MSTC Limited And Ors vs Adhunik Metalliks Ltd. & Ors

In the 'Corporate Insolvency Resolution Process' initiated against 'M/s. Adhunik Metalliks Ltd.'- ('Corporate Debtor'), the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, by impugned order dated 17th July, 2018 approved the 'Resolution Plan' under Section 31 (1) of the Insolvency and Bankruptcy Code, 2016 ('I&B Code" for short) submitted by 'Liberty House Group Pte. Ltd.' ("Liberty House Group" for short), which was approved by the 'Committee of Creditors' with 99.94% voting shares.

By the same very impugned order, the claim of 'MSTC Limited'- ('Operational Creditor'), a Public Sector Undertaking under the Govt. of India, to treat the additional expenses incurred by it as Resolution Cost, and thereby to pay it, has been rejected.

The fact is that the 'Liberty House Group', whose 'Resolution Plan' was approved on 17th July, 2018, failed to pay the upfront amount within 57 days from the date of the approval of the 'Resolution plan' in terms of plan. On such failure, the 'Committee of Creditors' alleging non-compliance of relevant terms in the 'approved Resolution Plan' filed an application before the Adjudicating Authority, Kolkata Bench. The 'Liberty House Group' also moved an application seeking directions to implement the 'Resolution Plan' by the Long Stop Debt as defined in the 'Resolution Plan'. The 'Liberty House Group' also requested to issue ad interim directions to the 'Committee of Creditors' not to pursue the application for liquidation.

The Adjudicating Authority having heard the parties by impugned order dated 12th December, 2018 refused to grant interim relief to the 'Liberty House Group' and asked as to why order of liquidation in terms of sub-section (3) of Section 33 of the 'I&B Code' be not passed.

The typographical error was corrected by impugned order dated 3rd January, 2019, allowing the 'Liberty House Group' to file reply affidavit.

The order dated 12th December, 2018 rejecting the prayer of 'Liberty House Group' to grant interim relief read with order dated 3rd January, 2019 allowing the 'Liberty House Group' to file reply affidavit have been challenged by 'Liberty Group House'.

Case of 'Liberty Group House'

Learned counsel appearing on behalf of the 'Liberty House Group' submitted that the 'Resolution Plan' not only contemplated corresponding obligations of the parties who were required to take necessary steps for implementation of the 'Resolution Plan', it also contemplated certain material assumptions on the basis of which the Appellant prepared and structured the 'Resolution Plan'.

It was submitted that the 'Liberty House Group' made best efforts to perform its part of the obligations for implementation of 'Resolution Plan' and is continuing to do so, however, the implementation of the 'Resolution Plan' suffered road block due to multiple factors which were beyond the control of the Appellant.

According to 'Liberty House Group', the claim of 'MSTC Limited' as shown in Clause 6.8.2 of the 'Resolution Plan' is a critical assumption based on which the offer of upfront payment has been made. The 'Committee of Creditors' and the Adjudicating Authority approved such plan dated 17th July, 2018.

Clause 6.8.2 of the 'Resolution Plan' reads as follows:

"6.8.2 the Liquidation Value payable to MSTC is NIL. Based on Information provided, MSTC has been paid the entire dues that were incurred during the CIRP period in full. Further, based on the information provided, we understand that INR 56.72 crores was paid during the CIRP period to MSTC in order to ensure continued supply of goods (which was necessary to continue the going concern nature of the business of the corporate debtor), which payments have been approved by the CoC. In the circumstances, since the Operational Creditors under the Code are entitled to Liquidation Value and in this case the Liquidation Value payable to the Operational Creditors is NIL, MSTC as an Operational Creditor will be paid NIL."

Therefore, according to 'Liberty House Group', the 'MSTC Limited' is entitled to receive no further amount as suggested in the 'Resolution Plan' and approved by the 'Committee of Creditors' and the Adjudicating Authority.

Further, according to 'Liberty House Group', in terms of Clause 4.2.1 of Part II of the 'Resolution Plan', the implementation of the 'Resolution Plan' is subject to receipt of requisite approval from the Competition Commission of India ("CCI" for short), if so required. Therefore, the 'effective date' of implementation of the 'Resolution Plan' should be the date of receipt of 'CCI's approval, if required. It was submitted that at the time of submission of the 'Resolution Plan', the Appellant- 'Liberty House Group' had no knowledge of assessing requirement of 'CCI's approval, which is dependent on financial position of the previous year. The Appellant was under the bona fide assumption that 'CCI's approval would be required for its 'Resolution Plan', as a de-minimus exemption was not available. The Appellant had anticipated that the 'CCI' approval would be received within a month-and-a-half of the approval of the 'Resolution Plan' and, therefore, the Appellant indicated 57 days' timeline to commence which should be from the date of 'CCI's approval, and not from the date of approval of the 'Resolution Plan'.

It is accepted that the assessment of 'CCI' approval with regard to the 'Corporate Debtor' was finalized on 4th September, 2018 at the time of pre-filing consultation with regard to the other entity namely- 'Amtek Auto Limited' on 4th September, 2018, the 'CCI' has inquired about the status of 'Corporate Debtor'. Thereafter, the Appellant kept receiving correspondences from the 'CCI' till as late as 10th December, 2018 seeking clarifications regarding the 'Corporate Debtor'.

It was submitted that the 'Resolution Plan' contemplated various regulatory approvals and consultation with the stock exchange and other Governmental department like the Reserve Bank of India and the 'CCI' etc., the Appellant was under the bona fide assumption that the timeline given is only an 'indicative timeline' for payment of upfront amounts as set out in the 'Resolution Plan'.

Having heard learned counsel for the parties, we find that the submissions as made on behalf of the Appellant- 'Liberty House Group' is an afterthought as the Appellant being 'Resolution Applicant' was knowing that the 'Resolution Plan' is to fulfil all the requirements in terms of Section 30 (2) of the 'I&B Code'. Section 30 (2) (f) mandates that the 'Resolution Plan' should not be against any of the provisions of the existing law.

Whether the 'Resolution Plan' is against Section 6(1) of the Competition Act, 2002 can be decided only by the 'CCI'. Pursuant to the 'Resolution Plan' as the 'Liberty House Group' will acquire 'Adhunik Metalliks Ltd.' - ('Corporate Debtor') being 'Successful Resolution Applicant' is required to intimate the 'CCI' in terms of Section 6(2) of the Competition Act, 2002. Therefore, the submission made on behalf of the 'Liberty House Group' that the 'effective date' of plan is date of approval by 'CCI' cannot be accepted. The prayer is rejected.

Case of 'MSTC Limited'

The Appellant - 'MSTC Limited' was doing business with the 'Adhunik Metaliks Ltd.'- ('Corporate Debtor') of facilitating the transactions of import and export of iron ore, coke, coal, etc. Before the Adjudicating Authority, the Appellant - 'MSTC Limited' contended that it had incurred expenses of Rs. 343.43 Crores for facilitating the procurement of raw materials during the 'Corporate Insolvency Resolution Process' period to keep the Company as a going concern. Out of such amount only Rs. 244.12 Crores has been paid. The rest of the raw materials lying stored in the Company as on the date is of Rs.99.31 Crores which were procured subsequent to Commencement Date (date of admission).

It was further contended that the Appellant - 'MSTC Limited' had incurred additional expenses of Rs. 14.33 Crores and thereby the said Appellant made a claim of total sum of Rs. 113.64 Crores towards the 'Resolution Process Costs' and not towards claim as an 'Operational Creditor'.

The 'Resolution Professional' disputed the claim and taken plea that 'MSTC Limited' is a facilitator and not a vendor or owner of raw materials, 'MSTC Limited' procure such materials from different vendors and supplies to the buyers. In the present case, 'MSTC Limited' made available iron ore, coke etc., which are the key inputs in the production process of steel industry ('Corporate Debtor'). As per facility arrangement, the Appellant - 'MSTC Limited' pays the vendor directly against the supply of raw material to the 'Corporate Debtor'. So when every raw material is lifted from the possession of the 'MSTC Limited', the 'Corporate Debtor' is required to pay the amount only in respect of the materials lifted from the possession of the 'MSTC Limited'.

It was submitted that 'MSTC Limited' as 'Operational Creditor' had submitted its claim for an amount of Rs. 172.15 Crores along with proof of claim on 9th January, 2018. The 'Resolution Professional' collated the claim and admitted a sum of Rs. 165.09 Crores payable as on the 'Insolvency Commencement Date'. The 'Corporate Debtor' was availing raw material procurement facility from 'MSTC Limited' from abroad.

Further, according to the 'Resolution Professional' a sum of Rs. 165.09 Crores as on the 'Insolvency Commencement Date' less an amount of Rs. 18.5 Crores was disbursed to 'MSTC Limited', after which their pending claim stood at Rs. 146.59 Crores. In order to ensure continued supply of goods (raw materials) through 'MSTC Limited' an advance amount of Rs.56.72 Crores out of the admitted claim of Rs. 146.59 Crores was made. Thereafter, amount as due was Rs. 108.36 Crores.

It was further submitted that 'MSTC Limited' is demanding to treat their outstanding claims of Rs. 108.36 Crores which relates to supply made prior to the 'Insolvency Commencement Date'. It was submitted that the aforesaid amount of Rs. 108.36 Crores cannot be treated as 'Resolution Process Cost'.

According to Appellant - 'MSTC Limited', whatever payment made by the 'Resolution Professional' has been appropriated towards the old dues. According to learned counsel, such appropriation can be made even during the moratorium period.

Having heard learned counsel for the parties, we find that the Adjudicating Authority rightly held that Section 14 of the 'I&B Code' will override any other provisions contrary to the same. Any amount due to the 'Operational Creditor' prior to the date of 'Corporate Insolvency Resolution Process' (Admission) cannot be appropriated during the moratorium period.

In view of the aforesaid findings, we hold that no case has been made out by the 'MSTC Limited' to treat any amount as a 'Resolution Cost'.

Having rejected the prayer, as made by both the Appellants, to give one opportunity for the purpose of compliance of this order and implementation of the plan, we allow the Appellant- 'Liberty House Group' another 30 days to make upfront payment in terms of the 'Resolution Plan'. On failure, it will be open to the Adjudicating Authority, Kolkata Bench to pass appropriate order in accordance with law.

Both the appeals stand disposed of with aforesaid observations and directions. No cost.