2019 (4) TMI 1790 - Tri - Companies Law

Tribunal Resolves Case Issues, Modifies Order

Vardhman Industries Limited Versus JSW Steel Limited

The Tribunal resolved various issues in the case, including clarifying contradictions in paragraphs of the order, liabilities, personal guarantees, ... Rectification of mistake - typographical error - resolution of the Corporate Debtor - HELD THAT:- The RA requests that the Tribunal may clarify that the liberty provided by the Tribunal to take actions against concerned persons, directors and officials of the CD refer to such of the persons, directors and officials who were in office or employment or management of the CD prior to the NCLT Approval Date and such action for deficiencies or violations prior to the NCLT Approval Date may not be taken against any new directors or officials or management appointed by the RA. It is also clarified that the implementation of the resolution plan shall commence on and from 16.04.2019 i.e. the day of pronouncement of this order and not from 19.12.2018, and 16.04.2019 shall be the NCLT Approval Date for the purposes of the resolution plan. Application disposed off. Issues Involved:1. Contradiction between Paragraphs 7 and 8 of the Tribunal's Order.2. Clarification on liabilities in Paragraph 23.3. Clarification on personal guarantees in Paragraph 26.4. Condition in Paragraph 27(i) regarding receivables.5. Condition in Paragraph 27(ii) regarding carry forward losses.6. Condition in Paragraph 27(iii) regarding subsidiaries, associate companies, and joint ventures.7. Condition in Paragraph 27(iv) regarding pending notices, assessments, and proceedings.8. Condition in Paragraph 27(v) regarding actions against concerned persons, directors, and officials.Detailed Analysis:Issue 1: Contradiction between Paragraphs 7 and 8 of the Tribunal's OrderThe RA pointed out a contradiction between Paragraphs 7 and 8, where Paragraph 7 required existing directors to continue until the Effective Date, while Paragraph 8 required the reconstitution of the board on the NCLT Approval Date. The Tribunal recognized this as a typographical error and modified Paragraph 7 to state that the existing board of directors shall be reconstituted with the existing directors deemed to have resigned on the NCLT Approval Date.Issue 2: Clarification on Liabilities in Paragraph 23The RA sought clarification on the statement that the approval of the resolution plan would not diminish or enhance the liability of the CD in terms of agreements with PNB, arguing no guarantee was given by the CD to PNB or OBC. The Tribunal modified Paragraph 23 to clarify that the mortgage continues in favor of PNB and OBC without casting any additional obligation or liability on the CD, and any guarantee, if given, would not affect the CD’s liability.Issue 3: Clarification on Personal Guarantees in Paragraph 26The RA was concerned that the language in Paragraph 26 might preserve a right of subrogation or reimbursement for guarantors against the CD. The Tribunal clarified that Paragraph 26 does not create or preserve such rights and only deals with the invocation of personal guarantees, rejecting the RA’s request for further clarification as redundant and repetitive.Issue 4: Condition in Paragraph 27(i) Regarding ReceivablesThe RA argued that the condition in Paragraph 27(i) to use recovered amounts to pay financial and operational creditors materially altered the resolution plan and could affect its viability. The Tribunal justified the condition as necessary to prevent unjust enrichment of the CD at the expense of creditors and modified Paragraph 27(i) to specify that amounts recovered from bad debts or unrecovered debts as of the NCLT Approval Date should be used to pay dissenting financial creditors and operational creditors.Issue 5: Condition in Paragraph 27(ii) Regarding Carry Forward LossesThe RA requested that the Tribunal clarify that no permission from the Income Tax Department was required for carrying forward losses, as provided under Section 79 of the Income Tax Act, 1961. The Tribunal rejected this request, emphasizing the need to afford the Income Tax Department an opportunity to be heard, as required by the proviso to Section 79.Issue 6: Condition in Paragraph 27(iii) Regarding Subsidiaries, Associate Companies, and Joint VenturesThe RA sought clarification that all reliefs sought in Cl. IX(4) regarding subsidiaries, associate companies, and joint ventures were allowed. The Tribunal declined to approve Cl. IX(4) in its entirety, noting it covered parties beyond the Tribunal’s jurisdiction. However, the Tribunal modified Paragraph 27(iii) to delete the reference to Cl. 1.7(ii) of Schedule 4, as it did not pertain solely to subsidiaries and associates.Issue 7: Condition in Paragraph 27(iv) Regarding Pending Notices, Assessments, and ProceedingsThe RA requested clarification that the liability of the CD in relation to such notices and proceedings would be nil. The Tribunal agreed, modifying Paragraph 27(iv) to state that all such notices, assessments, and proceedings would stand terminated and withdrawn, with the CD’s liability being nil due to the authorities not coming forth with their claims during the CIRP.Issue 8: Condition in Paragraph 27(v) Regarding Actions Against Concerned Persons, Directors, and OfficialsThe RA requested that actions for deficiencies or violations be limited to persons, directors, and officials in office before the NCLT Approval Date. The Tribunal agreed, modifying Paragraph 27(v) to clarify that actions could be taken against those in office or management before the NCLT Approval Date and continued against directors of the reconstituted board.Implementation Date ClarificationThe Tribunal clarified that the implementation of the resolution plan would commence from 16.04.2019, the date of the order’s pronouncement, and not from 19.12.2018, making 16.04.2019 the NCLT Approval Date for the resolution plan.The application was disposed of accordingly.