Formation Textiles LLC Plan Approved with Modifications

The Resolution Plan of Formation Textiles LLC was approved by the CoC with an 80.92% voting share under Sections 30(6) and 31(1) of the Insolvency & Bankruptcy Code, 2016. The plan was found compliant with Section 30(2) of the IBC and CIRP Regulations, ensuring payments to Financial Creditors and Operational Creditors. Axis Bank, a dissenting secured Financial Creditor, was granted priority payment from the sale proceeds of the Baramati land. Non-compliant clauses in the plan were directed to be deleted, and additional directions were given for various compliance issues. The Resolution Plan was approved with modifications, binding on the Corporate Debtor and stakeholders.

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Issues Involved:
1. Approval of the Resolution Plan under Section 30(6) and Section 31(1) of the Insolvency & Bankruptcy Code, 2016.
2. Compliance with Section 30(2) of the IBC and CIRP Regulations.
3. Payment to Financial Creditors and Operational Creditors.
4. Priority of payment to dissenting secured Financial Creditor (Axis Bank).
5. Deletion of non-compliant clauses in the Resolution Plan.

Detailed Analysis:

Approval of the Resolution Plan:
The application was filed under Section 30(6) read with Section 31(1) of the Insolvency & Bankruptcy Code, 2016, seeking approval of the final resolution plan by the Adjudicating Authority. The Resolution Plan of Formation Textiles LLC was approved by the CoC with an 80.92% voting share.

Compliance with Section 30(2) of the IBC and CIRP Regulations:
The Resolution Plan was examined for compliance with Section 30(2) of the IBC and the CIRP Regulations. It was found to meet the criteria laid down in Section 30(2) and Regulations 38 and 39 of the IBBI. Specific provisions included payment of CIRP costs, repayment to Operational Creditors, management of the Corporate Debtor, and implementation and supervision of the plan.

Payment to Financial Creditors and Operational Creditors:
The plan provided for an upfront payment of Rs. 175 crores to Financial Creditors within 30 days of the Effective Date, with the balance amount of Rs. 305 crores to be paid over six years. Operational Creditors, despite having NIL liquidation value, were to receive payments of Rs. 1.59 crores and Rs.0.634 crores within 30 days of the Effective Date.

Priority of Payment to Dissenting Secured Financial Creditor (Axis Bank):
Axis Bank, a dissenting secured Financial Creditor, sought priority payment of Rs. 46.70 crores. The Tribunal held that Axis Bank, as a secured creditor with an exclusive charge over the Baramati land, should receive priority payment from the sale proceeds of the land. This was justified as Axis Bank would lose its security while other creditors' securities remained intact.

Deletion of Non-Compliant Clauses:
The Tribunal directed the deletion of specific clauses from the Resolution Plan for being non-compliant with the law:
- Clause 7.7 regarding the waiver of dues during CIRP.
- Chapter VIII seeking reliefs and concessions.
- References to payment of liquidation value to dissenting financial creditors, including clause 9.

Additional Directions:
- Rationalization of employee strength as per the Industrial Disputes Act.
- Compliance with SEBI Regulations for stock exchange approvals.
- Compliance with FEMA and RBI Regulations for External Commercial Borrowing.
- Priority in payment to Operational Creditors over Financial Creditors as per amended Regulation 38 of the CIRP Regulations.
- Modification of payment clauses to give priority to Axis Bank from the sale proceeds of Baramati Land.
- Statutory dues to be governed as per respective Acts.
- CIRP costs to be paid on actuals as approved by the CoC.

Conclusion:
The Resolution Plan was approved with modifications, making it binding on the Corporate Debtor and all stakeholders. The applications MA 692/2018 and MA 811/2018 were disposed of, and the Registry was directed to communicate the order immediately to the Resolution Professional and the Resolution Applicant.

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