2019 (5) TMI 1718 - Tri - Insolvency and Bankruptcy

Tribunal Approves Tata Steel's Resolution Plan for Bhushan Energy Ltd. Despite Ex-Promoter Objections

State Bank of India Versus Bhushan Energy Limited

The Tribunal approved the resolution plan submitted by Tata Steel Limited for Bhushan Energy Ltd., despite objections raised by the Ex-Promoter regarding ... Approval of Resolution Plan - whether HI Applicant-TSL attracts disqualification under Section 29A (a) & (j)? HELD THAT:- When a petition under Section 7 or 9 of the Code is admitted then the Adjudicating Authority-NCLT in a summary proceedings record a finding that there is non payment of debt when whole or any part of instalment of the amount of debt has become due and payable which has not been paid by the Corporate Debtor. If such a finding is recorded then the default is supposed to have occurred. The event of default within the meaning of Section 3 (12) of the Code is sufficient to conclude that Corporate Insolvency Resolution is required to be triggered in respect of such a body corporate. It may appear that HI-applicnat-TSL is not eligible to submit the Resolution Plan. However, this impression is belied on a closer analysis. Mere admission of a petition under Section 9 of the Code may not necessarily leads to a safe conclusion that Toya Rolls Limited is an 'undischarged insolvent'. Firstly, there is no final adjudication with regard to the status of Tayo Rolls Ltd., as to whether it is 'undischarged insolvent'. An adjudication in respect of the corporate debtor to conclude that it is 'undischarged insolvent' has to be entrusted to a court of competent jurisdiction. We are unable to persuade ourselves that the adjudicating authority-NCLT has been vested with the jurisdiction to declare a body corporate as 'undischarged insolvent'. Such a findings lead to a very serious prejudice for a body corporate and its 'Directors'. Even in the Companies Act, 2013 there is complete absence of any provision which provide that on admission of a petition under Sections 7, 9 or 10 of the Code, the company would be regarded as 'undischarged insolvent' - it is extremely doubtful whether the Adjudicating Authority-NCLT has jurisdiction to issue such a declaration by adopting a summary procedure. The resolution plan is accepted and all objections are over-ruled. However, the acceptance and approval of the resolution plan shall be subject to the following; a) The amount due to the operational creditor under the resolution plan must be accorded priority in payment over the financial creditor as is laid down in Regulation 38(1) of the Insolvency Resolution Regulations, 2016. b) CA No. 384(PB)/2019 which has been disposed of today involves the claim of the Operational Creditor which submitted on 22.11.2018 by the applicant namely M/S. Redeem Engineering while deciding the aforesaid application, the resolution professional has been asked to consider the claim and if it is found meritorious and in order then the name of the applicant is be included in the list of creditors and is to be paid according to the resolution plan. c) The resolution plan would be binding on the corporate debtor, its creditors, guarantors, members, employees and other stakeholders. The reduction of share capital of the corporate debtor as contemplated by the resolution plan (Annexure -5) would take effect without any further deed or act on the part of the corporate debtor and/or its constitutes. d) We also approve the appointment of Monitoring Agency from the date of this order until the closing date. Accordingly, the COC and the RP would continue as Monitoring Agency. e) The power of the Board of Directors of the Corporate Debtor shall remain suspended until the closing date. f) The reliefs sought under Section 10.2 of the resolution plan cannot be regarded as condition precedent for approval of the resolution plan. Various reliefs are sought from the statutory authorities under the Income Tax Act, 1961, Ministry of Corporate Affairs, Department of Registration and Stamps, Reserve Bank of India and others have been sought. We do not feel persuaded to accept the prayer made in the resolution plan yet the resolution plan applicant may file appropriate applications before the competent authorities which would be considered in accordance with the law because it would not be competent for the Adjudicating Authority-NCLT to enter into any such area and granting relaxation, concession or waiver which is wholly within the domain of competent authorities. g) In respect of the relief claimed under the caption 'Requests' we are again not in a position to grant those requests which pertains to criminal proceedings/ penalties. It may only be observed that the resolution plan applicant may file appropriate application before the competent authorities seized of the criminal proceedings/ penalties which shall be considered in accordance with the applicable law. h) It is needless to clarify that Section 30(2) (f) of the Code mandates that the Resolution plan should not be against any provisions of the existing law. The resolution applicant, therefore, shall adhere to all the applicable laws for the time being in force. The application stands disposed of in the above terms. Issues Involved:1. Approval of the resolution plan under Section 30(6) & 31 of the Insolvency and Bankruptcy Code, 2016.2. Objections by the Ex-Promoter regarding biased conduct, lower valuation, and ineligibility of Tata Steel Ltd. under Section 29A of the Code.3. Compliance with the Insolvency and Bankruptcy Code and associated regulations.4. Appointment of the Monitoring Agency and suspension of the Board of Directors' powers.5. Reliefs and concessions sought under the approved Resolution Plan.Issue-wise Detailed Analysis:1. Approval of the Resolution Plan:The Tribunal addressed the application filed by the Resolution Professional (RP) seeking approval of the resolution plan submitted by Tata Steel Limited (TSL) for Bhushan Energy Ltd. (the Corporate Debtor). The RP had convened 10 meetings of the Committee of Creditors (COC) and received claims amounting to INR 2779.94 crores from financial creditors and INR 98.20 crores from operational creditors. The RP issued a public notice inviting resolution plans, receiving interest from TSL and JSW Energy Limited. After extensive negotiations and evaluations, TSL's amended and restated resolution plan was approved by the COC with a 100% affirmative voting share. The RP confirmed compliance with all provisions of the Code and Regulations.2. Objections by the Ex-Promoter:The Ex-Promoter raised three main objections:- Biased Conduct: Alleging collusion between the RP and TSL, citing non-disclosure of pending litigation before the Supreme Court concerning Power Purchase Agreements (PPA) between Bhushan Steel Ltd. and Bhushan Energy Ltd.- Lower Valuation: Arguing that the termination of PPAs deliberately reduced the fair market value of the Corporate Debtor. The Ex-Promoter claimed that TSL's offer of INR 730 crores was significantly lower than the actual value of the Corporate Debtor's assets.- Ineligibility under Section 29A: Asserting that TSL was ineligible to submit a resolution plan due to its subsidiary, Tayo Rolls Ltd., being an undischarged insolvent.3. Compliance with the Code and Regulations:The RP submitted a compliance certificate in Form-H, confirming that the resolution plan complied with all provisions of the Code and Regulations. The RP and COC obtained affidavits from TSL affirming its eligibility under Section 29A of the Code. The Tribunal noted that the term 'undischarged insolvent' applies to individuals and not corporate entities, rejecting the Ex-Promoter's argument about TSL's ineligibility.4. Appointment of Monitoring Agency and Suspension of Board Powers:The Tribunal approved the appointment of the Monitoring Agency, comprising the RP and the COC, to oversee the implementation of the resolution plan. The powers of the Board of Directors of the Corporate Debtor were suspended until the closing date, and the Monitoring Agency was authorized to perform necessary acts to implement the resolution plan.5. Reliefs and Concessions Sought:The Tribunal addressed various reliefs and concessions sought under the resolution plan, including:- Priority payment to operational creditors over financial creditors as per Regulation 38(1).- Approval of the reduction of share capital of the Corporate Debtor.- The Tribunal did not grant requests for statutory reliefs but allowed the resolution applicant to approach competent authorities for necessary approvals.- The Tribunal emphasized adherence to all applicable laws and regulations.Conclusion:The Tribunal approved the resolution plan submitted by TSL, overruling the objections raised by the Ex-Promoter. The approval was subject to certain conditions, including priority payment to operational creditors and adherence to applicable laws. The Tribunal appointed the Monitoring Agency and suspended the powers of the Board of Directors until the closing date. The resolution plan was deemed binding on the Corporate Debtor, its creditors, guarantors, members, employees, and other stakeholders.