TaxTMI 
TaxTMI 
2019 (5) TMI 1046
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....oving the resolution plan, thereby in effect seeking for the liquidation of the CD after rejection of Resolution Plans, Applications in C.A.190(PB) of 2018 and Application No.626 (PB)/2018 have been moved by the Resolution Applicants whose resolution plans stood rejected and aggrieved by the said rejection have approached this Tribunal under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). (III) For the sake of convenience and for appraisal of facts from the date of initiation of CIRP in relation to the CD, the status reports filed by the RP as well as the application filed by RP based on rejection of the resolution plans and thereby for liquidation of the CD consequent to rejection of Resolution Plans is taken up first, being application in C.A.No. 884 of 2018 filed vide Diary No. 6226 dated 04.09.2018:- (1) That the CIRP was initiated on 03.05.2017 and that at the time of initiation of CIRP, one Mr. Ashwani Kumar was appointed as the IRP of the CD and that during his tenure as IRP, the said Mr. Ashwani Kumar had filed three status report dated 12.05.2017, 01.06.2017 and 20.06.2017. (2) That in the first COC meeting held on 07.06.2017, the applicant RP was....
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.... by the applicant RP and also further directions in relation to preservation of the value of the CD in the absence of funds. (IV) Now turning to the applications filed by the Resolution Applicants the following averments are made: - (1) Application No. C.A.190(PB) of 2018 vide Diary No.1763 dated 02.04.2018. (i) That the resolution applicants have filed the Resolution Plan between the period 22.11.2017 and 16.01.2018 when an application was pending before this Tribunal seeking for extension of CIRP by a further period of 90 days. (ii) That after extension of CIRP since there was a time gap of only 10 days for the extended period also to expire on 28.01.2018 and in the mean while the COC in its 4th meeting laid down certain pre-conditions, the Resolution Applicants jointly moved an application seeking for extension of time beyond the mandatory period which was rejected by this Tribunal vide order dated 25.01.2018 against which an appeal was preferred before Hon'ble NCLAT dated 01.02.2018 which had restrained this Tribunal from passing an order of liquidation as well as allowed the RP to continue in relation to CD (iii) That in the mean whil....
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.... had recommended for liquidation which had triggered one more round of litigation on the part of the resolution applicants aggrieved this time around of the decision of COC in rejecting the Resolution Plan by filing one more application in which the facts, to some extent have been contrived to suit the convenience of the resolution applicants particularly in relation to the proceedings that transpired before this Tribunal which are obviously eschewed being contrary to the proceedings that transpired, and the remaining details of which are as follows:- (2) Application No.626 (PB)/2018 filed vide diary No. 4141 dated 26.06.2018:- (i) That vide order dated 09.04.2018, this Tribunal was pleased to pass an order directing the RP to place the said plan of the Resolution Applicants before the COC and allowed COC to decide the eligibility under Section 29A as well as the plan. (ii) However, the COC without application of mind had rejected mechanically and in violation of decisions of the Hon'ble Principal Bench had declared the Resolution Applicants as ineligible in the first place under Section 29A of IBC, 2016 and also in relation to net worth of the applic....
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....s both the Central Government and the Legislature in relation to IBC and the regulator, namely IBBI in relation to regulations are in the process of fine tuning it based on the exigencies of the situation thrown in view of judicial interpretation as well as to further the avowed objects for which the Code was enacted. While the inclusion of home buyers within the definition of a financial creditor is a case in point in relation to amendments carried out in view of judicial interpretation, exigencies arising out of necessity not to allow the defaulting promoters, in substantial of the cases they primarily being the reason for insolvency of a CD, to gain a back door entry into the process had compelled the Legislature to insert Section 29A in relation to persons not eligible to be resolution applicant by virtue of Insolvency and Bankruptcy Code (Amendment) Act, 2018 w.r.e.f. 23.11.2017 and further amended by Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 w.r.e.f. 06.06.2018. Similarly clause(h) of sub-section 2 of Section 25 of IBC, 2016 has also undergone changes by virtue of Insolvency and Bankruptcy Code (Amendment) Act, 2018 w.r.e.f. 23.11.2017 as compared to the pos....
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....of the COC when it comes before it either for approval of resolution plan failing which for liquidation, in retrospect. At this stage it will be also appropriate to mention that the roles of RP, COC and Adjudicating Authority has been clearly demarcated by the Hon'ble Supreme Court in the decision rendered by it in the matter of Arcelormittal India (P.) Ltd. v. Satish Kumar Gupta 150 SCL 354 which is of immense significance and hence is considered first before going into the list of dates. In this connection paragraphs 75 to 81 of Arcelor Mittal's case is reproduced as below: Powers by RP and CoC in relation to Resolution Plans: 75. What has now to be determined is whether any challenge can be made at various stages of the corporate insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage is it open to the concerned resolution applicant to challenge the Resolution Professional's rejection? It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable. xxxxxxxxxxxxxx ....
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....oes not empower the Resolution Professional to "decide" whether the resolution plan does or does not contravene the provisions of law. Regulation 36A of the CIRP Regulations specifically provides as follows:- "(8) The resolution professional shall conduct due diligence based on the material on record in order to satisfy that the prospective resolution applicant complies with- (a) the provisions of clause (h) of sub-section (2) of section 25; (b) the applicable provisions of section 29A, and (c) other requirements, as specified in the invitation for expression of interest. (9) The resolution professional may seek any clarification or additional information or document from the prospective resolution applicant for conducting due diligence under sub-regulation (8). (10) The resolution professional shall issue a provisional list of eligible prospective resolution applicants within ten days of the last date for submission of expression of interest to the committee and to all prospective resolution applicants who submitted the expression of interest. (11) Any objection to inclusion or exclusion of a pr....
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....he best resolution plan and may approve it with such modifications as it deems fit: Provided that the committee shall record the reasons for approving or rejecting a resolution plan." This regulation shows that the disapproval of the Committee of Creditors on the ground that the resolution plan violates the provisions of any law, including the ground that a resolution plan is ineligible under Section 29A, is not final. The Adjudicating Authority, acting quasi-judicially, can determine whether the resolution plan is violative of the provisions of any law, including Section 29A of the Code, after hearing arguments from the resolution applicant as well as the Committee of Creditors, after which an appeal can be preferred from the decision of the Adjudicating Authority to the Appellate Authority under Section 61. 81. If, on the other hand, a resolution plan has been approved by the Committee of Creditors, and has passed muster before the Adjudicating Authority, this determination can be challenged before the Appellate Authority under Section 61, and may further be challenged before the Supreme Court under Section 62, if there is a question o....
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....in paragraph 81; (iv) The role of a Resolution Professional is only to examine and confirm that each of the Resolution Plans conforms to Section 30(2) of IBC, 2016 and an onus is cast on the Resolution Professional under Section 25(2)(i) to place all the resolution plans along with Resolution Professional's prima facie opinion supported also by a due diligence report on the resolution plans per se placed before the COC taking into consideration the fitness of things and that the Resolution Professional is not empowered to decide whether the resolution plan does or does not contravene the provisions of law by virtue of Section 30(2)(e) as the same is in the domain of the COC ; (v) The resolution applicant does not have a vested right to demand that his resolution plan is required to be considered by the Resolution Professional where after examination the Resolution Professional is of the prima facie opinion that Resolution Plan does not conform to Section 30(2) of IBC, 2016 and the recourse is for the Resolution Professional to fall back upon 30(4) of IBC, 2016 to invite fresh resolution plans if no other resolution plan has passed muster of course within the t....
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....sp; XXXX XXXX Thus armed with the wisdom of Hon'ble Supreme Court as above and as to how this Tribunal should proceed in relation to consideration of a Resolution Plan it will be apposite to consider the list of dates and events brought forth in the compilation filed by ICICI Bank, being a member of the COC having a voting percentage of 61.46% which is to the following effect: List of Dates and Events from ICICI Bank Compilation: Date Event 03.05.2017 An application under Section 9 of the Insolvency & Bankruptcy Code, 2016 ("Code") was filed by one Operational Creditor namely M/s. Anant Overseas Pvt. Ltd. against the Respondent No. l Company. Hon'ble NCLT New Delhi, vide its order dated 03.05.2017 was pleased to admit the petition and consequently Corporate Insolvency Resolution Process ("CIRP") commenced w.e.f. 0....
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....8 which was taken on record by the Ld. Tribunal below. 23.03.2018 The application being CA No. l90/PB/2018 filed by Promoter Director of the Respondent Company - Mr. Ram Niwas, claiming to have come forward with another Resolution Plan was taken up. 09.04.2018 The Ld. Tribunal directed the Resolution Professional to place the Resolution Plan of Mr. Ram Niwas, Promoter Director of the Respondent Company before the Committee of Creditor for consideration, provided: (a) The criteria as laid down under the provisions of the Code read with Attendant Rules and Regulations are complied with and (b) The criteria fixed by Committee of Creditors are fully compiled; with. 13.04.2018 Committee of Creditors in their meeting held on 13.04.2018, rejected with 83.45% voting share, the Resolution Plan submitted by Shri Ram Niwas, Promoter Director, as it was not in compliance with the criteria laid down by the Committee of Creditors. 16.04.2018 Extended period of 270 days (after exclusion of time taken in pronouncement of Extension Order) expired. (IX) Taking into consideration the above sequence of events and also of the Hon'ble Suprem....
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....) whose powers stand suspended and who seeks to take advantage of the amendments brought into effect in relation to inter alia the provisions of IBC, 2016 as well as to Section 29A of IBC, 2016 dealing with persons not eligible to be a resolution applicant and contends that the said provisions, namely 29A(c) and 29A(h)cannot be made applicable in relation to the resolution applicants being an MSME entity as one of the grounds for rejection of the resolution plan by the COC, the other one being the non-fulfilment of a minimum net worth in case of individuals of Rs. 10 crore as prescribed by the COC being a criteria prescribed under Section 25(2)(h) of IBC, 2016 by the COC in its meeting held on 23.1.2018 and in relation to which it is contended by Ld Counsel for resolution applicant that the said criteria stands satisfied. Ld Counsel for RP as well as counsel for ICICI Bank Ltd, being a financial creditor as already pointed out having a voting strength of more than 60% in the COC resists the said submissions of the resolution applicant on the ground that the amendments to Section 29A is only prospective and not retrospective and in view of liquidation having already been recommended....
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.... in this case towards the promoters of the Corporate Debtor ignoring the concerns and interest of the creditors which will only militate against the avowed object of the Code, namely IBC, 2016 and as also reflected in the Banking Law Reforms Committee of November 2015 as extracted by the Hon'ble Supreme Court at paragraph 16 of the judgment rendered in Innoventive Industries Ltd. v. ICICI Bank [2017] 84 143 SCL 625 which is to the following effect: xxxxxxx The limited liability company is a contract between equity and debt. As long as debt obligations are met, equity owners have complete control, and creditors have no say in how the business is run. When default takes place, control is supposed to transfer to the creditors; equity owners have no say xxxxxxx "The role that insolvency and bankruptcy plays in debt financing Creditors put money into debt investments today in return for the promise of fixed future cash flows. But the returns expected on these investments are still uncertain because at the time of repayment, the seller (debtor) may make repayments as promised, or he may default and does not make the payment. When this happens....
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....powers stand suspended and being the Resolution Applicants in relation to certain delays which has occasioned due to certain infrastructural deficiencies which are being addressed to by the Central Government, we find it strange and deliberately thrown at this Tribunal and of which strong exception is taken.The apprehension expressed concerning the unavoidable delay made by the Counsel for ICICI Bank would have been relevant if it were the first person to have approached this Tribunal under the provisions of IBC, 2016 seeking for the CIRP of the Corporate Debtor due to defaults. However, that seems to not be the case here despite defaults on the part of the Corporate Debtor. 5. Unlike the situation prevalent and detailed in the Hon'ble Supreme Court judgment in Arcelormittal India Private Ltd. (supra) where there were multiple bidders and bidders left out all of whom were aggrieved by the action of the RP/CoC therein, in the present petition the resolution applicant is only the KMP of the CD has filed the resolution plan and in the circumstances this Tribunal is not required to grapple with multiple resolution plans and to decide on the issue as to which of the resolution pl....
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.... that the CoC has not recommended for liquidation of the CD despite the RP bringing to the notice of the CoC that the rejection of resolution plan will entail liquidation automatically but on the other hand the CoC had decided to send for extension of the CIRP process by further 90 days and in the meanwhile directed the RP to look for other resolution plans in view of the enquiry being made by the OC which had initiated this company petition in the first place leading to its admission and the CIRP process in relation to the CD being unfolded. 8. In this connection the OC, namely, Anant Overseas Private Limited, it is seen from the report of the RP that certain avoidable transactions have taken place as between OC and CD and contrary to the statements made in the applications supported by affidavits in relation to the receipt of payments from the CD concerning its operational debts made by the OC, CoC has also taken note of in the meeting held on 26.10.2017 in relation to avoidable transactions and even though the IRP has suggested for forensic audit to be undertaken, the CoC had not considered the same at that point of time in view of fast depletion of time in relation to the CI....
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....ls/Partnership Firms/Group of Investors. Basis of evaluation of the bidders: Category A Financial credibility 1. Financial statements of the past 2-3 years to determine the capability of the bidder to run the corporate debtor. 2. Minimum net-worth of Rs. 10 crores, turnover of Rs. 50 crores and cash/cash equivalent of Rs. 5 crores available required (for the immediately preceding completed financial year), to eliminate non-serious players. Net Worth shall be computed as aggregate value of paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, and does not include reserves created out of revalue of assets, write back of depreciation and amalgamation. Experience level 1. The player should have at-least 10 years' experience in the business to face and overcome the challenges. Qualitative factors 1. The player has to be preferably from the same industry. It can be a competitor, supplier or customer of the target company, w....
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.... guarantee given by Mr. Naresh Basia in favor of CD and in the circumstances he has become ineligible. 13. Even though the RP has reported that another EoI was received from one Mr. Satish who had also deposited a sum of Rs. 25,000/- but however no further documents have been received from him in order to evaluate his eligibility. The report also brings to the notice of this Tribunal that the CoC had taken a call about the possibility of liquidation process and it was also opined by CoC that the RP appointed for the CIRP should be the liquidator for the purpose of liquidation unless the adjudicating authority, namely, this Tribunal comes to conclusion otherwise. 14. From the minutes of the 5th CoC meeting held on 19.2.2018, it is seen that in view of the rejection of the resolution plan submitted by promoters of the CD in the capacity of resolution applicants having been rejected by the CoC and that in relation to one Mr. Satish has not lodged or filed for due consideration of the RP any Resolution Plan, there is no resolution plan which has been received and in view of the CIRP process fast expiring, the call was taken in relation to the liquidation process. Howe....
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....solution applicants as required under the provisions mentioned in the EoI published by the RP for inviting potential bidders to participate in the revival proceedings of the CD. As per the calculation done by the RP, the applicants were not meeting the criteria of having minimum net worth of Rs. 10 crores. But the resolution applicants had submitted documents supporting their calculation according to which they were meeting the criteria. The major reason for difference in calculation was consideration and inclusion of trade debtors of the CD amounting to Rs. 46 crores standing in the audited books of account of FY 2016-17, of which nothing had been realized during the CIRP period, since 03.05.2017. As for the realisibility possibility of these debtors, the KMP/now resolution applicants themselves had earlier been skeptical. The CoC put numerous queries to the resolution applicants and sought clarification on their calculation. The resolution applicant requested the CoC to waive-off the criteria fixed by the CoC. After detailed discussion, the resolution applicants requested the CoC that since the criteria had been fixed by the CoC only; it was within its prerogative to wai....
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....iness plan proposed under the resolution plan and capital induction by the resolution applicants. When the resolution plan was put to vote as well as upon voting, it is seen that the resolution plan was opposed by 83.45% of the CoC members where as it was approved by 0.73% and 15.82% of the voters abstained. The voting pattern has been mentioned at page No. 174 of the report filed by RP vide Dy. No.2203 wherein it is seen both the resolution plans having the same voting percentage as given above has been voted upon and rejected. 19. In the earlier paragraph of this order this Tribunal has already dealt in detail in relation to the latest position of law, as discussed by Hon'ble Supreme Court in Arcelormittal India (P.) Ltd. (supra) case subsequent to amendments of IBC, 2016. It is also required to be noted that at the time of submission of the resolution plan and thereafter its rejection by CoC amendment to IBC, 2016 by way of Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 had not come into force as it came into effect on and from 6.6.2016 by which certain exemptions has been provided if the CD is a MSME, by inclusion of Section 241A and invocation of which prov....
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.... of assets rather than its liquidation. However, such an exercise cannot be skewed to only the interests of promoters thereby completely giving a go by to the statements and object for enactment of the Code in the first place for the purpose of resolving huge debts as are accumulated to the Banks/FIs. 22. In relation to the commercial decisions taken by the CoC in relation to the affairs of the CD, a similarity can be drawn by this Tribunal that while considering the scheme of amalgamation for that matter for restructuring of business proposed by different stakeholders being the shareholders of the company and as well as its creditors, whether secured or unsecured, Hon'ble Supreme Court has consistently held that commercial decisiors are best taken by the shareholders or by the creditors in relation to the restructuring exercise and that the same should not be interfered with by Company Court, presently this Tribunal supplanting its wisdom as compared to that of the stakeholders unless it is brought to the notice of this Tribunal that there has been a violation of law or an exercise, for e.g. in share valuation, which is strikingly shocking as unconsciable if there is a chal....
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.... 4.94 6.58 4.94 16.45 50.00 16.45 50.00 0.00 0.00 PNB 9.00 1.35 1.80 1.35 4.50 50.00 4.50 50.00 0.00 0.00 SIDBI 1.24 0.19 0.37 0.00 0.56 45.00 0.00 0.00 0.68 55.00 Standard Chartered Bank 1.98 0.30 1.09 0.00 1.38 70.00 0.00 0.00 0.59 30.00 Kotak Mahindra Prime 0.02 0.00 0.01 0.00 0.02 70.00 0.00 0.00 0.01 30.00 BMW India Fin. Services 0.10 0.02 0.06 0.00 0.07 70.00 0.00 0.00 0.03 30.00 HDFC Bank 0.15 0.02 0.08 0.00 0.10 70.00 0.00 0.00 0.04 30.00 ICICI Car Loan 0.04 0.01 0.02 0.00 0.03 70.00 0.00 0.00 0.01 30.00 Rainbow Digital Services 0.59 0.09 0.15 0.00 0.23 40.00 0.00 0.00 0.35 60.00 Jainsons Finlease Ltd. 1.47 0.22 0.37 0.00 0.59 40.00 0.00 0.00 0.88 60.00 Total 47.50 7.12 10.53 6.29 23.94 50.40 20.95 44.11 2.61 5.49 Unsecured Loans &....
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.... to which the promoters themselves thrown in the towel stating that the CD is facing an insolvency as brought forth at the time of admission passed by this Tribunal on 3.5.2017. Whether to accept proposal of such conversion of loan into equity that too at a premium, particularly in view of the fact that CD does not have any suitor in the open market who is willing to bid for CD and run it as a going concern despite the RP calling twice for bids one prior to 22.11.2017 and subsequently thereafter by calling for EoIs as required subsequently thereafter demonstrates the situation of the CD in the open market. The maximisation in value of the assets thus according to the majority of the CoC based on commercial consideration seems therefore to favour liquidation rather than approval of the sole Resolution Plan submitted by the KMP of the CD in whom presently they seem not to have any confidence which again is a considered decision taken by the CoC considering their interest which again the applicants cannot seek to challenge as illegal or contrary to law taken by the CoC in rejecting the resolution plea is perverse or mala fide or arbitrary or capricious which we do not find in the inst....
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....ditors, Operational Creditors and Government dues by way of taxes and others. 27. In view of lack of any Resolution Plan meeting the criteria fixed being received, the scope of resolving the insolvency is not in existence and in the circumstances taking into consideration the provisions under Section 33(1) of IBC, 2016, as extracted above, the only recourse available is liquidating the CD in view of the CoC in their meeting having unanimously rejected the only Resolution Plan available before it thereby effectively approved for the liquidation of the Corporate Debtor and there being no Resolution Plan being placed before it, 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 IBC, 2016 and more particularly as given in Chapter-III of IBC, 2016 and also in terms of Insolvency and Bankruptcy (Liquidation Process) Regulations, 2017. Further in terms of the said Regulations, the Liquidator shall file his report to this Tribunal as mandated therein. 28. The present RP, namely Mr. Vijender Sharma shall act as the liquida....