Punjab National Bank vs Delcray Cables Private Limited

The Corporate Debtor is a company registered under the provisions of the Erstwhile Companies Act, 1956 and incorporated on 10.06.1993, having its Registered Office at 29, S.B.S. Colony, Rajpura Distt., Patiala, Punjab - 147001. It is an MSME registered on 25.02.2017. It was engaged in the manufacturing of HDPE Plastic drums and DPE Plastic Jerry Cans and containers, etc. The Corporate Debtor has remained nonoperational since 2019. Its factory premises is located at D-18, Focal Point Rajpura Distt., Patiala, Punjab.

An Application under Section 7 of the Code for the initiation of the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor was filed by the Financial Creditor, Punjab National Bank, bearing CP(IB)No.144/CHD/PB/2021 and the same was admitted vide Order dated 13.01.2023. Mr. Jalesh Kumar Grover was appointed as Interim Resolution Professional (“IRP”) and was later confirmed to act as RP for the Corporate Debtor.

The Constitution of the CoC and the voting share of the respective Members have been as under:

As against the total claim received at Rs. 13,18,50,040/-, the IRP admitted the claim to the extent of Rs. 13,13,03,353/-.

Pursuant to the publication of Form G for inviting Expression of Interest (EOI) twice on 11.03.2023 and 14.06.2023 in the course of the CIRP, two Resolution Plans were received from eligible Prospective Resolution Applicants, namely from SPSS Infrastructure Private Limited (Corporate Entity) and Mr. Rohit Bindlish (Individual). The Members of the CoC, in consultation with the Applicant-RP opted to analyze the Resolution Plans submitted by both of these Prospective Resolution Applicants in order to explore the competitive proposal amongst the PRAs. After negotiations, both the Resolution Applicants were asked to revise their Resolution Plan and following that, Resolution Plans were submitted by enhancing the bid amount. However, during the second round of negotiation, it was informed by Ms. Seema, the authorized representative of SPSS Infrastructure Private Limited, that they do not wish to raise their bid further. The other Resolution Applicant namely Mr. Rohit Bindlish, enhanced the plan amount to Rs 1.60 Cr, and finally, his Resolution Plan was approved by CoC with 100% in its 8^th Meeting on 04.10.2023.

The RP has filed this Application on 10.10.2023 seeking approval of the Resolution Plan. The prescribed period of 180 days of the CIRP had ended as on 11.07.2023 and thereafter, the period had been extended vide Order dated 26.07.2023 and the extended period of the CIRP ended as of 09.10.2023.

On the basis of the Valuation Reports, the average fair value and average liquidation value of the Corporate Debtor have been arrived at Rs. 1.72 Cr and Rs. 1.47 Cr, respectively.

The Resolution Plan provides for the payment towards the CIRP cost at Rs. 17.93 Lakh and Rs. 1,41,71,412/- to the various Stakeholders as given in the Table below:

The RP has examined the Resolution Plan and required compliances thereon. For ready reference, the compliance examined by the RP is reproduced in the Table below:

The Resolution Plan should provide for the payment of Corporate Insolvency Resolution Process costs in priority to the repayment of other debts of the Corporate Debtor. [Section 30(2)(a)]

The repayment of the debts of Operational Creditors should not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor under section 53 of the Code or the amount that would have been paid to the said creditors if the amount to be distributed under the resolution plan had been distributed in accordance with section 53(1) of the Code.

Provides for the management of the affairs of the Corporate Debtor after approval of the Resolution Plan. [Section 30(2)(c) read with CIRP Regulation 38(2)(b)];

The implementation and supervision of the Resolution Plan. [Section 30(2)(d) read with CIRP Regulation 38(2)(c)]

The Resolution Plan does not contravene any of the provisions of the law for the time being in force. [Section 30(2)(e)];

The Resolution Plan conforms to such other requirements as may be specified by the Board. [Section 30(2)(f)]

The Resolution Plan should include a statement as to how it has dealt with the interest of all stakeholders, including financial creditors and operational creditors of the corporate debtor. [CIRP Regulation 38 (1A)]

The Resolution Plan should include a statement giving details as to whether the Resolution Applicant or any of its related parties has at any time failed to implement or caused the failure of implementation of any other Resolution Plan which was approved by the Adjudicating Authority. [CIRP Regulation 38 (1B)]

The Resolution Plan should contain the term of the plan and its implementation schedule. [CIRP Regulation 38(2)(a)]

The Resolution Plan should also demonstrate that it addresses the cause of default, is feasible and viable, has provisions for its effective implementation, and has provisions for approval required and a timeline for the same. Further, the resolution applicant has the capability to implement the Resolution Plan. [CIRP Regulation 38(3)]

The Resolution Plan provides for payment of CIRP cost at Rs.22.90 Lakh. In the context, it has been submitted that during the process, the CIRP cost has been borne by and large by the Resolution Applicant. The Resolution Plan also provides that any CIRP cost incurred over and above the said amount till the date of approval of the Resolution Plan shall be paid fully within 60 days from the effective date. Thus, the provisions of Section 30(2)(a) are complied with.

There is only one CoC member, namely Punjab National Bank, being the secured Financial Creditor, having a 100% voting share, which has voted in favor of the Resolution Plan with 100% voting power. It is noted that a belated claim of Mercedes-Benz Financial Services India Pvt. Ltd., amounting to Rs. 64.70 lakh, was included vide Addendum II dated 09.10.2024 during the pendency of approval of the Resolution Plan before this Adjudicating Authority, and the Resolution Applicant has proposed payment of Rs. 7,99,575/- towards the said claim in proportion to the secured Financial Creditors. Inasmuch as the sole Financial Creditor has voted in favor of the Resolution Plan, there are no dissenting Financial Creditors.

The plant of the Corporate Debtor is a closed unit. The Resolution Plan provides for the reconstitution of the Board on its approval by the Adjudicating Authority. Upon approval of the Resolution Plan, the Resolution Applicant proposes to reconstitute the Board of Directors in accordance with the provisions of the Companies Act. The existing Board shall stand suspended, and all erstwhile directors shall cease to hold office from the Effective Date, without prejudice to their liability for past acts. The reconstituted Board, including Mr. Rohit Bindlish as one of its members, shall be appointed within 60 days from the effective date, and the Corporate Debtor shall thereafter be managed by the newly constituted Board and as such, the provisions of Section 30(2)(c) of the Code r/w CIRP Regulation 38(2)(b) of the CIRP Regulations have been complied with.

The Implementation and Supervision of the Resolution Plan is entrusted to the Monitoring Committee. It also provides that within 10 business days of the effective date, a three members Committee (“Monitoring Committee”) shall be constituted of; 1 (one) Representative of Secured Financial Creditors and 1 (one) Representative of the Resolution Applicant and 1 (one) Resolution/Insolvency Professional. Thus, we find that adequate provisions have been made for the Implementation and Supervision of the Resolution Plan after its approval. As such, the provisions of Section 30(2)(d) r/w Regulation 38(2)(c) are complied with.

The RP has submitted that the plan does not contravene any provisions of law. We also noted that the plan does not contravene any provisions of the law for the time being in force. Thereby, the provisions of Section 30(2)(e) have been complied with.

The Resolution Plan also confirms to other IBBI Regulations as given hereunder:

The Resolution Plan adequately deals with the interest of all stakeholders, including Financial Creditors and Operational Creditors of the Corporate Debtor. Thereby, the plan is in compliance with CIRP Regulation 38(1A) of the CIRP Regulations.

It is submitted that neither the Resolution Applicant nor any of its related parties has at any time failed to implement or contributed to the failure of the implementation of any other Resolution Plan which was approved by the Adjudicating Authority. Thereby, the plan is in compliance with CIRP Regulation 38(1B) of the CIRP Regulations.

The Resolution Applicant proposes to implement this Resolution Plan within a period of 120 Days from the Effective Date (date of Approval of the Resolution Plan by the Adjudicating Authority). The term of the plan and its implementation schedule have been provided in Section IV clause VI of the Resolution Plan, which is as follows:

The primary reason for default has been identified as financial stress arising from non-recovery of receivables and non-enhancement of credit limits by the lenders. The Resolution Applicant proposes to improve business operations through the induction of an experienced management team with the requisite professional expertise and network. It is further proposed to adopt a calibrated approach towards leveraging the Corporate Debtor, limited to operational requirements and without adversely affecting its liquidity and cash flows, keeping in view the prevailing market conditions. Thus, the Resolution Plan addresses the cause of default, is feasible and viable, has provisions for its effective implementation, contains provisions for approval required, and has a timeline for the same.

Upon receipt of payments in terms of the Resolution Plan, the Financial Creditors shall release their security interests and withdraw all recovery proceedings or suits pending against the Corporate Debtor in relation to pre-CIRP claims. No further liability shall remain payable by the Corporate Debtor or the Resolution Applicant except as provided in the Resolution Plan. The Resolution Applicant shall also have the option to prepay the dues of Financial Creditors without additional levies, and, upon satisfaction of the obligations under the Plan, the Financial Creditors shall issue necessary No Objection Certificates. All assets of the Corporate Debtor shall thereafter vest exclusively with the Corporate Debtor under the new management.

Reliefs have been sought from the Income Tax Department, including exemption from tax implications arising out of waiver or remission of liabilities, waiver of past tax demands, interest, and penalties; closure of pending proceedings and assessments for the period prior to the effective date; permission to carry forward and set off accumulated losses and unabsorbed depreciation; exemption under Section 79 of the Income Tax Act in case of change in shareholding pursuant to the Resolution Plan; and extinguishment of all income tax liabilities relating to the period prior to the CIRP commencement date.

Reliefs have also been sought from the Central Board of Indirect Taxes and Customs and other indirect tax authorities for waiver and extinguishment of all indirect tax dues, including interest and penalties; closure of all pending proceedings, investigations, notices, and assessments relating to the period prior to the effective date; protection from prosecution for past non-compliances; and permission to carry forward and utilize accumulated input tax credit and other tax benefits available to the Corporate Debtor.

The Resolution Applicant has further sought a waiver from the Reserve Bank of India and other regulatory authorities in respect of any past noncompliances under FEMA, the RBI Act, and related regulations for the period prior to the effective date.

Under the Companies Act, 2013, the Resolution Applicant has sought approval for the write-off of the existing equity share capital; waiver of penalties, late fees, and liabilities arising from past non-compliances; dispensation with requirements relating to reconstruction of past records and holding of past annual general meetings; and directions to the Registrar of Companies to take the Resolution Plan on record without insisting on further compliances.

Certain reliefs have also been sought from the State Government and other authorities, including permission to change the name of the Corporate Debtor, eligibility for incentives available to sick industrial units, waiver of penalties and charges relating to stamp duty, registration or transfer of leasehold rights, extinguishment of unclaimed dues of Government authorities up to the effective date, and grant of reasonable time to regularise past statutory non-compliances and business permits.

It has also been prayed that upon approval of the Resolution Plan, all claims, liabilities, guarantees, litigations, investigations, and proceedings relating to the period prior to the effective date, whether known or unknown, crystallised or contingent, shall stand extinguished, and no fresh proceedings shall be initiated in respect of such matters. The Resolution Applicant shall be liable only for those obligations specifically undertaken in the Resolution Plan, and all other liabilities of the Corporate Debtor shall stand discharged.

Any receipts or recoveries made after acquisition, other than those arising from avoidance applications, shall belong exclusively to the Resolution Applicant, while recoveries from avoidance transactions shall be dealt with in accordance with the provisions of the Code.

The Resolution Plan shall be binding on the Corporate Debtor; its employees, members, and creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is due, guarantors and other Stakeholders involved in the Resolution Plan.

The approved ‘Resolution Plan’ shall become effective from the date of this Order.

The Order of moratorium dated 13.01.2023 passed by this Adjudicating Authority under section 14 of the Code shall cease to have effect from the date of this Order.

The Resolution Professional shall forthwith send a copy of this Order to the participants and the Resolution Applicant(s).

The Resolution Professional shall forward all records relating to the conduct of the Corporate Insolvency Resolution Process and Resolution Plan to the Insolvency and Bankruptcy Board of India to be recorded in its database.