Mr. P Mohanraj & Ors. vs Mr. V. Mahesh & Ors.

"In view of the above facts and circumstances of the case, it is most humbly prayed by the Applicants that this Hon'ble Tribunal may be pleased to make necessary modifications to its order dated 30.09.2019 approving the Resolution Plan of the Corporate Debtor, as detailed in the Schedule hereunder and pass such further orders as it may deem fit and proper in the interest of justice and equity."

This Application has been filed by the Axis Bank Ltd against the Resolution Applicant who is the MSME Unit which is taken over by the erstwhile promoters under Resolution Plan and the same was admitted by this Adjudicating Authority on 30.09.2019.

It is an admitted fact that the Resolution Plan could not be implemented and there is a delay in implementation of the Resolution Plan is admitted by all the parties before us.

Ld. RP is the Chairman of the Monitoring Committee and states that out of four properties of Corporate Debtor, there are prospective buyers for two properties and there is a possibility to make the plan successful and viable one. However, the State Bank of India and the Axis Bank Ltd, the two leading creditors do not approve the stand of the Resolution Applicant and very strongly opposes to extension of time for implementation of the plan.

It is also pertinent to mention herein earlier MA/75/2020 was filed by the State Bank of India seeking a direction to the Resolution Applicant to implement the plan at the earliest. Subsequently, the State Bank of India has withdrawn MA/75/2020.

We have heard all the parties.

Liquidation being the last resort as repeatedly emphasized in various orders by the Hon'ble NCLAT and the Hon'ble Supreme Court.

We have taken the suggestions made by the Ld. RP who is also the Chairman of the Monitoring Committee. The RP is permitted to conduct the stakeholders meeting and discuss about the viability of implementation of the plan and submit the minutes of the meeting before the next date of hearing.

The RP is permitted to conduct more than one meeting, if necessary.

List this IA/1266/IB/2020 on 07.01.2022 for hearing and disposal.

No further adjournment shall be granted in this matter.

All parties are permitted to file compilation, additional documents, citations, reply, if any, on or before the next date of hearing.

The Monitoring Committee is led by the erstwhile RP Mr. V. Mahesh is present in person. The Resolution Applicant is represented by Learned Counsel Mr. T.K. Bhaskar. Both of them state that, as per the order of this Adjudicating Authority dated 07.12.2021, there was a meeting of the Stakeholders held on 05.01.2022 and 07.02.2022. There were two meetings held by the stakeholders committee wherein it was held discussion for modification of the Resolution Plan.

The Resolution Applicant / erstwhile RP also submits that the State Bank of India, in principle has given an approval for settlement of the entire amount due and payable. However, the question before this Adjudicating Authority is that when Resolution Plan was approved on 30.09.2019 and had given 45 days' time to the Resolution Applicant for implementation of the Plan along with various reliefs and concession, it is admitted that for the reason best known to the Resolution Applicant and the Monitoring Committee, the plan could not be implemented till date.

However, Learned Counsel for the successful Resolution Applicant Mr. T. K. Bhaskar made elaborate arguments as to why this IA/1266/IB/2020 seeking for an order of liquidation ought not to be passed and the Resolution Applicant ought to be given more time for submitting a plan with modification for implementation of the Resolution Plan.

The question before us is that whether the Resolution Applicant as per the provisions of the IBC, 2016 is entitled for seeking an extension of time for implementation of the Resolution Plan? Whether the Resolution Applicant, who had totally failed to implement the Resolution plan, is entitled to seek further reliefs and concession for implementation of the same?

It is also pertinent to mention here that MA/75/2020 which was filed by other Financial Creditor viz., State Bank of India has brought attention to this Adjudicating Authority regarding non-implementation of the approved Resolution Plan by the Resolution Applicant, however, subsequently, this Application was withdrawn by the State Bank of India / Financial Creditor. Whether the Adjudicating Authority has powers to extend the period for implementation of the Resolution Plan, if so, up to what time for implementation of the Resolution Plan can be extended? The 2nd issue arising out of the same proceeding is by seeking extension of time, the Corporate Debtor comes in the form of the Resolution Applicant seeks extraordinary extension of time for implementation of the Plan on one ground or the other dragging the settlement of dues to all Creditors? Whether this is only an extension of OTS proposal, which ought to have been done by the Recovery Tribunal? The Resolution Plan appears to be a mere OTS, with concessions and relief, in favour of the debtor.

Learned Counsel appearing for State Bank of India Mr. R. Sugumaran states that in respect of IA/1266/IB/2020 was filed by the Axis Bank Ltd. The R2 herein is the State Bank of India has also filed an affidavit as sailing with the Applicant herein.

However, Learned Counsel for State Bank of India now seeks time to take further instruction from his client regarding whether State Bank of India is sailing along with Axis Bank Ltd in IA/1266/IB/2020 or whether State Bank of India has changed its position in respect of the Resolution Plan?

List this matter on 18.03.2022 for further hearing.

(a)

At para 6 of the order of this Tribunal dated 30.09.2019, the following observation is made:

6.

The Resolution Professional has stated that the Resolution Plan submitted by the Promoters of the Corporate Debtor and supported by the Financial Sponsor, viz, Anacap Financial Partners LLP, UK is exhaustive and provides for... The said observation be duly modified to read as under in light of the withdrawal of support by Anacap Financial Partners LLP:

6.

The Resolution Professional has stated that the Resolution Plan submitted by the Promoters is exhaustive and provides for...

(b)

In para 7(ii) of the order of this Tribunal dated 30.09.2019, the following table is extracted to set out the infusion of funds for the purpose of settling the financial creditors under the Resolution Plan:

"The Shareholding Pattern of the Corporate Debtor shall remain unchanged post-Resolution Plan and the current shareholders of the Corporate Debtor shall continue to hold the shares which were held by them prior to initiation of corporate insolvency resolution process"

(d)

In para 7(vi) of the order of this Tribunal dated 30.09.2019, the following observation is made in relation to concessions, reliefs, and waivers sought under the Resolution Plan:

...It is stated that the amount to be received on disposal of immovable properties of Corporate Debtor and such of the properties of the Promoters or personal guarantors which are being sold, will directly be transferred for settlement of loan to the Secured Creditors or as committed in the Resolution Plan, which should not be treated as "Capital Gain" in the hands of the Corporate Debtor or the Personal guarantors or Promoters. The said concession has been granted by this Tribunal in para 8(vii) of the order dated 30.09.2019. It is submitted that in light of the withdrawal of Anacap Financial Partners LLP as financial sponsor, this Tribunal may be pleased to clarify that the Promoters shall have the benefit of the said concession in implementing the Resolution Plan as per the proposal dated 11.02.2022.

(e)

In para 7(ii) and para 8(ii)-(iv) of the order of this Tribunal dated 30.09.2019, reference is made to a One Time Settlement proposal of Rs 17.63 crores to paid by the Promoters which has been accepted by State Bank of India. It is submitted that the Resolution Plan, envisages an One Time Settlement by the Promoters for complete release of their Personal Guarantees, though being part of the Resolution Plan, the same is an Independent Arrangement between the promoters and State Bank of India and is governed by mutual agreement between the parties, as regards settlement of the amount and release of the properties, as and when the amount is duly paid in respect of the said amount, the deposit made by the promoters in this regard and interest accrued and to be paid shall not form part of the Resolution Plan and the subsequent change may be given effect to.

DIAMOND ENGINEERING (CHENNAI) PRIVATE LIMITED (DECPL) CALENDAR OF EVENTS FROM 30.09.19 to TILL DATE

2.

It is submitted that from the Calendar of Events, as cited above, it is an admitted fact that the Resolution Plan as Approved by this Hon'ble Bench, could not be implemented. The same is recorded in the Monitoring Committee Meeting held on Feb and March 2020.

3.

The Resolution Applicants submitted a detailed revised Resolution Plan, with NO CHANGE in the Settlement Terms, once the Financial Sponsor backed out, after due discussions and deliberations with the largest COC Member and the same was under consideration.

4.

It is submitted that on 29.09.2020, SBI had conveyed their decision "Rejecting" the Revised Resolution Plan for the reasons stated therein. All these being part of the records are not traversed herein to avoid repetition. Axis Bank had communicated their views on the same seeking "parity" as per Voting Share in the COC. All these are part of the pleadings in 1A/1266/2020 filed by Axis Bank.

5.

It is submitted that subsequently, SBI, preferred MA 75 of 2020, where the Prayer was seeking "to Implement the Resolution Plan along with interest" among other things. Axis Bank filed an Impleading IA In this MA 75/2020 and also a separate IA 1266/2020 seeking Liquidation of the CD, for non- implementation of the Resolution Plan, as cited above. Annexure B: The status report and counter filed by the RP in Feb and Dec 2020 in IA/1266/2020 are enclosed.

6.

It is submitted that the matter was posted from time to time, giving adequate opportunity to all the parties to file their submissions, pleadings and type set of documents and finally on 07.12.2021, this Hon'ble Bench, passed a detailed Order.

7.

In pursuance of the aforesaid Order dated 07.12.21, it is submitted that the Resolution Professional and Chairman of the Monitoring Committee, inspected the Core and Non-Core Assets/Immovable Properties of the CD, had discussion with the CD's core working team, discussed and negotiated with the proposed buyers for the Immovable Properties of the CD, as informed in the hearing held on 07.12.2021 and the best of the offers were finalized. These were placed before the Monitoring Committee of DECPL (shared through mail before the meeting) held through VC on 05.01.2022. The minutes of the same are enclosed. Subsequent to this one more better offer also has been received, which is being discussed, as it offers Rs. 300 L more than the Best Offer.

Annexure C: Minutes of Monitoring Committee Meeting held on 05.01.2022

8.

It is further submitted that subsequent to the said meeting the proposed buyers for these Two Properties, met SBI for clarification regarding the process of buying the properties, as it involved, release of mortgage on these properties and NOC from them. The process was clearly explained to them and they have agreed to the same.

9.

The Resolution Professional herein, submits that the CD is a Going Concern, as stated earlier and the present operational details of the CD, in terms of Orders, receivables, stock, advances received, status of completion of present orders, etc for the kind perusal of the Bench.

Annexure D: Operational status of CD as on 31.12.2021

10.

The Resolution Professional, was in receipt of a written proposal from the Resolution Applicants after the Monitoring Committee Meeting and the same has been shared with the Committee. The same is enclosed for ready reference of the Bench.

Annexure E: Proposal dated 06.01.2022 received from Resolution Applicant/s

"It is hereby submitted that the Financial Sponsor (FS) M/s. AnaCap UK earlier submitted an offer for Rs.145 crores and the committee was informed by the Resolution Applicants that the FS ready for an investment of only Rs.60 crores. The Resolution Applicant gave a letter dated 07.02.2020 and read out the same during the meeting, partly explaining the reasons for non implementation of the plan as approved. The Committee took note of the same but did not agree or approved the same."

"The RP hereby submits that the Liquidation Application has been circulated to CoC members in December 2019 and the same was to be considered if the Resolution Applicant/s failed to honour the plan approved by this Hon'ble Bench, even after sufficient time provided to them, to negotiate and finalise the terms with the Financial Sponsor."

OBSERVATIONS:-

ISSUE No. (I) & (II)

ii. Claims of the Financial Creditors and settlement thereof:

The Resolution Professional has submitted that a time period of 45 (Forty Five) days would be required from the date of approval of the Resolution Plan by this Authority for making the payments to Financial Creditors as detailed below:

NAME OF THE COC MEMBER	AMOUNT
State Bank of India	127.37 Crore
AXIS Bank	21.56 Crore
India Factoring	1.00 Crore
SBI Global Factor	6.85 Crore
Total	156.78 Crore

The requirement of the funds is proposed to be financed from the following resources:

TO BE PAID BY	AMOUNT
Finance Sponsor	145.00 Crores
Promoters of Corporate Debtor	11.78 Crores
TOTAL	156.78 Crore

It is further stated by the Resolution Professional that the Promoters / Resolution Applicants will pay a sum of Rs. 17.63 Crores to the Financial Creditor viz., State Bank of India by way of One Time Settlement (OTS) in addition to the Resolution Plan amount of Rs.127.37 Crores. Upon receipt of full and final consideration, the State Bank of India would initiate adequate steps for releasing all the mortgaged properties (properties of Corporate Debtor as well as personal properties of the Guarantors) by filing necessary Application before the DRT, Chennai.

8. OBSERVATIONS/APPROVAL:

ii.

It is noted that in addition to the Resolution Plan 'One Time Settlement' (OTS) is offered to State Bank of India (SBI) whose percentage of stake in the total voting power is 78%. The pattern of payment for the OTS is described below::

(v) Shareholding Pattern of Corporate Debtor post Resolution Plan:

The Resolution Plan provides that after its approval by this Authority, the Financial Sponsor shall hold 76% of Equity, and the Promoters/Present Shareholders of the Corporate Debtor shall hold 24% of the Equity. The value per share shall be suitably reduced. Further, if the Corporate Debtor and the Promoters achieve the projections as contemplated in the Plan, the Financial Sponsor shall transfer their shares to the promoters free of cost in the manner given below:

"It is well settled principle in Law that an 'inherent power' cannot be resorted to when there are specific provisions in Law to deal with the situations. In this connection, this Tribunal worth recalls and recollects the decision of Hon'ble Supreme Court in 'Durgesh Sharma' V. 'Jayshree' reported in Air 2009 Supreme Court at page 285 wherein it is observed and held that the inherent power cannot be exercised in contravention or in conflict or ignoring express provision of Law, since law relating to transfer is contained in Section 22 to Section 25 of the Code and they are exhaustive in nature."

"this tribunal comes to an inevitable, irresistible and inescapable conclusion that an opportunity to revive the 'Corporate Debtor' as per terms of 'Resolution Plan' is not to be provided to the Appellant(s)/ 'Resolution Applicant' to prevent an aberration of justice and also to better preserve the 'economic value of assets' because of the reason that the instant case is not an exceptional or extraordinary one to invoke the ingredients of Rule 11 of 'NCLAT' Rules, besides the provisions of 'I&B' Code cannot be diluted in any manner whatsoever."

"The appellant has been unable to raise the funds. The fact of the matter, as it emerges from Mr Vishwanathan's submissions, is that the appellant will be unable to raise funds from the Term Lenders who are insisting that the status of the Company should change from a company under liquidation to an active status. The order of liquidation has not been set aside. Ultimately, what the request of the appellant reduces itself to, is that it would raise funds on a mortgage of the assets of the Company and unless the Company is brought out of liquidation, it would not be in a position to raise the funds. This is unacceptable. At this stage, the order of liquidation has only been stayed, but a final view was, thus, to be taken by this Court. Sufficient opportunities were granted to the appellant earlier during the pendency of the proceedings both before the NCLT and NCLAT. The orders of the NCLT and NCLAT make it abundantly clear that despite the grant of sufficient time, the appellant has not been able to comply with the terms of the Resolution Plan. Since 9 October 2020, despite the passage of almost five months, the appellant has not been able to deposit an amount of Rs 50 crores. Time is a crucial facet of the scheme under the IBC. To allow such proceedings to lapse into an indefinite delay will plainly defeat the object of the statute. A good faith effort to resolve a corporate insolvency is a preferred course. However a resolution applicant must be fair in its dealings as well. The appellant has failed to abide by its obligations. In that view of the matter, we see no reason or justification to entertain the Civil Appeal any further. The consequence envisaged under the order of this Court shall accordingly ensue in terms of the forfeiture of the amount of Rs 20 crores. As a consequence of this order, the management shall revert to the liquidator for taking steps in accordance with law. The Civil Appeal is accordingly dismissed."

ISSUE NO. (III)

CONCLUSION

IA/1266/IB/2020

(a)

Pass an order directing the Corporate Debtor to be liquidated under Section 33 of the IBC and to initiate the process of Liquidation of the Corporate Debtor under Chapter III of Part II of the Insolvency and Bankruptcy Code, 2016.

(b)

Pass an order appointing a Liquidator for the Corporate Debtor.

(c)

Pass an order dissolving the Monitoring Committee of the Corporate Debtor.

(d)

Pass an order referring the matter to the Insolvency and Bankruptcy Board of India for the punishment of the 5th Respondent, 6th Respondent and 7th Respondent for contravention of the approved Resolution Plan under Section 74(3) of the Insolvency and Bankruptcy Code, 2016.

(e)

Pass such other order or orders or directions as this Hon'ble Adjudicating Authority may deem fit and necessary in the interest of justice.

(3)

Where the resolution plan approved by the Adjudicating Authority (under section 31 or under sub-section (1) of section 54L,] is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-section (1).

(4)

On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).