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2018 (9) TMI 1833
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....esolution Professional (RP) under Section 30 (6) and Sec.31 of the Insolvency and Bankruptcy Code, 2016 R/w Regulation 39 of Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (herein after referred to as Regulations, 2016) seeking approval of the Resolution Plan. 2. IA No. 282 of 2018 is filed by Respondent No. 3. The averments made in IA 282 of 2018 are similar to the averments in the counter filed by the same Director being Respondent No.3 in IA 125 of 2018. The prayer of Director in IA 282 of 2018 is to reject the Resolution Plan and to permit him to participate in the COC meeting whenever Resolution Plan comes up for discussion. So this Application can be decided along with Application filed by the Resolution Professional. So common order is passed in these two Applications. 3. The averments made in brief in IA 125 of 2018 are: (1) This Tribunal vide order dated 12.06.2017 admitted the Petition bearing cp (1B) No. 47/7/HDB/2017 filed by Indian Bank (Financial Creditor) and vide order dated 20.07.2017 passed an order of moratorium under Section 14 of the Code. (2) At the first instance, this Adjudicating Author....
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....s Limited (ii) Mertex UK Limited (iii) Ratnamani Pipes and Steel Private Limited along with Kirtanlal Steel Private Limited (iv) Area Projects Consultants Private Limited (7) It is submitted that the RP had been updating the list of creditors from time to time and had uploaded the same on the website of the Corporate Debtor on 15/11/2017, 10/12/2017, 05/01/2018 and lastly on 20/02/2018. The latest list is as follows . (a) List of Financial Creditors S. No. Name Of the Financial Creditor Amount Claimed Amount Verified Security Interest 1 DB International (Asia) Limited 13,91,72,01,404 13,91,72,01,404 1006,50,00,000 2 Deutsche Bank AG, Singapore 259,86,56,081 259,86,56,081 392,86,25,100 3 Indian Bank 245,76,95,828 244,58,20,661 195,00,00,000 4 UMW Holdings Berhad 110,60,63,753 110,60,63,753 - 5 UMW India Ventures (L) Ltd 49,60,11,783 23,78,24,268 - 6 UMW Corporation SDN BHD 2,25,83,972 2,25,83,972 - 7 UMW Oilfield International (L) Ltd 47,31,912 - - It is submitted that DB International (Asia) Limited, Deutsche Bank AG, Singapore and Indian Bank are members of the COC having voting rights and other financial creditors m....
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....esh. Reply 'counter by Respondent No.1 (1) Respondent No. 1 would contend that it is the case of Resolution Professional that he has noticed substantial differences in the two estimates of value, valuation methodologies and principles between the two value's appointed by IRP and therefore, the RP appointed the third valuer. (2) Respondent No. l/lndian Bank would contend that IRP already obtained valuation reports of Mr. K. Vijaybhaskar Reddy and M/S Intech for the fixed and current asset valuation and the fee claimed by the first two valuers was Rs. 2.50 lakhs only per assignment. However the RP engaged the services of the third valuer for Rs. 23.65 lakhs which is 10 times higher than the valuation of the previous valuers. (3) It is the case of Respondent No. 1/lndian Bank that they objected for the third valuation stating that Adjudicating Authority needs only two valuations to arrive at the Liquidation value and the same was presented to Respondent No.l in the COC meeting held on 04.04.2018. (4) It is the case of Respondent NO. I that even in the third valuation report there is more substantial differences between the third valuation and the first two valua....
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....of the Corporate Debtor and CIRP are not provided even to the COC before the stipulated deadline under the cover of confidentiality, it is not understood how the entire CIRP proceedings and information was known to M/S Brahmayya & Co. (11) It is contended that in the last three COC meetings the Financial Creditor/lndian Bank had been asking the authorisized representative of the Bank and also Resolution Professional whether Corporate Guarantee is available to the bonds issue of DB but the same is not yet clarified by the RP. (12) It is also contended that as per Financial Statements of UMW Holdings Malaysia, provision was made towards contingent liability for the Financial years 2016 & 2017 for the corporate guarantee to the tune of RM. 899 million (equivalent to 1400 crores). It is thus clear that Deutsche Bank is having Corporate Guarantee of UMW holdings, Malaysia for the NCDs of Rs. 1006 crore and the same is acknowledged by UMW by providing RM 899 million which is reflected in their balance sheets. It is the contention of Indian Bank to reduce the claim to the extent of NCDs or share the amount to be received, at the same share of 13%. Counter by Respondent No.3/Suspe....
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....oan/Debt of Deutsche Bank who has 86% voting share in the COC as per Regulation 36(2) of Regulations, 2016. It is the case of Respondent NO. 3 that Resolution Professional should have obtained necessary confirmation from Deutsche Bank which is the lender and also the recipient of the Corporate Guarantee from UMW and comply with Regulations, 2016 and that CIRP process was conducted in deviation of IBC to benefit MSL and therefore, the Resolution Plan to be set aside. (17) Respondent No.3 would further contend that Resolution Professional has treated Compulsory Convertible Preference Shares (CCPS) worth Rs. 309 crores which is equity in nature as debt and included it in the claims statement, to be excluded in the claim statement. (18) It is the case of Respondent No. 3 that DB International (Asia) Limited is the lender for the Bonds. The CCPS came from DB Hong Kong. The RP has not brought this fact while verifying the claims and added the CCPS to the Bond to arrive at a higher voting share, ignoring the fact the CCPS was invested by DB Hong Kong and it is in the nature of equity and cannot be considered as a debt. (19) Respondent No.3 would further contend that RP has totall....
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.... Those who are watching the proceedings such as (suspended) Board of Directors or its Partners, Operational Creditors or its representatives and the Resolution Applicant(s) are not mere spectator but may express their views to the COC for coming to a conclusion in one or other way". (23) It is the case of Respondent NO.3 that no reasons were provided/recorded by the COC for accepting or rejecting all the Resolution Plans received by the RP, which is against the Code. (24) Respondent No. 3 contends that MSL (Resolution Applicant) informed the stock exchanges, NSE & BSE immediately after COC meeting held on 20.04.2018 that they are the successful bidder of USTPL, even before the Resolution Plan is approved by the Adjudicating Authority. (25) Respondent No.3 further contends that sources of funds for payment of Resolution Plan amount which HDFC Bank letter dated 30.03.2018 cannot be considered as confirming funding requirement. Hence, prays this tribunal to dismiss the Application and set aside the Resolution Plan. 5. A rejoinder is filed by Resolution Professional/AppIicant to the reply / objections filed by Respondent No.3 (1) Applicant would contend Respondent No.3 at....
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....gage professional services for the purpose of conducting the CIRP. The same was also informed to the COC in the meeting held on 10.11.2017. (8) Resolution Professional further stated that M/S Brahmayya & Co was appointed as Resolution Applicant Facilitator after the same was discussed in three consecutive meetings of the COC. Therefore, the allegations of conflict of interest is untenable. (9) It is further submitted in the 7th, meeting of COC , the plan submitted by Area Projects was deliberated in the presence of its representative. Since no satisfactory answers were provided by the representatives of Area Projects and multifarious inconsistencies noted, the same was rejected by the COC. Further, majority of COC had clearly set out the reasons for rejecting the Resolution Plan submitted by Area Projects Consultants Private Limited. (10) It is averred by Resolution Professional that MSL (Resolution Applicant) has stated that the upfront payment shall be made within 30 days of order of this Tribunal. All the Resolution Plans were tabled before the COC and COC had taken decision in considering and approving most viable Resolution Plan. The letter issued by HDFC Bank reflect....
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....lution Professional. I have heard Counsel appearing for Resolution Professional. I have heard the Counsel appearing for 1st Respondent/Financial creditor and also the counsel appearing for 3rd Respondent who is the Director (suspended Board) of Corporate Debtor. 6. The Application is filed by Applicant/Resolution Professional under Section 30 & 31 of IBC, 2016, with a prayer for approval of Resolution Plan submitted by Resolution Applicant i.e. Maharashtra Seamless Limited (MSL). It is the case of Applicant that the members of COC having voting share of 86% have approved the Resolution Plan of MSL in the 8th COC meeting held on 20.04.2018. However, 1st Respondent/ Financial Creditor dissented and voted in favour of other Resolution Applicant i.e. Area Projects Consultants Private Limited. 7. It is the case of Applicant that Resolution Plan meets all the requirements of Law. It is the case of Applicant that members of COC with majority voting share considered the Resolution Plan as feasible and viable and therefore approved the same. It is the case of Learned Counsel for Applicant that it is in the wisdom of COC in approving the resolution plan and that 3rd Respondent, Director ....
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.... Regulation 35 of Regulations, 2016 is not followed in ascertaining the Liquidation Value of the Corporate Debtor. The contention of the Learned Counsel there is total deviation of Regulation 35 of Regulations, 2016 in ascertaining the Liquidation Value for the Corporate Debtor. 10. The next contention of the Learned Counsel that 3rd Respondent / Director (suspended Board) was not able to attend the COC meetings as there is a note appended to the notice issued that 3rd Respondent to excuse himself from attending the COC meetings. Counsel contended issuing notice to the Director not to attend COC is in contravention of Section 24 (3) (b) of the Code. The Counsel relied on the decision of Hon'ble NCLAT in Rajputana Properties Limited Vs Ultra Tech Cement Limited & Others, wherein Hon'ble Appellate Tribunal has observed that Directors (suspended Board) or its Partners, Operational Creditors or its representatives and the Resolution Applicant(s) are not mere spectators but to associate in the discussion and to suggest their views or opinion for consideration. Now the contention of the Learned Counsel in the 7th COC meeting, the Director was asked to leave the meeting when the....
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....in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the liquidation value and shall not use such value to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29. (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and, the liquidation value.".] 12. The question whether Liquidation Value in this case was ascertained in accordance with Regulation 35. If it is not done what type of direction to be given for the same. It is an admitted fact that prior to appointment of Applicant as Resolution Professional, Mr. Ahalada Rao Vummenthala was appointed as IRP. It is not in dispute that IRP has appointed two registered valuers for ascertaining the value of the assets of the Corporate Debtor. The Applicant became Resolution Professional on 10.10.2017 by order of this Tribunal. What is clear from the minutes of 2nd COC meeting that only one valuation report was received and 2nd Valuation report was not placed before the Applicant or before the COC. The second valuation report was state....
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....o valuations. Going for 3rd valuation without examining the first' two valuation reports is not in accordance with Regulation 35. Interestingly, the minutes goes to show that the 3rd valuation is sought not on the ground of significant difference between two valuations but on the grounds that first valuation report did not properly value the assets of the Corporate Debtor. In other words first valuer has not included the value of certain items of Corporate Debtor such as inventory, trade receivables, deposits and advances. RP cannot go for 3rd valuation on this ground under Regulation 35. The RP must find difference which must be significant between the two valuations and then go for 3rd valuation. 14. The Indian Bank/FinanciaI Creditor has raised objections for 3rd valuation and requested Resolution Professional to consolidate two valuations and submit the amended reports after assessing the valuation of left out items of the Corporate Debtor. 15. The contention of the Learned Counsel for 3rd Respondent/Director (suspended Board), the Resolution Professional has taken into consideration the valuation of the 3rd valuer. Regulation 35 says the valuation is to be done by Regi....
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.... It is true Director of Corporate Debtor Company had filed CA 89/2018 questioning among others the procedure adopted for valuation. The Resolution Professional took objection about maintainability of the said Application by the Director (suspended Board) on behalf of Corporate Debtor Company and further took objection regarding liquidation value on the ground of confidentiality. The Resolution Professional had pleaded that Liquidation Value was ascertained in terms of Regulation 35. So it was observed that Resolution Professional had proceeded for ascertaining liquidation value in terms of Regulation 35. Now the Resolution Plan has come up for approval. The minutes of 2nd COC meeting was also placed on record. The Resolution Professional has furnished the valuation given by three Valuers. In the earlier Application such an information cannot be furnished to the Tribunal on the grounds of confidentiality. The limited question for consideration in the earlier Application whether procedure prescribed in Regulation 35 was followed for ascertaining Liquidation Value. valuers were not time. Earlier in informed that he three valuations. However, the values given by the three before the Ad....
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....d 2nd valuation over the assets of Corporate Debtor is Rs. 167.27 crores. The difference between second valuation and third valuation is Rs. 161.85 crores. The Resolution professional arrived at the liquidation value by taking into account the average of two closet valuations which are - 2nd valuation at Rs. 513.85 crores and the 3rd valuation at Rs. 352 crores. The average valuation of the 2nd and 3rd valuation is Rs. 432.92 crores, whereas the average valuation between 1st and 2nd valuations is Rs. 597 crores. 20. The contention of the Learned Counsel COC accepted the liquidation value therefore the 3rd Respondent cannot question the same. It is true COC has accepted the Liquidation value arrived at by taking into account average of 2nd and However, the 3rd Respondent being a 3rd valuations. participant since he is the Director (suspended Board) is entitled to raise the same before the COC when Resolution Plan came up for discussion. The grievance of the 3rd Respondent that he was not allowed to participate in the COC meeting to express his views and that the Resolution Professional issued notice directing him not to participate in the meeting. The contention of the Counsel for....
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....ector (suspended Board) with a note below that "Director to excuse themselves from the meeting as the meeting is convened to discuss and vote on the Resolution Plan". So the contention of Respondent No.3 that Resolution Professional wanted the absence of R-3/Director (suspended Board) at 8th COC meeting. In this connection, Learned Counsel for R-3 relied on the decision of Hon'ble NCLAT in Rajputana Properties Limited Vs Ultra Tech Cement Limited & Others. The Respondent No.3 has prayed in IA No.2820f 2018 for setting aside the resolution plan and for giving an opportunity to participate in the meeting to consider the resolution plan and to take the views and suggestions of the 3rd Respondent at the time of consideration of the resolution plan. The contention of 3rd Respondent that he was not allowed to participate in the 8th COC meeting and the note to the notice clearly directed the Directors not to attend the meeting. The Resolution Professional has relied upon copy of notice issued for 7th and 8th COC meeting. The same are filed along with written submission marked as Annexure-B page nos 20-31. Copy of notice is at page 21 issued to the Directors and to the members of COC .....
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....on reports. However, the notice issued by Resolution Professional for the meetings is filed by RP along with written submissions. Notice Form is at page No. 28 of written submissions. The note to notice is as follows: Note: Since, the 8th COC meeting, considers evaluation and approval of resolution plans, owing to confidentiality, members of suspended Board or Director, being related parties/connected persons of the Corporate Debtor, may be requested to excuse themselves for the entire proceedings of the 8th COC. 24. It is very interesting to note Resolution Professional directed the members of Suspended Board to excuse themselves in the entire proceedings of 8th COC. What is clear from the note appended to the notice that members of suspended Board to excuse themselves for the entire proceedings. One of the agenda of the meeting A-5 is to consider and evaluate the Resolution Plan submitted by Resolution Applicants. Can a Director be asked not to attend this meeting? Certainly not. He should have been invited for the meeting. Giving directions to the Directors of the suspended board not to attend the entire meeting is clearly in violation of Section 24 (3) (b) of the Code. For ....
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....views and suggestions and to offer comments over the Resolution Plan. The COC has to give reasons why the suggestions/ views were not considered. The minutes should have contained the views and suggestions of the participants / Director (Suspended Board) and the reasons given by the COC for not accepting the views and suggestions. The contention of the Learned Counsel in the 7th COC meeting held on 13.04.2018, when Agenda Item-5 came up for discussion, the Respondent No.3 was directed to leave the COC meeting. The Director was unable to express his views and suggestions when Resolution Plans came up for discussion. The Counsel contended Respondent No. 3 wrote in the attendance sheet that he was not allowed to participate at the time when Resolution plan came up for discussion/ scrutiny. The Learned Counsel contended that the Counsel appearing for Indian Bank has given Affidavit to the same effect that Resolution Professional did not allow the Director (Suspended Board)/R-3 to express his views and suggestions if any on the Resolution Plans. Thus, the contention of the Learned Counsel that Resolution professional and COC failed to act according to the provisions of Section 24 (3)(b)....
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.... Board of Directors (Suspended Board) particularly to Respondent No. 3 to express views or give suggestions. Therefore, the resolution plan is to be sent back to the COC for re-consideration after giving opportunity to suspended Board of Directors, particularly to Respondent No.3 to permit him to offer his views and give suggestions to be recorded in the minutes and the reasons of COC is also to be noted in the minutes. For this purpose Resolution Professional is directed to convene the COC meeting. 28. The contention of Respondent NO.3 that constitution of COC is not in accordance with the provisions of the Code. The Learned Counsel would contend that UMWH, Malaysia gave guarantee in respect of the loan sanctioned to the Corporate Debtor. The Deutsche Bank (AG) Bangalore recalled the guarantee and as a result UMWH cleared the loan liability. The contention of the Learned Counsel is that the COC has not been properly constituted by the Resolution Professional.' The contention of the Counsel for Resolution Professional that Respondent No.3 cannot raise same objection which was once decided by this Tribunal and it operates as res judicata holding that there was no guarantee giv....
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....ission was done by H. Jayasurya & Associates , Banglalore in respect of assets of Corporate Debtor. This was sometime prior to valuation by Duff & Phelps. The contention of the Counsel for Indian Bank there is lot of difference in respect of valuations between the valuation done by SBI CAP Security Trustee of Deutsche Bank and Duff & Phelps and the gap between the two valuations is around two years and six months, but difference between two valuations is very wide. The contention of the Learned Counsel, the Liquidation valuations is not in accordance with Regulation 35 and that Indian Bank being the Financial Creditor in the COC raised objection for going for 3rd Valuation. 31. On the other hand Learned Counsel for Resolution Professional contended that it was unanimous decision of COC to go for 3rd valuation. The Learned Counsel for Resolution Professional pointed out that it is not open to the Indian Bank to question Liquidation value as Indian Bank voted in favour of Resolution Plan given for Rs. 145 crores as against the higher value quoted by Resolution Applicant/MSL. 32. The Counsel for Respondent No. 3 also raised same objection regarding ascertaining liquidation value. ....
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....he two valuations is Rs. 167.27 crores. The third valuer valued the assets at Rs. 353 crores. Thus, the three valuers have given three different values of the assets of the Corporate Debtor. The difference between the 2nd and 3rd valuations is around Rs. 161.85 crores. There is a slight difference of Rs. 5.42 crores between the valuations of first and second on one hand and the second and third valuations on the other hand. In other words to make it clear, the difference between first and Second valuations is Rs. 167.27 crores and between second and third is Rs. 161.85 crores. The difference between them is Rs. 5.42 crores. Now, the Resolution Professional had taken into consideration for fixing Liquidation value, the second and the third valuations on the ground they are two closet valuations. I already stated, the difference between first and second valuations and second and third valuations is Rs. 5.42 crores. If average value is taken, then the difference between first and second valuations and second and third valuations is Rs. 164.57 crores. To make it clear, the average valuation between first and second valuations reports for determining liquidation value comes to Rs. 597.4....
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....haskar Reddy. The Resolution Plan submitted by MSL/Resolution Applicant shall be examined or reconsidered by the COC in the light of redetermination of Liquidation Value. 34. In this connection, Learned Counsel for Resolution Professional has relied on the decisions of NCLT Mumbai in Monnet Ispat & Energy Limited in MA 346/2018 in CP (1B) 1139 (MB)/2017 and also NCLT Chandigarh in Amtek Auto Limited in CP (1B) No.42/chd/Hry/2017 dated 25.07.2018. The contention of the Learned Counsel that NCLT Mumbai Bench approved the Resolution Plan even though there is a wide difference in the Fair Value and Liquidation Value. The Learned Counsel for Resolution Professional relied on para (6) of the judgement. It is held in the decision cited above that even though there is difference between Fair Value and Liquidation Value, COC approved the Resolution Plan considering upfront payment coming from Resolution Applicant. Whereas in the case before me it is not the difference between the Fair Value and Liquidation Value which is for consideration. Therefore, decision cited has no application of the facts to this case. The second decision cited is of Hon'ble NCLT Chandigarh. The contention of ....
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....alue and on the other grounds that Directors of the Suspended Board were not allowed to participate in the discussion in the 7th & 8th COC meetings. Therefore, the Resolution Plans which were found to be qualified along with the Resolution Plan submitted by MSL to be placed before the COC again for consideration and Directors (Suspended Board) be permitted at the time that time when Resolution Plans come up for discussion and they be allowed to express their views and suggestions and the same to be recorded in the minutes along with views of coc. 36. For this purpose, Resolution Professional has to convene the COC to comply the directions of the Tribunal. The last date after extension for submission of Resolution Plan was 30.03.2018. Thereafter 6th COC meeting was held on 04.04.2018, the 7th COC meeting was held on 13.04.2018 and 8th COC meeting held on 20.04.2018. The Resolution Plan came up for scrutiny in 7th & 8th COC meeting. For this a minimum of 30 days is required for the COC and Resolution Professional to comply the direction. Therefore, 30 days is required to be excluded from the CIRP period of 270 days with effect from today so that the entire process can be completed.....