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TaxTMI 
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2019 (1) TMI 1505
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....iled 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 evaluation of each plan, the Resolution Plan of BPSL ....
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....ys 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 the stage of CIRP and is an attempt to borrow and apply the ....
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....e 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 to be made in accordance with the voting share of the financial creditors as alleged....
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.... 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 'Committee of Creditors' will go through it and look into the viability, feasibility and financial matrix of all the 'Resolution Plans' to fin....
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.... 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) Term Loan (Inclusive of all Interest) 432,058,559 482,058,559 3 IFCI Limited Cash Credit (Inclusive of all Interest) 1,447,700,033 1,447,700,033 As per Annexure - 1 Lett....
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....l 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 resolution plan. 23. Ld. Counsel appearing for the SREI also raised similar objection contending that similar financial creditors were discriminated considering the security interest which is contrary to the provision of the Code, Regulation and that of the judgment of the Hon'ble Appellate Tribunal. To highlight the above said argument, Ld. Counsels appearing for the objectors refer to the judgment of the Hon'ble Appellate Tribunal in Binani Industries vs. Bank of Baroda and another) and C....
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....lts 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 AGAINST the Resolution(s) 0.00 Total Percentage ABSTAINED from Voting on the Resolution(s) 10.29 Resolution Carried/Not Carried Status (=75% or above=Carried) Voting Result Carried Voting Type E-Voting Note: Agenda 8 To approve the methodology for distribution of proceeds to assenting Financial Creditors proposed in the Resolution Plan. 27. This agenda was discussed at length and finally the resolution passed reads as follows:- "RESOLVED THAT the distribution of upfront and other payments to the assenting ....
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....m 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, Sarafs will not be permitted by a court of law to raise the contention that the Company was not the owner of the property. " "Para 37 In Bank of India v. O.P. Swarnakar this Court (at SCC pp. 765-66, para 118) took notice of the following passage from Halsbury's Law of England, 4th Edn., Vol. 16 (Reissue), para 957 at p. 844:" "On the principle that a person may not approbate and reprobate a special species of estoppel has arisen. The principle that a person may not approbate and reprobate expresses two propositions; (1) That the person in question, having a choice between two courses of conduct is to be treated as having wade an election from w....
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....ubmits 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 been provided for by a statute subject to the condition that no public interest is involved therein", the said right if any was consciously waived by the IFCI. This proposition is squarely applicable in the case in hand, therefore, even if such a right was held by IFCI, that right is waived by giving express consent to the methodology. 33. One another argument advanced on the side of the IFCI is that there was subsequent change of law after casting vote and therefore there is no estoppel. According to him, IFCI voted for approval of the methodology only because of the legal position prevailing at that time, wherein the assenting Financial Creditors were entitled to an amount different from the dissenting Fin....
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.... 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 plan was approved. Ld. Senior Counsel for IFCI was unable to bring to my notice any of the provision of the Code or Regulation so as to enable me to hold that distribution methodology contained in the re-stated final resolution plan dated 22/11/2018 under consideration for approval is contrary to the provisions of the Code or Regulation. What is highlighted by the Ld. Senior Counsel is the proposition laid down in the case of Binani Industries Ltd. (supra) and Central Bank of India v. Sirpur Paper Mills Ltd. [CA (AT) (Insolvency) No. 526 of 2018] barring discrimination amongst equally situated financial creditors and according to him, all financial creditors are to be treated equal, irrespective of the security interest ....
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....ent 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 meeting of CoC and CoC, by majority decision, has decided that secured creditors are considered to have better or higher rise of recovery in view of the security interest created in its favour and approved by vote share of 89.71% of members of CoC. Ld. Sr. Counsel for the CoC submits that this methodology is in the better interest of secured creditors, safeguarding the nature of secured interest they are holding, which is well known under the Transfer of Properties Act, 1882 and the SARFAESI Act, 2002 and not at all contrary to any law including the provision of the Code or Regulation and the methodology never discriminated IFCI and SREI as alleged. In Binani Industries Ltd. (supra) the main challenge was between two resolution applicants. The two issues framed in the said case are read as follows:- i. Whether the Committee of Cre....
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....ational 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 interest cannot be held equal. The method of distribution passed by the CoC by majority of vote share of financial creditors on 21/4/2018 is not arbitrary and based on sound reason and logic, as is applicable to the lenders. 44. Ld. Counsel, Mr. D. N. Sharma, appearing for the SREI has cited two orders dated 27/07/2018 and 31/10/2018 in CA(AT)(Insolvency) No. 405 of 2018 (SREI Infrastructure Finance Ltd. v. State Bank of India) of the Hon'ble NCLAT for stressing an argument that preferential distribution of upfront payments amongst the different class of financial creditors is not permissible in a CIRP process. The order dated 27/07/2018 is an interim direction passed by the Hon'ble Appellate Tribunal in SREI Infrastructure Finance Ltd. directing that "During the pendency of the appeal, upfront payment, if is to be made in favour of the 'financial creditor'....
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....reed 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 the approval of the Resolution Plan. Therefore, the principle laid down in the above said case is in no way helpful to the applicant to uphold its objection. 45. One another argument advanced on the side of the IFCI and SREI is that the concept of liquidation process has been applied by the CoC to the CIRP which is against law. According to the Ld. Sr. Counsel for the IFCI, creation of class amongst the financial creditors based on the nature of security interest is an attempt to apply the concepts of liquidation process to the CIRP. He further submits that distribution of funds could have done on the basis of the voting share irrespective of security interest and that such a distribution is not at all permissible and if it is allowed, it would amount to preferential treatment to a select group of secured creditors. 46. Other than the citation referred to me....
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....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 reorganisation plan of debtor in which the creditors were classified as Class A, Class B and Class C, proportionate to the value of properties mortgaged to the creditors which were a first lien. Truly in the said case there is a provision read as "the statute provides that for the purpose 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 interest." No such provision is in the I&B Code. However, classification of creditors on the strength of property value of mortgaged property being considered in the said case, it appears to me that the method of distribution of upfront fund on the basis of security interest is known to law and not contrary to any law. 48. The Ld. Sr, Counsel for IFCI at this juncture submits that if secured and unsecured creditors are treated diffe....
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.... 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 the order dated 13th November, 2018 in I.A, No. 1792 of 2018 in CA (AT) (Ins.) No.184, what I understood is that all the four resolution plans under consideration before the CoC during the pendency of the appeal were found in consonance with section 30(2) of the I&B Code. None of the objectors raised any challenge against methodology approved by the CoC before the disposal of appeal by the Hon'ble Appellate Tribunal. Nothing prevented the objectors to raise the issue of distribution methodology before the Hon'ble Appellate Tribunal when the Hon'ble Appellate Tribunal ordered the CoC to reconsider all the resolution Plans. It is submitted on behalf of the CoC that the very same objector SREI, also submitted a resolution plan adopting the very same disputed distribution methodology approved by the CoC on 21st April, 2018. Moreover the objections raised by the IFCI and SREI are found devoid of ....
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....g 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 behalf of the RP. Therefore, for the purpose of counting period of expiry of CIRP period, the above mentioned days are hereby excluded. The extended period of CIRP is therefore, expired on 4th December, 2018. The resolution plan of BPSL is therefore, filed within time. 55. In view of the above said discussion, I am inclined to allow C.A.(IB) No. 1086/KB/2018 by approving the Resolution Plan upon the following orders:- ORDERS (i) The Resolution Plan of Bhagwati Power and Steel Limited, which is approved by the CoC with 77.20% voting percentage, is hereby approved under provisions of Section 31(1) of the Insolvency and Bankruptcy Code, 2016, which will be binding on the Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the Resolution Plan. (ii) The revival plan of the company in accordance with the approved Resolution Plan shall come into force with immediate effect. (iii) The morato....