Vineet Gupta vs Monitoring Committee & Ors.

Per: Subrata Kumar Dash, Member (Technical)

The present Applicationis filed by Vineet Gupta, S/o Shri Jai Dev Gupta (hereinafter referred to as ‘Applicant”) against Monitoring Committee (hereinafter referred to as ‘Respondent No. 1”); Akums Drugs & Pharmaceuticals Limited (hereinafter referred to as “Respondent No. 2”); Akums Lifesciences Limited (hereinafter referred to as “Respondent No. 3”) and Registrar of Companies (hereinafter referred to as “Respondent No. 4”) under Rule 11 of the National Company Law Tribunal Rules, 2016 seeking direction to the Monitoring Committee and the Resolution Applicant to make all statutory compliance including filing of requisite forms and payment of fees etc. under Companies Act, 2013 and Rules / Regulations made thereunder and other formalities as required under legal provisions such as filing Corporate Action Form with the depository / RTA, stamp duty etc. in terms of their implementation of Resolution Plan.

The applicant has prayed for issue directions to the Monitoring Committee and the Resolution Applicant to make all statutory compliance including the filing of requisite forms and payment of fees etc. under the Companies Act, 2013 and Rules / Regulations made thereunder and other formalities as required under legal provisions such as filing Corporate Action Form with the depository / RTA, stamp duty etc., in terms of their effective implementation of Resolution Plan. It is further prayed to direct the Registrar of Companies, Chandigarh to ensure that the Resolution Applicant and Financial Creditors make all statutory compliance including filing of requisite forms and payment of fees, stamp duty etc. and other formalities as required under legal provisions.

The brief facts of the case as stated in the application are that :-

The respondent no. 1 has filed its reply and written submissions wherein it is stated that after the approval of the resolution plan by order dated 12.01.2021, the Monitoring Committee has been constituted for the implementation of the resolution plan. Schedule 2 of the plan also provides for the conversion of outstanding debt into equity and therefore reduction of the capital. Out of the total debt of Rs. 515,58,00,000/- in the books of the corporate debtor an amount of Rs. 1426,42,96,788/- is unsustainable and issued 142,64,29,679 equity shares of Rs. 10/- each with an objective to provide a clean slate to the Corporate Debtor. The approval of the plan shall constitute adequate approval for the issuance and subscription of equity shares by the financial creditors in accordance with Section 42 and Section 62(1)(c) of the Companies Act, 2013. Accordingly, no approval or consent shall be necessary from any government authority. The Board of Directors of the corporate debtor in a meeting held on 04.02.2021 discussed the cancellation of shares in terms of Clause 4 of Schedule 2.1 of the resolution plan. Upon conversion of debt into equity the share representing unsustainable share relating to the existing shareholders shall stand extinguished in accordance with the provisions of the resolution plan. The Resolution Applicant submitted PAS 3 with the RoC on 25.09.2021. The list of allottees along with the minutes of the meeting of directors held on 25.09.2021 are attached with the application. The resolution plan is fully implemented on 21.09.2022 by respondent no. 2 with in the prescribed timelines. The respondent no. 1 has also issued no dues letter dated 11.02.2022 to the resolution applicant stating that there are no dues payable by the resolution applicant. It is also objected by the respondent no. 1 that the applicant being the erstwhile management has no locus standi to file the present application. The resolution plan has been implemented fully by the resolution applicant and the applicant has not raised any grievances qua the implementation of the resolution plan with the Monitoring Committee. The resolution plan approved by this Adjudicating Authority is also binding upon the applicant.

The respondent no. 2 and 3 have also filed replies and written submissions stating that the Applicant has no locus to file the present application before this Hon'ble Tribunal and subsequent to approval and implementation of the Resolution Plan, the Applicant cannot invoke Rule 11 of NCLT Rules, 2016. The applicant is neither a shareholder nor creditor or an aggrieved party whose rights are affected pursuant to the successful implementation of the approved Resolution Plan. The applicant has reproduced portions of the Resolution Plan on Pick and choose basis suiting his convenience with respect to Schedule 2 implementation provisions of the Resolution Plan. It is submitted that there was no requirement to file Form MGT-14 with the Registrar of Companies as stated in para 3.2, 4.2, 4.3, 4.4, 9 & 10 of the Resolution Plan. The conversion of the unsustainable debt into equity and an extinguishment thereof was notional and had no bearing or impact on any of the parties and was as per the plan approved by the COC. This was an integral part of and in accordance with the Plan and be deemed to have been carried out without any further deed or action required by the Corporate Debtor or any other Person. This was a notional action and has no bearing on the share capital or the shareholding position of the Company. The applicant is misleading the Tribunal by suggesting actions which are not applicable and are exempted in the case of CIRP.

A reference has been made to the relevant paragraphs in the approved resoluton plan dealing with the increase in authorized share capital.

It is further pointed out by Respondents No 2 & 3 that the Applicant is striving to prove that all the creditors were paid their full amount without any haircut and therefore, the Applicant is not obliged to make balance payments to the creditors against the personal guarantees given by them and against the properties pledged by them. There was no actual allotment of shares by the Corporate Debtor as there was no corresponding assets in the balance sheet of the Corporate Debtors, hence, the actual allotment may result into the mismatch of assets and liabilities of the Corporate Debtor. The allotment and subsequent cancellation against the Unsustainable Lender Account was only a way to clean the balance sheet against the lost assets.

The Respondents in their Additional written submissions have specifically pointed out that Respondent No. 4 is a “Registry Office” under the provisions of Companies Act 2013 and Report is based on the Record uploaded on “mca.gov.in” and Registry Record. The Ministry of Corporate Affairs has specifically issued a circular in which it has prohibited ROC to submit any opinion or analysis. It is averred that the applicant cannot seek a decree from the Hon'ble NCLT/AA as to which Form is required to be filed under the law and which is not required to be filed. The payments as proposed under the Resolution Plan stand paid which has been confirmed by the Monitoring Agency. It is contended by the Respondent No. 2 & 3 that under the relevant enactment(s), the statute provides for the establishment of regulatory authorities which are required to keep check on such necessary compliances. And, if any establishment fails to comply with the provisions relating to any compliance, then the concerned Regulatory Authorities are provided with appropriate powers/authorities under the respective laws to take action on them. Neither the Companies Act, 2013 nor Insolvency & Bankruptcy Code, 2016, empowers the Tribunal as to which FORM is required to be filed, administer and adjudicate its compliance and/or supervise/direct the ROC to ensure such compliances.

The respondent No. 2 & 3 further submitted that the amount, which is a ‘hair cut’ is called “Unsustainable Lender Conversion Amount” in the Resolution Plan and the book entry treatment only was provided in the Plan in Schedule 2. The haircut of RS. 1,426 Cr. was a part of the Plan on account of operation of “doctrine of clean slate” and it cannot be said that the Plan contemplated actual payment of any amount by way of issue of shares. It is further submitted that after distribution of Plan amount under the waterfall mechanism, the entire remaining claims are extinguished and the RA gets the CD on a clean slate. In the present case also, Rs. 1426,42,96,788/- has to be extinguished which is in the nature of ‘hair cut’ pursuant to the Plan. Since the amount was huge, the RA had provided a book treatment only. It is asserted by The Respondent No. 2 & 3 that the Taxation Issue as highlighted in the short written submissions, submitted by the Applicant is beyond his pleadings and as such cannot be considered as these allegations are neither part of Application nor the Rejoinder filed by the Applicant. Therefore, in absence of the pleadings, such allegation cannot be taken into consideration. Additionally, the question related to the creation of liability of tax on part of Corporate Debtor shall be determined by the relevant Tax Department only. It is also submitted that The applicant does not have locus to file the application that too after 2 years of the sanction/implementation of the Plan with an aims to disrupt the Personal Insolvency Proceedings initiated by the Financial Creditors and to drag the RA and CD into the Personal Insolvency proceedings. The judgment of Hon’ble Supreme Court, of Vijay Kumar Jain vs. Standard Chartered Bank, as relied upon by the Applicant, relates to the matter - where the guarantors are being asked to pay the amount more than the unrecovered debt. In present case, the FC have been paid their proposed amount as per the terms of the resolution plan and FCs can recover the unrecovered amount from the Applicant (being Guarantor) in terms of the Approved Resolution Plan

The respondent No.4-Registrar of Companies, Punjab and Chandigarh in its reply has stated that as per the available records with the Office of the Registrar of Companies, there is no such increase in the authorized share capitals as the Company has not filed Form SH-7 required for the increase of authorized share capital and there is no amendment in the Memorandum of Association and Articles of Association. There is no resolution for the allotment of the shares on the preferential basis to the financial creditors in proportion to their shares of the debt into equity shares which is filed with the RoC. The Registrar of Companies has also filed another reply dated 02.06.2023 stating that as per the available records, the authorized capital of Akums Lifesciences Ltd. is Rs.72 Crore and Company has neither paid fees for the increased in the authorized capital nor filed Form SH-7 for increasing the capital by an amount of Rs.1450,00,00,000/-. Also there is no such resolution which was required to be filed by the Company in Form MGT-14 with regard to the conversion of the outstanding debt into the equity shares. It is also submitted by the Registrar of Companies that as the records do not show any increase in the authorized share capital, therefore, the issue regarding the extinguishment of the equity shares of the company does not arise. The Registrar of Companies has stated that they were not a party to the Resolution Plan when the same was approved by this Adjudicating Authority and the documents filed with the Registrar of Companies are public documents which can be obtained after filing of the requisite fees.

The rejoinder has been filed by the applicant denying the submissions made by the respondent Nos.1, 2 and 3. It is submitted that the applicant has locus to file the present application as the applicant was a Director in the Corporate Debtor M/s Parabolic Drugs Ltd.and a personal gurantor.His interest would be seriously jeopardised if the entire debt of the Financial Creditors against the Corporate Debtor does not stand settled fully and finally in terms of money as well as issuance of shares. Reliance is placed on the judgment of Vijay Kumar Jain Vs. Standard Chartered Bank - 2019 (20) SCC 455, held as under: -

The applicant also submits that the submission made by the respondent Nos.2 to 3 with regard to the notional capital is misconceived as in the said Resolution, there is nothing mentioned that the same is “notional” The respondents cannot bypass the requirement of increasing the authorized share capital and then allotting the equity shares to the lenders in proportion to their debt by filing the required Forms with the ROC.

We have heard the learned counsel for the applicant and the respondents and have pursued the record carefully.

The issues to be decided in this application are

The learned counsel for the respondent has argued that compliances other than those already made by the Corporate Debtor were not mandated to be made as per the relevant provisions of the approved resolution plan.

In this context, the excerpts relating to the increase in the authorized share capital as approved by this authority are extracted below:

Further in this context, we notice the para 32 of the order dated 12.01.2021 in CA No. 389/2019 approving the Resolution Plan of the corporate debtor extracted as below: -

Clause 11 refers to the waiver pertaining to creditors, Government Authorities, the release of incumbrances over assets and certain other assumptions in Appendix 3 of the resolution plan. Similarly, Clause 6.13.6.2 refers to relief from payment of stamp duty, registration charges etc and also mentions that “the RoC, Chandigarh to take on record and implement the plan, upon approval of the plan by NCLT, without any further compliance”.

To place the issues in context, we refer to the following extracts from the affidavits filed before this authority prior to the approval of the resolution plan in the case of Parabolic Drugs Limited filed in CA No. 389/2019 ;

● The affidavit on behalf of Resolution Applicant dated 22.02.2020 in CA No. 389/2019.

● The affidavit on behalf of Resolution Professional for Parbolic Drugs Ltd. in CA No. 389/2019

The aforementioned extracts refer to certain provisions in the resolution plan which was undertaken to be withdrawn. For the sake of clarity, the relevant parts of these clauses in the resolution plan are extracted below:

With regard to the locus of the applicant, we observe that he is an ex-director of the Corporate Debtor. An ex-director, who is a personal guarantor of the Corporate Debtor have a substantial interest for the resolution process of the Corporate Debtor in view of the decision Hon’ble Supreme Court in the case of Vijay Kumar Jain (Supra).

As regards the jurisdiction of this authority to entertain this application, it is clarified that the implementation of a resolution plan will be considered to be complete only when all the steps to implement the terms and conditions mentioned in the approved plan are executed in letter and spirit. Till then, the implementation of the plan cannot be stated to be complete. The code provides for the liquidation of the Corporate Debtor in case the Successful Resolution Applicant fails to implement the resolution plan. As a prima facie case was made out in this application that certain steps have not been taken to implement the plan in its totality, we are of the opinion that this Authority can entertain an application and issue necessary directions.

Now coming to the question of whether all steps have been taken in executing the plan, we notice that the approved plan laid down the increase in the authorized share capital of the Corporate Debtor by an amount of Rs. 1450 crores or such higher amount is required to accommodate the transaction contemplated in the Schedule 2 (Implementation Provisions) and also for amendment of the Articles of Associations if required. The Corporate Debtor passed a resolution on 04.02.2021 converting the debt of Rs. 1426 crores into equity and issue shares to the Financial Creditors. By another resolution on the same day, the shares allowed to financial creditors were extinguished.

Even at the risk of repetition, we summarise the arguments of the respondents below: All the payments as required under the approved resolution plan have been made; the requirement of conversion of unsustainable debt into equity is “notional” and has no bearing or impact on any of the parties; the MCA is a regulatory authority and they have not initiated any action with regard to any failure on the part of the Corporate Debtor to file necessary forms; for unsustainable conversion amount, only book entry treatment was provided in Schedule 2 of the approved plan and the plan did not contemplate any actual payment of any amount by issue of shares and as far as the issue of tax liability is concerned, It is for the Income Tax Department to look into the matter.

We are not persuaded by the above arguments of the respondents that the whole transactions were only “Notional”, as the language of the approved resolution plan, especially in Schedule 2 (Implementation provisions) as quoted in paragraph 13.2 above clearly laid down steps for converting of outstanding debt into equity and then selection, reduction of capital and shares of the lender in the equity shares and there is no mention in the said provisions that the states laid down are only “notional”.

Plain reading of this Schedule 2 (Implementation Provisions) as extracted above in paragraph 3(iii), clearly indicates that the approved resolution plan did not contemplate the word “Notional” converting of debt into equity and subsequent reduction of capital by passing resolutions on the same date. We further note that as mentioned in para 32 of our order dated 12.01.2021 in CA no. 389/2019, the Resolution applicant expressly undertook to approach relevant authorities, which included the RoC, Chandigarh for necessary reliefs and concessions. By circumventing these provisions, clearly laid down in the approved resolution plan, the respondent- Resolution Professional has definitely not acted in accordance with the provisions of the resolution plan. Furthermore, we note that the order of this authority dated 12.01.2021 had taken into consideration the separate affidavits filed by the resolution professional and resolution applicant (Diary Nos. 1590 and 1591 dated 26.02.2020) and did not allow the conditions and precedents mentioned under Clause 11 of part 1 of the resolution plan and relief and concessions stated under para 6.13 of part 1 of the resolution plan thereby making it clear that the Corporate Debtor had to approach the relevant statutory authority and other authorities for grant of approval of consent.

In this connection, we refer to the decision of the Mumbai bench of NCLT in the matter of State Bank of India Financial Creditor V/s Ushdev International Limited IA/887/2022 & IA/1606/2022 In IA/1447/2021 In CP(IB)No. 1790/MB/2017 dated 14.10.2022, wherein under similar circumstances, the Tribunal directed as under:

In view of the aforementioned discussions, we are of the view that with regard to the Increase in share capital relating to the issuance of shares and subsequent reduction, the Corporate Debtor has not followed the statutory provisions under the Companies Act, 2013 nor has obtained any exemption in this regard from the concerned authorities including the RoC, Chandigarh. In this context, the Successful Resolution Applicant is directed to approach the relevant authorities for seeking necessary reliefs and concessions within 15 days of this order. The Authorities are directed to consider the same, keeping in view the spirit of IBC legislation. In case the reliefs sought are not granted by the concerned authorities, the SRA/ Corporate Debtor are to implement the plan as per the steps laid down in Schedule 2 (Implementation process) of the approved plan within 60 days of this order.

In the result, IA No. 322/2023 is allowed as above and the same is disposed of accordingly.