Rajat Mukherjee RP For Shaifali Rolls Ltd vs COC Of Shaifali Rolls Ltd & Ors

[Per se: Ms. ManoramaKumari, Member (Judicial))

The instant application (IA) No. 352 of 2019 in CP(IB)No. 162/2018, is filed by the applicant, the Resolution Professional of Corporate Debtor M/s. Shaifali Rolls Limited, under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as "Code") for approval of the Resolution Plan submitted by Respondent No. 3 in respect of the Corporate Debtor with the prayer to approve the Resolution Plan of the Resolution applicant Consortium as agreed upon with the requisite majority of the Committee of Creditors (hereinafter referred to as CoC) by 67.08% votes in favor of the Resolution Plan as per the provisions of the Code.

For the sake of convenience, it is mentioned herein that:

CP(IB)No. 162/2018 was filed by SMC Industries Pvt. Ltd., the Operational Creditor under Section 9 of the Code seeking initiation of Corporate Insolvency Resolution Process against Shaifali Rolls Limited (hereinafter referred to as "Corporate Debtor") having registered address at Block No. 1563, Sola, Kalol, Village Santej, Kalol in the State of Gujarat.

The said CP(IB) No. 162/2018 was admitted on 14.09.2018 by this Adjudicating Authority and appointed Shri Parag Sheth, as the Interim Resolution Professional (hereinafter referred to as "IRP") under Section 13(1) of the Code, in respect of the Corporate Debtor

The Resolution Professional, so appointed, made a public announcement inviting claims from all the creditors in Form A of the Schedule II as per Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as "Regulations") on 20th September, 2018 in Business Standard and Jai Hind where the registered office of the Corporate Debtor is situated.

It is stated that pursuant to the public announcement, the IRP inter alia received claims from the creditors of the Corporate Debtor and pursuant to Section 21 of the Code, constituted the CoC and filed the list of creditors and report, certifying the constitution of CoC with this Adjudicating Authority on 9th October, 2018. It is stated in Annexure A of the Exhibit 4 of the IA that IRP received claims from the creditors amounting to Rs. 254,58,89,078.57 and claims were admitted for the full amount i.e. Rs. 254,58,89,078.57. Further, the final list of members of CoC as on 9th March, 2019 with their respective voting shares are as under:

It is stated that first meeting of CoC was convened on 12th October, 2018 wherein, CoC recommended for replacement of IRP Shri Parag Sheth who was appointed by this Adjudicating Authority and recommended Shri Rajat Mukherjee, as Resolution Professional (hereinafter referred to as RP) in respect of CIRP of the Corporate Debtor Company with a requisite majority of 100%. The intimation of change of IRP to RP was filed with this Adjudicating Authority on 26th October, 2018 and the order approving the appointment of Shri Rajat Mukherjee as RP was passed by this Adjudicating Authority on 6th December, 2018.

It is stated that in the second meeting of CoC held on 18th December, 2018, the members unanimously approved the eligibility criteria for inviting Expression of Interest (hereinafter referred to as "EoI") from the prospective resolution applicants as per Section 25(2) of the Code. Accordingly, EoI were invited from the prospective resolution applicants, fixing 10th January, 2019, however, the same was extended to 12th February, 2019 as per the decision of CoC taken in its third meeting held on 23rd January, 2019.

It is stated that in the third meeting of CoC held on 23rd January, 2019 it was decided to apply for extension of CIRP under Section 12A of the Code for further 90 days beyond 180 days and accordingly, the application was filed before this Adjudicating Authority on 25th February, 2019. This Adjudicating Authority vide its order dated 28th March, 2019 extended the CIRP period by 90 days beyond 180 days which expired on 12.03.2019.

It is stated that RP received two resolution plans, one from Legend Trade Corp and the other from M/s. Fitcast. The Resolution Plan received from Legend Trade Corp was rejected by the CoC whereas the Resolution Plan received from M/s. Fitcast (hereinafter referred to as "RA") was discussed and deliberated upon by the CoC. In the said fourth meeting of CoC, RP informed the CoC that Central Bank of India has declared Corporate Debtor and its directors Mr. Prakash Shah and Mr. Sangeeta Shah as willful defaulters who are also shareholders of M/s. Fitcast, i.e. the RA and which may frustrate the chances of M/s. Fitcast being an eligible RA. However, the notarized affidavit submitted by M/s. Fitcast stating that Mr. Prakash Shah is neither part of the management nor having any controlling authority in the management at present, therefore as per Explanation No. (i) and (ii) of connected persons given in the Code, mitigates the negativity, in eligibility prospects of M/s. Fitcast under Section 29A of the Code. However, it was decided to take a legal opinion regarding eligibility of M/s. Fitcast before the last date of finalizing RA i.e. 09.03.2019. It is stated that legal opinion so obtained gave a positive conclusion over the selection of M/s. Fitcast as prospective RA.

It is stated that in the fifth and sixth meetings of CoC, the resolution plan submitted by M/s. Fitcast, i.e. the RA, was discussed but expressed their dissatisfaction upon the amount offered to Financial Creditors in Plan Version 3. During the course of discussions, CoC requested RA to reconsider the plan value according to the value of CD's assets and future prospects and further requested the RA to submit their revised plan. Again in the seventh meeting of CoC, CoC expressed its dissatisfaction upon the value offered by the RA in their revised plan. The RA was advised to submit their revised plan latest by 24th May, 2019.

M/s. Fitcast, i.e. the RA submitted the final revised resolution plan on 24th May, 2019 which was considered in the eighth meeting of CoC by CoC members and the CoC members showed their satisfaction. The CoC expressed their view of not releasing personal and corporate guarantee as mentioned in the plan and negotiated over the resolution plan amount. Certain technical points were also discussed and requested to be amended in the resolution plan. However, the RA expressed its inability to enhance the plan value and agreed to submit the amended plan after considering all the views. The CoC agreed and it was unanimously decided that the plan will be E-voted till 8 PM on 4th June, 2019. Accordingly, the resolution plan was E-voted till 8 PM on 4th June, 2019 and the voting summary is as under:

The RP, the Applicant confirms the compliance of the Resolution Plan, as under Section 30(2) of the Code and Regulation 38A of the CIRP Regulations and provided a compliance checklist for seeking approval of the Resolution Plan from this Adjudicating Authority.

The present application is filed for approval of the Resolution Plan under section 30(6) of the Code submitted by Consortium between Fitcast Founders & Engineers Pvt. Ltd. & Omkara Assets Reconstruction Pvt. Ltd., in respect of the Corporate Debtor.

The applicant i.e. RP, deliberating the sequence of events right from calling EoI up to approval of the Resolution Plan by the CoC in its eighth meeting held on (3^rd) June, 2019 and E-voting for the aforesaid Resolution Plan held on (4^th) June, 2019 submitted the Resolution Plan duly approved by the CoC and affirming that the aforesaid Resolution Plan complies with the provisions of Section 30(2) of the Code and Regulation 38(3A) of the CIRP Regulations and sought for approval of the Resolution Plan by this Adjudicating Authority.

The Resolution Applicant in pursuance to the Public Notice dated 26th December, 2018 submitted the Plan relating to the insolvency resolution process of Shaifali Rolls Limited, Corporate Debtor under the provisions of Insolvency and Bankruptcy Code, 2016 and the rules and regulations framed there under.

On perusal of the Resolution Plan, it is found that Resolution Applicant viz. M/s. Fitcast Founders & Engineers Private Limited, is a company engaged in the manufacturing and marketing of CI Castings and other Castings which are having a direct relevance with the business of the Corporate Debtor and accordingly, the promoters are to be considered as from the same line of business having better understanding of the manufacturing process, market as well as entire technical aspects which shall definitely result into proper resolution of the Corporate Debtor. The RA along with its consortium member viz. Omkara Assets Reconstruction Private Limited is having adequate net worth and accordingly, the commitment by the RA can be fulfilled without any hesitation.

Omkara Asset Reconstruction Private Limited i.e. the Consortium Partner, is a Securitization and Reconstruction Company, registered with the Reserve Bank of India to carry on the business of Securitization of Assets and Reconstruction thereof under the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the various guidelines issued by RBI from time to time.

*Payment to Financial Creditors will be as under:

The Resolution Plan states that with respect to assignment of debt, all the guarantees of the promoters i.e. Mr. Prakash V Shah and Smt. Sangita P Shah as well as Corporate Guarantee by Shaifali Steel Limited and collateral Securities offered to the consortium of bankers shall be assigned to Omkara ARC. Also, all the suits filed against Corporate Debtor including suit filed in DRT, under Negotiable Instruments Act, shall be withdrawn.

Further, the RA proposes that if required, the RA shall furnish a Performance Bank Guarantee (PBG) of Rs. 3.05 crores (i.e. 25% of Rs. 19.20 crores i.e. 4.80 crores less 1.75 crores as down payment).

After due repayment by Omkara ARC of Rs. 10.00 crores, all the existing bankers shall assign their respective debt to Omkara ARC and shall extinguish their existing rights after the assignment.

Further, all the Security Interest including personal as well as corporate guarantor's security and charge on the primary as well as collateral properties shall be transferred/assigned to Omkara ARC.

RA has proposed payment of Rs. 10 Lacs to Union Bank of India (UBI) & Invent ARC (who had been offered Corporate Guarantee of Corporate Debtor against the debt of Group concern viz. Shaifali Steel Ltd.) and Rs. 2.00 lacs to Omkara ARC against the unsecured loan originally granted by ICICI Bank whose debt has been acquired by Omkara ARC. Upon above payment, Corporate Guarantee of the Corporate Debtor will also be assigned to Omkara ARC.

Though the workers/employees have not made any claim but as per Balance Sheet as on 31.03.2018, an amount of Rs. 1.17 crores was payable, which has been provided in the Resolution Plan.

The Liquidation Value of the Corporate Debtor Company has been taken at Rs. 14,93,26,000/-

Operational Creditors shall be paid Rs. 0.25 crores being 10% of the Rs. 2.53 crores as stated in the Resolution Plan.

Statutory creditors of the Corporate Debtor who have already given their claims or whose cases are going on, shall be paid an amount of Rs. 0.53 crores as per the Resolution Plan.

At this stage, it is appropriate to go through Section 53 of IB Code which reads as under:

Thus, Section 53 of the Code lists the priorities to be given to the beneficiaries, of liquidation value of the assets of the Corporate Debtor. The provisions of Section 53 make it amply clear that Operational Creditors are at the end of the list of beneficiaries as the Secured Financial Creditors have edge over the others.

It would also be pertinent to mention here that Operational Creditors have no locus standi as far as approval of the Resolution Plan by the CoC is concerned.

To decide the issue, it will also be pertinent to notice the very object of the 'IB Code', 'Resolution' and Role of CoC.

On perusal of the records, it is found that the Resolution Plan confirms to the criteria as provided under clauses (a) to (f) in section 30(2) of the Code and the CoC approved the Resolution Plan by 67.08 per cent majority of voting share. However, during the course of proceedings, the Bank of India submitted their acceptance to the Resolution Plan making the approval of the Resolution Plan by 83.89 per cent. The Resolution Plan also confirms to such other requirements as may be specified by the Board. The decisions of the CoC are based on their commercial wisdoms, hence does not attract any interference.

In this regard, we are of the view that approval of the Resolution Plan does not mean automatic waiver or abetment of any legal proceedings which are pending by or against the Company/Corporate Debtor as those are the subject matter of the concerned Competent authorities having their proper/own jurisdiction to pass any appropriate order as the case may be. The Resolution Applicant on approval of the Plan may approach those Competent Authorities/Courts/Legal Forums/Offices – Govt. or Semi Govt. / State or Central Govt. for appropriate relief(s) sought for in Clause No. 14 of the Resolution Plan.

Thus, not allowing the above said Clause No. 14 of the Resolution Plan is not going to make any hindrance for proper implementation of the Resolution Plan as those are the subject matter of the concerned/appropriate Competent Authorities. The Resolution Applicant(s) has/have liberty to approach Competent authorities for any concession, relief or dispensation as the case may be.

It is further directed that:

The approved Resolution Plan shall come into force with immediate effect. ii. The Resolution Plan shall be subject to the various existing laws in force and shall also conforms to such other requirements specified by the Board and other Statutory/Competent Authorities as the case may be. iii. The Resolution Applicant(s) shall pursuant to the Resolution Plan approved under section 31(1) of the Code, obtain the necessary approvals required under any laws for the time being in force within a period of one year from the date of approval of the Resolution Plan by the Adjudicating Authority under section 31(1) or within such period as provided for in such law, whichever is later or as the case may be.

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 on its database.

We, the Adjudicating Authority, are of the considered opinion and also being satisfied that the Resolution Plan as approved by the Committee of Creditors (CoC) meets the requirements as referred to under section 30(2) of the Code, accordingly IA 352 of 2019 is allowed with the above said observations and directions.

Any other IA(s), if pending, also stand(s) infructuous and disposed of in view of the above order.