TaxTMI 
TaxTMI 
2019 (1) TMI 1505
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....he State Bank of India/Financial Creditor has filed the CP(IB) No. 387/KB/2017 u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (In short, I & B Code, 2016) for initiating Corporate Insolvency Resolution Process (In short, CIRP) as against the Corporate Debtor, Adhunik Alloys and Power Ltd. Vide Order dated 23/08/2017, the application was admitted by appointing Mr. Sumit Binani as Interim Resolution Professional. Thereafter, he was appointed as Resolution Professional. 3. As an Interim Resolution Professional, he has made public announcement in compliance of Section 15 of the I &B Code, 2016 calling for claims from the creditors of the Corporate Debtor. Upon receipt of the claims from the creditors, Resolution Professional has invited Expression of Interest (In short, EoI) from the interested resolution applicant and received four (4) Resolution Plans respectively from (a) Edelweiss Asset Reconstruction Company Limited (In short, EDELWEISS); (b) Orissa Metaliks Private Ltd. (In short, OMPL), (c) Bhagwati Power and Steel Limited (In short, BPSL) and (d) SREI Infrastructure Finance Limited (In short, SREI). 4. On receipt of the four (4) Resolution Plans, on the scoring and ev....
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.... be excluded and if that period is excluded, the 270 days would expire on 4th December, 2018. The instant application was filed by the RP in compliance with the direction in the appeal within time on 26.11.2018. In the meanwhile, on 28.11.2018, one among the financial creditors filed CA(IB) No. 1092/KB/2018 objecting the distribution methodology in distributing the upfront payment by the resolution applicant. CA(IB) No. 1092/KB/2018 7. Briefly stating the facts as follows:- 8. This is an application under Section 60(5) of the Code filed by IFCI Limited, one of the Financial Creditors of the Corporate Debtor in C.P. No. 387 of 2017, stating that the Restated Final Resolution Plan approved by the CoC provides for the discriminatory distribution of payments to the Financial Creditors in violation of Section 30(2) of the I&B Code, 2016. The applicant is the second largest financial creditor having second highest voting share. The applicant submits that the methodology of distribution of proceeds to the Lenders adopted in the Plan, creates classes amongst the Financial Creditors on the purported nature of security interest held by Financial Creditors, which is discriminatory at....
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....on the said contentions, the applicant prays for setting aside the Restated Final Resolution Plan in so far as the Plan provides for the discriminatory distribution of payments to the Financial Creditors, and for directing the RP and CoC to adopt a distribution method as per the law. 11. Heard Ld. Sr. Counsel appearing on the side of the Resolution Professional, Mr. Jishnu Chowdhury, Ld. Sr. Counsel, Mr. Joy Saha, Ld. Counsel, Mr. Siddhartha Datta for CoC, Ld. Sr. Counsel, Mr. Jishnu Saha for the BPSL, Ld. Sr. Counsel, Mr. Ratnanko Banerji and Ld. Counsel, Mr. D. N. Sharma, for the objectors viz. IFCI and SREI. Perused the records and citations referred to on both sides. 12. Upon hearing the arguments on the side of the RP, CoC and on the side of the objectors, the points for determination are the following:- (i) Whether C.A. (IB) No. 1092/KB/2O18 is maintainable? (ii) Whether the distribution methodology for disbursing payments to financial creditors approved and passed by Committee of Creditors (CoC) in the meeting held on 21/4/2018 is unjust, and creates unreasonable distinction among the financial creditors as alleged? If so whether the distribution is t....
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....he Hon'ble Appellate Tribunal vide order dated 30/10/2018 allowed the appeal filed by the SREI and the Hon'ble Appellate Tribunal found SREI to be eligible under Sec.29A of the Code and thereby Resolution Professional was required to place the resolution plan submitted by the appellant and approved by the CoC before the AA for its approval in terms of provision of Sec.30 (6) of the Code. However, the RP filed IA No.7092/2018 seeking certain clarification and modification of the judgment and order referred to above, dated 30/10/2018. That application was allowed by the Hon'ble Appellate Tribunal vide order dated 13/11/2018. As per the modified order dated 13/11/2018, the CoC was permitted to reconsider all the resolution plans under its consideration which is submitted by the Resolution Professional in compliance of sub-section 2 of Sec.30 of the Code with the following direction:- "8. All those 'Resolution Plans' including the 'Resolution Plans' submitted by 'Bhagwati Power & Steel Ltd. ' and the Appellant - 'SREI Infrastructure Finance Limited' which are in consonance with Section 30(2) of the 'I&B Code' are requested to be placed before the 'Committee of Creditors'. The ....
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....the CoC, altogether there are seven financial creditors. The list of creditors as approved by the CoC, respective to their security interest they are holding is shown below:- ADHUNIK ALLOYS AND POWER LIMITED List of Creditors (Version: 8 Pursuant to claims received and updated as on 01-11-2018) (Category - Financial Creditors) Serial No. Name of Creditor Nature of Financial Debt Amount of Claim Amount of Claim Admitted Security Interest (In INR) (In INR) 1 Allahabad Bank Cash Credit (inclusive of all interest) 1,077,238,371 1,077,238,371 1,077,238,371 1,077,238,371 As per Annexure - 1 Letter of Credit (Inclusive of all interest) Term Loan (Inclusive of all Interest) 2 ICICI Bank Cash Credit (Inclusive of all Interest) 200,000,000 682,058,559 200,000,000 682,058,559 As per Annexure - 1 Letter of Credit (Inclusive of all interest) &nb....
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....t would have received Rs. 75.95 crore whereas the IFCI is receiving only Rs. 42.78 crores. According to the Ld. Senior Counsel for the IFCI, the upfront payment as contemplated in the restated final resolution plan is based on liquidation value receivable to the IFCI, is only to the tune of Rs. 30 lakh and the disparity is larger and, therefore, against the provision of the Code, Regulation and the settled proposition of law. He further submits that creating classes amongst the financial creditors by adopting the provisions of liquidation of the corporate debtor as contemplated under the IBC cannot be made applicable at the stage of CIRP of the corporate debtor. He further states that voting on the methodology by the CoC so as to distribute the upfront payment amongst the financial creditors respective to the security interest they are holding, cannot be in estoppel against law and, therefore, he submits that the methodology of distribution of upfront payment in the resolution plan has to be changed, considering the proportionate share that the IFCI is entitled to, on the strength of its voting share and if it is modified to that extent, IFCI has no objection in approving the resol....
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....ainable as contended by the RP and CoC? The said CA was filed by IFCI challenging the resolution plan only on the sole ground that the distribution methodology approved and finalised on 21/4/2018 is discriminatory. On 21.04.2018, 8th Agenda for discussion was "to approve the methodology for distribution of proceeds to Assenting Financial Creditors proposed in the Resolution plan". To understand the voting result, it is worth reading. It is shown below:- Adhunik Alloys & Power Ltd. Voting Results of the Twelfth Meeting of Committee of Creditors held on 21st Apri1, 2018 SI. No. Name of the Member of the CoC Voting Share (%) Agenda Item Number (see note below) 1 Allahabad Bank 14.24 For 2 ICIC1 Bank Limited 9.02 For 3 IFC1 Bank Limited 19.14 For 4 Punjab National Bank 6.62 Abstained 5 Reliance Commercial Finance Limited 4.40 For 6 Srei Infrastructure Finance Limited 3.67 Abstained 7 State Bank of India. 42.92 For Total Percentage Voting FOR the Resolution(s) 89.71 Total Percentage Voting....
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....e methodology and the resolution applicant's restated plan was approved by the CoC and it was filed before the AA for final approval. The above said conduct of the IFCI and SREI no doubt attracts principle of estoppel or acquiescence. 30. At this juncture Ld. Counsel for the RP referring to Jai Narain Parasrampuria v. Pushpa Devi Saraf [2006] 7 SCC 756 All India Power Engineers Federation v. Sasan Power Ltd. [2017] 1 SCC 487, submits that the objection raised by both objectors is barred by the principle of estoppel, waiver and acquiescence. According to him, IFCI voted in favour of the distribution methodology and SREI having abstained from voting, both cannot be permitted to take a different stand other than the stand taken on 21st April, 2018. The proposition as laid down in paras 33 and 37 in Jai Narain Parasrampuria reads as follows:- "Para 33 While applying the procedural law like the principle of estoppel or acquiescence, the court would be concerned with the conduct of a party for determination as to whether he can be permitted to take a different stand in a subsequent proceeding, unless there exists a statutory interdict. If the principle of estoppel applies, Sa....
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....odology in the case in hand has been at length discussed by the CoC. IFCI voted in favour of the methodology, while SREI abstained from voting. The proposition highlighted in the above said judgments indicate that a party who consciously consented to a methodology and voted for its approval cannot take an inconsistent stand later. Their objection is barred by principle of estoppel. Moreover, the methodology was put to vote and CoC passed it by a vote share of 89.71%. As per section 21(8) of I & B Code, CoC is empowered to implement a decision of CoC, if it was passed by a vote of not less than fifty - one (51%) per cent of the voting share of the financial creditors. 32. The Ld. Sr. Counsel for the IFCI submits that principle of estoppel cannot be applicable in the case in hand because there is no estoppel against law. No provision of the Code was brought to my notice that the methodology approved by the CoC is illegal or as against any law. Even if it is contrary to any of the provisions of law, as the proposition held in All India Power Engineers Federation (supra) that "a statutory right can also be waived by the party for whose benefit certain requirement or conditions had b....
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.... upon dissent, they would not lose their share prior to their date of voting against the Resolution Plan. They had enough time to challenge the methodology, decided on 21/04/2018. However, they have not opted to challenge the methodology in time. They have not opted to file the objection even at the time of filing application for approval of the first approved Plan. IFCI rushed to the AA after two days of filing the application for approval of the restated resolution plan. Upon the above said discussions, I am of the considered view that the objection of the objectors in that regard is found not at all sustainable and I can come to a conclusion that CA (IB) No. 1092/KB/2018 challenging the distribution methodology is not maintainable. This point is answered accordingly. 36. Point No (ii) 37. The moot question in the case in hand is whether creation of class amongst the financial creditors based on the nature of security interest is contrary to the I&B, Code, Regulations or contrary to the judgments cited by the Ld. Sr. Counsel for IFCI and SREI? 38. Creation of class amongst the financial creditors is known to law and being applied in cases in which successful resolution p....
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....ote here that the total upfront payment to be distributed amongst seven financial creditors has been distributed by the successful resolution applicant on the strength of methodology adopted and approved by the CoC and, therefore, resolution applicant has nothing to do with the distribution and as such there is no challenge as against the resolution plan other than challenge against the above said methodology. 40. So the question is whether the classification of creditors claims based on the security interest is discriminatory as alleged? It is significant to note here that the methodology though is based on the value of secured interest, if any upfront amount is leftover, it would be distributed as per the voting share among the financial creditors. So the CoC has not ignored the claim of the IFCI as to share the upfront payment as per the voting share of IFCI. It is significant to note here that the total upfront payment to be distributed is Rs. 397 Crores. Truly after distribution on the basis of security interest, the remaining amount alone would be available for distribution on the basis of vote shares. However the methodology has been discussed at length in the various mee....
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.... Hon'ble Appellate Tribunal upheld the AA's findings that the 'Resolution Plan' of Rajputana Properties Private Ltd. is discriminatory for two reasons. Firstly, the Plan has not considered equally situated financial creditors and secondly the Plan has not balanced the stakeholders such as operational creditors. Here, in the instant case, no stakeholder other than two financial creditors challenged the Plan. 43. In the above said case, State Bank of Hong Kong and Exim Bank are similarly situated but the distribution of upfront payment has been created differently and that different treatment of similarly situated creditors has been held bad in law. It is why the resolution plan submitted by Rajputana Properties Pvt. Ltd. was found to discriminate some of the financial creditors who are equally situated and did not balance other stake holders such as operational creditors. Upon the said reason the Hon'ble Appellate Tribunal upheld the order of rejection of resolution plan of Rajputana Properties Pvt. Ltd. passed by AA. A reading of the Hon'ble Appellate Tribunal's judgment as a whole, it appears to me that different categories of financial creditors respective to their security in....
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....r security interest held by them. In the Sirpur Paper Mills Ltd. & Ors., the Hon'ble Appellate Tribunal has struck out Regulations 38(1)(b) and (c) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [In short, IBBI(IRPCP) Regulations, 2016] being inconsistent with the provisions of the I & B Code, 2016 holding that "legislators having not made any discrimination between the same set of group such as 'Financial Creditor' or 'Operational Creditor'." Classification of 'financial creditor' considering their security interest cannot be held illegal by applying the above said proposition laid down by the Hon'ble Appellate Tribunal. The proposition held in the above said decision is that the dissenting financial creditors being not provided with equal amount with those financial creditors who had agreed with the Resolution Plan is bad in law. Therefore, the fact in the above said case is also not exactly similar to the fact in the case in hand. It is significant to note here that in the instant case though IFCI and SREI opposed the approval of the Resolution Plan, they have not discriminated on account of voting against ....
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.... have placed appellant in a separate class, apart from any class containing the holders of mortgages which were a first lien on other separate tracts of land owned by the debtor, but were not a lien upon the real estate which secured appellant s claim. " "In this respect, the statute provides that for the purposes of the plan and its acceptance, the judge shall determine the divisions of creditors and stockholders into classes according to the nature of their respective claims and interests. Section 77B(c)(6), 11 U.S.C.A.ยง 207(c)(6). It is obvious from this language that Congress intended to give the court a broad latitude in its classification of debtors. Such classification, of course, should not do substantial violence to any claimant's interest, nor should it uselessly increase the number of classifications unless there be substantial differences in the nature of the claims." The very concept of classification of financial creditors in the said case is by considering the mortgage interest in respect of property encumbered to the creditors by the debtors. The said concept is seen recognised in the said case of Bankruptcy proceedings for approval of a reo....
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.... is known to law and it is not unreasonable or unethical, argued by the Ld. Sr. Counsel for the RP. I find some force in the argument advanced on the side of the RP. If I accept the distribution methodology introduced on the side of IFCI and SREI at the stage of finalisation of the approval of a resolution plan alleging discrimination among the similarly situated financial creditors who are, otherwise not similarly situated financial creditors, it may lead to have far reaching consequences in respect of commercial transactions and financial affairs prevailing in our country. In view of the above said discussions, I am not inclined to disturb the methodology under challenge. This point is answered accordingly. 50. Point Nos. (iii) and (iv) 51. Both these points are taken for consideration for convenience. The resolution plan under consideration is a plan of group companies of Bhagwati Power & Steel Limited. M/s. BPSL is a company engaged in manufacturing of Sponge Iron, Steel, re-rolled products and power generation. Its group companies are engaged in mining of iron ore in Odisha. It is this resolution applicant's plan which is under consideration for approval. A reading of th....
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....able and does not discriminate against the objectors i.e. IFCI and SREI. Under these circumstances, I do not find any justifiable reason to disturb the distribution methodology, the very basis used by the resolution applicant for payment of upfront amount. 54. The extended period of CIRP expired on 18th May, 2018. There are intervening litigations between the RP and resolution applicants before this Adjudicating Authority and before the Hon'ble Appellate Tribunal. The Hon'ble Appellate Tribunal in its order dated 13th November, 2018 in I.A. No. 1972 of 2018 in CA (AT) (Insolvency) No.184 of 2018 empowered this Adjudicating Authority to exclude the period of inter party litigation for the purpose of counting period of 270 days. Ld. Counsel for the RP submits that the period of litigation pending before the Hon'ble Appellate Tribunal is 199 days and those days if excluded, the period of CIRP would expire on 4th December, 2018 and filing of the application for approval is within time. The appeal filed by SREI and the Clarification application filed by the RP before the NCLAT was between 28th April, 2018 to 13th November, 2018. The total days truly come to 199 days as submitted on b....