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TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 481
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....ation under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("the Code") by the financial creditor State Bank of India ("SBI") which was admitted vide order dated 30.08.2017 where Mr. Anil Katia was appointed as the interim resolution professional, who also continues to be the resolution professional ("RP") presently in this matter. 3. The RP has submitted the progress reports from time-to-time and the meetings of the committee of creditors ("CoC") were held as prescribed under the Code. On 20.12.2017 an Expression of Interest ("EOI) for inviting resolution plans for the Corporate Debtor ("CD") was published in Business Standard but no response to the EOI was received. A second EOI was published on 11.01.2018 in response to which interest was shown by four prospective applicants. The CoC further decided to reduce the net worth eligibility criteria for submitting resolution plans from Rs. 10 crores to Rs. 4 crores and thus, a third EOI was published. Ultimately from the four prospective applicants only two applicants - Shri Nanak Singh and Shri Rajinder Singh Sandhu - were found eligible to submit resolution plans. However, Shri Nanak Singh withdrew from the process and the o....
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....payment of other debts of the corporate debtor; (b) provides for the payment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) The implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force (f) confirms to such other requirements as may be specified by the Board." 7. An overview of the ingredients of the resolution plan and its compliance/non-compliance with the ingredients specified in Section 30 of the Code and attendant regulations is mentioned below: Condition Compliance under Resolution Plan S. 30(1) - resolution applicant submits affidavit stating that he is eligible under Section 29A The resolution applicant has submitted an affidavit to this effect but as discussed in paragraphs 8-13 the resolution applicant is actually ineligible under Section 29A. S. 30(2)(a) - provides for the ....
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....en the RA will pay the amount at the end of 2 years by way of bullet payment. The balance of Rs. 8.06 crores will be paid after detachment of properties from Hon'ble MPID Court and ED or order of the Hon'ble NCLT, whichever is later. Thus, the payment of the amount to SBI is conditional on detachment of the concerned properties. c. Operational creditors including the trade creditors but excluding related party creditors and NSEL will be paid on pro rata basis on receipt of respective claims and verification thereof by the RA, at the rate of 30% of the claimed amount within the maximum period of two years from the date of approval of plan by this Tribunal and remaining liability will be written off. All claims even those rejected, if substantiated along with the one not considered by the resolution professional will be treated at par with operational creditors who have not filed claims and will be entitled for pro rata amount. No amount against the admitted amount of Rs. 51.02 crores will be paid to NSEL. d. No utilities bills are outstanding. e. The outstanding statutory dues have been paid during the period of CIRP. f. The due amount....
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....uired to be satisfied and as provided in clause (e) of sub-section (2) of Section 30 is that the resolution plan does not contravene any of the provisions of the law for the time being in force, which obviously will include the provisions of the Code as well and more specifically Section 29A of the Code. Thus, first a reference is required to be made to Section 29A of the Code which states who is ineligible to be a resolution applicant: "29A. Persons not eligible to be resolution applicant - A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserve 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....
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....ause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code: Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme 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 c....
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....Foreign Exchange Management Act, 1999 (42 of 1999); (d) an asset reconstruction company register with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered with Securities and Exchange Board of India; (f) such categories of persons as may be notified by the Central Government." 9. The extract above is how Section 29A stands presently after it was last amended with effect from 06.06.2018. The ineligibility under this section applies not only to the resolution applicant but also to persons 'acting jointly or in concert' with the resolution applicant. The Code does not define the term 'acting in concert' and thus, the definition given in the SEBI (Substantial Acquisition of Shares and Takeover) Regulations 2011 ("Takeover Regulations") will have to be referred to, which was also applied by the Hon'ble Supreme Court in Arcelormittal India (P.) Ltd. v. Satish Kumar Gupta & Ors. while construing the said term taking into consideration Section 3(23) of the Code. Regulation 2(1)(q) of the Takeover Regulations de....
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....ss than 10 per cent of the paid-up capital of that investment company or unit capital of that fund: Provided that nothing contained in this sub-clause shall apply to holding of units of mutual funds registered with the Board; Explanation.- For the purposes of this clause - "associate " of a person means,- (a) any immediate relative of such person; (b) trusts of which such person or his immediate relative is a trustee; (c) partnership firm in which such person or his immediate relative is a partner; and (d) members of Hindu undivided families of which such person is a coparcener;" 10. According to Reg. 2(q)(2) of the Takeover Regulations the persons listed thereunder are deemed to be acting in concert, which also includes immediate relatives. The term 'immediate relatives' is defined in Regulation 2(1) in the following words: "immediate relative means any spouse of a person, and includes parent, brother, sister or child of such person or of the spouse;" 11. Thus, immediate relatives include spouse's brother and the RA and the outgoing promoter/guarantor Surjeet Singh fall in the category of immediate relatives as Surjeet Singh is married to the RA's s....
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....lution plans under sub-clause (c) of Section 29A, if they happen to be persons who were in the erstwhile management or control of the corporate debtor. 57. It is important for the competent authority to see that persons, who are otherwise ineligible and hit by sub-clause (c), do not wriggle out of the proviso to sub-clause (c) by other means, so as to avoid the consequences of the proviso. For this purpose, despite the fact that the relevant time for the ineligibility under sub-clause (c) to attach is the time of submission of the resolution plan, antecedent facts reasonably proximate to this point of time can always be seen, to determine whether the persons referred to in Section 29A are, in substance, seeking to avoid the consequences of the proviso to sub-clause (c) before submitting a resolution plan, if it is shown, on facts, that, at a reasonably proximate point of time before the submission of the resolution plan, the affairs of the persons referred to in Section 29A are so arranged, as to avoid paying off the debts of the non-performing asset concerned, such persons must be held to be ineligible to submit a resolution plan, or otherwise both the purpose of the first provi....
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....h the debtor, such as in the case of 95 damage claimants (e.g. for environmental damage) and tax authorities. Even though the principle of equitable treatment may be modified by social policy on priorities and give way to the prerogatives pertaining to holders of claims or interests that arise, for example, by operation of law, it retains its significance by 12 UNCITRAL Legislative Guide on Insolvency Law ensuring that the priority accorded to the claims of a similar class affects all members of the class in the same manner. The policy of equitable treatment permeates many aspects of an insolvency law, including the application of the stay or suspension, provisions to set aside acts and transactions and recapture value for the insolvency estate, classification of claims, voting procedures in reorganization and distribution mechanisms. An insolvency law should address problems of fraud and favouritism that may arise in cases of financial distress by providing, for example, that acts and transactions detrimental to equitable treatment of creditors can be avoided." 46. The NCLAT has, while looking into viability and feasibility of resolution plans that are approved by the committee ....
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....Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 ("CIRP Regulations") is inconsistent with the Code and should not be taken into consideration and any resolution plan discriminating between two sets of creditors on the basis of such regulations cannot be approved. Subsequently, vide amendment dated 05.10.2018 the Insolvency and Bankruptcy Board of India amended Regulation 38(1) which now only states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. This amendment was acknowledged by the Hon'ble NCLAT in its order dated 18.11.2018 namely, Central Bank of India v. Resolution Professional of Sirpur Paper Mills (P.) Ltd. where again the Hon'ble NCLAT stated that a discriminatory plan will be against the concept of maximization of assets of corporate debtor on one hand and balancing the interests of stakeholders on the other hand. Thus, if a plan is discriminatory against one or more creditors it will be in violation of the provisions of the Code. 15. In the present case, there is no dispute as to the fact that NSEL's claim has been admitted by the RP, but th....
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....elease of CD and other properties sought to be acquired under the resolution plan, which are held in the personal names of outgoing promoters/guarantors, from Hon'ble MPID court and ED through PMLA court and in case of non-release of properties the plan will stand withdrawn. It is not difficult to see that this relief prayed for by the RA is only a ruse to liberate the promoters' properties from the attachments they are subject to. Not only is this relief beyond the scope of this Tribunal and the Code, as it concerns the properties and proceedings related to persons other than the CD but also a mala fide use of the provisions of the Code. The laying down of pre-conditions which are not conceivable raises doubts about the sincerity and the genuineness of the resolution plan as well as the intentions of the RA. In this context it is important to refer to the judgment of the Hon'ble Supreme Court in State Bank of India v. Ramakrishna [Civil Appeal No. 3595 of 2018, dated 14-8-2018] where while interpreting Section 14 of the Code the Hon'ble Supreme Court observed as follows; "17. Section 14 refers to four matters that may be prohibited once the moratorium comes into ....
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....ss to explore the possibility of reviving a company, give the prospective applicants an opportunity to present their plans of revival and to select a plan for implementation if the plan is found feasible and in compliance with all applicable laws. If it so happens that a company cannot be revived because any integral part/asset of the company is irretrievably blocked, then the company has to go into liquidation; the solution is not to approve a resolution plan conditional on grant of reliefs which would lead to a misuse of the provisions of the Code. Procedure for Approving Resolution Plan 19. Further, it is not only the plan which is conditional but the approval given by the sole financial creditor SBI during the 9th CoC meeting dated 23.05.2018 is also conditional. It is seen from the minutes of the 9th CoC meeting that the CoC had asked the RA to supply further information and include the same in the resolution plan that will be submitted after suitably amending it, such as a letter from Bank of Baroda specifying the sum that it is willing to finance for the resolution plan, division of litigation expenses between the financial creditor and the RA and provision of implementat....
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....ng a meeting to discuss the resolution plan in its final form, in which NSEL would have also been a participant according to Section 24(3)(c) of the Code. The Hon'ble Supreme Court in its recent decision Vijay Kumar v. Standard Chartered Bank & Ors.has strongly emphasized the importance of the role of the participants of the CoC meetings in the following words "This statutory scheme, therefore, makes it clear that though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors, and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings under Section 25(2)(i). It cannot be gainsaid that operational creditors, who may participate in such meetings but have no right to vote, are vitally interested in such resolution plans, and must be furnished copies of such plans beforehand if they are to participate effectively in the meeting of the committee of creditors. This is for the reason that under Section 30(2)(b), repayment of their debts is an important part of the resolution plan qua....
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....ations to suggest that as a consequence of this amendment the decisions already taken by the concerned CoC prior to 3rd July, 2018 be treated as deemed to have been vitiated or for that matter, necessitating reversion of the proposal to CoC for recording reasons, that too beyond the statutory period of 270 days. A new life cannot be infused in the resolution plan which did not fructify within the statutory period, by such circuitous route." 24. Thus, for all the aforestated reasons, the resolution plan is not approved and the application filed by the RP is dismissed and the application filed by the objector, in view of the said dismissal, succeeds. In light of this observation, the CD Namdhari Food International Pvt. Ltd. is required to be liquidated in terms of Section 33 of the Code and in relation to which the following further directions are issued: a. This Tribunal orders for liquidation of the Corporate Debtor and in the circumstances the CD stands liquidated and the incidence of liquidation to follow, on and from the date of this order in terms of provisions of the Code and more particularly as given in Chapter III of the Code and also in terms of Insolvency and Bankruptc....