Tribunal modifies distribution plan, upholds appellant's eligibility under Section 29A of Insolvency Code

Jagmeet Singh Sabharwal & Ors. Versus Rubber Products Ltd. & Ors.

Jagmeet Singh Sabharwal & Ors. Versus Rubber Products Ltd. & Ors. - TMI Issues Involved:
1. Approval and modification of the resolution plan.
2. Additional government dues of Rs. 14 Crores.
3. Classification and treatment of operational creditors.
4. Redistribution of amounts to stakeholders.
5. Eligibility of the resolution applicant under Section 29A.

Detailed Analysis:

1. Approval and Modification of the Resolution Plan:
The appeal was filed against the order dated 19th February 2019 by the Adjudicating Authority (NCLT, Mumbai Bench), which approved the resolution plan with modifications. The modifications included restrictions on the waiver of government liabilities to those ascertained and crystalized as of the CIRP commencement date. The Tribunal emphasized that the resolution plan must consider statutory compliances and the nexus between the resolution applicant and the corporate debtor.

2. Additional Government Dues of Rs. 14 Crores:
The appellant contested the inclusion of an additional Rs. 14 Crores in government dues, which was not listed in the 'Resolution Professional’s' information memorandum. The appellant argued that all statutory dues under existing laws were accounted for, and the additional burden was imposed without basis. The Tribunal noted that the resolution applicant could prepare a revised distribution chart to address these concerns.

3. Classification and Treatment of Operational Creditors:
The Tribunal referenced the case "Pr. Director General of Income Tax (Admn. & TPS) Vs. M/s. Synergies Dooray Automotive Ltd. & Ors." to define operational debt, which includes statutory dues payable to the government. The Tribunal held that operational creditors include suppliers of goods/services, employees, and statutory creditors (government dues). The resolution plan should not discriminate among these classes, ensuring equal treatment for similarly situated creditors.

4. Redistribution of Amounts to Stakeholders:
The original distribution chart proposed 100% payment to CIRP costs, workmen dues, employee dues, secured financial creditors, and unsecured financial creditors (promoter group). Operational creditors (trade payables) and other creditors (promoter group) were allocated 70.81% and 70.47%, respectively. Government dues were allocated 36.31%. The Tribunal found this classification rational, as employees and suppliers contribute to keeping the company operational, unlike the government, which claims statutory dues without providing goods or services.

The revised redistribution chart proposed 100% payment to CIRP costs, workmen dues, employee dues, secured financial creditors, and unsecured financial creditors. Operational creditors (trade payables) and other creditors (promoter group) were allocated 70.81% and 70.47%, respectively. Government dues were allocated 36.31%. The Tribunal upheld this revised distribution as fair and equitable.

5. Eligibility of the Resolution Applicant under Section 29A:
Section 29A of the Insolvency Code disqualifies certain persons from submitting a resolution plan. The Tribunal found no evidence that the resolution applicant was ineligible under Section 29A. Therefore, the Adjudicating Authority's observation that the appellant had a nexus with the corporate debtor was unwarranted.

Conclusion:
The Tribunal set aside the Adjudicating Authority's observation regarding the nexus between the appellant and the corporate debtor. The Tribunal modified the impugned order by substituting the revised distribution manner, ensuring all stakeholders are bound by the revised distribution and other terms of the resolution plan. The appeal was allowed with these observations and directions.