Mr. Dharmendra Dhelariya vs The Commissioner Of Income Tax & Ors.

Per: Reeta Kohli, Member (Judicial)

The present Application I.A. No. 2146 of 2023 is filed by Mr. Huzefa Fakhri Sitabkhan, the Interim Resolution Professional of Zicom Electronic Security Systems Limited (hereinafter referred as the “Applicant”) seeking directions against Mr. Manohar Bidaye and Anr. (hereinafter referred as the “Respondents”) under Section 66 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called “Code”), praying for the following reliefs:

On a Company Petition filed under Section 7 of the Code by Micro Capitals Private Limited, the Financial Creditor, this Hon'ble Tribunal initiated Corporate Insolvency Resolution Process ('CIRP') against KSS Limited ('Corporate Debtor') vide its order dated 24.01.2023 and Mr. Dharmendra Dhelariya was appointed as Interim Resolution Professional ('IRP').

Pursuant to the said order, a public announcement on 30.01.2023 which was published in the newspapers, namely Financial Express (English) and Nav Shakti (Marathi) for calling of submission of proof of claim from the Creditors in appropriate Form "B" to Form "F". In view of the same, the Applicant received claims amounting to Rs. 95.59 Crores from Micro Capitals Private Limited and Axis Bank Limited. The said claims were admitted and the CoC was constituted with the following voting share-

Two set of Registered Valuers were appointed by the RP on 28.02.2023, to conduct the valuation of the assets of the Corporate Debtor and reports with respect to the same were submitted to the Applicant. The Liquidation Value and Fair Value is stated as under-

Further, the RP published an Invitation for Expression of Interest (EOI) (Form-G) on 25.03.2023 in two newspapers, namely The Financial Express (English) and Mumbai Lakshdweep (Marathi). In furtherance of the same, the Applicant received 3 EOIs, however, at the request of a few other parties, a revised Form-G was published on 17.04.2023 in the aforementioned newspapers. Subsequently, the Applicant received a total of 8 EOIs. Name of the PRAs is as under –

Furthermore, out of the 8 prospective resolution applicants (“PRA”), allegedly, only one PRA, namely, Micro Capitals Private Limited came forward and submitted a Resolution Plan on 14.06.2023

In the 5th CoC Meeting held on 19.07.2023, the CoC decided to extend the CIRP period of the Corporate Debtor by 90 days as the CIRP was to be completed on 23.07.2023, however the Corporate Debtor's premises were sealed by the Enforcement Directorate on account of alleged offences by the suspended board, which made certain documents crucial to the CIRP inaccessible to the Applicant. The Application with respect to the said extension was filed by the Applicant and was allowed by this Hon'ble Tribunal on 28.08.2023.

During the course of the CIRP of the Corporate Debtor, an Auditor was appointed by the Applicant (RP) to conduct the forensic audit of the Corporate Debtor to determine if any transactions in the nature of PUFE had taken place prior to the commencement of the CIRP. As submitted, in the said forensic audit report, it was ascertained that certain preferential transactions were carried out by the suspended Board of Directors of the Corporate Debtor. In view of the same, the Applicant filed an application for the avoidance of the said transactions and to bring back the monies lost from the Corporate Debtor back to it under Regulation 35A of the IBBI Rules and Regulations 2016.

Further, the Resolution Plan submitted by Micro Capitals Private Limited was presented before the CoC for its approval as the said plan was the only Resolution Plan received by the Applicant. The said Resolution Plan was voted upon in the 7th CoC Meeting held on 17.10.2023 and was approved by 77.97% voting. Pursuant to the approval of the said Plan, a Letter of Intent was issued by the Applicant on 09.11.2023 in favour of the Successful Resolution Applicant (SRA), Micro Capitals Private Limited, requiring the SRA to pay an Earnest Money Deposit (EMD) of 5% of the total plan value.

The Salient Features of the Resolution Plan are as under:

The Resolution Applicant is eligible to act as a Resolution Applicant of the Corporate Debtor and is not ineligible under section 29A of Insolvency and Bankruptcy Code and also satisfies the eligibility criteria as mentioned in clause (h) of sub-section (2) of section 25 of the Code.

In order to operate the Corporate Debtor as a going concern, need base working capital of upto Rs 5.00 Crores (approx.) would be infused through Financing within 6 months and an additional amount of Rs 5.00 Crores within 12 months of the Approval of this Resolution Plan to ensure that operations of CD run efficiently. The decision to infuse funds will be taken according to the need at that time. Accordingly, the infusion can be increased or decreased as well. The additional funding will not affect rights and interest of financial creditors and also not deal with assets of corporate debtor till time debt financial creditor has been repaid.

The amounts provided for the stakeholders under the Resolution Plan is as under:

(Amount in Rs. lakh(

*If there are sub-categories in a category, please add rows for each sub-category. Amount provided over time under the Resolution Plan and includes estimated value of non-cash components. It is not NPV.]

a. Dissenting Financial Creditors shall be paid amounts not less than the Liquidation value due to each dissenting financial creditors, in case the proposed amount is less than the liquidation value.

b. The Assenting financial Creditors shall be paid the remaining amount on a pro rata basis of claim value due to each such financial creditors. ii. Payment Schedule / Terms of Payment to Financial Creditors :-

(Amt in Lacs)

Liquidation value of the Company is not known to the Applicant. In terms of IBC, and under regulation made thereunder, the amount payable in respect of Financial Creditors who do not vote in favour of the Resolution Plan would be paid not less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of liquidation of the Company. The dissenting members of CoC will be paid the proceeds as per the clause 4.3.3, within 30 days of the effective date. As per the Insolvency & Bankruptcy Code, 2016, the dissenting financial creditors should be paid in priority to the assenting financial creditors, but in this particular case, the total payment is to be done within 180 days, therefore the dissenting creditors will also be paid within 180 days of the approval of the Resolution Plan.

i. As per the IM, Operational Creditor (excluding employees, Workmen) claims aggregating to approximately INR 26,01,26,566.53("Operational Creditor Debt") have been admitted for the purposes of CIRP by the Resolution Professional.

ii. As per the Code, the Operational Creditors are required to be paid the Liquidation Value accruing to such Operational Creditors. Based on our assessment, the Liquidation Value is likely to be even insufficient to satisfy the claims of the Financial Creditors in full. In that case, the Liquidation Value accruing to Operational Creditors (but not including Employees and Workmen Dues for the preceding 24 (twenty four) months) would be NIL. In terms of Applicable Law, the Operational Creditors (excluding employees and Workmen) are required to be paid the amounts aggregating to the Liquidation Value accruing to them, i.e. NIL amounts, except in cases where the Operational Creditor is a secured Creditor.

As per the IM, Other Creditor claims aggregating to INR NIL (“Other Creditor Debt”) have been admitted for the purposes of CIRP by the Resolution Professional therefore no provision for payment is made for this class of creditors.

Except as dealt with in this Resolution Plan, all margin money/ fixed deposit with lien provided by the Corporate Debtor or any Encumbrances of similar nature, or margin assurances, Encumbrances or liens that exist by operation of Applicable Law, along with any contractual comforts provided by the Corporate Debtor or on its behalf, in relation to claims that are permanently extinguished, restructured, restated, converted, assigned, written-down or written-off, as the case may be, by the NCLT order approving the Resolution Plan shall be deemed to be released immediately upon the NCLT Approval Date and shall revert to the Corporate Debtor.

Without prejudice to anything set out in this Resolution Plan, all liabilities (statutory or otherwise) arising from any contractual arrangements entered into by the Corporate Debtor shall be deemed to be terminated and any claims or liabilities arising or having crystallised shall be deemed to be cancelled and written-off in full, and be, and be deemed to be, permanently extinguished, restructured, restated, converted, assigned, written-down or written off, as the case may be, on the NCLT Approval Date. Any liability relating to the Corporate Debtor, before the Insolvency Commencement Date, shall be permanently extinguished, restructured, restated, converted, assigned, written down or written-off, as the case may be, and deemed to not exist.

The interests of existing shareholders have been altered by the Resolution plan as under:

In view of Section 238 of the Code, the Resolution Applicants have assumed that the Code is a complete code in itself and the NCLT order approving a resolution plan will constitute a single window clearance for all actions required under a resolution plan. Accordingly, the NCLT order sanctioning this Resolution Plan will be final and binding on all stakeholders and third parties to the extent permitted under the Applicable Law.

The Applicant assumes that the Resolution Professional will take all necessary actions and execute all documents/agreement as may be required to maintain the Company as a going concern until the Applicant acquires control over the Company in the manner set out in this Resolution Plan.

Subject to the above, provided below is an indicative timeline of events for implementation of the Resolution Plan:

*T means date of approvals of the Resolution Plan by the NCLT.

The Resolution Professional after the approval of the Resolution Plan, issued the Letter of Intent on 9^th November, 2023 to the successful Resolution Applicant (SRA) i.e. Micro Capitals Private Limited and asked it to pay an Earnest Money Deposit of 5% of the total plan value within seven days from the receipt of the said Letter of Intent.

On or after approval of this Resolution Plan by NCLT and until the Plan Implementation Date, Monitoring Committee consists of One Representative from Consenting Financial Creditor / Resolution Applicant, one representative of dissenting Financial Creditor, and Resolution Professional to supervise the Implementation of Plan. All major business decisions impacting the interest of financial creditors shall be made by said committee. Examples of major decision include but not limited to, sale of assets, assuming of non-trade liabilities etc.

Monitoring Committee shall decide about remuneration payable to the Resolution Professional, the frequency of reporting and meetings to have effective implementation and supervision of Resolution Plan. It is proposed that Applicant will bear the cost of Monitoring Committee.

The monthly fees of the IP will be Rs. 1,00,000/- To act as chairman of the Monitoring Committee and the same will be borne by Resolution Applicant.

As submitted, Respondent No. 1 is the Commissioner of Income tax, Mumbai and Respondent No. 2 is Principal Chief Commissioner of Customs TRC(Export), ACC. As submitted by the Respondents, the Resolution Professional (Applicant) has filed Interlocutory Application No. 4 (Plan) of 2024 in Company Petition (IB) 748 of 2022 under Section 30(6) of the IBC seeking approval of the Resolution Plan submitted by Micro Capitals Private Limited, which was approved by 77.97% of the Committee of Creditors in the 7th CoC meeting held on 17.10.2023. Further, as contended, the CoC consists of only 2 members, i.e., Micro Capitals Private Limited with 77.97% voting share and Axis Bank with 22.07% voting share, and out of the said 2 members, only the SRA (Micro capitals Private Limited) has voted in favour of the Resolution Plan.

As stated, Respondent No. 2 has submitted a claim of Rs. 23,15,39,790/- pursuant to the Order-in-Original dated 29.03.2016 passed by the Office of the Commissioner of Customs IV. While the Corporate Debtor has filed an appeal against the said Order before CESTAT bearing Appeal No. 87308/2019, no stay has been granted by the Hon'ble CESTAT.

As submitted, it is important to take a note of the peculiar facts of the present case, which are that Micro Capitals Private Limited, viz. the Prospective Resolution Applicant / Dominant CoC Member; is a unsecured Financial Creditor at whose instance CIRP was initiated against the Corporate Debtor for an outstanding debt of Rs.67,11,69,217/-. Further, the SRA holds majority (77.97%) of voting share in the CoC and submitted the only Resolution Plan for revival of the Corporate Debtor, moreover, has approved the Resolution Plan submitted by itself, offering a total plan value of Rs. 3,01,00,000/- as the against the total claims of Rs. 128,07,16,000/- received by the Resolution Professional. Furthermore, the SRA has proposed a payment of Rs. 2,65,00,000/- towards the payment of Unsecured Financial Creditor as against a payment of Rs. 1,00,000/- towards the Operational Creditor against the total claim of Rs.23,15,39,790/-

As submitted by the Respondents, the Resolution Plan submitted by the SRA / Dominant Financial Creditor deserves to be rejected on the following grounds-

A. GROUND 1: THE RESOLUTION PLAN IS IN DIRECT CONTRAVENTION OF SECTION 30 (2) AND SECTION 30 (4) OF THE IBC.

B. GROUND 2: THE RESOLUTION PROFESSIONAL FAILED TO CONSIDER THE FACT THAT THE REVENUE DEPARTMENT HAS PRIORITY OVER THE PAYMENT OF UNSECURED FINANCIAL CREDITORS.

C. GROUND 3: THE RESOLUTION PLAN FAILS TO MUSTER THE TEST OF “FEASIBILITY” & “VIABILITY” AND THE HON'BLE ADJUDICATING ATHORITY IS EMPOWERED TO EXERCISE ITS POWER OF JUDICIAL REVIEW.

Thus, in light of the abovesaid submissions, the Respondents prayed that Adjudicating Authority exercises its limited judicial review and does not approve the Resolution Plan submitted by the Prospective Resolution Applicant / Dominant Financial Creditor as the attempt of the Prospective Resolution Applicant is only to buy out the Corporate Debtor without demonstrating how the self-proclaimed maximization of value of assets” of the Corporate Debtor and to “balance the interest of all the stakeholders” are taken care of.

As stated by the Applicant, in its written submissions, the Respondents' objections are based on a misinterpretation of the law and a misunderstanding of the facts surrounding the Plan. In regard of “GROUND 1”, as stated by the Applicant, The Respondents argue that the Plan violates Section 30(2)(b) of the IBC by not being fair and equitable to all creditors, especially operational creditors. However, this contention disregards the well-established principle that the CoC possesses the commercial wisdom to determine the distribution of amounts among different creditor classes. The Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors.[Civil Appeal No. 8766-67 of 2019] explicitly stated that the Adjudicating Authority's role is confined to judicial review within the boundaries of Section 30(2) and cannot supplant its judgment on commercial matters. The CoC, exercising its commercial wisdom, has thoroughly assessed the Plan and its viability through extensive discussions and deliberations. The minutes of the CoC meetings substantiate that all pertinent factors, such as financial projections, operational strategies, and industry analysis, were taken into account. Furthermore, the Respondents' reliance on the IBC Amendment Act, 2019, is flawed. While the amendment mandates the CoC to consider the liquidation value of operational creditors' debts, it does not necessitate prioritizing operational creditors over unsecured financial creditors. The ultimate discretion lies with the CoC, as long as the distribution is fair and equitable.

The Applicant stated that the Plan does not contravene Section 30(2)(b) of the IBC as the operational creditors, including the government dues, will receive an amount that is not less than what they would have received in liquidation. The allocation of a higher amount to the unsecured financial creditor is a commercial decision taken by the CoC based on various factors, including the nature of the debt, the potential for future business relationships, and the overall viability of the Plan. Further, as stated, The Plan was prepared by a professional agency with expertise in the relevant industry and has undergone due diligence and in view of the same, the Applicant denied that the PRA, holding majority in the CoC has acted with malicious intent to benefit itself at the expense if the Operational Creditors.

As submitted, the Applicant denied the Respondents' contention that the Plan does not comply with the waterfall mechanism under Section 53 of the IBC, particularly regarding dissenting financial creditors by stating that the Plan complies with the waterfall mechanism. The dissenting financial creditor, Axis Bank, will receive an amount that is not less than what it would have received in liquidation. Furthermore, as stated by the Applicant, the Respondents' contention that the Plan lacks feasibility and viability is unfounded as The CoC has diligently evaluated the Plan's feasibility and viability through detailed discussions and deliberations, as evidenced by the minutes of the CoC meetings. Moreover, the PRA is willing to infuse significant funds to revive the Corporate Debtor.

The Applicant, in regard of "GROUND 2" stated that the Respondents' reliance on the State Tax Officer v. Rainbow Papers Ltd. to claim that government dues should be treated as secured creditor dues and have priority over unsecured financial creditors, is misplaced as the said judgment dealt a specific provision under the GVAT Act, which created a first charge in favor of the government. The case is not applicable in the present scenario as the relevant statutes governing the Respondent's claims, namely the Customs Act, 1962, and the Income Tax Act, 1961, do not contain similar provisions creating a first charge. Further, it was also stated that the Respondents' interpretation of Section 142A of the Customs Act, which deals with the concept of "first charge," is flawed as merely states that the liability under the Customs Act shall be a first charge on the assets of the assessee, subject to the provisions of other laws, including the IBC and IBC overrides any conflicting provisions in other laws. Furthermore, it was also submitted that The Respondents' claim that government dues should be treated as secured creditor dues is not supported by the law as Government dues, in absence of any security interest, cannot be considered as secured creditor dues.

The Applicant, in regard to "GROUND 3" submitted that The Respondents' contention that the Plan lacks feasibility and viability is flawed as The CoC has diligently assessed the Plan's feasibility and viability through extensive discussions and deliberations, as evidenced by the minutes of the CoC meeting the financial projections, operational plans, and industry analysis provided in the Plan have been thoroughly scrutinized by the CoC. The Plan's viability is further bolstered by the Prospective Resolution Applicant's commitment to infuse substantial funds to revive the Corporate Debtor. The Applicant placed reliance on the judgment of the Hon'ble Supreme Court in K. Sashidhar v. Indian Overseas Bank and Ors. held that the Adjudicating Authority's power of judicial review on the feasibility and viability of the Plan is limited. The court emphasized that the Adjudicating Authority cannot re-appreciate the commercial wisdom of the CoC unless there are clear and cogent reasons to believe that the Plan is manifestly unviable.

Therefore, in light of the abovesaid submissions, the Applicant prayed before this Hon'ble Tribunal to reject the Respondents' objections and approve the Resolution Plan.

On the strength of the documents available on record and arguments advanced by the Ld. Counsel for the parties, it is clear that the present Application has been filed by the Applicant seeking the approval of the Resolution Plan submitted by Micro Capitals Private Limited, which was approved by 77.97% votes by the Committee of Creditors in the 7th CoC meeting held on 17.10.2023. However, it is pertinent to note that the objections to the Plan have been preferred by Respondent No. 1, i.e., the Commissioner of Income tax, Mumbai (Claim of approximately Rs. 28 Lakhs) and Respondent No. 2, i.e., Principal Chief Commissioner of Customs TRC(Export), ACC (Claim of approximately Rs. 23 Crores). The objections raised by the Respondents are as under-

In light of the aforementioned objections raised by the Respondents, this Bench deems it appropriate to consider and examine the said objections as adjudication upon the same is integral to the approval of the present Resolution Plan submitted by the SRA. Objection a is that the present Resolution Plan has failed to demonstrate that the distribution as proposed in the Resolution Plan is fair and equitable to all the creditors and is in violation of Section 30 (2) (b) (Explanation I) of the Code. In order to delve on the merits of the present objection, we must take notice of the provisions laid down in Section 30(2) the Insolvency and Bankruptcy Code, 2016, which is as under-

Thus, Section 30(2), Explanation 1, clearly states that the distribution of payment to the creditors of the Corporate Debtor should be fair and equitable. Upon perusal of the documents available on record, it is clear that the SRA, i.e., Micro Capitals Private Limited, is also the Dominant Financial Creditor with a total of 77.97% voting share in the CoC. The Resolution Plan submitted by Micro Capitals Private Limited (SRA) was approved with 77.97% voting share by the CoC at the 7th CoC Meeting, held on 17.10.2023. However, it deserves to be taken note of that the Resolution Plan was approved only by Micro Capitals Private Limited as it is the Dominant Financial Creditor as well as the SRA and the approval of the said plan was dissented by Axis Bank Limited, who is the other (non- dominant) member of CoC holding only 22% voting share in the CoC. The plan proposes a total resolution value of Rs. 3,01,00,000/- for the revival of the Corporate Debtor against the Liquidation Value of Rs. 2.52 Crores and the Fair Value of Rs. 3.21 Crores. Under the proposed distribution mechanism, an amount of Rs. 2,65,00,000/- has been allocated towards the claims of Unsecured Financial Creditors (primarily the SRA itself), while Rs. 1,00,000/- has been earmarked for settlement of Operational Creditors' claims, and the balance amount of Rs. 35,00,000/- is designated for CIRP costs. However, the distribution mechanism as proposed by the SRA is in accordance with the ruling of the Hon'ble NCLAT in the matter of HDFC Bank Ltd. Vs. Pratim Bayal (RP) and Ors. [CA(AT)(I)-1472/2023-NCLAT], wherein it was held that as per Section 30(4) of the Code, the CoC has the jurisdiction to decide on the distribution of the amounts either based on the vote share of the Financial Creditors or as per their security interest. In the present case, the aforesaid distribution is based on voting share percentage of the Financial Creditors. Thus, objection a does not hold merit.

Furthermore, objection b raised by the Respondents is that the malicious intent of the dominant Unsecured Financial Creditor / SRA is apparent as the amounts that the dominant Unsecured Financial Creditor / SRA proposes to pump for revival of the Corporate Debtor, are indirectly received by the SRA itself in the present Plan. In order to deal with this objection, we must take note of the “Infusion of Funds by Applicant” given in Clause 4.20.4 (b) of the Resolution Plan, which is as under-

On perusal of the aforementioned “Infusion of Funds by Applicant”, it has come to our notice that the Resolution Applicant has ambiguously used the term “may” with respect to the establishment of SPV, indicating that there is not much clarity with respect to the same. In addition, the Applicant has outlined a capital reduction process as part of the restructuring of the Corporate Debtor. This reduction of capital will be coupled with the Applicant’s subscription to Rs. 3,00,00,000 (Three Crore) equity shares of the company, each valued at Rs. 1 at par, aggregating to Rs. 3 Crores. The primary purpose of this capital reduction and subscription is to enable the company to raise necessary funds and issue equity shares to the identified Subscribers, contributing to the revival and restructuring process. However, from the perusal of the above, it is evident that, in fact, there is no infusion of funds by the SRA for the resolution of the Corporate Debtor. Thus, the amount proposed in the Resolution Plan is, in effect, not being used for the resolution of the Corporate Debtor but is being paid to the SRA, towards discharge of its liabilities and the proposed SPV/equity are out of the purview of the Resolution Plan. Hence, in effect there is no amount of money which is being pumped in for the resolution of the Corporate Debtor. The Adjudicating Authority is conscious of the fact that the proposed infusion of funds falls squarely within the domain of the commercial wisdom of CoC. However, in the peculiar facts and circumstances of the present case where the CoC is constituted of effectively none other than the SRA itself, who in exercise of commercial wisdom has approved his own plan. Therefore, such a CoC is merely an eyewash and is exercising no commercial wisdom, except protecting its own interest. The Court cannot afford to not take notice of these glaring facts, which on the face of it may appear legally sustainable but, in fact, are not inconsonance with the objects and purpose of the Code where the sole consideration is the resolution of the Corporate Debtor by maximization of the value of the assets of the Corporate Debtor. Hence, this objection b, as raised by the Objectors, holds merit.

Objection c of the Respondents is that the Plan submitted by the SRA fails to justify that the payment to a dissenting financial creditor is not less than the amount to be paid in case of liquidation of the corporate debtor and thus, is in violation of Section 30 (2) (b) of the Code. To adjudicate upon this, we must take notice of Clause 4.4 of the Resolution Plan (ANNEXURE- 10 of the present IA) submitted by the SRA which deals with the financial plan with respect to the Dissenting members of the CoC. Clause 4.4 explicitly states that “The dissenting members of CoC will be paid the proceeds as per the clause 4.3.3, within 30 days of the effective date.” Clause 4.3.3 deals with the proposal for payment of the Financial Creditors, which is as under-

Furthermore, Clause 4.3.3 (ii) provides for Payment Schedule / Terms of Payment to Financial Creditors, which is as follows-

(Amount in Lacs)

Thus, on examination of the aforementioned Clause 4.3.3 it has come to light that the SRA (Micro Capitals Private Limited) has failed to provide firstly, a detailed bifurcation with respect to the amount which is to be paid to the dissenting Financial Creditor, Axis Bank Limited, of the Corporate Debtor and secondly, there is no provision for the payment of dissenting Financial Creditor, on priority. This material omission with respect to the payment schedule makes it impossible to determine the amount that will be paid to the dissenting and the assenting financial creditor, creating substantial uncertainty in 3 critical aspects-

- The precise payment allocated to the Dissenting Financial Creditor. - The specific amount designated for the Assenting Financial Creditor. - The overall breakdown and structure of the abovesaid payments.

In addition to the aforementioned, it is imperative to examine whether the Resolution Plan submitted by the SRA is not compliant with Regulation 38 (1)(b) of IBBI Regulations, 2016. The aforementioned Regulation 38(1)(b) states that “the amount payable under the resolution plan- to the financial creditors, who have a right to vote under sub- section (2) of 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.” On examination of Clause 4.4 of the Resolution Plan which deals with the payment to Dissenting members of the CoC, the SRA has proposed that “As per the Insolvency & Bankruptcy Code, 2016, the dissenting financial creditors should be paid in priority to the assenting financial creditors, but in this particular case, the total payment is to be done within 180 days, therefore the dissenting creditors will also be paid within 180 days of the approval of the Resolution Plan.” Furthermore, we deem it appropriate to appreciate the indicative Timeline for implementation of Resolution Plan provided in Clause 2.4 of the said Plan, the same is as under-

Thus, it stands clear for the perusal of the aforementioned table that the SRA proposed “Upfront Payment to the Financial Creditors of the Company” in 180 days from the approval of the said Plan. However, there is no separate provision with respect to the payment of the Dissenting Financial Creditors of the Corporate Debtor to be made in priority to the Assenting Financial Creditors. Thus, in light of the aforementioned, this Bench is of the judicious opinion that the SRA has failed to comply with the provision laid down in Regulation 38(1)(b) of the IBBI Regulations, 2016. Therefore, the objection raised by the Respondents that the Resolution Plan submitted by the SRA is in direct contravention of Section 30 (2) (b) of the IBC, 2016 and Regulation 38(1)(b) of the IBBI Regulations holds merit.

Further, objection d is that The Resolution Plan is in direct contravention of Section 30 (4) of the Code as the Resolution Plan fails to consider the feasibility and viability of the Resolution Plan. In fact, none of the minutes of the CoC minutes record the deliberations of the CoC on the feasibility and viability of the Resolution Plan. In order to deal with this objection, it is pertinent to take note of the Provisions laid down in Section 30(4) of the IBC, 2016, which is as under-

Furthermore, while considering the Feasibility and Viability of a Resolution Plan, we must also appreciate Regulation 38(3)(b) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016, which are as under-

In light of the aforementioned provision, we deem it appropriate to take notice of the fact that Micro Capitals Private Limited (SRA), in its proposed resolution plan, has elaborated on the “feasibility and viability” of the Resolution Plan in Clause 3.4 (b) of the said plan. The SRA has proposed the following under the heading “Feasibility and viability of the Resolution plan (38(3)(b))”, which is as under-

On perusal of the aforementioned clause, it becomes evident that the SRA, with respect to the feasibility and viability of the Resolution Plan, has expressly stated that “The Resolution Applicant is confident that the Corporate Debtor can be turned around and be a viable unit.” and “The feasibility of revival and resolution of the Corporate Debtor is on account of the large experience of the Resolution Applicant to invest in distressed companies and then manage them professionally.”. Upon critical examination of the provided statements regarding feasibility and viability, it is pertinent to take notice of the fact that the Resolution Applicant's assertions fundamentally lack substantive details and concrete implementation strategies. While the Resolution Applicant expresses confidence in their ability to revitalize the Corporate Debtor and cites its experience with distressed companies, these declarations remain purely aspirational in nature, unsupported by specific operational framework. The mere assertion of confidence and reference to past experience, without accompanying detailed operational restructuring plan or concrete and well-reasoned financial projections, fails to justify the "feasibility and viability" of the Resolution Plan submitted by the SRA. The Resolution Applicant has solely relied on its prior experiences as an NBFC without demonstrating its practical application to the Corporate Debtor's specific circumstances, thus, the same raises substantial doubts about the plan's sustainability. Furthermore, the SRA has failed to establish a clear nexus between its (SRA's) claimed expertise and the specific challenges faced by the Corporate Debtor. Furthermore, the Adjudicating Authority is conscious of its limited power of judicial review in relation to a plan approved by the majority of the CoC. However, in the present case, the SRA is also a Financial Creditor of the Corporate Debtor, holding majority of the Voting Share in the CoC. The SRA has itself submitted and approved the Resolution Plan orchestrated by itself, thus, this raises notable concerns about the Feasibility and Viability of the Resolution Plan and also the Commercial Wisdom having been exercised by the CoC, considering the fact that the SRA is virtually a sole CoC member, being an NBFC is providing for the resolution of a company engaged in the business of content distribution and exhibition of feature films, evidencing that the SRA has no specific expertise in the line of business of the Corporate Debtor.

Moreover, Regulation 39(3)(b) makes it mandatory for the CoC to “record its deliberations on the feasibility and viability of each resolution plan”. However, on through examination of the Minutes of the 7^th CoC Meeting held on 17.10.2023, wherein the Resolution Plan submitted by the SRA was approved by the CoC with 77.97% votes, it has come to light that the CoC has nowhere, in the said meeting, recorded its deliberations with respect to the feasibility and viability of the plan submitted by the SRA. Thus, the plan approved by the CoC is in clear violation of Regulation 39(3)(b) of IBBI Regulations, 2016. Further, at this stage, it is also pertinent to note that the SRA, i.e., Micro Capitals Private Limited, is virtually a sole member of the CoC as it holds a dominant position in the CoC with a 77.97% voting share. However, the approval of the said plan was dissented by Axis Bank, which holds only 22% voting share in the CoC making it a mute spectator in the CoC. Therefore, the fact that the SRA is both the architect and primary approver of the Resolution Plan – raises substantial concerns about the objectivity of the approval process and this, viewed in conjunction with the Plan’s inability to demonstrate concrete feasibility and viability measures, is enough to evidence that the current plan does not satisfy the provision given in Regulation 38(3)(b). Therefore, objection d, as raised by the Respondents hold merit as the Plan proposed by the SRA is, in fact, in direct contravention of Section 30(4) of the Code and further, none of the minutes of the CoC minutes placed on record demonstrates the deliberations of the CoC on the feasibility and viability of the Resolution Plan, in violation of Regulation 39(3)(b) of IBBI Regulations, 2016.

Objection e of the Respondents is that the Resolution Plan does not make any provisioning for contingent liabilities of the disputed claim. It is pertinent to note that this Objection is being dealt with Objection g.

Objection f, as contended by the Respondents, is that the Resolution Plan submitted by the SRA fails to demonstrate that it has “taken into account” the objectives of the IBC of the maximization of the value of the assets of the Corporate Debtor and balances the interests of all stakeholders. It is pertinent to note that a critical examination of the Minutes of the 7th CoC Meeting held on 17.10.2023, reveals a serious omission in the Resolution Plan. It has come to light that there exists property/properties of the Corporate Debtor which was apparently sealed by the Enforcement Directorate. The same can be substantiated by Item 5 (e) recorded in the said Meeting, which is as under-

Thus, in view of the aforementioned Item 5(e), it unequivocally stands established that there is, in fact, a property/properties under the name of the Corporate Debtor which was/were sealed by the ED. While the ED subsequently granted consent for de-sealing this property, however, it is pertinent to note that there is no mention of such properties/property in the plan submitted by the SRA. The Resolution Plan submitted by Micro Capitals Private Limited provided no way of dealing with the disposal/distribution of the aforementioned assets of the Corporate Debtor. The RP, in the present case, has miserably failed to protect the assets of the Corporate Debtor and also has failed to take any steps towards maximization of the value of the assets. The SRA's failure to mention the details of the property and treatment, disposal, or distribution of the said property of the Corporate Debtor constitutes a material deficiency in the Plan. Such an oversight cannot be overlooked, as it directly impacts the interests of all stakeholders and potentially undermines the entire resolution process, to the extent of going against the objective of the Code, that is, the maximization of the value of assets of the Corporate Debtor. The aforementioned fact of not taking into account the property / properties of the Corporate Debtor has caused immense prejudice to the interest of the Financial Creditors as the RP has miserably failed to collate all the assets of the Corporate Debtor and has not taken any steps towards maximization of the assets of the Corporate Debtor, and the same cannot be overlooked by this Tribunal. Such an omission on part of the RP is not detrimental to the interest of the Financial Creditors but has caused immense prejudice to the interest of all the stakeholders.

Objection g, as raised by the Respondents, is that the Resolution Professional failed to consider that the Revenue Department is a 'secured creditor' in terms of the Supreme Court Judgment passed in the matter of State Tax Officer v. Rainbow Papers Ltd. which was re-affirmed by the Hon'ble Supreme Court in Sanjay Kumar Agarwal v. State Tax Officer & Anr. while dismissing five review petitions preferred against the State Tax Officer v. Rainbow Papers Ltd. Further, as contended, the Plan also fails to recognise the ruling of the Hon'ble Supreme Court in the matter of State Tax Officer v. Rainbow Papers Ltd., wherein the Hon’ble Supreme Court has emphasized that statutory dues owed to the government or governmental authorities cannot be overlooked in a resolution plan. In order to appreciate the merits of this issue, we must appreciate the decision of the Hon’ble Supreme Court in the matter of State Tax Officer v. Rainbow Papers Ltd, wherein it was held as under-

Furthermore, it is imperative to examine Section 142A of the Customs Act, 1962, vis-a-vis with Section 48 of GVAT Act. Section 142A of the Customs Act is as under-

Further, Section 48 of GVAT Act is as under-

Thus, in view of the aforementioned and the Supreme Court’s judgment, it stands established that the analysis of Rainbow Papers will be applicable to the facts of the present case as well, as the statutory provision creating “first charge” in favour of the relevant government or statutory authority viz. Section 142A of the Custom Act, 1962 is pari materia with the provision of Section 48 of the GVAT Act. Therefore, the statutory dues owed to government authorities deserve to be treated equally with other secured creditors as per Section 53 of the IBC, 2016. Therefore, in view of the above the objection raised by the Respondent holds merit. In context of Objection e, on perusal of the documents available on record, it deserves to be taken note of that RP has failed to take notice of the fact of pendency of the Appeal before the Ld. CESTAT regarding the claim raised by the Customs Department. the Plan does not contain any contingency provision of disputed claims as the RP has failed to take notice of the same.

Apart from the grounds of objection raised by the Respondent, this Bench, after thorough perusal of the documents available on record, has noted that there is a glaring inconsistency in the Form H (Annexure- 11) submitted by the RP. Under Heading “9. The Compliance of the Resolution Plan is as under:”, With respect to the compliance of Regulation 38(1B), the RP has stated as follows-

It stands clear from the perusal of the aforementioned that the RP has evidently marked a “Yes” to “Whether the Resolution Applicant or any of its related parties has failed to implement or contribute to the failure of the implementation of any resolution plan approved under the Code.” Therefore, this Bench takes due notice of the glaring inconsistency on part of the RP of the Corporate Debtor.

Furthermore, it is pertinent to note that there exists a significant discrepancy with respect to the total plan value of the resolution plan submitted by the SRA. On examination of the Resolution Plan, it has been observed that on page 182 of the present Application, the SRA has expressly stated “The total Plan value envisaged by the Resolution Applicant is of Rs. 2,65,00,000 (Rupees Two Crores Sixty-Five lakh only).” However, the same stands inconsistent to the pleaded case in the instant Application. The Applicant in the present Application has submitted and pleaded that the Total Plan Outlay is Rs. 3.01 Crores and the same is evident from the perusal of the present Application. Point 16 of the present IA deals with “salient features of the Resolution Plan submitted by the Resolution Applicant”, which is reproduced as under-

Therefore, in view of the aforementioned fact, it stands established that there is, in fact, a material inconsistency with respect to the total value of the plan submitted by the SRA. In the Resolution Plan, the Plan value is stated to be Rs. 2,65,00,000/-. However, the actual plan value is Rs. 3,01,00,000/- according to the pleaded case of the Applicant and as the same has expressly stated in Form H submitted by the Applicant. Thus, this Bench takes notice of this glaring inconsistency in the present case.

Further, upon perusal of the documents available on record, it has come to light that the Applicant has failed to annexe the minutes of all the CoC Meetings. While the minutes of the 1st and 7th CoC meetings have been placed on record, the minutes of intervening meetings (2nd to 6th) are conspicuously absent. Furthermore, the Information Memorandum, which is a foundational document, has also not been placed on record. In the same vein, the RFRP has also not been placed on record. Thus, this selective placement of relevant documents raises substantial concerns about the transparency of the resolution process and the completeness of information available for judicial consideration. Such incomplete submission of crucial documents severely impairs this Bench's ability to conduct a thorough and meaningful evaluation of the resolution process.

At this stage, it deserves to be emphasized that this Bench is conscious of the ruling of the Apex Court in The Committee of Creditors of Essar Steel Limited v. Satish Kumar Gupta [(2019) ibclaw.in 07 SC], wherein it was held that the CoC's commercial wisdom is paramount in resolving a Corporate Debtor. However, in the present case, the SRA, Micro Capitals Private Limited, commands a dominant position in the Committee of Creditors (CoC) with a 77.97% voting share and as effectively established itself as the sole decision-maker in the resolution process. This unprecedented situation, where the SRA has proposed, evaluated, and approved its own Resolution Plan through its majority voting power, is a clear violation of the legal maxim "nemo judex in causa sua" - no one should be a judge in their own cause. While the commercial wisdom of the CoC has been accorded paramount status and the jurisdiction of this Tribunal to interfere with the same is limited, but the facts and circumstances of present case fall beyond mere commercial consideration as the same involves procedural impropriety. The SRA's dual role as both proposer (Resolution Applicant) and approver (Dominant CoC Member) has resulted in a Resolution Plan that is structured to primarily benefit its own interests, rather than serving the collective interests of all stakeholders, more particularly, in light of the fact that property/ properties belonging to the Corporate Debtor allegedly de-sealed by the ED has been kept out of the purview of the Plan value. This is a self-serving arrangement as is evidenced by the absence of clear payment terms for other creditors, particularly the dissenting Financial Creditor, Axis Bank, which holds a 22% voting share. Therefore, the fact that the SRA stands to benefit disproportionately from its own plan, coupled with the fact that the Resolution Plan lacks the requisite feasibility and viability, demonstrates that no sound wisdom, let alone commercial wisdom has not been exercised in this case.

Considering the facts and circumstances of the present case, particularly the objections raised by the objectors, we are of the opinion that the Resolution Plan submitted by Micro Capitals Private Limited has demonstrated multiple violations of the Code and Regulations, specifically:

- Section 30(4) of the Code and Regulation 38(3)(b) of IBBI Regulations, 2016 - The Resolution Plan submitted by the SRA fails to demonstrate the Feasibility and Viability in the present Plan. - Regulation 39(3)(b) - The CoC failed to record its deliberations on the feasibility and viability of the Resolution Plan in the 7th CoC meeting. - Section 30(2)(b) of IBC and Regulation 38(1)(b) of IBBI Regulations, 2016 - The plan fails to demonstrate bifurcation of payment to dissenting Financial Creditors over assenting Financial Creditors,

- RP failed in collation of the assets of the Corporate Debtor as the properties have been left out of the valuation of the Corporate Debtor.

Thus, this is a violation of the very basic objective of the code, that is, maximization of value of assets of the Corporate Debtor.

Furthermore, the plan contains several material inconsistencies and deficiencies that cannot be overlooked:

- Discrepancy in the total plan value - stated as Rs. 2.65 Crores in the Resolution Plan but Rs. 3.01 Crores in Form H and the Application - Absence of crucial documents including minutes of 2nd to 6th CoC meetings, Information Memorandum, and RFRP - Glaring inconsistency in Form H regarding the Resolution Applicant's track record of implementation of previous resolution plans

In light of these violations, inconsistencies, and the fact that the Resolution Applicant is virtually acting as a sole CoC member approving its own plan, this Bench finds the Resolution Plan submitted by Micro Capitals Private Limited unsuitable for approval in view of the afore-stated violation of material provisions and regulations of the Code. The principle of "nemo judex in causa sua" has been violated, and the commercial wisdom, if any, exercised in this case fails to protect the interests of all stakeholders as envisioned under the Code. Accordingly, the Application seeking approval of the Resolution Plan is hereby rejected.