Punjab National Bank vs Vallabh Textiles Company Limited

PER: HARNAM SINGH THAKUR, MEMBER (JUDICIAL)

This application has been filed by the Resolution Professional, under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (for short the ‘Code’) on behalf of Committee of Creditors of M/s Vallabh Textiles Company Limited (for short the ‘corporate debtor’) for approval of Resolution Plan under Section 31 of the Code.

Brief facts necessary for adjudication of the present application are that Punjab National Bank (‘financial creditor’) had filed an application under Section 7 of the Code before this Tribunal for initiation of Corporation Insolvency Resolution Process (‘CIRP’) against the corporate debtor. This Tribunal, vide its judgment dated 12.04.2019 (Annexure A-1) admitted the petition filed by the financial creditor and appointed, Mr. Sumant Kumar Gupta, as Interim Resolution Professional (‘IRP’) vide order dated 12.07.2018. Thereafter, IRP was confirmed as Resolution Professional by the Committee of Creditors, in its first meeting held on 09.05.2019. Subsequently, this Tribunal, vide order dated 30.09.2019 (Annexure A-2) granted an extension of 90 days. Second extension of 60 days was granted by this Tribunal, vide order dated 10.01.2020 (Annexure A-3), which expired on 07.03.2020 and thereafter, an application bearing CA No.134/2020 was filed on 06.03.2020 for further extension of period of CIRP period and this Tribunal, vide order dated 13.03.2020 (Annexure A-4) extended the maximum period by 21 days beyond 330 days in view of the action plan 13.03.2020 submitted by the Resolution Professional for completion of CIRP period.

It is stated in the application that the corporate debtor is a going concern in textile Industry and has its manufacturing operations at G.T. Road, Ludhiana in Punjab and has over 900 employees on rolls out of which about 450 persons are working every day. During the period of CIRP, the corporate debtor has a turnover of more than Rs. 61 crores mainly from manufacturing, sale and export activities and the corporate debtor has immense resolution potential.

It is averred by the Resolution Professional that he carried out the process of CIRP in accordance with the provisions of the Code and Form A (Annexure A-5) was published on 15.04.2019 The Committee of Creditors was constituted on 03.05.2019 and the constitution is as under:-

It is also stated that information memorandum was prepared and circulated as per the provisions of the Code and the eligibility criteria (Annexure A-7) and Evaluation Matrix (Annexure A-8) for inviting the Resolution Plan was approved in 3rd Meeting of Committee of Creditors held on 20.06.2019. The expression of interest was initially invited on 26.09.2019, wherein the last date for giving expression of interest was 11.07.2019 and the last date for submission of the Resolution Plan was 25.08.2019. On 13.07.2019, the last date for submission of expression of interest was extended to 16.07.2019, however, no resolution plan was received. Therefore, on 10.09.2019, a fresh expression of interest was issued and the last date for submission of Resolution Plan was 04.11.2019, however, on 09.11.2019 the last date for expression of interest was extended to 11.11.2019 for submission of EOI, and 24.11.2019 for submission of Resolution Plan.

Pursuant to the expression of interest, EOI was received from two applicants, namely, M/s Sara Textiles Ltd and M/s K.K. Spinners. Both these entitles submitted their respective Resolution Plans and the same were considered by the Committee of Creditors in their meetings held from time to time.

In the 10th Meeting of the Committee of Creditors held on 04.12.2019, Resolution Plans were considered and the Resolution Professional was advised to discuss the matter with the Resolution Applicants to improve the plans. In the 11th Meeting of the Committee of Creditors, held on 19.12.2019, the Resolution Professional informed the Committee of Creditors that only one of the Resolution Applicant, namely, M/s K.K.Spinners Private Limited has submitted the revised Resolution plan and the same is in compliance with the provisions of the Code, including Section 29A of the Code. The Committee of Creditors discussed in detail about the Resolution Plan and suggested further upgradation in the Resolution Plan. In the 14th Meeting of the Committee of Creditors held on 04.01.2020, the Representatives of M/s K.K. Spinners Private Limited, came for discussion and informed the members of the Committee of Creditors that the proposal submitted earlier of total amount of Rs.50.05 Crores was final and there was no scope for further increase in the resolution amount. They further informed the members of the Committee of Creditors that they have explored all the avenues and the submitted proposal was the best possible they could afford for the assets of the corporate debtor. It was further informed to the Committee of Creditors that after buying the corporate debtor, the Resolution Applicant has to further meet the capital expenditures and working capital requirements to successfully run the unit. After discussion at length, the Committee of Creditors advised the Resolution Applicant not to freeze the proposal and rethink on the same. The Resolution Applicant agreed to revisit his bid amount and the Committee of Creditors advised the Resolution Applicant to send its revised proposal via e-mail to the Resolution Professional enabling the Committee of Creditors to consider and take a decision.

In the 15th Meeting of the Committee of Creditors, held on 21.01.2020, M/s K.K. Spinners Private Limited did not come present and on the contrary sent an e-mail seeking refund of the security amount on the pretext that they are not willing to increase the resolution amount beyond 50.05 Crore. In the 16th Meeting held on 01.02.2020, the Committee of Creditors considered that some time was available and decided to issue fresh EOIs in Form G and fresh Form G was issued on 03.02.2020 and the last date for expression of interest was fixed as 08.02.2020 and 13.02.2020 for submission of resolution plan.

In the 17th Meeting held on 19.02.2020, the Resolution Professional informed the Committee of Creditors that pursuant to fresh Form G, two new Resolution Plans have been received from M/s Arr Ess Industries Private Limited and M/s Aggarsain Spinners Limited. In the 18th Meeting of the Committee of Creditors, held on 28.02.2020, the Committee of Creditors carried out negotiations with the following Resolution Applicants:-

It is stated that at the reassembled 18^th Meeting, M/s Sara Textiles Limited, in terms of their e-mail dated 02.03.2020 (Annexure A-20) expressed their inability to agree to the terms and conditions of the Committee of Creditors and accordingly, the negotiations were completed with remaining two Resolution Applicants as under:-

It is submitted that after carrying out negotiations with the Resolution Applicants, the Committee of Creditors obtained their acceptance to the negotiated amount and terms and conditions (Annexure A-22). In the 19th Meeting of the Committee of Creditors held on 12.03.2020, the consortium of M/s Aggarsain Spinners Limited and Ramesh Kumar, Resolution Applicant were declared H1.

Thereafter, after the 19th Meeting, there was delay in holding the next meeting keeping in view the Pandemic related lockdown. In the meantime, the Resolution Applicants sent an email asking for renegotiation of the Resolution Plan citing covid-19 pandemic lockdown effect on economy. Accordingly, the 20th Meeting of the Committee of Creditors was held on 16.05.2020 through video conferencing and the emails received from the Resolution Applicants was circulated to the members of the Committee of Creditors and was taken up for discussions. The Resolution Professional submit that in view of the communication received from Resolution Applicants it was felt appropriate to call both the Resolution applicants for discussions and for this purpose the meeting was adjourned to 18.03.2020. In the meantime, the Resolution Applicant being consortium of M/s Aggarsain Spinners Limited and Ramesh Kumar sent an e-mail dated 15.05.2020 (Annexure A-24) revising the offer for the purpose of re-negotiation and as a result they shifted to H2 position and it became necessary to call H2 also for discussion. In the adjourned meeting both the Resolution Applicants insisted for re-negotiation of the Resolution Plan. The Committee of Creditors felt it appropriate to restart the process of inviting EOI and also resolved to approach this Tribunal for further extension.

After the conclusion of 20th Meeting, with the persistent efforts of the Resolution Professional, the Resolution Applicants agreed to withdraw their request for re-negotiation and accordingly agreed to accept the Resolution Plan and also gave an undertaking that they shall not withdraw from the plan (Annexure A-26).

In the 21^st Meeting of the Committee of Creditors held on 22.05.2020, the Committee of Creditors agreed to allow the Resolution Applicants to withdraw their request for re-negotiation and thereafter the resolution plan was again discussed thread bare. Some of the members of the Committee of Creditors asked for some information and accordingly the meeting was adjourned to 26.05.2020. At the re-assembled meeting, the Committee of Creditors approved the Resolution plan and passed the following Resolution:-

After the approval, the Resolution Applicants opened the voting on 28.05.2020 at 5 p.m. for 24 hours, however, at the request of Punjab National Bank, the period for voting was extended from time to time and finally the Resolution Plan was voted upon and the Voting was concluded on 04.06.2020 at 6 p.m (Annexure A-30).

It is stated that the amount offered in the resolution plan is more than the liquidation value of the company as calculated on the basis of the valuation report received from independent valuers. A table reflecting the values in approved resolution plan, is as under:-Rs. In Crores

Table reflecting the amount to be paid under resolution plan is as under:-

We have heard Dr. Rajansh Thukral, learned counsel for the applicant/Resolution Professional, Mr. Atul Sood, learned counsel for the Resolution Applicants. We have also gone through the record before us and have carefully considered the submissions made by learned counsel for the parties.

The CIRP proceedings under Section 7 of the Code, against the corporate debtor were initiated vide order dated 12.04.2019 and Committee of Creditors was constituted on 03.05.2019. The list of financial creditors of M/s Vallabh Textiles Company Limited, being members of the committee of creditors and distribution of voting share among them is as under:-

The Resolution Plan includes a statement under Regulation 38(1A) of the CIRP Regulations as to how it has dealt with interests of all stakeholders in compliance with the Code and Regulations made thereunder. The amounts provided for the stakeholders under the Resolution Plan, as given in Para 7 of Form H, is as under:-(Amount in Rs. Lacs)

The compliance of resolution plan has been given in Para 9 of the Form H, which is as under:-

The approval of the Resolution Plan has been sought under Section 31 of the Code, which reads as under:-

The conditions provided for in Section 31(1) of the Code, for approval of resolution plan are:-

It is submitted by learned counsel for the Resolution Professional that the resolution plan has been approved by a vote of 94.36% voting share of the financial creditors, therefore, the conditions provided for by Section 30(4) of the Code are satisfied.

The provisions of Section 30(2) of the Code are as under:-

Without adverting to the detailed examination of compliance of Section 30(2) of the Code in the Resolution Plan, it is necessary to delve upon the fact whether the Resolution Applicant was eligible at the time of submission of Resolution Plan under Section 29A(f) of the Code. It may be noted that a separate application bearing IA No.342 of 2021 has been filed by the Resolution Professional for declaring the respondents as ineligible to submit resolution plan as on 03.03.2020 and take appropriate action for filing false affidavit under Section 30(1) of the Code, stating compliance of Section 29A and forfeiture of performance security.

Vide separate order of even date passed by this Bench in IA No.342 of 2021, Successful Resolution Applicants are held ineligible under Section 29(A)(f) of the Code, at the time of submission of the Resolution Plan. Thus, to sum up, when Resolution Applicants are declared ineligible under Section 29A(f) of the Code, the resolution plan submitted by the Resolution Applicants could not be considered and approved by the committee of creditors under Section 30(4) of the Code. Therefore, Resolution Plan submitted by the Successful Resolution Applicant cannot be considered for approval by this Bench and the same stands rejected. However, to avoid liquidation of the corporate debtor, vide separate order of even date passed in IA No.342 of 2021, period of Corporate Insolvency Resolution Process is extended by 90 days for exploring the possibility of resolution of the corporate debtor. Accordingly, matter is referred back to Committee of Creditors, which is ordered to be reinstated and revived to make another attempt for consideration of other resolution plans in accordance with law.

Thus, IA No.458 of 2020 stands dismissed and disposed of accordingly.