Punjab National Bank vs Divya Jyoti Sponge Iron Private Limited

Per: Rajasekhar V.K., Member (Judicial)

This Court convened through videoconferencing today.

I.A. (IB) No. 207/KB/2019, I.A. (IB) No. 280/KB/2019 and I.A. (IB) No. 1010/KB/2019 are being taken up together for consideration as the three I.A. have sought for the same relief and the same Respondents. The I.A.’s have been filed under section 74 of the Insolvency and Bankruptcy Code, 2016 (“Code”) read with section 60(5) of the Code.

The Applicants in the three I.A. are seeking the following reliefs:

a. The said applications be allowed and the section 74(3) of the Insolvency and Bankruptcy Code, 2016 be invoked against the Respondent No.1 who is the Corporate Debtor and other related parties responsible for being negligent in non-implementation of the resolution plan approved and passed.

b. The Respondent No. 1 and its related parties be punished as per provision for non-implementation of the resolution plan and neglecting to pay off the dues of a verified creditor within the stipulated time period mentioned in the resolution plan.

c. The Applicants who are verified creditors which falls under the category of trade payables be cleared off with immediate effect with hefty interest be levied against the Respondents.

The Respondent No. 1 i.e. Divya Jyoti Sponge Iron Private Limited (“Corporate Debtor) underwent Corporate Insolvency Resolution Process (“CIRP”) and was taken over by C.P. Ispat Private Limited (“Resolution Applicant”). The Resolution Plan submitted by C. P. Ispat Private Limited was approved by the Committee of Creditors (“CoC”) on 14 February, 2018 and thereafter, this Adjudicating Authority on 13 March, 2018 approved the Resolution Plan submitted by C.P. Ispat Private Limited.

The present I.A. has been filed by Maan Steel & Power Limited represented by its Director, Mr. Shyam Sundar Agarwal.

The Applicant had supplied iron ore and has a due of ₹11,61,404 (Rupees Eleven Lakh Sixty-One Thousand Four Hundred and Four only), hence, it is an Operational Creditor to the Corporate Debtor.

The Applicant had submitted its claim with the erstwhile Resolution Professional, Mr. Arun Kumar Gupta during the CIRP period. The claim of the Applicant was accepted by the erstwhile Resolution Professional and the Applicant was included in the list of creditors.

The Resolution Applicant had proposed to pay of the Operational Creditors by giving a haircut of 52.51% within six months from the date of approval of the Resolution Plan. Thereby, the cut-off date for clearing debt payable to the Operational Creditors would have been 13 September, 2018.

The Applicant did not receive any payment within six months of the approval of the Resolution Plan. The Applicant sent a notice dated 04 December 2018 to the Respondent No. 1 and its Director for the successful implementation of the resolution plan which was delivered on 10 December 2018 and 05 December 2018 respectively. But they failed and neglected to provide any response to the said notices.

The negligence of the Respondent No. 1 and it's related persons on whom the resolution plan is binding is in clear violation of section 74 of the code. The Respondents are in clear contravention of section 74(3) of the code because the Resolution Plan was approved and passed by the Adjudicating Authority but the trade payables to the verified creditors that was to be paid within six months from the date of approval of the Resolution Plan has not been paid.

The present I.A. has been filed by Al Ahad traders Private Limited through Mohammad Gufran Khan, Director of Al Ahad Traders Private Limited.

The Applicant supplied Iron Ore Pellets and has a due worth ₹87,64,486/- (Rupees Eighty Seven Lakh Sixty Four Thousand Four Hundred and Eighty Six only) with the Respondent No. 1. The applicant filed its claim with Mr Arun Kumar Gupta, the Respondent No. 2, during the CIRP period, which was duly admitted.

The due of the Applicant were not cleared within the stipulated timeframe as given in the Resolution Plan. Thereafter, Applicant sent a notice dated 04 December 2018 to the Respondent No. 1 and its Director for the successful implementation of the resolution plan which was delivered on 10 December 2018 and 22 December 2018 respectively. The Applicant did not receive any reply to the said letters.

The present I.A. has been filed by Dhanbad Fuels Limited, represented by its Director, Mr. Shyam Sunder Agarwal.

The Applicant supplied Sponge Iron and Coal and has a due worth ₹75,55,558/- (Rupees Seventy Five Lakh Fifty Five Thousand Five Hundred and Fifty-Eight only) with the Respondent No. 1. The applicant filed its claim with Mr Arun Kumar Gupta, the Respondent No. 2, during the CIRP period, which was duly admitted.

The due of the Applicant were not cleared within the stipulated timeframe as given in the Resolution Plan. Thereafter, Applicant sent a notice dated 04 December 2018 to the Respondent No. 1 and its Director for the successful implementation of the resolution plan which was delivered on 10 December 2018 and 05 December 2018 respectively. The Applicant did not receive any reply to the said letters.

Notice was sent to the Respondents. The Respondent No. 3 filed its affidavit in reply. The Respondent No. 2 has not entered appearance.

The approved Resolution Plan was challenged by the suspended Board of Directors before the Hon’ble NCLAT and the Hon’ble Supreme Court. The appeal by the suspended Board of Directors was dismissed in the Hon’ble NCLAT on 24 April, 2019 and the Hon’ble Supreme Court on 28 June, 2021.

As per the books of accounts of Corporate Debtor, the Corporate Debtor had ₹47.43Crore payable to Operational Creditors under “Trade Payables” as on 23 August, 2017. The same has been given in the Information Memorandum as well. The Resolution Professional had admitted the claims of the Operational Creditors to the tune of ₹3.16Crore.

That the Resolution Applicant had proposed to pay all the Operational Creditors as per the books of accounts i.e. ₹47.43Crore, hence the Resolution Applicant proposed to pay ₹1.50Crore i.e. reduction of 96.83% from the amount due in the books of account as given in Clause 5 at Page 9 of the Resolution Plan. The Resolution Applicant had not proposed to pay the Operational Creditors (Trade Payables) after a reduction of 52.51%. Hence, the contention of the Applicants that the Resolution Professional had proposed a payment with a haircut of 52.51% of the admitted claims is malafide.

The Respondent No. 3 had sent a letter to the Advocate on record of the Applicant on 19 July 2021 requesting the Applicant to provide the bank details so as to enable the Resolution Professional to make the payments as per the Resolution Plan with 96.83% haircut. A reminder letter was sent on 27 July 2021.

The Applicants sent a letter dated 27.07.2021 giving details of the bank account of the Applicants and directed the Resolution Applicants to deposit the claim with 52.51% haircut.

After reduction of 96.83 %, the Applicants are eligible to receive the following amounts:

The Resolution Applicant replied to the Applicants specifying the amounts payable after a haircut of 96.83% on 28 July, 2021.

An appeal was filed against the approval of the Resolution Plan in the Hon’ble NCLAT and the Hon’ble Supreme Court; hence, the sum could not be disbursed within six months from the date of approval of the Resolution Plan. Further, the full set of books of accounts of the Corporate Debtor were not given by erstwhile management hence the Resolution Applicant was not able to verify the actual amounts due and payable to the claimants.

The cut-off date for clearing the trade payables within six months cannot be applied to the present case due to the pendency of appeals, hence section 74 of the Code does not apply.

Heard the learned Counsel for the Applicants and the learned Counsel for the Respondent No. 3.

On perusal of the Resolution Plan under the heading “Resolution Plan (RP) in Clause 13 point 5 at internal page no. 9 of the Resolution Plan, it has been stated that Rs.1.50 Crore would be paid upfront towards trade creditors against the total outstanding dues of Rs.47.43Crore i.e. reduction of 96.83%. But it is also pertinent to note that in the internal page no. 12 of the Resolution Plan, under the heading “Trade Payable” it has been proposed that Rs.1.50Crore would be paid to all trade payables in full and final settlement of their claims which tantamount to a waiver of 52.51% of the claims received and 96.83% of the outstanding as per provisional financials as on 23 August 2017. It is further stated that verified creditors would be paid within six months from the date of approval of the Resolution Plan. The total amount admitted for the Operational Creditors by the Resolution Professional is ₹3,15,86,607/-.

For getting a clearer picture on the amount claimed, amount admitted, and the haircuts let us look at the tabulation given below:

It is pertinent to note that the Resolution Plan has been approved by the CoC and this Adjudicating Authority and has attained finality. On mere reading of the Resolution Plan, it is assumed that the Resolution Applicant will pay 3.17% of ₹47.43.Crore which will correspond to 47.49% of the total admitted amount i.e. ₹3,15,86,607/-, but the Resolution Applicant has now calculated the proposed payment on ₹3,15,86,607/- and not ₹47.43Crore.

The Resolution Applicant, is being a sly fox under the shade of clever draftsmanship which is not expected from a Resolution Applicant who has filed the Resolution Plan with the intention to revive the Corporate Debtor.

The Resolution Applicant did not implement the Resolution Plan after approval of the same by this Adjudicating Authority, due to the pendency of appeal which may have impacted the Resolution Plan negatively as well. But it is to be noted that we are not aware if a stay was granted for implementation of the Resolution Plan or not. If, such action on part of the Resolution Applicant was without a stay order then he is liable to be penalised.

Be that as it may, the Resolution Applicant is willing to make payments of the creditors and implement the Resolution Plan, hence, we relieve the Resolution Applicant from section 74(3) of the Code.

The resolution Applicant is directed to make the payment as per the Resolution Plan, i.e. 47.49% of the the total admitted amount i.e. ₹3,15,86,607/- within ten days from the date of this order.

The Resolution Applicant will file proof of payment by an affidavit before 21 March 2022.

Failure to comply with this order will attract the penal provisions under section 74(3) of the Code.

List all the three I.A.’s on 21 March 2022.

The Registry is directed to send e-mail copies of the order forthwith to all the parties and their learned Counsel and Authorised Representative for information and for taking necessary steps.

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