Mr. Nitin Khandelwal vs Maini Construction Equipments Private Limited

PER: CHIEF JUSTICE (RETD.) RAMALINGAM SUDHAKAR (PRESIDENT)

The present application bearing CA-622(PB)/2019 was moved by MR. DEBASHIS NANDA Resolution Professional (“RP”) of MAINI CONSTRUCTION EQUIPMENTS PRIVATE LIMITED (“MCEPL”) on 01.04.2019 under the provisions of Sections 30(6) of the Insolvency & Bankruptcy Code, 2016 [hereinafter referred to as “the Code” or “IBC”] read with Regulation 39(4) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) for approval of the Resolution Plan in respect of MAINI CONSTRUCTION EQUIPMENTS PRIVATE LIMITED (“Corporate Debtor”) for seeking the following reliefs: -

CA-376/2020 is an application filed by the MR. DEBASHIS NANDA RP on 06.08.2020 for resumption of hearing on approval of the resolution plan of the Corporate Debtor which has been long pending before this Hon’ble Tribunal, for seeking the following reliefs: -

The Corporate Debtor (“CD”) was incorporated on 26.06.1997, as a Company Limited by Share (Non- govt. Company) having CIN: U29246DL1997PTC286637, under the Companies Act, 1956. The CD is a registered MSME (Micro Small and Medium Enterprises) under the category of small enterprises. The UAM (Udyog Aadhaar Memorandum) No. of the CD is UDYAM-DL-08-0014017^{11.The Applicant/RP has submitted the MSME Registration Certificate before this Adjudicating Authority on 20.02.2023} and the date of Udyam Registration is 28.05.2021. The Authorised Share Capital of the CD is Rs.2,00,00,000/- (Rupees Two Crores only) and the Paid-up Share Capital of the CD is Rs.1,32,62,350/- (Rupees One Crore Thirty Two lakh Sixty Two Thousand Three Hundred Fifty Only). On the date of application, the CD is engaged in the Manufacture of special purpose machinery. The Registered Office Address of the CD is B-1/A- 21, GROUND FLOOR MOHAN CO-OPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI, DELHI-110044. Therefore, this Bench has jurisdiction to deal with this application.

The underlying Company Petition CP-1236/2016 was originally filed before Hon'ble Delhi High Court under Section 433(e), 434 and 439(b) of the Companies Act, 1956 for winding up. On the constitution of the NCLT and in pursuance of notification D.L.33004/99 dated 07.12.2016 issued by the Ministry of Corporate Affairs, the Hon'ble Delhi High Court transferred and listed the matter before this Tribunal. The petition was admitted by this Adjudicating Authority vide its order dated 01.06.2017 (“Admission Order”). Further, MR. DEBASHIS NANDA (IBBI/IPA-003/IP-NOOO40/2017-18/10316) was recommended by the Insolvency and Bankruptcy Board of India vide letter dated 23.06.2017 and appointed as IRP vide order dated 13.07.2017 passed by this Adjudicating Authority, who was later confirmed as RP in the First CoC meeting held on 19.08.2017.

The Applicant/RP has submitted that the public announcement was published in two newspapers i.e. Business Standard (English) and Business Standard (Hindi) Delhi Edition on July 25, 2017 to invite the stakeholders for submission of their claims. A copy of the public announcement published on July 25, 2017 is annexed and marked as ANNEXURE-2 of the Application.

In response to the public announcement made, the resolution professional received claim of only one financial creditor namely the State Bank of India, and constituted the committee of creditors (“CoC”) comprising of one member.

The resolution professional scheduled the first meeting of the CoC on August 19, 2017 wherein the interim resolution professional was confirmed as resolution professional by the CoC. Copy of the Minutes of the First meeting of the CoC held on August 19, 2017 is annexed herewith and marked as ANNEXURE-3 of the Application.

The resolution professional engaged two valuers namely Peritus Advisory and Jayant Consultants as on July 27, 2019, they submitted their valuation reports to the resolution professional and the average value of the assets of the Corporate Debtor was assessed at Rs. 9.63 Crores as fair value and Rs. 8.45 Crore as liquidation value. However, at present, the liquidation value of corporate debtor is approximately 6.5 Crores as some of the debts of corporate debtor have been realized during the CIRP period and also, the CIRP period is exceptionally long i.e., of about 1.5 years resulting in erosion of the value of inventory due to cancellation of orders.

The resolution professional engaged Anil Shalini and Associates, Chartered Accountants for conducting transactional review audit. However, no avoidable transaction as specified in the Code has been reported by the transaction review auditor.

During the course of CIRP, the banker of the corporate debtor, the financial creditor SBI itself has adjusted the amount from the account which will be treated as recovery, and seized the operations of the bank account on 28.11.2017 which affected the CIRP of the company.

The resolution professional sought legal remedy for the reversal of the action taken by the financial creditor, which caused the loss of substantial period during the CIRP.

The resolution professional filed an application for exclusion and extension of the CIRP period in addition to 90 days extension as per the provisions of the Code.

This Tribunal vide its order dated 02.08.2018 has granted exclusion and extension of CIRP period.

The RP submits that a total of 15 (Fifteen) CoC meetings have been held during CIRP period as follows:

The resolution professional proposed publication of an advertisement for inviting Expression of Interest (“Eol”) for submission of resolution plan for the revival of the corporate debtor, which was duly approved by the CoC in the ninth meeting held on 02.11.2018. Pursuant to the approval by the CoC, the invitation for Eol/resolution plan was published in the newspapers namely Financial Express and Jansatta on 14.11.2018 and in ‘Form-G’ on the website of IBBI. Copy of invitation for Eol along with Form-G published on the website is annexed herewith and marked as ANNEXURE-4 of the Application. 3.2 That in response to the aforesaid invitation Mr. Ajay Maini, the member of the suspended Board of Directors of the corporate debtor and prospective resolution applicant, submitted his Eol for the resolution plan. It is submitted that he is eligible to be resolution applicant in terms of section 29A of the Code.

The resolution applicant submitted its resolution plan to the resolution professional, which was presented before the CoC for further deliberations in the eleventh meeting of the committee of creditors held on March 8, 2019. Copy of the Minutes of Eleventh meeting of CoC held on March 8, 2019 is annexed herewith and marked as ANNEXURE-5 of the Application.

The matter was deliberated upon by CoC comprising sole member i.e., the State Bank of India, wherein the member desired some changes in the proposed resolution plan and asked the Resolution Applicant to modify and present the revised resolution plan within the time frame. The sole member informed that he needs time to consult his higher authorities before grant of approval and requested to convene the next meeting.

The resolution applicant submitted revised resolution plan to the resolution professional which provides for payment of unpaid expenses (unmet) incurred during the CIRP period including the rent for 9 Months due to Global Autotech Limited during CIRP period amounting to rupees 65 lakhs apart from other CIRP expenses of approx. 24 lakhs (totalling approx. 89 Lakhs as envisaged in the resolution plan) which was presented before the CoC for further deliberations in the twelfth meeting of the CoC held on March 30, 2019, wherein the resolution applicant informed that the plan has been modified as desired by the CoC and it proposed to settle dues of operational creditors at 50%^{22.Reduced to 10% as per Amended Resolution Plan dated 14.11.2022} of the claims of operational creditors along with other conditions as desired by the CoC.

The resolution applicant also informed that the resolution plan envisages that if Mr. Harmeet Singh, a guarantor, does not continue his guarantee for the purpose of securing loan, the financial creditor may decide to invoke his guarantee and adjust towards the sacrifice (haircut) and remaining unadjusted amount may be kept in Fixed Deposit with the bank during the tenure of the Resolution Plan implementation period.

In the twelfth meeting of the CoC held on March 30, 2019, the sole member of the CoC approved the resolution plan by passing the resolution, which is reproduced below:

The Resolution Applicant has to the extent possible, taken into account the interests of all stakeholders of the Corporate Debtor in the following manner:

a. The Resolution Plan envisages total outlay of INR 1147 Lakhs, which is detailed below:

(Amount in Rupees Crores)

Note 1: Figures indicated as per the Amended resolution plan dated 14.11.2022 along with all necessary annexures.

Note 2: C.C. means Cash Credit and W.C.T.L. means Working Capital Term Loan.

The Resolution Plan also envisages to recompense the Bank for applicable haircut in the event of the company coming out of insolvency position.

After 5 years of payment to the financial creditor, the financial creditor will have the liberty to hold back 3% of the billed amount towards redemption of Cash Credit liability.

The Resolution Plan shall not have any conditions precedent and shall be binding on Resolution Applicant even if all the exemptions and reliefs sought by the Resolution Applicant are not granted by the Hon'ble NCLT Bench.

The resolution plan envisages repayment of dues of the financial creditor namely State Bank of India in the following manner: - Upfront Payment INR 125 Lakhs - Converted into WCTL INR 358.11 Lakhs - Cash Credit of INR 500 Lakhs to be continued - Total Principal outstanding INR 858 Lakhs

The resolution applicant considering the period required to stabilize the business operations after being shut down on account of various issues that arose during the CIRP period, proposed a moratorium of 6 months. However, interest during the moratorium period will be paid monthly.

The resolution applicant based on the MOU with the landlord of leasehold premises settled the CIRP prior at Rs. 1 Crore plus applicable GST. Further, the dues incurred by the Resolution Professional (on behalf of CD) during the CIRP period, towards the operational creditors shall be paid in terms of agreements with such operational creditors during the ongoing operations of the corporate debtor or after approval of the plan.

The claim received by Resolution Professional is INR 460 Lakhs. The Plan envisages a haircut of 90% on admitted claims and proposes for payment of INR 46 Lakhs with a haircut of INR 414 Lakhs and the said haircut will be applied proportionately to all the claimants whose claim has been received by Resolution Professional. Upfront payment of 4.6 lakhs shall be made as per Regulation 38 and the balance amount of 41.4 lakhs shall be made in Quarterly Instalments with 6months moratorium.

The Resolution Applicant understands that the State Bank of India is the sole financial creditor in this case and if it dissents, the resolution plan shall not be approved. So, for the purpose of this financial proposal, we note that there is no dissenting financial creditor whether secured or unsecured.

The Resolution Plan envisages payment of all the dues towards workmen and employees in pari-passu with the dues of the financial creditors. However, as on date there are no dues to workmen and employees.

The Resolution Applicant has, to the extent possible, taken into account the interests of all Stakeholders of the Corporate Debtor.

Insolvency Resolution Process Costs will be paid in priority over payments to all Creditors. The Insolvency Resolution Process Costs, to the extent that it remains outstanding, shall be first duly paid by the Corporate Debtor from its accruals and distributable cash.

The resolution plan envisages paying the financial creditor the amounts stated above as INR 125 Lakhs upfront.

The liquidation value of the Corporate Debtor has not been provided by the Resolution Professional. Based on the data available from the IM and other documents, and based on its experience, the Resolution Applicant has developed its own Valuation.

On the basis of above, it has been assumed that Liquidation Value does not even hardly cover the outstanding debt of Financial Creditors.

Hence, the Liquidation Value of Operational Creditors (other than Workman & Employee) has been considered as NIL and accordingly, no payment under Regulation 38(1)(a) of the CIRP Regulations is required to be contemplated under this Plan.

However, to address the interest of all Stakeholders of the Corporate Debtor, the resolution plan envisaged to repay the Operational Creditors in the manner as set forth in this plan at 10% of their admitted claims.

The Resolution Plan envisages continued employment of all workmen/employees of CD in the normal course of business without any retrenchment/retirement (except in the normal course of their service conditions) and all the dues of workmen and employees stand paid.

The Applicant/RP has provided the details of Section 66 or avoidance application filed/pending:

The CoC has approved the resolution plan providing for contribution under Regulation 39B as under:

- a. Estimated liquidation cost: N.A. - b. Estimated liquid assets available: N.A.

c. Contributions required to be made: N.A.

d. Financial Creditor wise contribution is as under: N.A.

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

(Amount in Rs. Crore)

Note 1: Figures indicated as per the Amended Form-H dated 05.12.2022.

The Resolution Plan size is Rs.10,29,00,000/- (Rupees Ten Crores Twenty Nine Lakhs Only). The Resolution Plan defines “Effective Date” as the date on which the approval to the Resolution Plan is granted by this Adjudicating Authority.

The major cause of default is the cancellation of contract after procurement of raw materials and other business failures.

The resolution applicant has undertaken all the required checks and measures for implementation and provided for payment to all creditors. The Resolution Plan is completely feasible and viable based on market research and study.

The resolution plan has provided for the constitution of the monitoring committee to be chaired by the resolution professional and consisting of representations of CoC and of resolution applicant as members.

The resolution applicant does not require any approval.

The resolution applicant has past experience and was running the company successfully for several years. The Resolution Applicant will strategize the business of the corporate debtor by implementing the measure provided in this resolution plan and the plant of the Corporate Debtor is running at reasonable capacity utilisation.

The compliance of the Resolution Plan is as under:

The Applicant/RP submits that the successful resolution applicant^{44.There is no PUFE (Preferential Undervalued Fraudulent Extortionate) transactions pending against the SRA and SRA is a relevant eligible party under Section 29A of the Code, as there is no bar for the promoter to file Resolution Application, as the CD is not an undischarged insolvent or willful defaulter.} is eligible under section 29A of the Code to submit the resolution plan, as required by Regulation 39(1)(a) of the CIRP Regulations. An undertaking has also been submitted by the successful Resolution Applicant, as mandated in terms of regulation 39(1)(c) of the CIRP Regulations. The Applicant/RP has filed a Compliance Certificate in the prescribed Form, i.e., Amended Form-H as per the amended resolution plan dated 05.12.2022 in compliance with Regulation 39(4) of the CIRP Regulations.

The Resolution plan envisages sale of all such of plants and machinery which have become obsolete on account of non-maintenance for long period of time. 6.2. The Resolution plan envisages that there is no change in the shareholding pattern of the company 6.3. The Resolution Plan envisages making payment to all creditors, as set forth above, however considering the future operations of the unit if any betterment than projected is experienced, the Financial Creditor shall have "Right to Recompense" on such excess profits. 6.4. The Resolution Plan envisages payment towards Financial Creditor at an interest rate of 10% on Cash Credit and 10.5% on WCTL. 6.5. The Resolution Plan envisages introducing new products from the similar line in an effort to expand the business in due course of time.

The Resolution Plan considering the cross border market opportunities in the similar line industry envisages exploring the opportunities in foreign markets and intends to invest substantial funds for development and marketing. 6.7. The company was fully operational before the commencement of CIRP and does not need to obtain any new license.

The Resolution Plan envisages a duration of 66 Months for payment to all creditors of the corporate debtor including financial, operational and infusion of funds towards working capital and others. In the above background, tenure of the Resolution Plan is considered as 66 Months from the month in which the Resolution Plan is approved by the Adjudicating Authority.

a. Constitution of Committee for monitoring and supervision of resolution plan:

It is envisaged in the Resolution Plan to constitute a monitoring committee comprises of representative of the CoC, representative of the Resolution Applicant and resolution professional Debashis Nanda as chairperson of the committee constituted for supervision and monitoring of the implementation of the Resolution Plan for the term of the Resolution Plan. The monitoring committee/entity, constituted, shall have inter alia the following responsibilities:

The resolution plan envisages payment of fee to the chairperson of Rs. 35,000/- per month + applicable taxes (if any). All incidental/out of pocket expenses shall be paid and will be reimbursed as per actuals. No other fee shall be borne by the Resolution applicant.

The Board of Directors of MCEPL shall resume management of Company on approval of the Resolution Plan by the Adjudicating Authority and the Resolution Professional shall be discharged from his duties.

The Board of Directors shall comprise as under:

Mr. Ajay Kumar Maini

Mr. Rakshak Maini

The resolution plan envisages repaying all priority dues within 30 days from approval of the resolution plan by Adjudicating Authority; the following amounts shall be paid:

The objector namely MR. HARMEET SINGH in CA-622/2019, a guarantor is assailing the Resolution Plan submitted by the Resolution Applicant, Mr. Ajay Maini (Original Promoter of the Corporate Debtor, MCEPL.

The Resolution Plan, insofar as it names the Applicant as a Personal Guarantor of the loan taken by the Corporate Debtor from the State Bank of India (formerly, State Bank of Bikaner and Jodhpur), Faridabad Branch [hereinafter called, "the Bank"] and seeks to bind the Applicant without his knowledge or consent, is unfair, illegal and mala fide. The Applicant is not a Guarantor to the credit facility extended by the Bank to the Corporate Debtor. He was fraudulently Implicated in the said transaction by the Resolution Applicant who took advantage of his 35 years old friendship and familial relations with the Applicant. On coming to know of the fraud, the Applicant filed a civil suit bearing CS. No. 1190/2019 before the Ld. Civil Judge, Faridabad District Court, categorically denying the execution of any agreement, much less a 'contract of guarantee by the Applicant on behalf of the Corporate Debtor and seeking the relief of declaration, permanent and mandatory injunctions and other consequential reliefs against the Bank and the Resolution Applicant.

The Applicant, on coming to know of the fraud perpetrated upon him, immediately addressed a letter dated 28.04.2017 to the Bank thereby withdrawing his (alleged) guarantee and informing the Bank of the grave and serious acts of fraud played upon the Applicant. It is settled law that a guarantor cannot be made liable for the dues arising or accruing after the date of withdrawal of the guarantee. In the instant case, the Resolution Plan envisages satisfaction of the entire claim of the Bank amounting of Rs. 9.83 Crores and gives the Bank the right to proceed against the guarantor only in respect of the remaining interest liability amounting to Rs. 2.5 Crores. It is submitted that this interest liability does not pertain to the period prior to 28.04.2017 and hence, even assuming that the Applicant was indeed a Guarantor as alleged, he cannot be made liable for the dues pertaining to the period post the withdrawal of guarantee.

In light of the aforesaid, the present Objections/ Reply is being filed against the Resolution Plan approved by the CoC. The Applicant submits that he is in compliance with all applicable laws. 8.5 On 20.07.2022 this Adjudicating Authority passed the following order in CA-622/2019, which is extracted as below:

On 12.10.2022 this Adjudicating Authority passed the following order, which is extracted as below:

With the objections out of the way, we now proceed to examine the application filed by RP for approval of the Resolution Plan. We find that the CIRP was initiated on 01.06.2017 against the CD on the application of Operational Creditor and the moratorium was applicable since then. But on 28.11.2017, the Bank seized the operations of the bank account of the CD and declared the account of the CD as NPA. Consequently, the RP filed CA No. 20/2018 which was allowed by this Adjudicating Authority on 25.01.2018, directing the Financial Creditor to immediately de-freeze the account of the Corporate Debtor and to roll back all debit entries adjusted in the account of the Corporate Debtor after 01.06.2017 and to restore the account in the same state as it was on 01.06.2017. Order dated 25.01.2018 passed by this Adjudicating Authority in CA-20(PB)/2018 is extracted below:

Thus original promoter of the Corporate Debtor has submitted this resolution plan, giving an undertaking that he is eligible under Section 29A of the Code (also refer para 5.3 ibid).

On hearing the submissions made by the Ld. Counsel for the Resolution Professional and perusing the record, we find that the Resolution Plan has been approved by the CoC. As per the CoC, the Plan meets the requirement of being a viable and feasible revival of the Corporate Debtor. By and large, there are provisions for making the Plan effective after approval by this Bench.

At this juncture, we rely upon the Judgement passed by Hon’ble Supreme Court in the matter of “Vallal RCK versus M/s Siva Industries and Holdings Limited and Others, Civil Appeal Nos. 1811-1812 of 2022” whereby the Hon’ble Apex Court has answered the question as to whether ‘the adjudicating authority (NCLT) or the appellate authority (NCLAT) can sit in an appeal over the commercial wisdom of the Committee of Creditors (hereinafter referred to as the “CoC”) or not’. We rely upon the following paragraphs:

In light of the above-quoted judgements, it is clear that the "Commercial wisdom of CoC" is given paramount status. This Adjudicating Authority is not endowed with the powers of jurisdiction or authority to analyse or evaluate the commercial decision of the CoC.

The Resolution Plan of the MAINI CONSTRUCTION EQUIPMENTS PRIVATE LIMITED has been upvoted by CoC unanimously in the twelfth CoC meeting and this Adjudicating Authority cannot interfere in the same.

On perusal of the documents on record, we are satisfied that the Resolution Plan is in accordance with Sections 30 and 31 of the IBC and also complies with regulations 38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The reliefs, concessions and waivers sought by the Successful Resolution Applicant will be dealt with strictly as per law.

As far as the question of granting time to comply with the statutory obligations/seeking sanctions from governmental authorities is concerned, the Resolution Applicant is directed to do the same within one year as prescribed under section 31(4) of the Code.

In case of non-compliance of this order or withdrawal of the Resolution Plan within the stipulated time, in addition to other consequences which follow under law, the CoC shall forfeit the EMD amount, if any already paid by the Resolution Applicant as well as the Performance Bank Security, if any.

The CA-622/2019 which is for approval of the Resolution Plan is allowed and the Resolution Plan of Rs.10,29,00,000/- (Rupees Ten Crores Twenty Nine Lakhs Only) is hereby approved. The Resolution Plan shall form part of this Order.

The Resolution Plan is binding on the Corporate Debtor and other stakeholders involved so that the revival of the Corporate Debtor Company shall come into force with immediate effect.

The Moratorium imposed under section 14 of the Code shall cease to have effect from the date of this order.

The RP shall submit the records collected during the commencement of the proceedings to the Insolvency & Bankruptcy Board of India for their record.

Accordingly, CA-376/2020 stands disposed of as becomes infructuous.

The main Company Petition, i.e., CP-1236/2016 stands disposed of accordingly.

Liberty is hereby granted for moving appropriate application(s) if required in connection with the implementation of this Resolution Plan.

A copy of this Order shall be filed by the Resolution Professional with the Registrar of Companies, NCT of Delhi & Haryana.

The Resolution Professional shall stand discharged from his duties with effect from the date of this Order, save and except those duties that are enjoined upon him for implementation of the approved Resolution Plan.

The Resolution Professional is further directed to hand over all records, premises/factories/documents available with it to the Resolution Applicant to finalise the further line of action required for starting of the operation. The Resolution Applicant shall have access to all the records and premises through the Resolution Professional to finalise the further course of action required for starting of operations of the Corporate Debtor.

The Registry is hereby directed to send copies of the order forthwith to the IBBI, all the parties and their Ld. Counsel for information and for taking necessary steps.

Certified copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

File be consigned to the record.