh Phadke (Valuer - II) and who have given the fair market value and liquidation value as under

The valuation report was shared by the Resolution Professional in the 6^th CoC meeting which is held on 23.06.2020.

The Applicant also appointed a transaction based Auditor M/s. Amit Ray & Co., Chartered Accountant to conduct transaction audit in the 3^rd CoC meeting which is held on27.02.2020. The auditor report filed its report on 14.08.2020 and observed that there are no transaction falling under section 43, 45, 50 and 66 of the Code.

The applicant published Form G on 04.03.2020 and the COC meeting held on 20.03.2020, approved the evaluation matrix, bid bond guarantee of 1 crores, 20 % of performance guarantee. The RA received three EOI from prospective from resolution applicant namely;

a. Mr. Narendra Sabnani, the director of the suspended board of the Corporate Debtor

b. Mr. Satyanarayan Agrawal

c. Luvkush Corporation Private Limited.

However, it was noticed that Mr. Narendra Sabnani did not submit the bid guarantee of Rs. 1 crore and therefore their plan was rejected.

Mr. Satyanarayan Agrawal after going through the information memorandum and conducting due diligence, decided not to submit a resolution plan and requested vide email dated 29.06.2020 to refund the amount of EMD submitted by him,

The representative of M/s. Luvkush Corporation attended the 7^th CoC meeting on 14.09.2020 and increase a bid amount to 8,25,86,100/- which is inclusive of working capital f Rs. 2 crores and post negotiations in the COC meeting. Finally, the M/s. Luvkush Corporation increased a bid amount of Rs. 850,86,100/-.

The applicant issued second Form G on 10.11.2020 as the CoC in its 9^th meeting held on 06.11.2020 resolved to issue a fresh Form G the applicant received 4 Resolution plans namely;

The Resolution plan submitted by Narendra Sabnani was not compliant and therefore his plan was not considered. M/s. Luvkush Corporation has submitted a bid amount of Rs. 8,200,86,100/- in its 11th meeting of CoC which is held on 04.02.2021. The bid was revised by 2 crores and final amount was Rs. 10,00,86,100/- .

M/s Saral Industries submit a bid of Rs. 920,05,000 and increase a bid to Rs. 11.50 crores. Manisha Sales (Vithoba ) submitted a bid amount or Rs. 4.80 crores and eventually the plan was withdrawn and the same was recorded in the CoC in its 13^th meeting which is held on 06.03.2021.

In the 12^th CoC meeting M/s. Luvkush Corporation did not revised the bid amount and however submit a plant of 10,56,86,100/- M/s Saral Industries revised its bid amount to Rs.13.50 crores and agreed to completion date of 9 months from the date of approval.

The CoC in its 13^th CoC meeting discussed the plans and approved the plan of M/s Saral Industries by 90.57 % voting. The CoC in its 14^th meeting which is held on 22.03.2021 and recorded the voting results and captured the results for approval/ disapproval of resolution plan

The Resolution plan provides for.

a. The term of the plan and its implementation schedule; the total term is 9 months.

b. The entire management and control or all the business and assets of the Corporate Debtor during its term shall lie with the Resolution applicant and thereafter.

c. Supervision of the implementation of the Resolution plan shall be entrusted to the Resolution Professional at a fee of Rs.50,000/- per month till implementation of Resolution Plan.

The resolution plan does not contravene any of the provisions of the law for the time being in force and confirms to the requirements as specified by the IBBI.

In the Resolution plan, the interest of all the stakeholders including financial creditor, dissenting financial creditor, and operational creditors has been taken care of.

The Resolution applicant and its related parties have not failed to implement or contribute to the failure of implementation of any other resolution plan approved by the Adjudicating Authority at any time in the past as per Regulation 38 of the CIRP Regulations

Strategy for the proposed Plan:

^• transfer of all or part of the assets of the corporate debtor to one or more persons

^• sale of all or part of the assets whether subject to any security interest or not;

^• restructuring of the corporate debtor, by way of merger, amalgamation, demerger, acquisition of shares, consolidation

Performance Bank Guarantee (PBG) As per clause 1.9.1 of the Request^. for Resolution Plan, the Resolution Applicant, if successful, undertakes to provide a performance bank guarantee of an amount of 20% of the bid value within 7 days from the date of approval of the Resolution plan by Committee of Creditors. The Resolution Applicant herein undertakes to provide a Performance bank guarantee of Rs.3,10,00,000 (Rupees Three Crore Ten Lakhs) under the resolution plan, i.e. 20% of the bid value of the plan.

Payments of Full and Final Settlement of All Claims as envisaged in the Resolution Plan is tabled below;

The plan provides for working capital infusion of Rs. 2,00,00,000/- as and when required.

Limit on Liability Notwithstanding anything contained in this Resolution Plan, in no event the total payments by the Resolution Applicant or the Corporate Debtor to its stakeholders, for claims relating to a period prior to the Completion Date (including claims recognized in this Resolution Plan and claims that may arise in future), shall exceed the Total Consideration set out in Clause 7.1 of the Resolution Plan.

Subject to applicable laws, the amounts to be paid to the all the stakeholder in terms of this plan shall be included in the Total Consideration to be deposited into the Designated Account which shalt be operated by the Monitoring Agency, on or before the Completion Date. The amount payable under this plan shall be then paid from this account to all the stakeholders to accordance with their proposed share under this plan.

Sources of funds It is proposed that the entire funds required towards the CIRP shall be raised from the existing business of the Resolution applicant i.e. M/s. Saral Industries and the private funds of its partners.

The resolution applicant along with its partners Le:, Cash & Cash Equivalent in terms of audited Financial statement as on 31^st March 2020 as follows.

The Resolution Applicant in compliance has placed Form H which is as follows;

The Resolution plan has sought to be approved under section 30(1) of the Code is as follows;

The conditions provided for in the section 30(1) of the Code for approval of Resolution plan are therefore;

a. The Resolution plan is approved by COC under section 30(4)of the code

b. The Resolution plan as approved meets the required provisions under section 30(2) of the Code.

c. The Resolution plan has provisions for its effective implementation.

d. The Resolution plan is approved by vote of 90.57% of voting share of financial creditors and therefore the conditions provided for by section 30(4) of the Code are satisfied.

The provision of section 30(2) are as follows;

The compliance of section 30(2) in form H is examined as under

The Resolution plan contains information regarding background of Resolution Applicant , particular of Resolution plan and sources of funds having cash and cash equivalent in terms of its audited financial statement as on 31.03.2020 is Rs. 17,09,24,945.08/-. The Resolution Professional also certifies that the Resolution Applicant has filed an affidavit pursuant to section 30(1) of the Code confirming its eligibility under section 29A of the Code annexed at pg. 560 to 564 of the Application to submit the Resolution plan of the code considering the feasibly and viability as specified under the CIRP regulations. The Resolution Plan provides working capital of Rs. 2,00,00,000/-. The Resolution Applicant has not sought for any Waiver.

It is relevant to refer the case of Hon’ble Supreme Court in case of K. Sashidhar vs. Indian Overseas Bank & Ors. wherein it was held that the Hon’ble Supreme Court inter alia held that no corresponding provision has been envisaged by the legislature to empower the Resolution Professional, NCLT or NCLAT to reverse the commercial decision of CoC. It also held that from the legislative history there were contra indications that the commercial or business decisions of the financial creditors are not open to any judicial review by the Adjudicating authority or by appellate authority. In view of the above decision the decision taken by the CoC within the ambit of it commercial and banking wisdom is therefore not being interfere able with. It is also pertinent to refer the judgment of Hon’ble Supreme Court in Maharasthra Seamless Limited vs Padmanabhan Venkatesh & Ors. wherein it was held that at para 26 that no provision of the code or regulations has brought to our notice as a bid of any resolution and applicant has to match any liquidation value arrived at in the manner provide under clause 30(5) regulations.

In view of the above discussion the decision taken by the Financial Creditor falls under the banking and commercial wisdom and its not being interfere with.

The Resolution Plan provides a bank guarantee by the RA to the tune of Rs. 1 crore and the bank guarantee shall remain into the force till the date of 6 months from the date of submission of Resolution Plan. The RA also under took to provide a performance bank guarantee 20% of bid value within 7 days from the date of approval of Resolution plan by the Committee of Creditors. The Resolution Plan applicant has enclosed a performance bank guarantee of Rs.3.10 crores at annexure Exhibit O. the Performance Guarantee is for a period of 23.03.2021 to 30.06.2022 and the last date of allotment of claim 30.06.2023. it is therefore submitted that the requirement of performance security under regulation 39(4) of the Regulation r/w 36B(4A ) of the Regulations are complied with.

On the basis of aforesaid discussion and in view of the provisions of Section 30(4), the Bench approves the Resolution plan as approved by the CoC. The Resolution plan so approved shall be binding of the Corporate Debtor its employees , members , creditors including central government and state government or any other local authority to whom the debt of in respect of payment in dues arising any other law for the time being in force. Such authorities to whom statutory dues are owned. Guarantors and other stake holders involved in the Resolution plan.

The I.A NO. 1430 OF 2021 is filed by the Unsuccessful Applicant whose Resolution Plan was rejected by the CoC and the Unsuccessful Applicant submits that they have revised the plan by increasing a sum of Rs. 4,56,00,000/- and offered to increase it further. However, the Respondent No. 1 namely the RP vide an email dated 23.03.2021 informed the applicant that the Resolution plan was rejected by the CoC in their 13^th CoC meeting.

This Bench refers to the relevant aspects of the Resolution plan of the Unsuccessful Resolution Applicant which is captured in its 13th meeting as follows;

The Resolution plan of M/s. Saral Industries namely Successful Resolution Applicant and the Luvkush Corporation Pvt. Ltd. i.e. the Unsuccessful Resolution Applicant were put to vote and the Resolution Plan of Saral Industries has approved by the voting of 90.57% and the Resolution Plan of Luvkush Corporation Pvt. Ltd. was disapproved. Therefore, this Bench is not inclined to interfere with the commercial wisdom of CoC and hence the I.A No. 1430 of 2021 is dismissed.

Tata Hitachi Construction Machinery Company Private Limited has filed an Interlocutory application under section 60(5) r/w section 30(2) of the Code as part for the rejection of Resolution plan as it is prejudicial to the interest of the applicant.

The Applicant / Operational Creditor is a Company engaged in the business of manufacturing and sale of construction, earth moving and mining machinery, including spare parts; having service networks and dealers across the Country.

The Corporate Debtor - Universal Industrial Equipment Technical Services Private Limited (UIETS) ("the Corporate Debtor") owed a sum of Rs. 32,92,85,313.28/- pursuant to an Arbitral Award dated 29th November 2017 passed against the Corporate Debtor which was payable to the Applicant/ Operational Creditor along with interest at 16% p.a. to be calculated 30 days from the date of the Award (30/12/2017-Construed as Date of Default) up to the date of actual payment. On the basis of the Application of the Applicant / Operational Creditor made under Section 8 & 9 of the I&B Code and upon being satisfied that a default has occurred, this Hon’ble Tribunal vide its Order dated 18th December 2019 ordered for the commencement of CIRP of the Corporate Debtor. Interim Resolution Professional Ms. Megha Agarwal of Nagpur ("Respondent No.1 / Resolution Professional") was appointed vide the said Order and moratorium took effect as per the provisions of the I&B Code.

The 1st COC Meeting of the Corporate Debtor, in the CIRP of the Corporate Debtor, commenced on the 21st of January 2020 and the last COC Meeting i.e., 14th COC Meeting was held on the 22nd of March 2021. The timeline of 180 days for completion of CIRP provided under Section 12 of the I&B Code completed on 15th June 2020 and therefore, Exclusion of 135 days and total extension of 150 days (90 plus 60 days) was obtained vide Order of this Hon'ble Tribunal by the Respondent No. 1/ Resolution Professional. The last date for completion of CIRP, after extension and exclusion of CIRP period, was 27^th March 2021.

The Corporate Debtor received three Resolution Plans from three Resolution Applicants namely

a. M/s. Saral Industries

b. Manisha Sales

c. Luvkush Corporation

The Resolution Plan with respect to Manisha Sales was withdrawn and same was taken on record vide 13th COC Meeting Minutes dated 06th March 2021. The other two Resolution Plans were put to vote on the 9th of March 2021 and the Resolution Plan of M /s. Saral Industries was approved with a majority vote of 90.57% of the COC.

The Respondent No. 1 / Resolution Professional has made an application for sanctioning the Resolution Plan under Section 31 of the I &B Code. However, the Applicant / Operational Creditor, has certain major objections, as set out hereunder, to the Resolution Plan of M/s. Saral Industries submitted by Mr. Sandeep Goenka (Partner), the Respondent No. 3 / Resolution Applicant; which was approved by the COC at the 13th COC Meeting of the Corporate Debtor: -It is humbly submitted that this Resolution Plan approved herein, is actually a farce and an eye-wash. It is nothing but a Liquidation Plan in the guise of a Resolution Plan. The Respondent No. 3/ Resolution Applicant has not provided in a clear manner the viability and feasibility of the Resolution Plan. It has been agreed to by the members of the COC that the Respondent No. 3 /Resolution Applicant will not be able to continue the same business and will be doing business in the automotive sector. Under Para No. 7.8 of the Resolution Plan, the Respondent No. 3 I Resolution Applicant has stated as follows: "Since the Corporate Debtor has lost its Dealership, the previous business of the company cannot be continued, and the Applicant intends to venture into automotive business immediately by obtaining a dealership in earth moving machinery',

It can be seen that the Terms of the Resolution Plan, provided under Para No. 12.2 of the Resolution Plan is a period of "9 months within which payments shall be made to the financial creditors, operational creditors and other creditors". However, the Resolution Plan does not anywhere provide for the time period within which the dealership, as stated to be obtained under Para No. 5 - "Strategy for the Proposed Plan" will be obtained by the Respondent No. 3 / Resolution Applicant. Further, there is also no timeline provided by the Respondent No. 31 Resolution Applicant in the Resolution Plan, within which the Corporate Debtor shall be revived. Thus, the Resolution Plan can be said to be a mere assets sale by the Respondent No. 31 Resolution Applicant, which may be possible by way of Liquidation of the Corporate Debtor itself.

There is no credibility in the whole process. It appears to be fishy exercise. Since financial creditors appear to be getting large chunk of the cake, they are making no effort to bring to book, proper value for the business and assets of the Corporate Debtor. They appear to be driving the closure of what is actually a liquidation plan. The Respondent No. 1/ Resolution Applicant has not placed on record what is credibility, established track record, business proposals, strategies so as to study the genuineness of the deal. There is an attempt to close the CIRP, by this process in which several things have been incorporated in a very vague and loose manner. There is proposal for actual revival the business of the Corporate Debtor.

It is further submitted that the Resolution Plan does not demonstrate that it has sufficient provisions for providing for its effective implementation not as required under Regulation 38(3)(b) & (c) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

No action has been contemplated against the suspended directors of the Corporate Debtor for their inaction to recover moneys lawfully due to the Corporate Debtor. There is no report of the Respondent No. 1 / Resolution Professional to bring to book avoidance transactions. The forensic report in this respect appears to be an eye-wash.

Further, the Revised Resolution Plan shared with the members of the COC on the 11th February 2020, provides for a total infusion of Rs. 13,50,00,000/-payable to all stakeholders, including CIRP cost and excluding a working capital infusion of Rs. 2 Crores. Initially, the Resolution Plan of the Respondent No. 3 / Resolution Applicant provided for an amount of Rs. 9,20,05,000/-, which was discussed and agreed to be increased to Rs. 13.5 Crores. The same is recorded in the Minutes of the 12th COC Meeting held on 11th February 2021.

It is humbly submitted before this Hon'ble Tribunal, that such infusion of extra Rs. 4 Crores and odd by the Respondent No. 3 / Resolution Applicant, has not seen any proportional increase to the amounts to be paid to the Operational Creditors of the Corporate Debtor, under the Revised Resolution Plan. It is submitted that at the 12th COC Meeting held on 11th February 2021, when such objection regarding proportional distribution in case of further infusion of funds by Resolution Applicants, was raised by the Applicant / Operational Creditor, the Respondent No. 1 / Resolution Professional, had simply stated that the Resolution Plan was in compliance of Section 30(2)(b) of the I & B Code. It is however, submitted, that such a distribution cannot be held to be a in the interests of all its stakeholders. At this meeting, the Resolution plans of both the final Resolution Applicants i.e. M/s. Luvkush Corporation and M/s Saral Industries came up for being considered by COC. It lacks fairness and it is arbitrary.

It is humbly submitted that the increase in overall amount infused by the Respondent No. 3 1 Resolution Applicant, has simply resulted in increase of funds payable to the Financial Creditors alone. The details of the same is tabulated herein under:

Secondly, Para No, 8 of the Revised Resolution Plan - "The Right to Receivables'', provides as follows:

It is humbly submitted that such a clause contained in the Resolution Plan is against the interests of all the stakeholders including but not limited to Applicant / Operational Creditor. The Applicant / Operational Creditor has been an essential service provider to the Corporate Debtor and must have the first right to any receivables recovered by the Corporate Debtor. Further, it appears to be a clear case where without any basis the Resolution Applicant seeks to appropriate 50% of the amounts to be recovered for doing its business in the name of the Corporate Debtor. Such a proposition simply exhibits the objective of making unreasonable gains at the cost of the creditors of the Corporate Debtor.

Thus, it is humbly submitted before this Hon'ble Tribunal that the Resolution Plan approved by the COC is a mere eye-wash and a Liquidation / assets sale in the guise of a Resolution Plan. If a Resolution Plan with such haircut for Operational Creditors as approved is allowed, then it would cause irreparable loss not only to the Applicant / Operational Creditor but to other creditors as well.

The Respondent No. 2 provided financial assistances to the Corporate Debtor aggregating to Rs. 30.00 crone (Rupees Thirty Crore) ("SBI Facility") for working capital and other requirements of the Corporate Debtor. The SBI Facility is secured by charge over the assets of the Corporate Debtor. The total outstanding amount under the SBI Facility as on the insolvency commencement date of the Corporate Debtor is Rs. 63.45 crore (approx.) (Rupees Sixty Three Core and Forty Five Lakhs) (approx.). Consequently, the Respondent No. 2 is the secured financial creditor of the Corporate Debtor

The Corporate Debtor was admitted for corporate insolvency resolution process under the Code on 18 December 2019 pursuant to an order passed by the Hon'ble National Company Law Tribunal, Mumbai, Accordingly, the CoC was formed by the resolution professional of the Corporate Debtor (i.e. Respondent No. 1 herein) with Respondent No. 2 being the largest financial creditor having 86.91% voting rights in the CoC.

Saral Industries ("Successful Resolution Applicant") submitted its resolution plan of Rs. 13.50 crore (Rupees Thirteen Crore and Fifty Lakhs) ("Successful Resolution Plan") for the Corporate Debtor, The Successful Resolution Plan was deliberated and finally approved by the Coe with 90.57% votes in favour of the Successful Resolution Plan,

The Respondent No. 2 submits that the present interim application seeking rejection or modification of the Successful Resolution Plan should be dismissed with exemplary cost on following grounds;

The Successful Resolution Plan has been approved by the CoC applying their commercial wisdom, which must be upheld. The Applicant cannot be allowed to seek modification to suit its interest at the cost of the successful resolution of the Corporate Debtor

It is a trite law that whether a resolution plan is feasible, viable and maximizing a corporate debtor's value is a commercial decision, which the CoC is to make applying their commercial wisdom, It is very well established that there is an intrinsic assumption that financial creditors of a corporate debtor are fully informed about viability of the corporate debtor and feasibility of a resolution plan.

The Successful Resolution Plan was approved by the Coe of the Corporate Debtor after due deliberation. The collective decision of the CoC cannot be challenged by the Applicant.

The Applicant's allegation that the Successful Resolution Plan is not feasible and viable is patently false and without any basis, The CoC has approved the Successful Resolution Plan after considering all aspects and such collective decision of the CoC is not required to be mathematically precise. The subjective satisfaction of the financial creditors is bound to be a mixed baggage of variety of factors. Such subjective satisfaction is entrusted by the legislature to the financial creditors and not to the operational creditors. Consequently, the Applicant is patently incorrect in questioning the Successful Resolution Plan on the basis of feasibility and viability.

The interim application is an afterthought and filed belatedly with the mala fide intention to arm twist the CoC to increase the Applicant's pay out under the Successful Resolution Plan, If such unwarranted demand is entertained then this will defeat the resolution of the Corporate Debtor and ultimately, the purpose of the Code.

The Successful Resolution Plan provides for more than the liquidation value of the Applicant.

The liquidation value of the assets payable to operational creditors of the Corporate Debtor including the Applicant is NIL and consequently, even if the Successful Resolution Plan offers no payment to the Applicant, the same will be in compliance with the Code. However, the Successful Resolution Plan proposes a payment of Rs. 17.25 lakhs (Rupees Seventeen Lakhs and Twenty-Five Thousand) to the operational creditors, which is more than the liquidation value payable to the operational creditors including the Applicant in the event of liquidation under section 53 of the Code.

The Applicant's claim that it is entitled to proportionate increase in its payment pursuant to the increase in the resolution amount is patently false and incorrect. The distribution of the resolution amount under the Successful Resolution Plan has been collectively decided by the CoC, which has taken care of all stakeholders including the Applicant in accordance with the requirements of the Code. Such collective decision of the CoC ought not to be challenged.

All the allegation put forth by the Intervenor Applicant/ Operational Creditor have been discussed in the COC in its meetings, the COC in its commercial wisdom have approved the Resolution plan and this Bench finds no reason to interfere with the plan approved by the CoC and with the distribution of assets and the amount paid to the Operational Creditor and hence rejects the interim application filed by the Operational Creditor.

The Objector/ Operational Creditor have participated in the 13^th Meeting of CoC which is held on 06.03.2021 and the observations made on the plan submitted and evaluation matrix is as follows;

The Resolution Professional clarified that since the dealership of Corporate Debtor was gone before the company has gone in to the CIRP process, so continuing exact same business was not possible for any RA with obtaining fresh dealership.

The Objector / Operational Creditor having participated in all the meetings of CoC and have not taken any objection with regard to the issues raised in the Interim Applications and hence, the objections are untenable.

Under the provision of section 31(3) of the Code, this Bench directs as follows

a. The Resolution Plan is approved;

b. The moratorium period as on 20.01.2020 ceased to have an effect;

c. The Resolution Professional shall forward all record relating to conduct of CIRP and the Resolution Plan to be record in its data based;

d. I.A. 773 of 2021 is disposed off;

e. I.A. 1599 of 2021 is dismissed;

f. I.A 1430 of 2021 is dismissed.