TaxTMI 
TaxTMI 
2018 (8) TMI 661
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....r, Adv., Ms. Srideepa Bhattacharyya, Adv., Mr. Manpreet Lamba, Adv., M/s. Cyril Amarchand Mangaldas, Mr. Sandeep Devashish Das, AOR, Mr. Anupam Lal Das, AOR, Mr. Vishal Gupta, Adv., Mr. Abhishek Raj, Adv., Mr. Paras Choudhary, Adv., Mr. Aniruddha, Adv., Ms. Swarupama Chaturvedi, AOR, Mr. B.N. Dubey, Adv., Ms. Devika Gulati, Adv., Ms. Vaishali Verma, Adv., M/s. Unuc Legal Llp, Mr. Ajit Sharma, AOR, Mr. Bijoy Kumar Jain, AOR, Mr. Varinder Kumar Sharma, AOR, Mrs. Anil Katiyar, AOR, Mr. Nakul Dewan, Adv., Mr. Pradhuman Gohil, Adv., Mrs. Taruna Singh Gohil, AOR, Mr. Himanshu Chaubey, Adv., Ms. Neelu Mohan, Adv., Mr. Zain Maqbool, Adv., Mr. Amit Sharma, AOR, Mr. Naveen Kumar, AOR, Mr. Vishnu Sharma, AOR, Ms. Anupama Sharma, Adv., Ms. Sonali Negi, Adv., Mr. Mohit Rai, Adv., Mrs. Sarla Chandra, AOR, Mr. Arun K. Sinha, AOR, Ms. Prerna Mehta, AOR, Mr. Sachin Patil, AOR, Mr. Partha Sil, AOR, Mr. C.A. Sundaram, Sr. Adv., Ms. Kavita Jha, AOR, Mr. Vaibhav Kulkarni, Adv., Mr. Udit Naresh, Adv., Mr. M. A. Krishna Moorthy, AOR, Mr. K. K. Mohan, AOR, Mr. Raj Kishor Choudhary, AOR, Mr. Rajiv K. Virmani, Adv., Mr. Atul Malhotra, Adv., Mr. Gaurav Jain, Adv., Mr. Yadav Narender Singh, AOR, Mr. R. Sudhin....
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.... Mr. Vijendra Mishra, Adv., Ms. Shashi Kiran, AOR, Mr. Sanjay Kumar Dubey, AOR, Mr. Yunus Malik, Adv., Ms. Renu Verma, Adv., Dr. Anish Maheshwari, Adv., Mr. Samir Malik, AOR, Ms. Ruchi Kohli, AOR, Sonam Sharma, Adv., Ms. Nidhi Jaswal, Adv., Ms. Gargi Jha, Adv., Mr. S.S. Ray, Adv., Mr. Vaibhav Gulia, Adv., Ms. Rakhi Ray, AOR, Mr. Rajender Prasad, AOR, Mr. Rahul Narayan, AOR, Ms. Puja Sharma, AOR, Mr. Suchit Mohanty, Adv., Mr. Prakash Ranjan Nayak, AOR, Mr. Niraj Gupta, AOR, Ms. Anshu Gupta, Adv., Mr. Mukesh Jain, AOR, Md. Shahid Anwar, AOR, Mr. Saurabh Kirpal, Adv., Mr. Abhijnan Jha, Adv., Mr. Mayank Pandey, AOR, Ms. Madhusmita Bora, AOR, Mr. Ravi Chandra Prakash, Adv., Mr. Mukesh Kumar Singh, Adv., Mr. Amit, Adv., Mr. Purushottam Sharma Tripathi, Adv., M/s. Ravi Chandra Prakash & Co., Mr. Kaushik Choudhury, AOR, Mr. Kailash Prashad Pandey, AOR, mr. Niraj Singh, Adv., Mr. Prashant Mathur, Adv., Mr. Guntur Prabhakar, AOR, Ms. Geetanjali Mohan, AOR, Mr. Gaurav Kejriwal, AOR, Mr. Ejaj Maqbool, AOR, Mr. Deepak Goel, AOR, Mr. Christopher D'souza, AOR, Mr. Braj Kishore Mishra, AOR, Mr. Binay Kumar Das, AOR, Ms. Asha Jain Madan, AOR, Mr. Anil Nag, AOR, Mr. Anil Kumar Tandale, AOR, Mr. Anee....
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....ontinuation of pending proceedings, including execution proceedings was prohibited. An Interim Resolution Professional (IRP) was appointed under the provisions of the IBC. On 14 August 2017, JIL, in pursuance of the order of NCLT called for submissions of claims by creditors: financial creditors in Form-C, operational creditors in Form -B, workmen and employees in Form -E and other creditors in Form -F. On 16 August 2017, the Insolvency and Bankruptcy Board of India made an amendment to its regulations and Regulation 9(a) was inserted to include claims by other creditors. On 18 August 2017, the Board released a press note clarifying that home buyers could fill in Form -F as they could not be treated at par with financial and operational creditors. 4 These proceedings were instituted for the following reliefs: (i) A declaration that Sections 6,7,10,14 and 53 of the Code are ultra vires in so far as only financial or operational creditors are recognized, disregarding other stakeholders such as the home buyers; (ii) The order dated 9 August 2017 of the NCLT be set aside; (iii) The Union of India be directed to notify under Section 14(3) that the provisions for moratorium contai....
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....is stated to have published a list of the top 12 defaulters in the country including JIL which was declared to be in default of an amount approximately of Rs. 8,000 crores to its lenders. 8 This Court was moved in the exercise of its jurisdiction under Article 32 to protect the interests of home buyers, who had been left in the lurch. When the petition was instituted, they had no locus in the CIRP. Liquidation would leave the home buyers to face an uncertain future. The disposal of assets would, it is apprehended, deprive them of their right to own a home. Faced with a situation of human distress, occasioned by the failure of the developers to meet their contractual obligations and a legal regime as it then stood under the IBC which provided no solace to home buyers, this Court issued notice on 4 September 2017 in a batch of writ petitions. Proceedings before the NCLT at Allahabad were directed to remain stayed until further orders. The Court further directed that a copy of the proceedings be served on the office of the learned Attorney General for India. Applications for impleadment and intervention were allowed. 9 On 11 September 2017, IDBI Bank Limited file an application for ....
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....sed this order keeping in view the provisions of the Act and also the interest of the home buyers." 11 The above interim directions indicate that three significant aspects were the foundation of the order: First, following the discipline of the IBC, the IRP was permitted to take over management of JIL and to proceed to formulate an interim resolution plan within a stipulated period; Second, the IRP was directed to ensure that necessary provisions were made to protect the interests of home buyers. To facilitate the views of the home buyers being placed before the CoC this Court nominated a senior counsel practicing before this Court to participate in those meetings under Section 21 of the IBC; Third, JAL as the holding company of JIL was directed to deposit a sum of Rs. 2,000 crores on or before 27 October 2017. In formulating these directions, the Court initiated steps to protect the interests of the home buyers. At that stage, it must be noted, the CoC as constituted under Section 21 of the IBC did not include a representative of the home buyers. Nor were the home buyers regarded as financial creditors under the IBC. The mechanism evolved by the Court was intended to provide ....
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.... the IBC. While observing that the application filed by the RBI would be considered at a later stage, this Court issued directions to JAL to file details of its housing projects on affidavit. The amicus curiae was permitted to open a separate web portal reflecting the details of the home buyers of JAL. 16 When the proceedings were listed before this Court on 21 March 2018, JAL stated through its counsel that an amount of Rs. 550 crores had been deposited with the Registry. Counsel for JAL stated that only 8% of the home buyers are interested in seeking a refund while others have expressed the desire to seek possession of their flats. The Court indicated in its order that presently it was concerned with those home buyers who sought a refund while the grievances of those who wished to have possession of their flats would be considered at a subsequent stage. Since the order for the deposit of Rs. 2,000 crores had not been complied with despite the end of the deadline under the previous directions, the Court issued further directions. As agreed by the Managing Director of JAL, an instalment of Rs. 100 crores was to be deposited by 15 April 2018 while a second instalment in the like am....
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....ly 2018, certain proposals were made by JAL before this Court for permission to alienate specific assets to secure compliance with the interim directions of this Court for deposit of Rs. 2,000 crores. This proposal was seriously opposed by counsel for the petitioners and home buyers, besides the financial institutions. Observing that the Court was not inclined to entertain the proposals mooted by the JAL, the proceedings were directed to be listed on 16 July 2018 "exclusively for the purpose of considering the issue of the rights of the home buyers and the capability of JAL and JIL to construct the projects." 21 Section 12(1) of the IBC envisages that the CIRP has to be completed within a period of 180 days from the date of admission of the application. However, a window is provided to the resolution professional to seek an extension of a further period of 90 days upon a resolution from the CoC. The extension can be provided only once. 22 In the case of JIL, the period for completing the CIRP was to end on 6 February 2018. Based on the approval of the CoC an extension of 90 days was sought and granted by the NCLT by an order dated 12 February 2018. The extended period was to end ....
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....6 % of the votes cast were in favour of Lakshdeep, as against a three-fourth majority which was then needed under Section 30 (4) (the present requirement is of two-thirds, following the amendment to the IBC which has taken effect from 6 June 2018). Accordingly, the IRP informed the NCLT that no resolution plan was approved by the CoC within a period of 270 days which came to an end on 12 May 2018. 23 The total financial debt due to the financial creditors on the date of the commencement of corporate insolvency (9 August 2017) stood at Rs. 9,984.70 crores. 24 Section 33(1) of the IBC postulates that liquidation follows upon the rejection of a resolution plan: "33. Initiation of liquidation. (1) Where the Adjudicating Authority, - (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or (b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified t....
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.... operate during the process. Failure of the resolution process leads to liquidation. Primacy is given in the process to commercial decisions. The success of the process is contingent upon the competence of the IRP and the CoC. The responsibilities entrusted to the IRP include managing the affairs of the corporate debtor, engaging experts or professionals, constituting a CoC, preparation of an information memorandum, determination of the liquidation value and enterprise value, inviting expressions of interest, permitting resolution applicants to submit plans which would be placed before the CoC where the applicant is found to be eligible (Sections 17, 18, 20, 23, 25, 26, 29 and 30). The CoC comprises of all financial creditors and authorised representatives of certain categories of persons and classes of creditors under Section 21(6) and Section 21(6A)(b). The CoC is responsible for approving crucial decisions and actions of the IRP, while managing the affairs of the corporate debtor under Section 28. The resolution plan approved by 66 % of the voting share in the CoC is submitted by the IRP to the NCLT for its approval. When the NCLT is satisfied that the plan approved by the CoC m....
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.... Real Estate (Regulation and Development) Act, 2016 (16 of 2016);" As a result of the amendment brought about in the definition of 'financial debt', amounts raised from allottees under real estate projects are deemed to be amounts "having a commercial effect of a borrowing". Hence outstandings to allottees in real estate projects are statutorily regarded as financial debts. Such allottees are brought within the purview of the definition of 'financial creditors'. 28 Section 7 of the IBC creates a statutory right in favour of financial creditors to initiate the corporate resolution process. Section 7 reads thus: "7. Initiation of corporate insolvency resolution process by financial creditor. (1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation. - For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the ap....
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....) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors. ... (3) Subject to sub-sections (6) and (6A), where] the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them. (4) Where any person is a financial creditor as well as an operational creditor, - (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. ... (6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility provide for a single trustee or a....
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....ghest number of financial creditors in the class in Form CA received under sub-regulation (1) of regulation 12, to act as the authorised representative of the creditors of the respective class: Provided that the choice for an insolvency professional to act as authorised representative in Form CA received under sub-regulation (2) of regulation 12 shall not be considered. (2) The interim resolution professional shall apply to the Adjudicating Authority for appointment of the authorised representatives selected under sub-regulation (1) within two days of the verification of claims received under sub-regulation (1) of regulation 12. (3) Any delay in appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee. (4) The interim resolution professional shall provide the list of creditors in each class to the respective authorised representative appointed by the Adjudicating Authority. (5) The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorised representative as and when the list is up....
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....n plan under regulation 39 (3) of the Regulations is at least 15 days away, the resolution professional shall expeditiously obtain, by electronic means, the choice of the insolvency professional from creditors in a class to act as the authorised representative of the class and proceed further in the manner as specified in regulation 16 A of the Regulations." The case of JAL: 29 Mr FS Nariman, learned senior counsel appearing on behalf of JAL tendered a note of submissions before this Court seeking to explain the perspective of the developers. JAL is stated to be a public listed company with 5.57 lakh individual shareholders and fifteen directors (including eight independent directors and two nominee directors of lenders). In 2003, JAL was allotted rights for the construction of an expressway from NOIDA to Agra. A concession agreement was entered into with the Yamuna Expressway Industrial Development Authority. A special purpose vehicle, JIL was set up. Finance was obtained from a consortium of banks - IDBI Bank being the lead bank - against a partial mortgage of lands acquired in the NOIDA-Agra sector and a pledge of 51% of the shareholding held by JAL. A housing plan was envisag....
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....rve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); (c) at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to nonperforming asset accounts before submission of resolution plan: Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor. Explanation I- For the purposes of this proviso, the expression....
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....eme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction; (h) has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code and such guarantee has been invoked by the creditor and remains unpaid in full or part]; (i) 5[is] subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i). Explanation 6[I]. - For the purposes of this clause, the expression "connected person" means- (i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in cla....
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....ll 2017, which was ultimately enacted as Act 8 of 2018, states thus: "2. The provisions for insolvency resolution and liquidation of a corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible." (emphasis supplied) Parliament was evidently concerned over the fact that persons whose misconduct has contributed to defaults o....
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....nder clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A: Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that subsection]: Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018." 33 Mr Anand Grover appearing on behalf of the home buyers has opposed the proposal submitted by JAL/JIL on the following grounds: (i)) Loans given to JAL have been classified as Non Performing Assets which renders JAL ineligible as a resolution applicant/new promoter under Section 29A(b) of the IBC; (ii) In addition to Section 29A (b), JAL is also disqualified unde....
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....e the capacity to deliver the flats and 22,000 homebuyers are suffering due to delays of more than four years in completion of various projects of JAL and JIL; (ix) Under the contracts, JAL and JIL are jointly and severally liable to deliver the flats. If JAL was serious about delivering the flats, the present situation would not have arisen. Further, JAL would have avoided the insolvency process of JIL and would not have cast the home buyers to the uncertainties of insolvency; (x) There are serious doubts about the credentials of JAL which has diverted funds from JIL towards its other businesses. The applicant associations had appointed ASA Financial Services to conduct an audit of JIL's financials and the audit report demonstrates that JAL may have diverted more than INR 10,000 crore from JIL; (xi) JAL is undergoing a serious financial crisis. This is clear from the following facts: (a) JAL has not yet honoured the order of this Court asking it to deposit Rs. 2,000 crore for protection of the interest of the home buyers. JAL has paid only Rs. 750 crores out of Rs. 2,000 crores, after the expiry of almost 10 months from 11 September 2017 which was the date of the initial....
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....Court, comes to a conclusion that it is not financially viable at all for JIL/JAL to complete the remaining work in a time bound manner, their role as developers should not be discounted. Hence it has been submitted that an independent committee of experts should be constituted by this Court to evaluate the financial capability of JAL/JIL to continue executing the ongoing projects. In this background it has also been submitted that following the opening of the web portal under the directions of the Court, only 8% of the home buyers have opted for refunds while 92% have chosen not to claim refunds thereby implying a confidence in the ability of JIL/JAL to complete the project. JIL, it has been submitted, has assets valued at Rs. 17,116 crores by bank valuers to whom they were submitted as security and even the distress value is Rs. 14,548 crores. Mr Nariman submitted that among the two sets of financial creditors of JIL and JAL: (i) the creditors of JIL are headed by IDBI Bank apart from which there are 12 other banks in the consortium; (ii) the financial creditors of JAL await formal orders of the NCLT to the scheme of arrangement which has been agreed to by all its 32 creditor....
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.... But the point to be noted is that in the absence of a statutory recognition of the position of the home buyers as financial creditors, the law did not allow for real and substantive entitlements to them in the CoC. These statutory entitlements have been brought in by the Ordinance in order to recognise the vital interests of the home buyers in a real estate project and to allow them a statutory status in the insolvency resolution process. Unfortunately by the time that the Ordinance came into being on 6 June 2018, the period of 270 days had expired; the resolution plan of Lakshdeep was rejected and the IRP informed NCLT that no resolution plan had been approved within the extended period of 270 days on 12 May 2018. Having regard to the material change which has been brought about by the amendment of the IBC by the Ordinance and the fact that this Court has been in seisin of the proceedings to ensure that the home buyers are protected, we are of the view that it is but appropriate and to do complete justice to secure the interests of all concerned that the CIRP should be revived and CoC reconstituted as per the amended provisions to include the home buyers. Tn the facts of the pr....
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....t case the period of 270 days expired before the Ordinance conferring a statutory status on home buyers as financial creditors came into existence. In the circumstances, it would be necessary to revive the period prescribed by the statute by another 180 days commencing from the date of this order. During this period, the IRP shall follow the provisions of the IBC afresh in all respects. A new CoC should be constituted in accordance with the amended provisions of the IBC to enforce the statutory status of the allottees as financial creditors. We also clarify that apart from the three bidders whose bids were found to be eligible by the IRP, it would be open to the IRP to invite fresh bids to facilitate a wider field of choice before the CoC. In that process, the offers made by the intervenors in this proceedings can also be considered by CoC anew. We are not inclined to evaluate the merits of the bids submitted by the bidders who were left in the fray, two of whom have intervened. All bids must follow the discipline of the IBC. We have, however, not accepted the submission to allow JIL or JAL and the erstwhile promoters to participate in the process. Their participation is expressly....
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....not be in the overall interest of a composite plan being formulated under the provisions of the IBC. Thirdly during the course of the hearing, the Court has been apprised of the concerns of the secured creditors, chief among them being the IDBI bank limited. In its submissions before this Court, IDBI bank has emphasised that one of the major reasons for the enactment of the IBC was to protect the interest of lenders. The debt owing to the banks and financial institutions has been secured by the assets of JIL, to protect their interests. This debt originates in the public deposits of the banks and financial institutions, who are answerable to their stakeholders. Fourthly, the RBI has moved this Court for permission to initiate an insolvency resolution process. Parliament enacted the Banking Regulation (Amendment) Act 2017 by introducing Section 35 AA and Section 35 AB into the Banking Regulation Act 1949. The amendment empowers the Central government to authorise RBI to issue directions to any banking company to initiate an insolvency resolution process in respect of a default as understood under the IBC. Such an order was issued by the Central government on 5 May 2017. The RBI cons....