2022 (9) TMI 1684 - Tri - IBC

Resolution plan under s.30(6) IBC approves demerger and amalgamation, to be done in 60-90 days; pre-CIRP claims remain

NCLT, Ahmedabad - Tribunal approved the resolution plan under s.30(6) IBC, allowing the successful resolution applicant to implement a composite scheme ... Approval of Resolution plan - CoC requested Adjudicating Authority not to pass the order of liquidation on the ground that the CoC had then received one more Resolution Plan and they may be allowed to consider the same - HELD THAT:- In the plan, the RP stated that once the plan is approved, the Resolution Applicant is proposing the Composite Scheme of Arrangement whereby the steel division of Corporate Debtor would demerge into Mangalam Worldwide Limited (MWL) and amalgamation of the Corporate Debtor with its agro products division into Mangalam Global Enterprise Limited - It is held that the Successful Resolution Applicant is entitled to resolve the insolvency of the Corporate Debtor by way of Scheme of Arrangement, Amalgamation, Demerger etc. Explanation to section 5(26) of the IBC, 2016 makes it clear that “For removal of doubts, it is hereby clarified that a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger”. Upon examination of the plan, it is noted that it does not contravene any provisions of law. The term of implementation of the plan is ranging from 60 to 90 days from the date of its approval by this Adjudicating Authority - the financial outlay given in the table above shows that the Resolution Plan has dealt with the interests of all stakeholders in an equitable manner. There are no reason to reject this plan, although, it is submitted within a period of 330 days from the date of commencement of the CIRP of the Corporate Debtor. The Resolution Applicant cannot be saddled with any previous claim against the Corporate Debtor prior to initiation of its CIRP. For the permits, licenses, leases, or any other statutory right vested in the Corporate Debtor shall remain with the Corporate Debtor and for the continuation of such statutory rights, the resolution applicant has to approach the concerned statutory authorities under relevant laws. The Resolution Plan of M/s. Mangalam Global Enterprise Limited for Corporate Debtor i.e., M/s. H. M. Industrial Pvt. Ltd., stands allowed as per Section 30(6) of the IBC, 2016 - application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal should approve a resolution plan under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 where the Committee of Creditors (CoC) has approved the plan with requisite voting share. 2. Whether the Resolution Plan complies with mandatory requirements of Section 30(2) and Section 31 of the IBC, 2016 and Regulations 38-39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, including priority payments (CIRP cost, operational creditors) and non-contravention of law. 3. Whether a resolution plan may provide for restructuring by way of merger, amalgamation or demerger and the legal consequences and procedure for such composite schemes under the IBC and Companies Act, 2013. 4. Whether the Tribunal must examine commercial viability of a plan where the CoC has approved the plan by requisite majority and whether the Tribunal may reject a plan on the ground that liquidation would be preferable. 5. Whether the resolution applicant can be saddled with pre-CIRP statutory claims, permits, licenses or other liabilities and the effect of the amendment and settled law on freezing claims against the corporate debtor. 6. Ancillary issues: adequacy of implementation timeframe, mechanism for management and implementation (management committee), obligation to transmit records to the Insolvency and Bankruptcy Board of India, and cessation of moratorium upon plan effectiveness. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Approval of Resolution Plan under Section 30(6) Legal framework: Section 30(6) permits filing of a CoC-approved resolution plan for approval by the Adjudicating Authority. Section 31 prescribes effect upon approval. Regulations 38-39 prescribe requirements for submission and scrutiny. Precedent Treatment: Tribunal followed established practice that where CoC approval exceeds requisite voting threshold, Tribunal examines conformity with statutory requirements rather than re-evaluating commercial wisdom. Interpretation and reasoning: The Tribunal confined its review to legal conformity with Sections 30(2), 30(6) and 31 and applicable regulations. It noted CoC approval of 97.20% and declined to reassess commercial viability, considering pandemic/time delay and CoC's inclination to revive rather than liquidate. Ratio vs. Obiter: Ratio - Tribunal will approve a CoC-approved plan if it complies with statutory requirements; re-examination of commercial merits is not required when CoC approval is by requisite majority. Obiter - commentary on pandemic and CoC keenness. Conclusion: Application under Section 30(6) allowed; resolution plan approved as meeting statutory standards. Issue 2 - Compliance with Section 30(2), Section 31 and Regulations (Priority, Non-Contravention) Legal framework: Section 30(2) mandates provisions for payment of insolvency resolution process costs and treatment of operational creditors; Section 31(4) contemplates effectuation of schemes through Companies Act; Regulations 38-39 require prescribed disclosures and Form-H certification. Precedent Treatment: Tribunal applied statutory priorities and Form-H certification principle as standard compliance checks. Interpretation and reasoning: Tribunal examined payment schedule - CIRP cost proposed to be paid within 60 days; operational creditors to be paid proportionately within 90 days; no dissenting financial creditors; no pending statutory dues. RP certified non- contravention in Form-H; Tribunal independently found no contravention. Ratio vs. Obiter: Ratio - Approval contingent upon plan satisfying Section 30(2) priorities and non-contravention; Form-H certification considered material. Obiter - detailed ledger amounts and haircut computation used to show equitable stakeholder treatment. Conclusion: Plan complies with Section 30(2)(a) and (b), Section 31 requirements and relevant regulations; approval warranted. Issue 3 - Restructuring by Merger/Amalgamation/Demerger under Explanation to Section 5(26) and Companies Act Procedure Legal framework: Explanation to Section 5(26) clarifies that a resolution plan may include restructuring by merger, amalgamation and demerger. Section 31(4) contemplates filing/implementation as per Companies Act Sections 230-232. Precedent Treatment: Tribunal followed statutory clarification affirming restructuring modalities as part of a resolution plan. Interpretation and reasoning: Tribunal held that the Successful Resolution Applicant is entitled to implement a composite scheme (demerger of one division and amalgamation of the other) and directed that, once approved, the applicant must follow the Companies Act procedure for schemes of arrangement/merger/demerger under Sections 230-232 while complying with Section 31(4). Ratio vs. Obiter: Ratio - A resolution plan may lawfully include merger/amalgamation/demerger and must follow Companies Act procedures for implementation. Obiter - none significant beyond procedural directions. Conclusion: Restructuring components of the plan permissible; implementation subject to compliance with Sections 230-232 and Section 31(4). Issue 4 - Tribunal's Role on Commercial Viability vs. CoC Primacy Legal framework: IBC accords commercial decision-making primacy to CoC; Adjudicating Authority's role is limited to legal scrutiny under Sections 30(2), 30(6) and 31. Precedent Treatment: Tribunal adhered to established principle that it need not re-assess commercial viability where CoC has approved plan by requisite majority and plan value exceeds liquidation value. Interpretation and reasoning: Tribunal noted CoC's 97.20% approval and that proposed plan offered value exceeding liquidation estimate; therefore, it refrained from assessing commercial wisdom and focused on statutory compliance. Ratio vs. Obiter: Ratio - Tribunal will not substitute CoC's commercial judgment when statutory requirements are met and liquidation value is lower. Obiter - considerations of stakeholder interest and pandemic-related delays. Conclusion: No need to probe commercial viability; plan approved given CoC approval and plan's superiority to liquidation value. Issue 5 - Treatment of Pre-CIRP Statutory Claims, Permits and Licenses Legal framework: IBC and its amendments freeze claims and provide for resolution applicant to take a clean slate in implementing plan; statutory interpretation guided by amendment and judicial pronouncements. Precedent Treatment: Tribunal relied on settled law articulated by the Supreme Court that 'other stakeholders' includes tax and governmental authorities and that legislative intent is to freeze claims to enable resolution applicant to start on a clean slate. Interpretation and reasoning: Citing the reasoning that unanticipated claims would render plans unworkable, Tribunal held that the resolution applicant cannot be saddled with pre-CIRP claims. Permits, licenses and leases remain vested in the corporate debtor; continuation of such statutory rights requires the resolution applicant to approach concerned authorities under relevant laws. Ratio vs. Obiter: Ratio - Pre-CIRP statutory claims are not to be visited upon the resolution applicant; permits/licenses remain with the corporate debtor and renewal/continuation requires engagement with statutory authorities. Obiter - none beyond reliance on the cited Supreme Court reasoning. Conclusion: Resolution applicant not liable for pre-CIRP claims; must seek continuation/transfer of statutory rights through appropriate statutory channels. Issue 6 - Implementation Timeline, Management Mechanism, Moratorium and Administrative Directions Legal framework: Section 31(4) contemplates implementation of plan; Section 14 moratorium ceases upon plan effectiveness; Regulations require transmission of records to IBBI. Precedent Treatment: Tribunal applied statutory timelines and procedural obligations as conditions of approval. Interpretation and reasoning: Tribunal noted term of implementation (60-90 days), approved appointment of a Management Committee to implement the plan, directed compliance with Companies Act procedures, declared the approved plan effective from order date, directed cessation of moratorium from that date, required RP to send copy of order to participants, and directed forwarding of records to IBBI. Ratio vs. Obiter: Ratio - Approval is subject to specified implementation timeframe, managerial arrangement for execution, cessation of moratorium upon effectiveness, and administrative obligations (notice to participants; record submission to IBBI). Obiter - detailed procedural sequencing. Conclusion: Plan effective from order date; morals of moratorium cease; implementation to proceed within stipulated timeframe under supervisory directions; RP to comply with transmission and notice requirements.