2019 (4) TMI 910 - Tri - Insolvency and Bankruptcy

Tribunal Approves Revised Resolution Plan under Insolvency and Bankruptcy Code - Commercial Wisdom Prevails

The Tribunal approved the Revised Resolution Plan dated 26.05.2018, along with the addendum dated 05.06.2018, under Sections 30(6) and 31 of the ... Approval of the Resolution Plan for insolvency resolution of the Corporate Debtor - The Resolution Plan of Kushal Limited jointly with Mr. Sandip Agrawal did not meet with the criteria of the initial deposit of 5% as on stipulated date. Hence the CoC rejected the Resolution Plan - Held that:- Section 53 of IBC lists the priorities to be given to the beneficiaries of liquidation value of the assets of the Corporate Debtor. The provisions of Section 53 make it amply clear that Operational Creditors are at the end of the list of beneficiaries as the Secured Financial Creditors have edge over the others. Moreover, the claims of the applicants who filed the Intervention Applications are having the claim below 10 per cent of the total debt of the Corporate Debtor. Hence, in view of Section 24(3)(c) of the Code, the operational creditors , if the amount of their aggregate dues is less than 10 per cent of the debt, they are not entitled to attend and vote in the meetings of CoC. Also, Operational Creditors have no locus standi as far as approval of the Resolution Plan by the CoC is concerned. They are not eligible to attend and vote at the meetings of CoC if they are holding less than 10% of the total debt - Section 24(3)(C) of IBC dispel the misconceptions of the Operational Creditors/intervener that they have edge over the other beneficiaries. Resolution Plan as approved by the Committee of Creditors “CoC” meets the requirements as referred to under section 30(2) of the Insolvency and Bankruptcy Code, 2016 and therefore, IA 224 of 2018 is liable to be allowed as prayed for - Resolution Plan dated 26.05.2018 along with Addendum dated 05.06.2018 submitted by the RP with approval of the CoC is approved. Issues Involved:1. Approval of the Revised Resolution Plan.2. Claims and objections by operational creditors and other stakeholders.3. Compliance with the Insolvency and Bankruptcy Code (IBC) and related regulations.4. Distribution of liquidation assets and priorities under Section 53 of the IBC.5. Jurisdiction and authority of the National Company Law Tribunal (NCLT) and Committee of Creditors (CoC).Detailed Analysis:1. Approval of the Revised Resolution Plan:The application IA 224 of 2018 was filed under Section 30(6) read with Section 31 of the Insolvency and Bankruptcy Code, 2016, seeking approval of the Revised Resolution Plan dated 26.05.2018 along with an addendum dated 05.06.2018. The CoC approved the resolution plan with a majority of 79.79% voting share in favor of the Resolution Applicant. The Tribunal found that all compliances were made, and the CoC's decision was based on commercial wisdom, taking care of all stakeholders' interests. Thus, the resolution plan was approved under Section 31(1) of the Code, binding on the Corporate Debtor, its employees, members, creditors, and other stakeholders.2. Claims and Objections by Operational Creditors and Other Stakeholders:Several intervention applications were filed by various creditors challenging the resolution plan. These included:- IA 271 of 2018 by Shree Ganpatlal Onkar Agrawal & Co, claiming reduction of their claim without explanation.- IA 272 of 2018 by Swastik Coal Corporation Private Limited, also claiming reduction of their claim without explanation.- IA 273 of 2018 by Tourism Finance Corporation of India Ltd, challenging the re-categorization of their claim from secured to unsecured.- IA 337 of 2018 by Virat Enterprises, claiming reduction of their claim without explanation.- P-01 of 2019 by the Sales Tax Officer, Kadi, challenging the waiver of VAT/CST dues.The Tribunal dismissed these applications as not maintainable, noting that the claims were either delayed or did not meet the criteria for intervention. It was observed that the resolution plan took care of operational creditors as per Section 53 of the Code, and the CoC's commercial wisdom could not be questioned.3. Compliance with the Insolvency and Bankruptcy Code (IBC) and Related Regulations:The Tribunal ensured that the resolution plan complied with the provisions of the IBC and related regulations. The plan provided for the payment of insolvency resolution process costs, repayment of debts to operational creditors, management of the Corporate Debtor's affairs, and implementation and supervision of the resolution plan. The Tribunal also referred to the Supreme Court's judgment in K. Sashidhar v. Indian Overseas Bank, which emphasized the limited jurisdiction of the NCLT in analyzing the commercial decisions of the CoC.4. Distribution of Liquidation Assets and Priorities under Section 53 of the IBC:The Tribunal discussed Section 53 of the Code, which outlines the order of priority for distributing liquidation assets. It was noted that operational creditors are at the end of the list of beneficiaries, with secured financial creditors having priority. The Tribunal reiterated that the claims of the applicants who filed intervention applications were below 10% of the total debt of the Corporate Debtor, making them ineligible to attend and vote in CoC meetings as per Section 24(3)(c) of the Code.5. Jurisdiction and Authority of the NCLT and Committee of Creditors (CoC):The Tribunal highlighted the limited jurisdiction of the NCLT in interfering with the commercial decisions of the CoC. It referred to the Supreme Court's judgment in K. Sashidhar v. Indian Overseas Bank, which stated that the NCLT and the appellate authority (NCLAT) do not have the jurisdiction to reverse the commercial wisdom of the CoC. The Tribunal emphasized that the primary objective of the IBC is the resolution of failing corporate debtor companies, not liquidation, and that the approval of the resolution plan by the CoC is paramount.Conclusion:The Tribunal approved the Revised Resolution Plan dated 26.05.2018 along with the addendum dated 05.06.2018, dismissing the intervention applications as not maintainable. The resolution plan was found to be in compliance with the IBC and related regulations, prioritizing the resolution of the Corporate Debtor over liquidation, and taking care of all stakeholders' interests.