TaxTMI 
TaxTMI 
2019 (4) TMI 140
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....ed on behalf of all the Financial Creditors of the corporate debtor through the Corporation Bank under Section 60(5), read with Section 74(3) of the Insolvency and Bankruptcy Code, 2016, (for short to be referred hereinafter as the 'Code'), with the prayer to declare that the Resolution Applicant M/s Liberty House Group Pte Limited (respondent No.1 herein) and its promoters upon whom the Resolution Plan is binding under Section 31 of the Code, have knowingly contravened the terms of the Resolution Plan, having failed to implement the same. The further prayer made is that the Committee of Creditors be reinstated to run the corporate debtor, as a going concern and to grant minimum of 90 days for the Resolution Professional to make another attempt for a fresh process rather than forcing the corporate debtor into liquidation on account of fraud committed by respondent No.1. It has also been prayed that respondent No.1 be debarred from applying for a fresh resolution plan and the Insolvency and Bankruptcy Board of India, may be directed to initiate the process under Section 74(3) of the Code. 2. The facts of the case, briefly stated, are that Corporation Bank as a financial c....
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.... Rs. 100 crores ('Performance Guarantee') against the committed amounts of Rs. 4404 crores; and (ii) creation of the escrow equivalent to 15% of the upfront cash pay-out contemplated under the terms of the approved Resolution Plan as an alternative to the provision of the performance bank guarantee in favour of the Committee of Creditor (in the form acceptable to the Committee of Creditors). 5. Various steps taken by the Resolution Professional in inviting the prospective Resolution Applicants, release of the detailed process note dated 07.12.2017 and other conditions required for a binding resolution plan have been detailed. The objective evaluation criteria was also approved by the Committee of Creditors. The binding Resolution Plans were received only from two prospective applicants, being respondent No.1 and Deccan Value Investors LP (DVI). The applicant was the highest bidder and its bid was approved by the Committee of Creditors. It was conveyed by the Resolution Professional to both the prospective Resolution Applicants, vide e-mail dated 26.02.2018 that the Resolution Applicant should undertake to create an escrow equivalent to 15% of the upfront cash pay-out in ....
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....esolution Plan or acted blatantly. It is otherwise stated that the Adjudicating Authority being the creature of the statute is not entitled to grant the reliefs, being prayed for. It is stated that after the approval of the Resolution Plan under Section 31 of the Code, the role of the Adjudicating Authority comes to an end. Further, there is no power for the Adjudicating Authority to recommend an action under Section 74(3) of the Code or to declare that the Resolution Applicant has knowingly or wilfully contravened any of the terms of the Resolution Plan. The offences for contravention are exclusively triable by the Special Court. 9. The other preliminary objection raised was that the Committee of Creditors is non-existent. After the approval of the Resolution Plan, it cannot file any such application before the Tribunal. 10. The Resolution Applicant has also raised the dispute on the alleged violation of the terms of the Resolution Plan. Detailed facts have been stated in order to contend that there has been misrepresentation committed by the Resolution Professional for which a separate application, being CA No.601/2018 has been filed, which would be taken up at the later st....
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....a performance guarantee of Rs. 100 crores in favour of Committee of Creditors within 10 days of issuance of Letter of Intent. Till date Resolution Applicant has failed to comply with the conditions for the implementation of the approved binding Resolution Plan and intentionally evaded from performing its obligation under the process note inasmuch as (i) The Resolution Applicant has not made the payment or compliance of the terms of Resolution Plan within a stipulated long stop date of 90 days from the date of approval by the Tribunal, subject to receipt of CCI approval. In the instant case, the CCI approval was received on 22.11.2018. (ii) The Resolution Applicant failed to furnish a performance guarantee of Rs. 100 crores against total bid amount of Rs. 4025 crores, which has been committed as part of the Resolution Plan; or the creation of escrow equivalent to 15% of the upfront cash pay-out contemplated under the terms of the Plan as an alternative to the performance guarantee. 15. Reference has also been made to an order passed in CANo.1220(PB)/2018 in (IB)-531(PB)/2017, titled as State Bank of India Versus ARGL Limited, passed by Hon'ble Principal Bench of National C....
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....o file the application. It is submitted that Committee of Creditors is non-existent after the Resolution Plan is approved. 21. Reference has been made to the minutes of meetings of the Committee of Creditors held on 19.11.2018 and the relevant extract has been reproduced in Paragraph No.42 of the Rejoinder as under:- " H. Lenders, after a detailed discussion decided that in addition to invocation of BBG, the next course of action as follows: (1) Application to be filed with the Hon'ble NCLT to seek exclusion of CIRP period which was spent with Liberty House, to reinstate the CIRP and conduct a rebidding by fresh issue of EOIs and Process document by the RP and CoC as per IBC regulations it should be mentioned in the Application that LHG and its associates companies should be disqualified from submitting the resolution plan. This application should be shared with lenders for comments at least 48 hours before the proposed filing. (2) Application under Section 74(3) of the IBC should be moved immediately in parallel to (1) above to seek punitive actions on LHG. (3) Suit for damages should be filed against LHG. (4) Caveat to be filed ....
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.... features. Clause 5 of Part I of the Resolution Plan, refers to the indicative timeline of events for implementation of the proposed Plan, which reads as under:- 5. Indicative timeline of events for implementation of proposed plan. On the effective date, upon satisfaction of conditions set out in paragraph 9.1 of this Part I (Business Plan of the Resolution Applicant), the Resolution Applicant (with the assistance of the insolvency professional) shall commence undertaking the actions set out in Schedule 4 (Implementation Provisions), and all other actions required in relation thereto, in the order provided in Schedule 4 (Implementation Provisions). It is clarified for the avoidance of doubt that no action in Schedule 4 (Implementation Provisions) shall be deemed to have been consummated unless all the actions provided in Schedule 4 (Implementation Provisions), in the order set out therein, have been duly consummated. The date on which all actions set out in Schedule 4 (Implementation Provisions) have been duly consummated or such other date as may be agreed in writing between the Resolution Applicant, will be the "Closing Date". Once the effective date is satisfie....
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....taken on a complaint made by the Board or the Central Government or any person authorized by the Central Government on its behalf. 28. When the matter was listed for arguments on 23.01.2019, the following order was passed:- "Arguments of applicant have been heard. The learned Senior Counsel for the applicant submits that presently he is confining his contention for restarting the process of Corporate Insolvency Resolution Process seeking reasonable time for conclusion of the Corporate Insolvency Resolution Process as there has been a default in implementing the plan, with liberty to the applicant for raising the issue before the IBBI or the Central Government. The learned Senior Counsel for respondent No.1 has vehemently opposed the contention that there has been a wilful or intentional default by respondent No. 1 but for exclusion of time for counting 270 days in completion of CIR Process and restarting the process and extension of time is not opposed though the respondent No.1 would press application CA No. 601/2018 separately filed. Mr. Sumant Batra, Advocate for the Resolution Professional, also does not oppose the prayer made on behalf of the applicant." 29. The....
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....t if an application has been filed by the 'Resolution Professional' or the 'Committee of Creditors' or 'any aggrieved person' for justified reasons, it is always open to the Adjudicating Authority/Appellate Tribunal to 'exclude certain period' for the purpose of counting the total period of 270 days, if the facts and circumstances justify exclusion, in unforeseen circumstances. It is admitted proposition of fact that LHG being the highest bidder, DVI did not participate in the later proceedings before the Committee of Creditors for seeking a chance to modify its Plan. 33. The Hon'ble Appellate Tribunal in Quinn Logistics India's case (supra) held that the following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:- (i) If the corporate insolvency resolution process is stayed by 'a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon'ble Supreme Court. (ii) If no 'Resolution Professional' is functioning for one or other reason during the corporate insolvency resolution process, such....
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....he result that, where a Resolution Plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. 35. The Hon'ble Supreme Court further held in Arcelormittal India (P.) Ltd.'s case (supra) as under:- "A reasonable and balanced construction of this statute would therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. This is not to say that the NCLT and NCLAT will be tardy in decision making. This is only to say that in the event of the NCLT, or the NCLAT, or this Court taking time to decide an application beyond the period of 270 days, the time taken in legal proceedings to decide the matter cannot possibly be excluded, as otherwise a good resolution plan may have to be shelved, resulting in corporate death, and the consequent displacement of employees and workers". 36. The principle laid down thus emerges is that certain period can be excluded from the total period of 270 days permissible under Sec....
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.... the binding Resolution Plan within the period already fixed by the Committee of Creditors. It was also observed in the said order that there were four more Resolution Applicants, who neither submitted the Resolution Plan nor bid bond guarantee. So looking into the object of the Code rand the principle laid down by the Hon'ble Supreme Court, the prayer made in the instant application for starting the fresh process for resolution of the corporate debtor cannot be accepted. However, in the facts of this case, the Committee of Creditors is reconstituting for the purpose of making a decision on the plan submitted by DVI. 38. With the aforesaid discussion and holding that the approved Resolution Plan submitted by LHG is not capable of implementation due to default in adhering to the payment schedule, we dispose of this application by directing that the period from the date when DVI submitted its final plan i.e. on 05.03.2018 as given in Paragraph No.8 of CA No. 140 of 2018 up to the date of the receipt of copy of this order be excluded while calculating the period of 270 days for completion of the Resolution Plan with liberty to the financial creditor and/or Resolution Profession....
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....n the application, the period of completion of Resolution Process was extended by 90 days. As such, the total period of CIRP process would have expired in the middle of April, 2018. 3. CA No.114/2018 was filed by the Resolution Professional for approval of the Resolution Plan, submitted by the applicant (LHG). The period of 270 days was expiring on 20.04.2018 and the said application was filed before the expiry of 270 days. Soon thereafter, the Resolution Professional filed CA No.112/2018 under Section 60(5), read with Sections 12 and 31 of the Code and Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, (for brevity the 'Regulations'), stating therein that the Resolution Professional has come across the news item in "The Economic Times" dated 17.04.2018 that M/s ABG Shipyard Limited, a company undergoing Corporate Insolvency Resolution Process, that the Resolution Professional in that case has declared Liberty Housing Group (LHG) ineligible under Section 29A of the Code. It was thus, prayed that since the issue of LHG's disqualification and ineligibility has cropped up, a prayer was m....
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....pplication need to be narrated. It is stated that the information provided in the information memorandum on the basis of which the applicant submitted the Resolution Plan was substantially different/incorrect/inflated, which came to the light only after the approval of the Resolution Plan. There was a misinformation/inflated value, provided to the Resolution Applicants under the Information Memorandum, valuation reports and other information shared in Virtual Data Room (VDR) on the basis of which prospective Resolution Applicants were to submit the plans. 9. It is stated that the Resolution Professional had appointed two Valuers namely BDO India LLP (BDO) and RBSA Valuation Advisors LLP (RBSA) to determine the liquidation value of the corporate debtor in accordance with Regulation 35 of the Regulations. These reports were mentioned in the Information Memorandum supplied to the Resolution Applicants. The valuation reports were prepared in about four months by these registered Valuers. The valuation reports were made available to the applicant through Virtual Data Room (VDR). The applicant initially submitted the Resolution Plan on 28.12.2017, which was subsequently revised up to ....
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....l on the manner and nature of escrow, vide email dated 14.09.2018, the applicant (LHG) wrote a letter to the Resolution Professional stating therein that it was willing to show its bona fides by agreeing to the conversion of the BBG into a performance guarantee by amending its terms and conditions. However, vide letter dated 21.09.2018, the Resolution Professional rejected the request of the applicant to convert the BBG into a performance guarantee. The Resolution Professional in its letter dated 21.09.2018, imposed a condition of provision of a performance guarantee from a scheduled commercial bank in India immediately thereof, in addition to the escrow arrangement. This condition was completely contrary to the terms under the Resolution Plan and Process Note. Copy of the correspondence exchanged for finalization of the letter of intent is at Annexure A-5. 13. Parallelly, pursuant to approval of the Resolution Plan by the Approval Order, as per Paragraph 5.1.1 of Part II of the Resolution Plan, the RP assumed the role of "Insolvency Professional" of the Corporate Debtor in order to supervise, manage and control all the business and operations of the Corporate Debtor. As per Par....
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....or. 17. It is stated that the duties cast upon the Resolution Professional under Section 25(2)(g), read with Section 29, of the Code, was to prepare an information memorandum, with the relevant information including the liquidation value of the Corporate Debtor as per Regulation 36 of the unamended CIRP Regulations. Reference is also made to the paragraph 5.3.2 of the Bankruptcy Law Reforms Committee Report 2015, ("BLRC Report") which requires the Resolution Professional to provide most updated information about the entity as accurately as is reasonably possible to this range of solution providers. In order to do this, the Resolution professional has to be able to verity claims to liabilities as well as the assets disclosed by the entity. The Resolution Professional has power to appoint whatever outside resources that it may require, in order to carry out this task, including the accounting and consulting services. 18. It is also stated that the corporate debtor has 21 sites and pursuant to Clause 1.1.2 of the Process Note, the applicant was permitted only one visit to the sites of the corporate debtor by the Resolution Professional prior to the approval of the Resolution Pla....
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....ignificantly written down to Rs. 2661 crores. 22. The Investment and other financial assets, which was valued at Rs. 1755 crores has been reduced to Rs. 494 crores in the Financial Statements. The non-current assets have been valued at Rs. 715 crores for the financial statements, which is Rs. 259 crores higher than the valuation report. It was however, not clear if these current and non-current assets are good and realizable. This shows the unreliable data with respect to the asset valuation of the corporate debtor and the inflated nature of the values discussed in the Balance Sheet for the year-ending 31.03.2017 and the information memorandum. These write downs were not brought to the notice of the applicant prior to submission of the plan. The writing down of the values in the financial statements published only after approval of the resolution plan directly impacts the Resolution Plan which was prepared taking into consideration the asset valuation as provided in the Information Memorandum. Therefore, the instant is a case of gross fraud played upon the applicant. 23. The other aspect relates to the discovery regarding inflated valuation of plant and machinery in the Infor....