TaxTMI 
TaxTMI 
2018 (9) TMI 1833
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....RDER 1. la 125 OF 2018 is filed by the Resolution 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. ....
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....pplicants who submitted their resolution plans were:- (i) Maharashtra Seamless 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 47,31,9....
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....tted by MSL, the same was approved by the COC considering its feasibility and viability for the Corporate Debtor in accordance with Section 30(4) of the Code. 4. Counters are filed by Respondent No.l (Indian Bank) and Respondent No. 3 (Suspended Director) Mr. P. Venkatesh. 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 valuat....
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....t the Code. (10) The Respondent No. 1 would further contend that they have not signed the voting form regarding appointment of M/S Brahmayya & Co as Facilitator as it involves conflict of interest and they are all party to all the proceedings of CIRP. It is the case of Respondent No. I that when the entire information and data 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 ....
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.... be such a drastic change in the fair value/liquidation value obtained by the lenders on 29.09.2017 and the IRP/RP in September/November 2017. (16) Respondent No.3 would further contend that Information memorandum did not contain details of Corporate Guarantee given by UMW Holdings Berhad (holding Company of UMW India ventures (L) Ltd, the shareholder of the Corporate Debtor) to the Loan/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 ....
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....eceived notice to attend COC meeting but they were asked to excuse themselves during specific agenda items were discussed. He also relied on Hon'ble Appellate Tribunal observations in the matter of Rajputana Properties Limited Vs Ultra Tech Cement Limited & Others, wherein Hon'ble Appellate Tribunal held that "COC while approving or rejecting one or other Resolution Plan should follow such procedure which is transparent. 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. ....
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....W Holdings to Deutsche Bank International (Asia) Limited. (6) RP would further clarify that the value of CCPS has not been claimed by DB International (Asia) Limited in its proof of claim and the allegation that the value of CCPS has been added to the bond amount claimed by DB International (Asia) Limited is incorrect. (7) It is further submitted by the Resolution Professional that as per Section 25 (2) (d) of the Code, the Resolution Professional is duly empowered to engage 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....
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....hareholders were called upon to put forth their concerns. Since there was no confirmation of participation from the shareholders or the suspended Directors, the meeting was cancelled. Thus, Resolution Professional prayed in the best interest of the Corporate Debtor and its stakeholders the Application may be allowed since the Resolution Plan submitted to this Tribunal for approval, has been approved by the COC and the stand taken by the 3rd Respondent in his counter does not merit indulgence of this Tribunal. 5. The Applicant is Resolution 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....
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.... 9. On the other hand Counsel appearing for 3rd Respondent/ Director (suspended Board) of the Corporate Debtor would contend that there are so many deviations committed by the Applicant. The Learned Counsel would contend that Applicant/RP has not followed mandatory provisions of the Code and Regulations. Counsel contended there is no Fair Value ascertainment for the Corporate Debtor Company. The details of Fair Value are not furnished by the Applicant. The reports of the Valuation Engineers are not furnished. The Learned Counsel contended 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....
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....rporate debtor; (b) if in the opinion of the interim resolution professional or the resolution professional, as the case may be, the two estimates are significantly different, he may appoint another registered valuer who shall submit an estimate computed in the same manner; and (c) the average of the two closest estimates shall be considered the liquidation value. (2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the liquidation value to every member of the committee 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....
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.... 35. The Regulation say, the necessity for 3rd Valuation arises where there is a significant difference in the valuation reports of the first two valuers appointed by IRP/RP. Interestingly, the 2nd valuation report was not before the Resolution Professional. However it is stated 2nd valuation report was directly sent to Indian Bank. But minutes go to show the 2nd valuation was not at all looked into. On the other hand, resolution was passed for appointing 3rd valuer. Regulation 35 says that valuation by the 3rd valuer is required only when there is significant difference between the two 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 m....
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....he Learned Counsel for R-3 / Director (Suspended Board) would contend that the Resolution Professional has taken objection in CA 89 of 2018 that there was confidentiality to be maintained about valuation. The 3rd Respondent had no information about valuation as the same was under confidentiality. Further, since Resolution Plan is being coming for approval by the Adjudicating Authority now it has come to the notice that valuation was not done in accordance with Regulation 35. Counsel for Respondent-3 contended that the Director had no access to the valuation because of confidentiality. 17. 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 Regul....
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....ought. According to the Resolution Professional, the third valuation was sought as first valuer has not valued certain items of Corporate Debtor like inventory, trade receivables, deposits and advances. If such is the case, the 3rd valuation should have been higher than the first valuation or even it should have been higher than the 2nd valuation. On the other hand, the 3rd valuation is far less than the first two valuations, even though 3rd valuation is sought on the ground certain items of Corporate Debtor Company were not valued by the first valuer. The difference between first valuation and 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 th....
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.... on the Resolution Plan. This IA 282 of 2018 is also taken up along with this Application for disposal. The contention of Respondent No. 3 who is also Applicant in IA 282 of 2018 that he was not given an opportunity to express his views oh the Resolution Plan. In this connection the Counsel for R-3 has relied upon the minutes of 7th COC dated 13.04.3018 and 8th COC meeting dated 20.04.2018. The contention of 3rd Respondent that the last COC meeting was held on 20.04.2018 in which Resolution Plan was finalized. The contention of 3rd Respondent that Resolution Professional sent a notice to the Director (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....
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.... consider, evaluate and approve the resolution plan. This is a very crucial and important meeting. This is the last COC meeting. In this meeting the resolution plan given by MSL was approved. It is not as if the 8th meeting was convened only for the purpose of voting on the resolution plan given by MSL. The agenda of the meeting discloses that meeting was called to consider, evaluate and approve the resolution plan submitted by Resolution Applicant. The Director (suspended Board) should have been permitted to attend the 8th COC meeting and to express his views. The meeting also discussed the valuation 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 t....
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....tion Plan is to be reverted back to the COC. 26. The Learned Counsel for Respondent No.3 mainly relied on the decision of Hon'ble NCLAT in Rajputana Properties Limited Vs Ultra Tech Cement Limited & Others and contended the Resolution Professional should have allowed the Director (Suspended Board) to attend the meeting. The Counsel contended, there is no doubt COC in its wisdom either to accept or reject the Resolution Plan. It is purely in the domain of COC to consider the viability of the Resolution Plan. However, COC has to allow the Director (Suspended Board) being a participant to express his 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 Resolu....
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....a that material is placed to come to conclusion that Respondent No. 3 was not allowed to attend the 8th COC meeting held on 20.04.2018 where Resolution Plan of MSL was approved. The meeting was not strictly convened for the purpose of voting. The Agenda of 8th COC meeting provides for consideration of Resolution Plan. Therefore, the notice issued by Resolution Professional for 8th COC meeting with appended note is not in accordance with Section 24 (3) (b). So, in the light of my discussion, the Resolution Plan filed before the Adjudicating Authority can not be approved since opportunity is not given to the 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 accord....
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....or has obtained valuation of the assets of the Corporate Debtor prior to commencement of CIRP Process. The valuation given by SBI CAP, Security Trustee of Deutsche Bank, gave valuation certificate and valued the assets of Corporate Debtor at Rs. 1265.58 crores. The contention of the Learned Counsel, post admission of the Petition, the IRP appointed two valuers in pursuance of Regulation 35 who have valued the assets of the Corporate Debtor Company and gave Fair Value and Liquidation value. 30. The contention of the Learned Counsel for Indian Bank, the valuation for the Corporate Debtor Company prior to admission 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....
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.... valuer but by virtue of Rule 11 of Companies (Registered Valuers & Valuation) Amendment Rules 2018, it is authorised to assess the valuation. 33. Regulation 35 no doubt provides that average of two closet valuations be taken for determining the liquidation value. There is no dispute regarding valuation arrived at by each of the valuers. The IRP appointed two Registered valuers. The first Registered valuer P. Madhu valued the assets of Corporate Debtor at Rs. 681.12 crores. The 2nd Registered Valuer Mr. K. Vijay Bhaskar Reddy valued the assets of Corporate Debtor at Rs. 513.85 crores. The difference between the 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 crore....
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....termined Liquidation Value by taking into account the average of first and second valuations, instead of taking the average of second and third valuations for slight marginal difference of Rs. 5.42 crores because the difference in the Liquidation value between first and second on one hand and between second and third on the other hand is Rs. 164.57 crores. Therefore, it is a fit case to direct the Resolution Professional to re- determine the Liquidation Value by taking into consideration the valuation reports of 1st and 2nd valuers i.e. valuation reports furnished by the Registered Valuers P. Madhu and K.Vijay Bhaskar 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 differenc....
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....on Professional' to complete the CIRP. (v) If the CIRP is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon'ble Supreme Court and CIRP is restored. (vi) Any other circumstances which justifies exclusion of certain period. It is clear in ground No. (vi), the Adjudicating Authority can exclude certain period for the purpose of counting total period of CIRP is circumstances justify such exclusion. In this case, Resolution Plan of MSL is ordered to be placed before COC for consideration after redetermination of Liquidation Value. Further, in view of re-determination of liquidation value 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 vie....