Uco Bank vs M/s Gilco Exports Ltd.

The corporate debtor was admitted in the Corporate Insolvency Resolution Process (CIRP) on 13.10.2023. Mr. Rajiv Khurana was appointed as the Interim Resolution Professional (hereinafter referred to as the “IRP”) .

The IRP published Form A dated 16.10.2023 inviting claims from the stakeholders of the Corporate Debtor in Indian Express (English) and Tribune (Hindi) and Punjabi Tribune (Punjabi) newspapers on 17.10.2023.

Pursuant to the above, the IRP received claims from two financial creditors namely UCO Bank and Central Bank of India. The IRP constituted the Committee of Creditors (“CoC”) with two financial creditors. The voting share of the respective CoC members is as under:

In the first CoC meeting dated 10.11.2023, the applicant herein was appointed/confirmed to act as the RP.

In the third CoC meeting dated 20.12.2023, the CoC resolved to publish Form-G calling upon the prospective resolution applicants to submit the EoI/Resolution Plans for the corporate debtor.

The RP published Form-G, and the last date for submission for EoI was stipulated as 06.01.2024. No response was received in respect of the Form G issued by the Applicant, however some prospective resolution applicants had approached the Applicant after the last date of submission of the expression of interest as prescribed in the Form G dated 22.12.2023.

The Applicant convened the 5th meeting of CoC on 21.02.2024 where the CoC members decided that Form G be republished. Pursuant to the above, the Applicant issued second Form G dated 01.03.2024 for invitation of expression of interest to submit a resolution plan. The last date for submission of expression of interest was stipulated as 15.03.2024.

In response thereto, RP received 3 resolution plans out of total 3 prospective resolution applicants (hereinafter referred to as “PRA”) i.e. (i) Jalpa Enterprises Sole Proprietorship of Shri. Amar Singh, (ii) Shri Pardeep Singh Kahlon s/o Shri Santokh Singh Kahlon, and (iii) Kazmi Enterprises Sole Proprietorship of Mohammad Kashif Kazmi.

The CoC discussed the proposal, which was received in the form of resolution plans, in its 9th, 10th, 11th, 12th, 13th meetings. The Applicant convened the 14th COC meeting on 04.10.2024, wherein Applicant placed the agenda for voting on the Resolution Plan submitted by the prospective Resolution Applicants in the matter of the Corporate Debtor. The COC members voted on the resolution and it was approved with 71.61% voting share which is more than the requisite majority under Section 30(4) of the Code. UCO Bank comprising 71.61% of the voting share has assented to the Resolution whereas Central Bank of India comprising 28.39% of the voting share has abstained from Voting. Accordingly, the Resolution Plan submitted by Mr. Pardeep Singh Kahlon was approved with 71.61% voting share of the COC.

The resolution applicant has proposed to Provide a sum of Rs. 8,25,00,000/- to the various stakeholders as given in the table below:

The RP has examined the resolution plan and the compliance. For ready reference, the compliances examined by the RP are reproduced hereunder:

It should provide for the payment of corporate insolvency resolution process costs in priority to the repayment of other debts of the corporate debtor. [Section 30(2)(a)]

The repayment of the debts of operational creditors should not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor under section 53 of the Code, or the amount that would have been paid to the said creditors if the amount to be distributed under the resolution plan had been distributed in accordance of section 53(1) of the Code.

Provides for the management of the affairs of the corporate debtor after approval of the resolution plan. [Section 30(2)(c) read with CIRP Regulation 38(2)(b)];

The implementation and supervision of the resolution plan. [Section 30(2)(d) read with CIRP Regulation 38(2)(c)]

It does not contravene any of the provisions of the law for the time being in force. [Section 30(2)(e)];

It conforms to such other requirements as may be specified by the Board. [Section 30(2)(f)]

The resolution plan provides for the payment of unpaid CIRP cost on priority to the repayment of other debts of the corporate debtor. The resolution plan does disclose that the CIRP Cost shall be paid in priority to all other classes of creditors, in terms of the provisions of Section 30 (2) of the IBC. Since CIRP costs are ongoing and cannot be crystallized at the time of submission of resolution plan, the RA proposes that the CIRP costs upto the effective date shall be deducted and paid from the payment proposed to be made to the Financial Creditors on pro-rata basis. In view thereof, provisions of section 30(2)(a) are complied with.

There are no dissenting financial creditors. The resolution plan has been approved by the CoC with 71.61% voting shares of one Financial Creditor UCO Bank whereas Central Bank of India comprising 28.39% of the voting share abstained from Voting. It is also noted that as against the total admitted dues of Operational Creditor (other than workmen and Employees and Government Dues), only an amount of Rs. 39,417 have been provided under the plan which is 10% of their admitted claims. As provided under Section 30(2)(b) the repayment of the debts of operational creditors should not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor under section 53 of the Code, or the amount that would have been paid to the said creditors if the amount to be distributed under the resolution plan had been distributed in accordance of section 53(1) of the Code. In the present case, the Liquidation Value of the Corporate Debtor is Rs. 3,26,19,308/- as on the date of initiation of the CIRP of the Corporate Debtor and the Resolution Plan value is Rs. 8,25,00,000/-. The admitted claim of financial creditor’s amounts to Rs. 200.84 Cr. As such if the liquidation value or the plan value was to be considered for distribution in accordance with the priority given in section 53, then nothing would have remained for the Operational Creditor.

The mechanism for management and control of the affairs of the corporate debtor after approval of the resolution plan till its implementation has been provided in the resolution plan itself whereby, Monitoring and supervision of implementation of the Resolution Plan, in terms of Provisions of section 30(2)(d) of the Code read with Regulation 38(2)(c) of the CIRP Regulations shall be done by a Monitoring Committee appointed in consultation with COC on such mutually agreed terms as approved by the COC Members for the period with effect from the Date of Approval of Resolution Plan by NCLT. Such monitoring committee shall comprise RP as its Chairman and one representative each of the COC and the RA as its members. The fee proposed to be payable to the said Chairman of this monitoring committee shall be Rs 50,000/- per month or part thereof, plus applicable GST. It is provided that from the effective date & till the constitution of the Monitoring committee the Resolution Professional shall supervise the implementation of the Resolution Plan. Thereby, section the provisions of Section 30(2)(c) r.w. CIRP Regulations 38(2)(b) and Section 30(2)(d) r.w. with CIRP Regulation 38(2(c) has been complied in the plan.

The RP has submitted that the plan does not contravene any provisions of law. We also noted that the plan does not contravene any provisions of the law for the time being in force. Thereby, section 30(2)(e) has been complied with.

The resolution plan also confirms to other IBBI Regulations as given hereunder:

the Resolution Plan submitted by the SRA has provided treatment of PUFE Applications in Clause 4 (Page 156 of the Application), which was approved by the COC in its commercial wisdom with requisite majority, has stated as under:

The agenda for pursuing PUFE Applications after approval of resolution plan was discussed in the 14^th CoC meeting dated 04.10.2024 wherein it was deliberated as under:

The Applicant in compliance with directions passed by this Adjudicating Authority sent email to the Secured Financial Creditors to inform details of financial creditor and designation of official who shall pursue avoidance application after approval of resolution plan. The Applicant has also received an email from Central Bank of India, member of the COC (having 28.39% voting share), giving no objection to the PUFE Applications being pursued by UCO Bank.

The net worth of the RA is Rs 1080.83 Lac out of which Rs 357.91 Lac is in the form of FDs and Mutual Funds. Hence the payment proposed herein shall be easily met by the RA.

Further, the son of the RA, who is in Canada and has his own business shall contribute as per requirement. Any further shortfall can be met from unsecured loans from friends and relatives.

The carry forward losses in the matter of the Corporate Debtor as available in Income Tax Records are as under:

The dues owed by the Corporate Debtor to the secured Financial Creditors arose from the guarantee given by the Corporate Debtor to the loan availed by principal borrower namely M/s Gilco Steels Limited. That the Resolution Applicant has proposed a sum of Rs. 8,22,43,434/-(before deducting CIRP Costs incurred till approval of resolution plan by this Hon’ble Adjudicating Authority) to be paid to the Secured Financial Creditors within a period of 14 days, which is much higher than the Liquidation Value of the assets of the Corporate Debtor as determined by the IBBI Registered Valuers which is Rs. 3,26,19,308/-.

The Resolution Applicant has sought waiver/ extinguishment of balance liability owed by the Corporate Debtor to the Secured Financial Creditors arising out of the Guarantee Agreement. Since the Corporate Debtor is only a guarantor and not the principal borrower to whom the loan was disbursed, the Financial Statements of the Corporate Debtor do not carry the said liability in its Balance Sheet.

Moreover, the Resolution Applicant has proposed restructuring of share capital of the Corporate Debtor at Clause 1. The Authorised Share Capital of the Corporate Debtor was Rs. 2,30,00,000/- and the Paid Up Share Capital of the Corporate Debtor was Rs. 2,26,63,800/-. The Resolution Applicant has proposed the following restructuring:

The Resolution Applicant is seeking certain reliefs and concessions which are in the nature of prayer and not a condition precedent for the implementation of the Resolution Plan. It is submitted that since there is a change in management and control of the Corporate Debtor in the Resolution plan which has been submitted by the SRA and approved by the COC with requisite majority and such change satisfies the conditions stipulated in Section 32A of the Code, therefore the benefit of immunity under Section 32A of the Code shall be applicable to the Resolution Applicant.

In terms of the third proviso to Sec. 79 of the Income Tax Act, 1961, the RAs are not required to comply with the provisions of Sec. 79 for carry forward and set off of loss of the CDs. Reasonable opportunity of being heard may be provided to the Jurisdictional Principal Commissioner or Commissioner of Income Tax as required under the extant provisions of the IT Act by the Resolution Professional/ NCLT;

Allow setting off of losses and unabsorbed depreciation for subsequent period of 8 years from effective date for the purpose of computation of book profit as permitted under section 115JB of Income Tax Act, 1961. The RA and the RA shall not be subject to the consequence of any offence committed by the erstwhile management in terms of the provisions of Section 32A of the IBC.

Exemption from any tax liability arising due to implementation of the Resolution Plan both in computing total income under the normal provisions of the IT Act and in the computation of book profit u/s 115JB of the IT Act;

No requirement of filing return of income and/or revised return of income, for the Assessment Years prior to the Effective Date,

The brought forward Business Loss as on the Effective Date shall be deemed to be the Business Loss for the previous year in which the Effective Date falls

Waiver of any income-tax and Minimum Alternate Tax (MAT) liability or consequences (including interest, fine, penalty, etc.) on Corporate Debtor, RAs and its shareholders on account of various steps as proposed in the Resolution Plan, including but not limited to liabilities if any under Section 41 (1), Section 56, Section 43, Section 43 B, Section 28, Section 115JB and Section 79 of the Income-tax Act, 1961, including, without limitation waiver of MAT and income tax implication arising due to write back/write off of liabilities in the books of accounts of Corporate Debtor without any impact on brought forward tax and book loss /depreciation, pursuant to this Resolution Plan;

Any requirements to obtain waivers from any Tax Authorities including in terms of section 79 of the IT Act is deemed to have granted upon approval of this Resolution Plan;

The statutory departments shall not set off the recoverable if any, from the demand in relation to period before the CIRP date.

All the Profits as arising due to write back of the Liabilities on account of the Resolution Plan shall be waived/written off.

Application is allowed.

The resolution plan of Mr. Pardeep Singh Kahlon for the corporate debtor is approved.

The approved ‘Resolution Plan’ shall become effective from the date of passing of this order.

The order of moratorium dated 13.10.2023 passed by this Adjudicating Authority under section 14 of the IBC, 2016 shall cease to have effect from the date of passing of this order.

The resolution professional shall forthwith send a copy of this order to the participants and the resolution applicant(s).

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 in its database.