2020 (11) TMI 848 - AT - Insolvency and Bankruptcy

Tribunal Rules Third-Party Inclusion in Resolution Plan Valid under I&B Code

The Tribunal held that including a third-party company in the Resolution Plan was permissible under the I&B Code, 2016. The plan's treatment of ... Approval of Resolution plan - Whether a third party company, i.e. Facor Power Limited (FPL) can be dealt with in a Resolution Plan under corporate insolvency resolution process against the Corporate Debtor 'Ferro Alloys Corporation Limited' (FACL)? - HELD THAT:- The Resolution Professional submits that in accordance with Regulation 27 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulation 2016, (in short CIRP Regulation), two independent valuers were appointed to conduct a valuation of the assets of the Corporate Debtor (including the shares held by the Corporate Debtor in FPL), in order to arrive at the fair value and liquidation value of the Corporate Debtor. Further, a detailed presentation on the Valuation Report was duly discussed with the Members of the erstwhile COC of the Corporate Debtor on 11th November 2019, i.e. before voting on the Resolution Plan took place. It is also important to observe that out of the average liquidation value of ₹ 305 Crores, approximately one-third value i.e. ₹ 95 Crores is attributable to the shareholding of the Corporate Debtor in FPL - thus, it is clear that objection regarding the valuation of shares of Facor Power Ltd (FPL) is also not sustainable. It is pertinent to mention that the shareholding pattern in any company demonstrates the extent of control that a shareholder has and can exercise over the said Company. Hence, even in the absence of such an express provision in Resolution Plan, the Resolution Applicant after taking over the Corporate Debtor is entitled to exercise its right over its subsidiary company - the Appellant’s objection regarding the inclusion of the subsidiary company of the Corporate Debtor in the Resolution Plan is not sustainable. Whether the Adjudicating Authority can approve a Resolution Plan which is discriminatory and gives differential treatment amongst the same Class of the Financial Creditors, merely based on assenting or dissenting Financial Creditors? - HELD THAT:- The Amendment to Regulation 38(1) of CIRP Regulations mandates priority in payment to dissenting Financial Creditors. This amendment came into effect on 27th November 2019, i.e. post the approval of Resolution Plan by the erstwhile COC of the Corporate Debtor. Therefore, as on the date of approval of the Resolution Plan by the erstwhile COC, the only requirement under the provision of the Code qua the dissenting Financial Creditors was the payment of the minimum liquidation value, which is duly complied in the present Case - It is settled position in Law that provisions in a Statute would operate prospectively unless the retrospective operation is expressly provided for. There being no clarification provided to that effect, the amended Regulation 38 cannot be said to have retrospective application. The approved Resolution does not give differential treatment among the same Class of Financial Creditors merely based on assenting or dissenting Financial Creditors. Thus, the approved Resolution Plan is not discriminatory. Whether approved Resolution Plan filed by Sterlite Power Transmission Limited is violative of Section 30(2) of the I&B Code, 2016? - HELD THAT:- The legal position is well settled that an approved Resolution Plan can deal with the related party claim and extinguish the same which shall ensure that the Successful Resolution Applicant can take over the Corporate Debtor on a clean slate. The related Parties are being kept out to ensure continuity of operation of both FACL and FPL following the provisions of the Code. There are also no substance based on which it can be inferred that the Resolution Plan is not in conformity with the provisions of Code as provided under Sec 30(2) of the Insolvency and Bankruptcy Code, 2016. Appeal dismissed. Issues Involved:1. Whether a third party company, Facor Power Limited (FPL), can be dealt with in a Resolution Plan under corporate insolvency resolution process against the Corporate Debtor Ferro Alloys Corporation Limited (FACL).2. Whether the Adjudicating Authority can approve a Resolution Plan which is discriminatory and gives differential treatment amongst the same Class of Financial Creditors, merely based on assenting or dissenting Financial Creditors.3. Whether the approved Resolution Plan filed by Sterlite Power Transmission Limited is violative of Section 30(2) of the I&B Code, 2016.Issue-wise Detailed Analysis:Issue No. 1:The Appellant contended that the Resolution Plan included assets of a third party, Facor Power Limited (FPL), which is not permissible under the I&B Code, 2016. The Appellant argued that the plan did not ascribe any value to the shares of FPL, which were valued at more than Rs. 538 crores, thus violating Section 60(5) of the Code. The Respondent No. 3 countered that the Resolution Plan did not mandate the automatic transfer of shareholding and any such transfer required the consent of the relevant shareholders. The shares held by the Corporate Debtor in FPL were valued at Rs. 95 crores and were part of the assets of the Corporate Debtor. The Tribunal referenced the JSW Steel case, affirming that the Resolution Applicant could decide on the rights over subsidiaries. The Tribunal concluded that the inclusion of FPL in the Resolution Plan was legitimate and the objection was not sustainable.Issue No. 2 & 3:The Appellant in Appeal No. 462 of 2020 argued that the Resolution Plan was discriminatory as it provided differential treatment to Financial Creditors based on their assent or dissent. The consenting Financial Creditors received Non-Convertible Secured Debentures and upfront cash, while dissenting Financial Creditors only received Non-Convertible Secured Debentures. The Appellant cited the Supreme Court's judgment in the ESSAR Steel case, emphasizing equitable treatment for creditors within the same class. The Respondent No. 3 and the Resolution Professional argued that the plan complied with Section 30(2)(b) of the Code, which ensures a minimum payment to dissenting Financial Creditors. The Tribunal noted that the amendment to Regulation 38(1) of CIRP Regulations, which mandates priority in payment to dissenting Financial Creditors, came into effect after the approval of the Resolution Plan. The Tribunal held that the plan did not give differential treatment based on assent or dissent and was not discriminatory.Conclusion:The Tribunal found that the objections regarding the inclusion of FPL in the Resolution Plan and the alleged discrimination among Financial Creditors were not sustainable. The approved Resolution Plan was in conformity with the provisions of the I&B Code, 2016. Both Appeals were dismissed, and no order as to costs was made.