State Bank Of India vs M/s Indrani Patnaik & Ors.

The IA/(IB) 149/CB/2023 has been filed by the State Bank of India, one of the Financial Creditors seeking appropriate orders for setting aside distribution of payments to dissenting Financial Creditors decided in the 4^th Meeting of Monitoring Committee held on 04.05.2023 being void and contrary to the provisions of Section 30(2)(b) r.w. Section 53(1) of the IBC and to direct the Respondent Nos. 1 to 7 to make payment of the amount of Rs 64.74 crores to the applicant, dissenting Financial Creditor and also for granting certain other relief as stated in the application.

IA/(IB) No. 150/CB/2023 has been filed by the M/s Indrani Patnaik, Successful Resolution Applicant, for a declaration that the applicant/Successful Resolution Applicant has complied with the resolution plan dated 27.05.2022 as modified by the Addendum dated 20.09.2022 and that the resolution plan stands implemented etc.

IA/(IB) No. 285/CB/2023 is filed by the applicant/State Bank of India for the limited purpose of seeking leave of this Adjudicating Authority to amend IA/(IB) No. 149/CB/2023 so as to bring on record a copy of the resolution plan as approved by the Adjudicating Authority order dated 20.03.2023; and also the minutes of the meetings of the monitoring committee held on 27.03.2023, 02.05.2023, 3.05.2023 & 04.05.2023, stating therewith that those documents came into their possessions subsequent to the filing of IA/(IB) No. 149/CB/2023. The issues being inter-connected, a common order is being passed hereunder in respect of these Interlocutory Applications.

The facts of the matter, as emerges from these applications are that one of the Financial Creditors, namely, Indian Bank had filed an application under section 7 of the IBC, 2016 for initiation of the CIRP against the corporate debtor OCL Iron and Steel Limited. The corporate debtor was admitted into the CIRP vide this Adjudicating Authority order dated 20.09.2021. Initially, Mr. Shiv Nandan Sharma was appointed as the IRP. However, thereafter, he was replaced on the appointment of Mr. Vijay Kumar V. Iyer as Resolution Professional vide order dated 25.11.2021. During the course of the CIRP proceedings, the CoC was reconstituted with the following composition.

The resolution plan dated 27.05.2022 as modified by the Addendum dated 27.05.2022 of M/s Indrani Patnaik was approved by the CoC and later by the Adjudicating Authority vide order dated 20.03.2023. The issue now, before us is the amount payable to the applicant State Bank of India being dissenting Creditors in terms of the resolution plan and the provisions of section 30(2)(b) of the IBC. The applicant State Bank of India claims that the liquidation value payable to it in terms of section 30(2)(b) amounts to Rs 64.56 crores, whereas, the monitoring committee have paid them to the extent of Rs 35.20 crores, as other lenders bank could not reach to consensus on distribution to dissenting Financial Creditors.

We have heard the learned Senior counsel, Mr. Joy Saha appearing for the applicant State Bank of India and also Mr. Gautam Mishra Senior advocate appearing for the lenders' bank, namely, Indian Bank, UCO Bank, Bank of Baroda, ICICI Bank Limited, Union Bank of India, Asia Opportunities (III) Mauritius Limited [being Respondent Nos. 2 to 7 in IA/(IB) No. 149/CB/2023 and IA/(IB) No. 285/CB/2023]. We have also heard Mr. Supriyo Gole advocate appearing for the Successful Resolution Applicant M/s Indrani Patnaik in IA/(IB) No. 150/CB/2023. We have also perused the relevant records/documents as placed in Interlocutory Applications (IA/(IB) No. 149/CB/2023 & IA/(IB) No. 150/CB/2023). We also note that the applicant State Bank of India vide its application in IA/(IB) No. 285/CB/2023 has sought to take on record a copy of the resolution plan as well as the minutes of the meetings of the monitoring committee held on 27.03.2023, 02.05.2023, 03.05.2023 & 04.05.2023 and to carry amendment accordingly in IA(IB)No. 149/CB/2023 by inserting certain paras and modifications thereof. We also note that these documents are already annexed in IA/(IB) No. 150/CB/2023. The applicant has obtained copies of all these documents subsequent to the filing of IA/(IB) No. 150/CB/2023 by the Successful Resolution Applicant. The respondent side, however, has opposed this application IA/(IB) No. 285/CB/2023 saying that the application for amendment is not maintainable both in facts and law and that if the amendment application is allowed, then the same would change the entire nature and character of IA/(IB) No. 149/CB/2023. In the event of such opposition, the applicant State Bank of India and the counsel appearing on their behalf did not pursue that amendment application and the learned Sr. counsel Mr. Joy Saha referred to those documents as placed in IA/(IB) No. 150/CB/2023 while advancing his arguments. In that view of the matter, the application IA/(IB) No. 285/CB/2023 seeking amendment has become redundant/infructuous and the same stands disposed of without any decision thereon.

As regards the main issue, which has been stated hereinabove, we note that as per the Addendum dated 20.09.2022 to the resolution plan, the Successful Resolution Applicant had offered upfront cash-payment of Rs 262.60 crores for distribution amongst the Financial Creditors. [In the Resolution plan dated 27.05.2022, this amount was only Rs 150 crores.] Learned Senior counsel, Mr. Joy Saha has drawn our attention to amended clause No. 4.1.5.2 and also clauses 4.1.5.3 & 4.1.5.6. of the resolution plan. For ready reference, these clauses from the resolution plan, being relevant are reproduced here as under:

Learned Senior counsel, Mr. Joy Saha submitted that the said resolution plan has been approved by the CoC as well as by the Adjudicating Authority. The plan has provided for payment to the dissenting creditors in accordance with section 30(2)(b) read with sub-section 1 of section 53 of the Code, which entitles the dissenting creditor to be paid the 'Liquidation Value' in terms of section 30(2)(b) or the amount which otherwise would be payable to it as per plan (had it not dissented) whichever is higher.

In this context, the learned Senior counsel Mr. Joy Saha has also referred to the provisions of section 30 of the IBC, 2016. The relevant part of section 30 is reproduced for ready reference:

The learned Senior Counsel, Mr. Joy Saha has also referred to the minutes of the 18th CoC meeting, 19th CoC meeting & 20th CoC meeting, which were conducted on 23.09.2022, 30.09.2022 & 07.10.2022, i.e. prior to the completion of E-voting of the resolution plan.

As noted from the relevant minutes, the CoC in its 18th meeting had decided the criterion for distribution of proceeds and had passed following resolution.

Then in the 19th CoC meeting, pursuant to detail discussions within the CoC members it had unanimously agreed to appoint M/s KG Somani and company LLP to calculate and determine the amount payable to each creditor as per the distribution mechanism/formulae. Further, in that meeting, it was also clarified that in the case of any secured or unsecured financial creditors dissent to the resolution plan, they shall be paid the liquidation value attributable as per the provisions of the code. The relevant part of the minutes (19th CoC meeting), as referred to the learned Senior counsel is reproduced herein under:

Further, as regards the distribution mechanism already approved by the CoC in its 18th meeting held on 23rd September 2022, the members of the CoC discussed, reiterated and agreed upon as follows:

In the 20^th CoC meeting, it had further clarified that in the event of approval of the resolution plan, dissenting financial creditors will be paid as proposed under the respective resolution plan. The relevant part, as referred to by the learned counsel is reproduced herein:

The learned Senior counsel also referred to the report dated 07.10.2022 & M/s K G Somani & Company LLP, who was appointed as Evaluation Adviser, whereby, the ‘Liquidation Value’ due to the applicant has been worked out at Rs 64.56 crores. This has been computed based on the Liquidation Value of the two divisions- (1) Steel Division & (2) Auto Division, which has been taken at Rs 286.63 crores and Rs 185. 28 crores respectively. Then the learned Senior counsel, Mr. Joy Saha also referred to the minutes of the monitoring committee in order to demonstrate that the decision of the monitoring committee is contrary to what was decided by the CoC in 18^th, 19^th & 20^th CoC meetings and also as provided in the resolution plan.

During the arguments, the learned counsel referred to the discussion as records of the minutes of the first meeting of the monitoring committee under Agenda 8, which was to take note of the distribution mechanism for distributing resolution plan proceeds to the financial creditor, where the consultant Deloitte Team had apprised to members the resolution adopted by the CoC in the 18^th CoC meeting and had also drawn the attention of the clarification referred in the minutes of 20^th CoC meeting, whereby, it was clarified that in the event of approval of the resolution plan dissenting secured financial creditor will be paid as proposed under the respective resolution plan.

Learned counsel also referred to the minutes of the Second monitoring committee meeting wherein, it has been referred that:

Learned counsel also refers to the relevant part of the minutes of the 3rd monitoring committee meeting, wherein in reference to Agenda 4, which was to discuss the treatment and distribution of the resolution plan proceeds to the dissenting financial creditor, it has been recorded that

Then, the learned senior counsel also referred to the minutes of the 4th monitoring committee wherein, in reference to Agenda 6, it has been recorded that the various lenders had come up with their own working onto the distribution amongst the secured financial creditor and in view of the difference of approach and working given by such lenders, the monitoring committee had finally adopted the minimum proposed amount. The relevant table and the discussion as recorded therein is as under:

The learned Senior Counsel, Mr. Gautam Mishra appearing for Respondent Nos. 2 to 7 (other lenders bank), however, raised a preliminary objection saying that in IA/(IB) No. 149/CB/2023, the decision of the monitory committee is under challenge, however, the monitory committee has not been impleaded as a party and thereby, he took the plea that the application itself is not maintainable. The learned counsel also stated that if the prayer of the SBI is allowed, it would rewrite the judgment of the Hon’ble Supreme Court in Resurgence ARC (Pvt Ltd) Vs Amit Metaliks Limited 2021 SCC Online SC 409. Learned counsel also submitted that the distribution mechanism which has been approved in the 18^th and 19^th CoC meetings is fair and equitable and is completely in sync with the law laid down by the Hon’ble Supreme Court, in the case of India Resurgence. He specially referred to para 17 & 21 of the judgment. He also relied on the judgment of Hon’ble NCLAT in the case of “Indian Bank vs. Charu Desai 2022 SCC Online Hon’ble NCLAT 190”. He pleaded that the decision of the CoC and monitory committee provided for a distribution mechanism, which is fair and equitable to all the secured Financial Creditors as a single class and this approach cannot be faulted with and there is absolutely no violation of section 30(2)(b) and section 53 of the IBC in the present case.

As regards the preliminary objection raised by the learned senior counsel Mr. Gautam Mishra, we note that as per the minutes of the 4^th monitoring committee meeting, the monitoring committee itself has been dissolved following the implementation of the plan. Further, we also note that the decision of the monitoring committee on the distribution to the dissenting creditors is based upon the views expressed by the lender banks, which have already been impleaded in the application and therefore, its contention that as the monitoring committee has not been impleaded as a party and thereby, the application is not maintainable is devoid of any merit and the same is therefore rejected.

Then, on the issue of the amount payable to the SBI being a dissenting financial creditor, we also note that the resolution plan has been approved by the Adjudicating Authority as being a complaint to the provisions of section 30(2)(b). The resolution plan clearly provides for payment to the dissenting financial creditor in accordance with the provisions of section 30(2)(b). It also provides for the payment in priority to the operational creditor, workman and employee and the dissenting financial creditor as per section 30(2)(b), and then provides for distribution of the balance amount amongst the other financial (assenting) creditors as agreeable to the CoC subject of the maximum consideration agreed upon by the resolution applicant. “Clause No. 4.1.5.2”. We also note that the inter se distribution criterion as agreed upon by the CoC in the 18^th & 19^th has also been clarified there in stating clearly that

The resolution plan, as stated above, clearly provides for the payment to the dissenting financial creditors in accordance with the provisions of Section 30(2)(b). As such the share of dissenting creditors are to be computed with reference to the liquidation value of the corporate debtor keeping in view the security interest. For the remaining financial creditors, the CoC as per their commercial wisdom can provide for inter-se distribution criterion which has been done by the CoC in its 18^th & 19^th meeting.

We also note that the resolution plan provided for upfront payment of Rs 262.60 crores for distribution amongst the financial creditors and, further proceeds upon sale of the auto unit having liquidation value of 184.45 cores to the assenting financial creditors. As per proviso of the Code, the dissenting creditors are to be paid in priority and, therefore as against the entire plan value [ i.e. 262.60 crore plus proceeds upon sale of auto unit], the dissenting creditors are to be paid the liquidation value i.e. the amount which they will be entitled as per waterfall mechanism provided under section 53(1) in the event of the liquidation or the amount payable as per the common criterion adopted by the CoC for the distribution, whichever is higher, out of the upfront amount itself. We have also taken note of the fact that the liquidation value of the steel unit is Rs 284.47 crores and the auto unit is Rs 184.45 crores. The applicant SBI has an unsecured interest in the steel unit. As per the working based upon the liquidation value of the steel unit, the liquidation value payable to SBI has been computed by the Evaluation Advisor at Rs 64.56 crores, and this is in proportionate to the security interest of each of the secured financial creditor. In view of the factual matrix as stated herein above and the relevant provisions of the Code, we are of the considered view that the decision of the monitoring committee, which has been on account of the difference of opinion among the other lenders and for the reason that those lenders could not arrive at a consensus on the distribution to the dissenting creditors, is not at all in accordance with the provisions of section 30(2)(b) as provided in the resolution plan.

The reliance of the Hon'ble counsel appearing for the respondent lender banks onto the decision of the Hon'ble Supreme Court in Resurgence ARC (Pvt Ltd) (Supra) or the decision of the Hon'ble NCLAT in the case of Charu Desai completely misplaced. The INDIA Resurgence case does not in any manner whatsoever provide that the provisions of section 30(2) of the IBC are not mandatory or they can be deviated from or that dissenting financial creditor can be paid less than its share of the liquidation value.

We accordingly, direct the respondent No. 1, the successful resolution applicant who has already taken over the control over the corporate debtor and the other lender banks who are respondent No. 2 to 7 in the application IA 149 of 2023 to ensure that the distribution to the SBI, being dissenting financial creditor, is made in accordance with the provisions of section 30(2)(b) as has been computed by the Evaluation Advisor. We note that the liquidation as computed by the Evaluation Advisor is Rs 64.56 crores which is slightly less than Rs 64.74 crores computed by the SBI itself. The computation of liquidation value as arrived by the Evaluation Advisor should be re-checked and payment to the SBI be made accordingly.

With these directions, all the three interlocutory applications i.e. IA 149 of 2023, IA 150 of 2023 & IA 285 of 2023 stands disposed of.