2023 (10) TMI 1121 - AT - Insolvency and Bankruptcy

NCLAT orders Rs. 248 crores distribution to financial creditors under CIRP, rejects future litigation fund deduction

CFM Asset Reconstruction Private Limited Versus SS Natural Resources Private Limited, Monitoring Agency (Through Mr. Kshitiz Chhawchharia, Ex-Chairman of Monitoring Agency and Ex-Resolution Professional of Ramsarup Industries Limited, Mr. Kshitiz Chhawchharia, Ex-Resolution Professional and Ex-Chairman of Monitoring Agency of Ramsaraup Industries Limited

NCLAT Principal Bench ruled on distribution methodology for Rs. 351 crores deposited by SRA under CIRP. Court held that CoC approved distribution based on ... CIRP - Distribution methodology as per categorisation of financial creditors based on the security structure - distribution of the amount of Rs. 351 Crores which has been deposited by the SRA - HELD THAT:- It is true that there was discussion regarding CoC expenses which was to reimburse from the amount as part of the upfront payment to the Financial Creditors but for the voting only two resolutions were put as noted above. The Resolution which received 74.41% vote and was approved was “Resolve that Resolution Plan shall be approved along with the distribution methodology which shall be as per categorisation of Financial Creditors based on the security structure and as discussed in 24th CoC Meeting”. The two discussion methodology was up for consideration that is one based on the share of voting of each financial creditor and other based on security structure of the Financial Creditor. Even on accepting the argument saying that distribution methodology which was circulated by Process Advisor to all Members of CoC which was also discussed in the meeting it having not specifically approved in the minutes resolution can be read only to mean that distribution methodology based on security structure have been approved - it is clear that CoC expenses which is figured at 4.01 Crores was to be repaid by the members of the CoC which has contributed the COC expenses along with resolution proceeds which clearly indicates that said amount has to be deducted from Rs. 351 Crores Upfront amount. The payment towards fee of Process Advisor to the CoC was to be contributed by the CoC which required to be reimbursed from the proceeds of the Resolution. The Respondents’ claim deduction of Rs. 4.01 Crores which is under heading COC Expense and Future Litigation Fund which is at page 18 of the Reply of Respondent No. 2 and 3, as held above COC expenses could have been very well deducted from the upfront payment but there is no requirement of deduction of future litigation fund. No Litigation Fund was required to be created nor for that said period any amount need to be deducted from the upfront payment - out of amount of Rs. 4.01 Crores only that much amount need to be deducted, which is COC expenses i.e. which is required to be reimbursed to the CoC as per their contribution. The Adjudicating Authority ought not to have directed the Monitoring Agency to determine and appropriate the amount. The Adjudicating Authority itself could have considered the issue since there was divergent statement raised before the Adjudicating Authority which is reflected from the pleadings in the Application which was filed by the Respondent No. 1 i.e. I.A. No. 724/KB/2022 and detailed reply filed by the Appellant. The issue as to what is the correct amount to which the Appellant is entitled under the Resolution Plan was very much disputed and raised before the Adjudicating Authority and the Adjudicating Authority ought to have proceeded to determine and ought to have directed for issuance of NDC only after direction for payment of the Resolution Plan. The Respondents are directed to make the payment of principal balance amount of Rs. 248,02,09,427/- along with accrued interest of Rs. 14,94,28,383/- (upto 10th July, 2024) along with further interest payable upto date of payment within one week from this order which amount shall be transferred in the account, details of which has already been communicated by the Appellant to the ex-RP - Out of Rs. 4.01 Crores which has been deducted towards COC expenses and Future Litigation Fund, only COC Expenses are required to be deducted and any amount towards Future Litigation Fund need not be deducted from the upfront payment. The Ex-RP shall recalculate the amount towards COC Expenses which need only to be deducted from the upfront payment and any amount kept under Future Litigation Fund need to be distributed to the Financial Creditors as per their Security Interest, which amount need to be paid to the Appellant as per its share of security interest and shall be paid by the Resolution Applicant - the Appellant shall issue a No Dues Certificate and execute the assignment agreement in terms of approved resolution plan and hand over title deeds of the corporate debtor within two weeks from the date of the receipt of the payment. Appeal disposed off. Issues Involved:1. Implementation of the Resolution Plan.2. Distribution of the Upfront Payment.3. Deduction of CoC Expenses and Security Reimbursement.4. Issuance of No Dues Certificate (NDC).Summary:1. Implementation of the Resolution Plan:The appeal was filed by a Financial Creditor challenging the order of the National Company Law Tribunal (NCLT) regarding the implementation of the Resolution Plan for the Corporate Debtor. The Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor, and the Resolution Plan submitted by the Successful Resolution Applicant (SRA) was approved by the Committee of Creditors (CoC) and subsequently by the NCLT. The SRA deposited the amount as per the Resolution Plan, but disputes arose regarding the distribution of the amount and the issuance of a No Dues Certificate (NDC).2. Distribution of the Upfront Payment:The SRA deposited Rs. 351 Crores in the controlled account, but the distribution of this amount was contested. The Appellant, holding a 77% Security Interest, claimed entitlement to Rs. 270.28 Crores, objecting to deductions made for CoC Expenses and Security Reimbursement. The CoC had resolved that payments made under CoC Expense Debit Notes would be repaid from resolution proceeds along with interest. The Adjudicating Authority noted that the SRA had fulfilled its part by depositing the amount and directed the Respondent to provide the NDC and execute the assignment agreements.3. Deduction of CoC Expenses and Security Reimbursement:The CoC had agreed that CoC expenses would be reimbursed from the resolution proceeds. The Adjudicating Authority's order approving the Resolution Plan included directions for deducting security expenses incurred by the Financial Creditor, WBIDCL. The Appellant contested these deductions, arguing they were not as per the approved Resolution Plan. The Tribunal found that CoC expenses and security expenses were to be deducted from the upfront payment, but no deduction was required for the Future Litigation Fund.4. Issuance of No Dues Certificate (NDC):The Appellant argued that the NCLT erred in directing the issuance of an NDC without the full payment of its entitlement. The Tribunal agreed that the NDC should only be issued after the Appellant received its dues. The Tribunal modified the NCLT's order, directing the Respondents to make the payment of the principal balance amount along with accrued interest within one week and recalculating the CoC expenses. The Appellant was directed to issue the NDC and execute the assignment agreement after receiving the payment.Conclusion:The appeal was disposed of with directions to the Respondents to make the necessary payments and adjustments, and the Appellant was to issue the NDC and execute the required agreements upon receipt of the payments.