TaxTMI 
TaxTMI 
2019 (5) TMI 1718
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....for CA-384/ 19. JUDGMENT M.M. KUMAR, PRESIDENT 1. This order shall dispose of C.A. No. 929(PB)/2018 filed by Resolution Professional (for brevity 'RP') under Section 30(6) & 31 of the Insolvency and Bankruptcy Code, 2016 (for brevity 'the Code') read with Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (for brevity 'Regulations, 2016') with the prayer to accept the resolution plan approved by the Committee of Creditors (for brevity 'COC') submitted by HI Resolution Applicant. The resolution plan has been filed by TATA Steel Limited (for brevity 'TSL') in the Corporate Insolvency Resolution Process (for brevity 'CIR Process') in respect of Bhushan Energy Ltd. (for brevity 'the Corporate Debtor'. The consequential prayers have also been made namely (i) to declare that after approval of the Resolution Plan by this Tribunal it would be binding on the company, its creditors, guarantors, members, employees and other stakeholders and thereafter reduction of share capital of the Corporate Debtor as contemplated by Annexure 5 of the Resolutio....
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....to the Corporate Debtor and the ongoing CIR process were provided to potential resolution applicants. The RP prepared an information memorandum in accordance with the provisions of Section 29 of the Code read with Regulations 35 & 36 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016 and uploaded the same on the VDR, for ready reference. There were only two (2) potential resolution applicants who sought access to the VDR, in order to carry out necessary due diligence on the Corporate Debtor. 4. The RP has further disclosed that he appointed Grant Thornton Advisory Private Limited as its financial/ professional advisors ('Professional Advisor') and J. Sagar Associates, Advocates and Solicitors as its legal advisors ('RP's Legal Counsel'). He has further highlighted that in obedience to Regulation 35 of the CIR Regulations and with the assistance of Professional Advisor as well as RP's Legal Counsel, he appointed two registered valuers, namely (i) Rakesh Narula & Company and (ii) RBSA Valuation Advisors LLP to ascertain the liquidation value of the Corporate Debtor. The COC approved the process and evaluation criteria for eva....
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.... voting share); b. State Bank of India (18.19% voting share); c. UCO Bank (13.39% voting share); d. Andhra Bank (12.03% voting share); e. ICICI Bank Limited (11.23% voting share); and f. Axis Bank Limited (6.85% voting share)" In the 7th COC meeting held on 06.08.2018 it was found that TSL is a sole resolution applicant as no other resolution plan was received. In the said meeting the aforesaid resolution plan of TSL was discussed in consultation with members of the COC and the RP. Accordingly, on the recommendation of the COC, TSL was notified as the 'sole resolution applicant' in the CIR Process vide email dated 08.082018 (Annexure A-9). Having been determined as the 'sole resolution applicant', the Advisors, Core Committee and the RP have held extensive negotiations and consultations with the TSL, to improve and clarify its resolution plan. Pursuant to the negotiations, the TSL submitted an amended and restated Resolution Plan on 01.09.2018 after the first one which was submitted on 11.06.2018. 7. In the 9 th COC meeting held on 04.09.2018, the RP intimated to the COC that aforesaid amended and restated Resolutio....
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....he Resolution Professional under the Code. The COC shall continue with its roles and responsibilities, and have protections, as set out in the Code including approving the matters as are being approved during the period prior to the Effective Date; (ii) the board of directors of the Corporate Debtor (and its powers) shall remain suspended until the Closing Date and shall be exercised by the Monitoring Agency. The Monitoring Agency shall be required and entitled to do all such acts, deeds, matters and things as may be necessary, desirable or expedient in order to implement and give effect to the Resolution Plan in accordance with its terms; (iii) The Corporate Debtor and all its facilities shall continue to receive supply of essential supplies, goods and services (as defined under the Code and the CIRP Regulations) on an uninterrupted basis and shall not for any reason be shut down or restricted in its activities in any manner; (iv) The existing shareholders and the current management team of the Corporate Debtor will undertake all such actions and shall do all such acts, deeds and things required by the Monitoring Agency, including executing any and all d....
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.... 15. In the objections filed by the Ex-Promoter of the Corporate Debtor namely Mr. Neeraj Singal it has been submitted that he is not opposing the resolution of the Corporate Debtor, however, he raised three following issues for consideration of this Tribunal those are as under: (A) biased conduct of the Resolution Professional towards the Resolution Applicant; and (B) lower valuation at which the debts of the Company have been resolved, and (C) Tata Steel Ltd. ineligible under Section 29A of the Code. 16. Elaborating the aforesaid three issues it has been submitted that the Corporate Debtor is a group company of Bhushan Steel Ltd. ('BSL') which underwent CIRP and was later on taken over by the TSL. The Corporate Debtor and BSL entered into two Power Purchase Agreements (PPA) dated 29.03.2007 and 26.10.2010 and the terms of supply under both the PPA was upto 2024. TSL in its resolution plan of BSL had sought termination of both the PPAs and the said issue was raised by the BSL before this Tribunal. This Tribunal in its order dated 15.05.2018 while approving the resolution plan of TSL in relation to BSL rejected the submission of BSL. Aggrieved....
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....f 'lower valuation at which the debts of the company have been resolved', it has been submitted that the cancellation of the PPAs was a deliberate act done by TSL to reduce the fair market value of the Corporate Debtor. It is stated that TSL is only offering Rs. 730 Cr. to the Financial Creditors being the sole bidder though in light of setting up of plant of 485 MW capacity of the Corporate Debtor it should essentially require the investment of Rs. 2425 crores. 20. Substantiating the allegations, it has been pointed out that the Resolution Applicant-TSL is ineligible under Section 29A of the Code to submit the Resolution Plan as its fully owned subsidiary namely Tayo Rolls Ltd. who continues to be an undischarged insolvent in light of the order dated 04.10.2018 passed by Hon'ble Appellate Tribunal in the case Mr. Suresh Padmanabhan & Anr. v. Tata Steel Ltd. & Ors. , Company Appeal (AT) (Ins) No. 29 of 2018. REPLY To OBJECTIONS BY THE RESOLUTION APPLICANT 21. Reply to the objections raised by Ex-Promoter has been filed by Resolution Applicant-TSL. It has been urged that the resolution plan has been unanimously approved by the COC with a 100% voting majority and tha....
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....' and the expression 'person' has been defined by Section 3 (23) of the Code to include a company incorporated under the Companies Act, a limited liability partnership etc. Learned counsel has also placed reliance on the literal meaning given to the expression an 'insolvent' by citing the Stroud's Judicial Dictionary of Words and Phrases. Explaining the facts, Dr. U.K. Chaudhary has submitted that an application under Section 10 of the Code was filed before the Kolkata Bench of NCLT being CP (1B) No. 398/2017 by Tayo Rolls Limited on 13.07.2017 admitting that they were unable to discharge their liability/ debt and sought initiation of Insolvency Resolution Process. That petition was dismissed by the NCLT Kolkata Bench on 22.12.2017 and the order was challenged before the Hon'ble NCLAT in Company Appeal (AT) (Ins) No. 29/2018. The plea taken before the Hon'ble National Company Law Appellate Tribunal was that they were unable to pay the debts and the application ought to be admitted. The Appellate Tribunal vide order dated 04.10.2018 observed that the CIR Process was required to be initiated against Tayo Rolls Limited as an event of default has taken place ....
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....s wide gap between the fair value of the Corporate Debtor which is assessed at Rs. 211 ,531.8 lakhs whereas liquidation value is shown to be about Rs. 721 crores. It would show that the lower resolution value of debts of Corporate Debtor has direct impact on the Promoters/ Shareholders of the Corporate Debtor as the liabilities of the Promoters/ Shareholders are directly proportional to the value of debt resolved for the Corporate Debtor. Accordingly, he urged that the resolution plan should not be approved and the application be rejected. 26. Mr. Arun Kathpalia, learned Senior Counsel for the Resolution Professional has supported the averments made in the application and has submitted that the resolution plan has complied with each and every provision of the Code and Regulations. According to the learned counsel a perusal of Form-H (which after giving all the details of various steps taken by the RP, COC and the Resolution Plan Applicant) would make it evident that against the liquidation valuation of 721 crores, the Resolution Plan Applicant has presented a plan offering a sum of Rs. 730 Crores and the resolution plan has been carried with 100% voting share. 27. Mr. Kathpal....
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....dent from the proceedings of 8th COC meeting held on 17.08.2018 (Annexure R-9) wherein future course of action was also discussed. 29. Controverting the allegations of bias against the RP, Mr. Kathpalia has argued that the allegations are wholly without substance. The interdependence between BSL and BEL, could have been commercially plausible for TSL to submit bid for both the entities. The interdependence of both the entities is not a factor which could be controlled by any stake holder including RP/CoC. The RP in fact took steps to ensure that JSW also submit its competing resolution plan keeping in mind the object of maximizing the value of the assets of the Corporate Debtor. The RP treated both the resolution plan applicants TSL & JSW equally and granted equal opportunity to them. He went to the extent of seeking extension of CIR Process period under Section 12 (2) of the Code and approval was accorded by 4th COC. 30. The allegation of lower value has also been vehemently controverted as it is a decision based on commercial wisdom of the COC and the RP does not have any say. The resolution plan has been approved unanimously by the COC after due consideration and negotiati....
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....be an 'undischarged insolvent' and it cannot be extended to include bodies corporate. According to the learned counsel the eligibility of the TSL-Resolution Applicant has been evaluated, upheld and affirmed by the RP as well as by the COC. The contentions of the objector are merely an attempt to push the Corporate Debtor to liquidation to the determinant of its creditors and employees. It is infact a malafide and motivated approach and the objections are liable to be rejected. Explaining the term 'undischarged insolvent' learned counsel has submitted that the Code does not define the expression it has specific meaning in legal parlance and should not be construed by adopting the meaning in common parlance or as defined in dictionaries. In that regard reliance has ben placed on para 22 of the judgment rendered in case of Thampanoor Ravi v. Charupara Ravi, (1999) 8 SCC 74. Referring to the provisions of Provincial Insolvency Act, 1920, learned counsel has argued that the expression 'undischarged insolvent' applies only to an individual i.e., a natural person and not a corporate entity; that too when such an individual is adjudicated and upon adjudication by a ....
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....th an adjudication of being an insolvent. It is an undisputed fact that adjudication is required before someone is conferred an in rem status of an insolvent. Hence a mere filing may not be enough. Reliance again has been placed on the Thampanoor Ravi Case (supra), where the Hon'ble Supreme Court held that in order to be considered an insolvent, the law does not contemplate mere impecuniosity or incapacity to pay one's debt, but in fact mandates an adjudication as an insolvent followed by the finding that it has remained undischarged. The Court further held that as the same was a disqualification imposing determination, a narrow and strict interpretation of the expression should be followed, as opposed to a liberal or expansive interpretation (see Thampanoor Ravi Case (supra), paragraph 18). Learned counsel has placed reliance on para 19 of the judgment in that regard. According to the learned counsel no petition against Tayo Rolls Limited has yet been admitted as is evident from the order dated 26.09.2018 and 04.10.2018 passed by Hon'ble National Company Law Appellate Tribunal and CIR Process would be deemed to have commenced from the date of admission of the application w....
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....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) to (i) (j) has a connected person not eligible under clauses (a) to (i). [Explanation 1].- For the purposes of this clause, the expression connected person" means- any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): [Provided that nothing in clause (iii) of Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor: Provided further that the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corpor....
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....g Corporate Insolvency Resolution Process. 43. Some backdrop facts leading to the admission of a petition against Tayo Rolls Limited which is a Listed Public Non-Governmental Company need to be first set out. C.P. (1B) No. 398/ KB/ 2017 was initially filed by Tayo Rolls Limited itself under Section 10 of the Code and the same was dismissed as not maintainable by Kolkata Bench of NCLT on 22.12.2017. Against the aforesaid order Tayo Rolls Limited filed Company Appeal (AT) (Ins) No. 29/2018. Likewise, another petition under Section 9 of the Code was filed by one Mr. Suresh Narayan Singh on behalf of workers against the Tayo Rolls Limited. That petition was also dismissed vide order dated 03.01.2018 by the Kolkata Bench of NCLT and an appeal was preferred being Company Appeal (AT) (Insolvency) No. 112 of 2018. The said appeal was disposed of and the order of the Adjudicating Authority-NCLT was set aside vide judgment dated 26.09.2018 rendered by the Hon'ble Appellate Tribunal. The matter was remitted back to the Adjudicating Authority-NCLT and the followings directions were issued by the Hon'ble Appellate Tribunal: "In the result, the Adjudicating Authority is directed to a....
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....spect of such a body corporate. The aforesaid proposition has been laid down by Hon'ble the Supreme Court in para 30 in the case of Innoventive Industries Ltd. v. ICICI Bank and Ors. (2018) 1 SCC 407. 47. At the first blush it may appear that HI-applicnat-TSL is not eligible to submit the Resolution Plan. However, this impression is belied on a closer analysis. Mere admission of a petition under Section 9 of the Code may not necessarily leads to a safe conclusion that Toya Rolls Limited is an 'undischarged insolvent'. Firstly, there is no final adjudication with regard to the status of Tayo Rolls Ltd., as to whether it is 'undischarged insolvent'. For the aforesaid proposition we may place reliance on the following observations made by Hon'ble Supreme Court in paras 18 & 20 of the judgment rendered in the case of Thampanoor Ravi (supra):- "18 Even though Article 191 (1) of the Constitution does not include declaration by an insolvency court, but by reason of expression used that he is an undischarged insolvent it clearly indicates that he could become discharged only in terms of the provisions of the insolvency Acts and not otherwise. It is implicit in t....
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....0 of the Code could be brought to an end by an amicable settlement between the parties before admission and Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 can be invoked. The issues can be resolved even by submitting a proposal by the Ex.-promoters of the Tayo Rolls Limited under Section 12A of the Code and the same can be accepted by the Committee of Creditors. Even at the stage of liquidation Tayo Rolls Limited could be sold as 'going concern' as provided by Regulation 32(f) of the Liquidation Process Regulations, 2016. After all the object of the Code is resolution and not the liquidation. Hon'ble the Supreme Court highlighted the issue in the case of ArceZormittaZ India Private Limited (supra). In para 83, the following pertinent observations have been made to show how resolution is more significant:- ".................................... the only reasonable construction of the Code is the balance to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debtor otherwise being put into liquidation. We must not forget that the corporate debtor consists of several employee....
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....not be accepted as Section 29A itself figures in part Il which deals with insolvency resolution and liquidation for corporate persons. It is further pertinent to notice that Section 29A of the Code was incorporated by amendment w.e.f. 23.11.2017 and the Parliament was fully aware of the provisions of Section 79 (3) of the Code which deals with expression 'bankrupt' which is made the basis for arguments that only individual could be undischarged insolvent not a Corporate entity. Even the expression 'person' used in Section 29A of the Code has been defined to include a body corporate (company) by virtue of Section 3 (23) of the Code. An adjudication in respect of the corporate debtor to conclude that it is 'undischarged insolvent' has to be entrusted to a court of competent jurisdiction. We are unable to persuade ourselves that the adjudicating authority-NCLT has been vested with the jurisdiction to declare a body corporate as 'undischarged insolvent'. Such a findings lead to a very serious prejudice for a body corporate and its 'Directors'. Even in the Companies Act, 2013 there is complete absence of any provision which provide that on admi....
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....e corporate debtor, its creditors, guarantors, members, employees and other stakeholders. The reduction of share capital of the corporate debtor as contemplated by the resolution plan (Annexure -5) would take effect without any further deed or act on the part of the corporate debtor and/or its constitutes. d) We also approve the appointment of Monitoring Agency from the date of this order until the closing date. Accordingly, the COC and the RP would continue as Monitoring Agency. e) The power of the Board of Directors of the Corporate Debtor shall remain suspended until the closing date. f) The reliefs sought under Section 10.2 of the resolution plan cannot be regarded as condition precedent for approval of the resolution plan. Various reliefs are sought from the statutory authorities under the Income Tax Act, 1961, Ministry of Corporate Affairs, Department of Registration and Stamps, Reserve Bank of India and others have been sought. We do not feel persuaded to accept the prayer made in the resolution plan yet the resolution plan applicant may file appropriate applications before the competent authorities which would be considered in accordance with the ....