Supreme Hydro Engineering Pvt. Ltd. vs Dolphin Offshore Enterprises (India) Ltd.

Per Shri H. V. Subba Rao, Member (Judicial)

This is an Application under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code) filed by the Resolution Professional seeking approval of the Resolution Plan submitted by the Resolution Applicant M/s. Deep Industries Ltd., which is approved by 88.75% of the voting share of the members of the Committee of Creditors (hereinafter referred to as ‘COC’).

The facts leading to the Application are as under:

That the Applicant pursuant to Regulation 27 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016, appointed the registered valuers on 1^st September, 2020 (M/s. Adroit Appraisers Research Private Ltd.) and 28^th September, 2020 (M/s. Den Valuation) in order to determine the fair value and liquidation value of the Corporate Debtor is as under: In Rs. Cores

During the period of CIRP, the RP issued Form-G on 02.01.2021, for inviting Expressions of Interest (EOI) in Free Press Journal (English) and in Nav Shakti (Marathi) newspapers, from prospective resolution applicants (PRA) to submit their resolution plan(s) in respect of the Corporate Debtor. The last date for receiving the expression of interest, was 17.01.2021 and 03.03.2021 was the last date for submitting Resolution plan.

The Applicant states that the COC in its COC Meeting decided that a revised advertisement for inviting EOI be issued. Form G inviting EOI was published on 03.03.2021 in Free Press Journal (English) and in Nav Shakti (Marathi) newspapers. The last date for receipt of EOI was 18.03.2021 and last date of receipt of Resolution Plan was 30.04.2021.

The Applicant further states that in furtherance of the revised Form-G issued by applicant, he received EOIs from 12 Prospective Resolution Applicants (PRAs) within the stipulated time period. However, only 3 prospective Applicants qualified to the final list of eligible prospective resolution applicant issued on 5^th April, 2021 and request for Resolution Plan (RFRP) was issued with the approval of CoC on 31^st Mach 2021.

The Applicant submits that the Resolution Plan was discussed by Committee of Creditors (CoC) in several meetings held between 17^th August 2021 to 7^th January, 2022. During the said meetings there were two addendums dated 03.12.2021 and 04.01.2022 that were submitted by the Resolution Applicant to the Applicant.

The Resolution plan dated 15^th November 2021 along with the addendums dated 3^rd December 2021 and 4^th January 2022 was placed before the CoC and the proposed Resolution Plans was evaluated on the basis of the evaluation matrix and same was approved by the CoC by majority of 88.75% votes, through the E-voting on 7^th February, 2022. The CoC having 11.25% of the voting share have abstained from voting.

The Applicant submits that, during the Meeting of COC, the resolution passed and e-voting conducted on 07.02.2022, it was declared that the plan submitted by the M/s. Deep Industries Ltd. approved.

The COC in its 16^th meeting considered the final Resolution Plan of M/s. Deep Industries Limited and approved the Plan along with the addendums with a voting share of 88.75% according to the section 30(2) and Regulation framed under the IB Code, and compliance certificate was in Form “H” required under Regulation 39(4) of the CIRP Regulation was issued by the Resolution Professional. Following is the Resolution passed by the COC:-

The salient features of the Resolution Plan are as under:

The indicative Repayment Tenure towards various creditors in the events for implementation of Resolution plan from approval date is as follows:-

The Resolution Applicant is eligible to submit resolution plan. The successful Resolution Applicant has given an Affidavit satisfying the eligibility criteria as per the provisions under section 29A of the Insolvency & Bankruptcy Code, 2016.

The Resolution Plan has been approved in the COC meeting held between 17.08.2021 to 07.01.2022 with 88.75% votes approved the plan in the COC at e-voting held from 07.02.2022 to 14.02.2022 in accordance with the provisions of the Code.

In K. Sashidhar v. Indian Overseas Bank & Others: 2019 SCC Online SC 257 (2019) 12 SCC 150) the Hon’ble Apex Court held that if the CoC had approved the Resolution Plan by requisite percent of voting share, then as per section 30(6) of the Code, it is imperative for the Resolution Professional to submit the same to the Adjudicating Authority (NCLT). On receipt of such a proposal, the Adjudicating Authority is required to satisfy itself that the Resolution Plan as approved by CoC meets the requirements specified in Section 30(2). The Hon’ble Court observed that the role of the NCLT is ‘no more and no less’. The Hon’ble Court further held that the discretion of the Adjudicating Authority is circumscribed by Section 31 and is limited to scrutiny of the Resolution Plan “as approved” by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which the Adjudicating Authority can reject the Resolution Plan is in reference to matters specified in Section 30(2) when the Resolution Plan does not conform to the stated requirements.

In CoC of Essar Steel (supra) the Hon’ble Apex Court clearly laid down that the Adjudicating Authority would not have power to modify the Resolution Plan which the CoC in their commercial wisdom have approved. In para 42 Hon’ble Court observed as under:

In view of the above ruling of the Apex Court, the legislature has given paramount importance to the commercial wisdom of committee of creditors (CoC) and the scope of judicial review by the Adjudicating Authority (AA) is limited to the extent provided under section 31 of Code and of the Appellate Authority is limited to the extent provided under sub-section (3) of section 61 of the Code, is no more an untouched-matter.

In view of the discussions and the law thus settled, the instant Resolution Plan meets the requirements of Section 30(2) of the Code and Regulations 37, 38, 38(1A) and 39(4) of the Regulations. The Resolution Plan is not in contravention of any of the provisions of Section 29A of the Code and is in accordance with law. The Resolution Plan is feasible and viable. There are no workers claims. Resolution Applicant agreed to pay the full CIRP costs and also future costs if any as certified by the Resolution Professional and CoC. The Resolution Plan balances the interest of all the stakeholders and thus it deserves to be approved.

Per: Shri H.V. Subba Rao, Member (J)

The above I.A. is filed by the Applicant for the following reliefs:

The first Respondent/Resolution Professional filed reply opposing the above Application. The second Respondent is a Successful Resolution Applicant whose plan was pending before the Adjudicating Authority for approval and therefore he did not file any separate reply.

Before going into the merits of the above Application, it is important to mention here that the present petitioner herein filed another I.A. bearing no. 2247/2021 challenging the rejection of their claim as “Financial Debt” by Resolution Professional and also for reconstitution of COC and providing them seat in the COC etc. reliefs which was also listed for orders along with this I.A.

In view of dismissing I.A. 2247/2021 on merits through separate speaking order, the present application bearing no. 1195/2022 become infructuous and accordingly stands disposed of.

Per: Shri H.V. Subba Rao, Member (J)

The above I.A. is filed by the Applicant for the following reliefs:

JAL Engineers Private Limited the 'Applicant' herein is a Financial Creditor of the Corporate Debtor. The Respondent is the present Resolution Professional (RP') of the Corporate Debtor. The RP has erroneously admitted our claims filed in Form-C as an operational debt. We say that the RP has erred in admitting our claims in wrong head. It is remotely not possible to admit our claims as operational debt as we have submitted Form-C and not Form-B. The RP had only two options either to admit our claims as under Form-C or to reject the same stating/instructing us to submit our claims again in Form-B.

We say that our claim of Rs. 50,00,000/- (Rupees Fifty Lakhs) arose on account of the money that was lent by the Applicant to the Corporate Debtor for providing bid bond bank guarantee, which was the requirement for the bidding process of Oil and Natural Gas Corporation Limited hereinafter referred as ONGC tender. The Claim of the Applicant is not against any goods or services provided. The Applicant was eligible to receive the said amount back as per the terms and conditions more specifically discussed herein under.

The Applicant submits that, the Corporate Debtor was under the obligation to return the money back within 7 days of the release of the guarantee by ONGC.

The Applicant submits that, the bid bond bank guarantee was released by ONGC on 13th May, 2019 which was also later confirmed by ONGC via email dated 18th January, 2021. Thus the default had occurred on 20th May, 2019.

The Original Application being CP 4087/2018 was filed by Supreme Hydro Engineering Private Limited, Operational Creditor, under section 9 of Insolvency & Bankruptcy Code, 2016 (1&B Code) against Dolphin Offshore Enterprises (India) Limited, Corporate Debtor, for initiating Corporate Insolvency Resolution Process (CIRP). The said application was admitted by this Hon'ble Bench on 16th July, 2020 and Mr. Vinit Gangwal was appointed as Resolution Professional as proposed by the Operational Creditor.

The COC then preferred to change the Resolution professional and accordingly made an application with Adjudicating authority under I.A 2051 OF 2020, wherein the Respondent i.e. Mr. Dinesh Kumar Agarwal was appointed as a Resolution Professional on 4^th December 2020.

The Public Announcement for attention of the Creditors of the Corporate Debtor for submission of their claims was made by the Resolution Professional on 21^st July, 2020.

On 31.07.2020, the Applicant had submitted its claim in Form C i.e., Proof of Claim by Financial Creditor.

The claim of the Applicant is been arrived on account of the revised MOU dated 10^th December, 2018. The said MOU was entered between the Applicant and the Corporate Debtor for jointly submitting the bid as a consortium for the tender of ONGC having the tender no as MR/ES/MM/PCWPP II/01/2018/P851C18002.

The Applicant and the Corporate Debtor, individually were not able to fulfil the technical eligibility criteria of the said tender and thus came together for submitting their bid against the tender of ONGC.

As per the terms of the 'invitation of Bids' by ONGC, the bidding members were to submit the Bid Bond Bank Guarantee. Hence the Applicant and the Corporate Debtor entered into the Agreement dated 24^th October, 2018, for specifying the terms for the Bid Bond Bank Guarantee. The Corporate Debtor was the main bidder and hence, the money was transferred by the Applicant to the Corporate Debtor. The relevant terms of said agreement are mentioned below for convenience: -

That the consortium of the Corporate Debtor and the Applicant was not a Successful Bidder, hence the Bid-bond bank guarantee stands to be returned back by virtue of Event mentioned in 'Clause a' of the above mentioned clauses and the amount of Rs. 50,00,000/- was to be returned back within 7 days of release of bid-bond bank guarantee as per the above mentioned 'Clause 3'.

The Applicant submits that the bid-security was released by the ONGC on 13.05.2019, which was collected by the representative of Corporate Debtor. Letter dated 13.05.2019 for release of the Bid-security, with acknowledged by the representative of Corporate Debtor.

That the ONGC had also confirmed the release of Bid-security and that the same was received by the Corporate Debtor via Email dated 18^th January, 2021.

The Applicant has thus given Rs. 50,00,000/- to a Corporate Debtor for providing the security in the bidding process and which shall be paid back within 7 days by the Corporate Debtor in accordance with the terms of the Agreement. Thus, the Applicant is a Financial Creditor and not an Operational Creditor, as the money given is not for supply of goods or services and does not qualify as operational debt.

The Applicant had thus rightly submitted the claim as a Financial Creditor in Form C. However, the Resolution Professional had erroneously admitted the claim of the Applicant as Operational Creditor. The name of the Applicant was also visible on the website of the Corporate Debtor under the head Operational Creditor under the category IBC matters. However the website of the Corporate Debtor is not responding now.

That the Applicant had however saved the copy of list of creditors available on the website of the Corporate Debtor, when the website was functioning. The copy of the list of creditors showing the claim of the Applicant accepted as Operational Creditor.

The Applicant had objected to the said acceptance of the claims under the head of Operational Debt by Resolution Professional on various occasions via mail communications and also had forwarded to him all the relevant documents such as claim Form-C along with the copy of MOU dated 10.12.2018, Agreement dated 24.10.2018, Ledger account statements which are accepted by the Corporate Debtor, which prove that the Applicant is Financial Creditor of the Corporate Debtor.

In the meanwhile, Mr. Dinesh Kumar Aggarwal took charge as the Resolution professional on 4^th December 2020. The Applicant communicated to Mr. Aggarwal on various occasions to rectify the defect of acceptance of claims under wrong head. In response to our various requests Mr. Aggarwal, on 17^th April, 2021 informed us that the Applicants needs to file Form-B.

On 29th July, 2021 the Applicant had received a mail from the Resolution professional, confirming that the claim of the Applicant was already accepted by the erstwhile RP under the Operational Creditor category and asking the copy of MOA and AOA with highlighting the relevant clause for the claim to enable him to take a view on the matter. The Applicant had replied to the said mail on the same day giving complete information/ documents required by the Resolution Professional.

Furthermore vide an email dated 30th July, 2021 Mr. Aggarwal informed us that as 'Amount of Rs. 50 Lakh given by you to the Corporate Debtor has not been supported by consideration of time value of money...’ and accordingly the said claim cannot be considered as a financial debt.

That the Resolution Professional after perusal of the documents submitted by the applicant, replied to the Applicant that the claim does not qualify as the financial debt under section 5 (8) of IB Code.

That as per Section 5(8)(i), the amount of any Liability in respect of any of the guarantee or indemnity is a Financial Debt. The Bid- Bond Guarantee was nothing but for the purpose of providing guarantee to ONGC for the purpose of bidding and hence it is a Financial Debt.

That the applicant had made all his efforts to explain the fact to the Resolution Professional that he is a Financial Creditor to the corporate Debtor but all his efforts went in vain and thus the Applicant has preferred to make this application before the Adjudication authority for the relief.

The amount of INR 50,00,000/- is held in trust by the Corporate Debtor for the Applicant as the money was given for providing bid bond bank guarantee and it is returnable back as per the terms of Agreement. The Applicant cannot be termed as Operational Creditor, as the money given is not for supply of goods or services and does not qualify as operational debt.

The amount of INR 50,00,000/- held in trust by the Corporate Debtor is a financial debt which the Corporate Debtor had to repay to the Applicant within 7 days from the release of bid bond.

That the serious prejudice and irreparable loss shall be caused to the Applicant if the present application is not allowed in interest of justice. That an amount of Rs. 50 lacks has been held by the Corporate Debtor, which is causing loss to the business of the Applicant. The Applicant is in the urgent need for the Working capital, and that amount of Rs. 50 lakhs is blocked which has caused financial difficulties for Applicant who is a MSME.

That once the Applicant has submitted their claims under Form-C the same ought to be accepted by the RP as the RP is required only to verify and collate the claims and the same ought to have been considered as Financial Debt.

That the amount of INR 50,00,000/- is outstanding against the security (Bid-bond bank guarantee) provided and is now held in trust by the Corporate Debtor for the Applicant.

The debt stands outstanding form 20^th May, 2019 i.e. 7 days after the release of the bid- bond bank guarantee.

The debt of the Creditor is a Financial debt as per section 5(8)(i) of Insolvency and Bankruptcy Code, 2016.

That the said amount does not qualify as the Operational debt as the amount given by the Applicant is not against any goods and services.

Affidavit in Reply filed by Mr. Dinesh Kumar Aggarwal, Resolution Professional of the Corporate Debtor Company and submit that the application preferred by the Applicant is frivolous, bad in law and not maintainable. That upon pursuing the facts of the case, the Applicant does not fall under the definition of the Financial Creditor as defined under the IB Code which is evident from the Memorandum of Understanding and Agreement executed being Exhibit-E and F respectively to the Application is not a loan agreement or any kind of an agreement which can be construed as a loan agreement. The Applicant to mislead this Hon'ble Court has used the word "lent" to fall under the definition of the Financial Creditor.

That the entire application prefaces purely on the basis that the money was lent to the Corporate Debtor whereas upon pursuing the Exhibit-E and F annexed to the Application executed between the Applicant and the Debtor being Memorandum of Understanding for Consortium clearly defines both the Applicant and the Debtor were acting as Consortium members jointly for submitting the bid against the tender floated by ONGC.

That to consider the Applicant as a Financial Creditor it should fall under the definition of the Financial Creditor as defined under Section 5(7) of the Insolvency and Bankruptcy Code, 2016, hereinafter referred to as "code"). The relevant extract of the definition of the Financial Creditor is re produced herein.

A financial debt is defined under Section 5(8) of the IBC to mean:

That in view of the definition as defined under the Code, the Applicant does not fall under the definition of Financial Debt. It is further submitted that the Applicant to get the preferential treatment has made the present Application.

That from the perusal of the terms of the Memorandum of Understanding dated 10^th December 2018 executed between the Applicant and the Debtor it appears that to submit the bid for the tender with ONGC for Protective Coating of well head platform project, which was floated by ONGC, the Applicant and the Debtor had incorporated a consortium to fulfil the technical eligibility criteria of the said tender. Upon perusal of the Agreement executed by and between the Debtor and Applicant dated 24^th October 2018 the consortium was to arrange for the bid bond bank guarantee. Accordingly, the Debtor being the lead member was to submit the bid bond bank guarantee for INR 2,16,77,308/- as a part of the consortium bid and the Applicant was required to transfer its share of INR 50,00,000/- towards the bid bond bank guarantee to the Debtor. Therefore, the said amount which is being transferred cannot be referred to as a loan but is a part of the contractual obligation as Executed under the terms of the Memorandum of Understanding. The relevant extract of the Agreement dated 24^th October 2018 executed by and between the Debtor and the Applicant is reproduced hereinbelow:

Thus, the Respondent/Resolution Professional prayed for dismissed of the above Application.

Heard the arguments on both sides and perused the material available on record. The above Application is filed by the Petitioner challenging the action of the Resolution Professional in accepting their claim as an “Operational Debt” instead of “Financial Debt”.

It is the contention of the Petitioner that the Petitioner has lent an amount of Rs. 50 lacs to the Corporate Debtor for the purpose of submitting Bid Bond Bank Guarantee in case the work was not awarded to them from the ONGC jointly with the Corporate Debtor which shall be refunded by the Corporate Debtor.

The Ld. Counsel appearing for the RP appeared and vehemently opposed the contention of the Petitioner contending that the above amount of Rs. 50 lacs was arranged by the Petitioner to the Corporate Debtor towards their share of contribution for Bid Bond Bank Guarantee for securing the contract from ONGC which is nothing but an “Operational Debt” and does not fall within the definition of “Financial Debt” nor the Petitioner fall under definition of Financial Creditor of IBC and therefore his action in accepting it as an “Operational Debt” is in accordance with the Code.

In order to decide the above controversy, it is important to read the terms and conditions of the agreement dated 24^th October 2018 entered into between the parties that reads as under;

It is very clear from the plain reading of the above terms that the above amount of Rs. 50 lacs was contributed by the Petitioner being their share for submitting Bid Bond Bank Guarantee to ONGC which has to be refunded by the Corporate Debtor within seven days of release of Bid Bond by ONGC in any of the conditions mentioned in the agreement dated 24^th October 2018.

It is also very clear from the above terms that the Petitioner is also bound to submit counter guarantee to the Corporate Debtor in case the tender is awarded to them after submitting performance Bank Guarantee by Corporate Debtor. Thus, it is very clear from the above terms that the above amount was lent by the Petitioner towards their contribution which does not fall within the definition of “Financial Debt” as argued by the Resolution Professional. In this regard, it is also appropriate to observe here that the unsecured financial creditors are getting an amount of Rs. 10,67,731/- against the admitted claims of Rs. 10,67,73,118/- with 1% recovery. Similarly, the Operational Creditors including workmen and employees are getting 1% or less than 1% recovery under the approved Resolution Plan and deciding the nature of claim of the Petitioner in this application merely remains as an academic issue and the petitioner is not going to get any higher advantage under any of the two categories.

For the aforesaid reasons, this Bench did not find any apparent irregularity or illegality committed by the Resolution Professional in rejecting the claim of the Petitioner as a “Financial Debt” and there are no merits in the above application and accordingly, the above I.A. is dismissed confirming the action of Resolution Professional in accepting the claim of the Petitioner as an “Operational Debt”.