2022 (3) TMI 629 - Tri - Insolvency and Bankruptcy

Tribunal: Resolution Plan Converts Debt to Shares, Excludes Enforcement of Securities

ICICI Bank Limited Versus Mr. Subodh Kumar Agarwal Resolution Professional of Ushdev International Limited AND State Bank of India Versus Ushdev International Limited

The Tribunal held that the approval of the resolution plan effectively extinguished the unpaid debt by converting it into preference shares, thereby ... Seeking action post Resolution Plan approved - seeking adjudication of unresolved question of law arising out of final resolution plan and consequential directions thereof - whether the post approval of the resolution plan, the Financial Creditor of Corporate Debtor would continue to re-course to enforce the excluded securities? - HELD THAT:- This Bench is of the prima facie view that though the excluded securities as defined under the resolution plan means the promoter guarantee, Corporate guarantee issued by the Ushdev International Limited , the encumbrance created on the following immovable by the promoter of third parties, but however, these expressly declared excluded security are subsumed under clause 3.3 (iii) (c) and (h) wherein the plan proposal any balance financial debt forming part of admitted debt (unpaid debt) shall be converted into non-convertible redeemable preference share of the company being zero dividend and non-cumulative in nature at their face value. Further, the unpaid debt shall be converted into new preference share as detailed in schedule V. When the unpaid debt is converted into preference share there is no question of any outstanding liability which is available for enforcement qua the excluded the securities as provided to the Financial Creditor. When there is no debt which is realisable there is no question of any enforcement thereof. The applicant being dissenting Financial Creditor has opted to choose out of the plan but will be entitled to the rights available to the dissenting Financial Creditor as per Section 53 of the Code. This Bench therefore, concludes that the excluded securities are subsumed in the definition of unpaid debt and nothing remain to be realisable when the debt is extinguished and converted in to preference share as provided under the plan. The discussion of the CoC Members captured in the minutes of the meeting no way helps the applicant to enforce the excluded securities. In fact, there is novation of contract by approval of resolution plan by the CoC and all the CoC Members have acquiesced their rights to enforce such excluded securities and the applicant bank being part of the CoC, though being dissenting creditors is bound by the decision of the majority of CoC members. Application dismissed. Issues Involved:1. Enforceability of excluded securities and guarantees post-approval of the resolution plan.2. Conversion of debt into preference shares.3. Assignment of debt to a third party.4. Rights of dissenting financial creditors.Detailed Analysis:1. Enforceability of Excluded Securities and Guarantees Post-Approval of the Resolution Plan:The applicant, a financial creditor, raised a question of law regarding whether excluded securities, including guarantees, would subsist and could be enforced even if the underlying debt is converted into preference shares under the final resolution plan. The Tribunal found that the resolution plan, which was approved by 91.06% of the Committee of Creditors (CoC), proposed converting unpaid debt into non-convertible redeemable preference shares. This conversion effectively extinguished the debt, leaving no outstanding liability for enforcement against the excluded securities. The Tribunal concluded that the approval of the resolution plan ipso facto discharged the enforcement of excluded securities, as there was no realisable debt left.2. Conversion of Debt into Preference Shares:The resolution plan included a clause that any balance financial debt forming part of the admitted debt (unpaid debt) would be converted into non-convertible redeemable preference shares. The Tribunal noted that this conversion meant that the unpaid debt was extinguished and transformed into preference shares, leaving no outstanding liability for enforcement. The Tribunal held that the conversion of debt into preference shares subsumed the excluded securities, rendering them unenforceable.3. Assignment of Debt to a Third Party:The applicant also questioned whether guarantees would subsist and could be enforced if the debt is assigned to a third party under the resolution plan. The Tribunal observed that the revised resolution plan deleted the clause regarding the assignment of debt but retained the clause on the conversion of unpaid debt. The Tribunal held that since the unpaid debt was converted into preference shares, there was no remaining debt to be assigned or enforced against the excluded securities.4. Rights of Dissenting Financial Creditors:The applicant, holding an 8.94% share in the CoC, dissented against the approval of the final resolution plan. The Tribunal noted that the applicant's dissenting status entitled it to the rights available to dissenting financial creditors as per Section 53 of the Insolvency and Bankruptcy Code (IBC). However, the Tribunal emphasized that the majority decision of the CoC, which approved the resolution plan, was binding on all members, including dissenting creditors. The Tribunal dismissed the applicant's contention that the resolution plan took away its rights to enforce excluded securities, as the conversion of debt into preference shares left no realisable debt.Conclusion:The Tribunal dismissed the application, concluding that the excluded securities were subsumed in the definition of unpaid debt, which was extinguished and converted into preference shares. The Tribunal held that there was no outstanding liability for enforcement of the excluded securities, and the applicant, as a dissenting financial creditor, was bound by the majority decision of the CoC.