TaxTMI 
TaxTMI 
2020 (2) TMI 385
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....r Section 30(6) of the I&B Code, seeking orders for approval of the resolution plan for the Corporate Debtor submitted by the consortium led by Patanjali Ayurved Limited as approved by the members of Committee of Creditors (CoC). 3. After the initiation of the CIRP, the Interim Resolution Professional published Public Announcement on 21.12.2017 calling upon the creditors of the Corporate Debtor for submission of claims by 29.12.2017. The RP under review and verification of the proof of claims filed by creditors of the Corporate Debtor constituted CoC by Section 21 of the Code. The first CoC meeting was held on 12.1.2018 wherein the IRP was appointed as RP. 4. The 2ndCoC meeting was held on 1.2.2018, wherein the draft of the Expression of Interest (EOI) was approved by CoC. The publication was made on 5.2.2018 for inviting EOI. Under such publication, 28 EOIs were received. Out of 28, two prospective resolution applicants were rejected as one was disqualified under Section 29A of the Code (related party) and the other was a financial investor who did not meet the criteria in the EOI evaluation parameters. Further, non-disclosure agreements were executed with potential resoluti....
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....riod for a further period of 90 days, as per Section 12 of the Code. This Bench, vide its order dated 8.6.2018 extended the CIRP period by further 90 days. 11. In the 7thCoC meeting held on 22.5.2018, the resolution plans submitted by AWL and Patanjali Consortium was discussed by the representatives of Resolution Applicants with CoC, and the resolution applicants were requested to submit a final cured plan by 30.5.2018. 12. The RP has appointed T.R. Chadha & Co. LLP and GAA Advisory as the Registered Valuers to determine the liquidation value of the Corporate Debtor on 21.12.2017. The average liquidation value submitted by the Registered valuers is Rs. 2391.16 crores, and the Fair value submitted by the Registered Valuers is Rs. 4161.86 crores. 13. Under discussion held during the 9thCoC meeting held on 1.6.2018, the applicant circulated the Process for Negotiation dated 2.6.2018 to AWL and Patanjali Consortium to improve certain commercial parameters of their resolution plans. AWL and Patanjali Consortium submitted their unconditional confirmation to the Process for Negotiation on 8.6.2018. After following the negotiation process set out in the Process for Negotiation, AW....
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....ch, vide its order dated 7.2.2019, dismissed the MA 926/2018 as withdrawn. 18. After the conclusion of the 23rdCoC meeting, it was decided and agreed by the members to put the resolution plan of Patanjali Consortium submitted on 2.5.2018 to e-vote commencing from 8 p.m. on 26.4.2019 till 8.00 p.m. on 30.4.2019. In the e-voting concluded on 30.4.2019, the CoC approved the resolution plan submitted by Consortium of Patanjali with a vote share of 96.95%. Salient features of the Resolution Plan 19. It is stated in the resolution plan that as part of this Plan, the Resolution Applicant is required to infuse/bring in an aggregate amount of Rs. 4350 (Four thousand three hundred and fifty only) crores in SPV which shall be amalgamated with and into the Corporate Debtor on and from the Closing Date. The aggregate amount to be infused shall be Rs. Four thousand three hundred fifty crores, out of which Rs. 4,235 crores shall be towards a settlement to be provided to each of the class of creditors & stakeholders and the remaining amount of Rs. 115 (One hundred fifteen crores) shall be towards equity infusion for improving operations of the Corporate Debtor. A snapshot of the sources o....
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....in an escrow account to be opened and operated by the Monitoring Agent specifically for CIRP, an aggregate amount of Rs. Four Thousand Three Hundred Fifty crores in SPV which shall get amalgamated with the Corporate Debtor on and from the Closing Date. It is stated that the maximum offer under this Plan to settle the claims of the creditors by the Resolution Applicant is capped at Rs. 4,235 crores and the remaining Rs. One Hundred Fifteen crores are meant for improving the operations of the Corporate Debtor. It will be the responsibility of the Monitoring Committee to distribute the proposed amount to various creditors in terms of the distribution mechanism. 21. The Resolution Plan further provides the clause that in full and final settlement of the admitted claims of the stakeholders, the following payments are proposed on or around the Closing Date: Sl. No. Name/Category Verified Claims (Rs. Crores) Proposed Payment (Rs. Crores ) Payment Structure 1 Corporate Insolvency Resolution Process Cost - Actuals as approved by the CoC (i) Insolvency Resolution Process costs to be paid in full and in priority to any Claim of any other creditor as on the Clo....
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....y by the Corporate Debtor, in relation to any period prior to the Effective Date or on acquisition of control of the Corporate Debtor by the Resolution Applicant through the SPV proposed to stand extinguished upon the receipt of the said amount towards statutory dues pursuant to the approval of the resolution plan by the Hon'ble NCLT. 6 Operational Creditors (other than a related party to and connected persons of the Corporate Debtor and its existing promoters, other than Workmen and Employee Dues and Statutory Dues) 2716.61 90.00 (i) Maximum of Rs. Ninety crores or payment of liquidation value allocable to Operational Creditors, whichever is higher, on a pro-rata basis, has been proposed to be paid to the operational creditors of the Corporate Debtor. (ii) Amounts due to operational creditors proposed to be made in priority to the financial creditors. (iii) All claims or liabilities etc owed to any Operational Creditor by the Corporate Debtor, in relation to any period prior to the Effective Date or on acquisition of control of the Corporate Debtor by the Resolution Applicant through the SPV proposed to stand extinguished upon the receipt of the said amoun....
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....ght not cause any competition concerns due to lack of ability and incentive to foreclose the competition in any of the markets by the Parties. 19. Considering the facts on record, details provided in the notice given under sub-section (2) of Section 6 of the Act and assessment of the proposed combination on the basis of factors stated in sub- section (4) of Section 20 of the Act, the Commission is of the opinion that proposed combination is not likely to have an appreciable adverse effect on competition in India." 24. Therefore, in light of the order of the Competition Commission of India as aforementioned, the Resolution Plan is not in violation of the Competition Act, 2002. The RP has certified, as per Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, that the contents of the resolution plan, as approved by the Committee of Creditors with more than 66% majority in favour, meets all the requirements of the I&B Code and the regulations as applicable on the date thereof. 25. The Resolution Applicant proposes that IRP Costs be paid in full by the Closing Date that is not more than 75 d....
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....and participate in all meetings of the Monitoring Committee but not vote in any such meetings. Mr Shailendra Ajmera, who was acting as RP, to act as a monitoring agent till the Closing Date. The Monitoring Committee shall supervise the implementation of the Plan, decide to appoint advisors, legal and technical consultants, etc., and undertake and monitor the management and operations of the Company in the ordinary course and on a going concern basis. 28. After the Term, the Resolution Applicant proposes to reconstitute the board of directors of the Corporate Debtor as necessary, to spearhead their business plan and the proposed nominated members on the board of directors of the Corporate Debtor are (a) Shri Acharya Balkrishna (b) Shri Ram Bharat; and (c) Smt. Sneh Bharat. The Resolution Applicant further proposes to identify other members of the board of directors and the same shall be appointed in compliance with all Applicable Law on the expiry of the Term. The Resolution Applicant also proposes to retain the existing senior management personnel of the Corporate Debtor and will further appoint additional members as key managerial personnel to spearhead and strengthen the busin....
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....Adjudicating Authority under section 7 or section 9 or section 10 of the Code, the amount of total loss brought forward (including unabsorbed depreciation) shall be allowed to be reduced from the book profit for the purposes of levy of MAT under section 115JB of the Act". 34. With regard to the Clause 8.1.5, the Resolution Applicant has to comply with the provisions of the Income Tax Act, 1961 and other directions issued by the relevant authority under the Act. 35. In clauses 8.1.7 & 8.1.13 it is prayed that all the respective Governmental Authorities shall waive of any stamp duty, filing fees, Tax payable to the Governmental Authority or such other amounts payable / becoming payable on the transaction or actions contemplated under this Resolution Plan including but not limited to increase in authorized share capital of the Corporate Debtor and the stamp duty payable on amalgamation of the SPV with the Corporate Debtor. We are not inclined to allow the said relief. The Resolution Applicant may apply to the relevant regulatory authority for this exemption and the relevant authority may consider it as per law. 36. Concerning the relief sought in clause 8.1.10 regarding modif....
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....herein any rights in relation to intellectual property have been shown to be conferred in favour of any Person, the said contract or arrangement, upon the approval of this Resolution Plan, shall stand terminated and abated with effect from the Effective Date without any further act, deed or action and without any liability or obligation on the part of Corporate Debtor. The said relief is allowed however it is clarified that we have not adjudicated any question of law or fact or any application/petition filed in relation to ownership and/or usage by RSIL of the intellectual property rights, including arbitration petition no. MJC AV/0000023/2018 filed during the moratorium period or any other legal proceedings to be initiated in relation thereto and the said proceedings shall follow their complete course as per law without being affected by this order. 38. Any relief sought for in the Resolution Plan, where the contract/agreement/understanding/proceedings/actions/notice etc. is not specifically identified or is for future and contingent liability, is at this moment rejected. 39. The Resolution Applicant, on taking control of the Corporate Debtor, shall ensure compliance under a....
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....bmitted to the CoC within two weeks from the date of this judgment. The resolution applicant in each of these cases will then convene a meeting of the CoC within two weeks after that, which will include the appellants as participants. The CoC will then deliberate on the resolution plans afresh and either reject them or approve of them with the requisite majority, after which, the further procedure detailed in the Code and the Regulations will be followed. For all these reasons, we are of the view that the petition and appeal must be allowed and the NCLAT judgment set aside." 46. It is stated that the CIRP period in the present case will expire on 07.05.2019. As per Regulation 39(4) of CIRP Regulation, Resolution Plan as approved by the CoC is to be filed with the Adjudicating Authority 15 days in advance of the expiry of CIRP. Accordingly, the 255 days for submitting the Resolution Plan as contemplated under Regulation 39(4) will expire on 22.04.2019. The Resolution Professional has stated that it may not be possible for the final Resolution plan to be placed before this CoC and sufficient time to be provided to the CoC to obtain the requisite authorisation to consider such Reso....
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....ly, the differently placed classes of creditors (such as creditors who are secured by significantly different assets) ought to be treated differently. Further, the letter stated that the Resolution Plan distinguished between an unsecured and secured creditor, but not between a superior first charge holder and sub servient second charge holder. The said letter is annexed with the Application. 52. The same issue was raised by DBS in the CoC meeting held on 23.04.2019 wherein it submitted that recovery for lender under a Resolution Plan ought not to be less than what it would have recovered from the sale of debtor's assets in liquidation, where such under-recovery would benefit other lenders who would recover more than the liquidation value of their security assets. During the meeting, when the Resolution Professional called for a vote by show of hands on this proposal of the DBS, no one responded affirmatively, and the CoC opined that was within their commercial wisdom to approve of a Resolution Plan in compliance with the law and accordingly approved pari passu distribution amongst all secured Financial Creditors. The Resolution Plan was approved on 30.04.2019 by 96.95% vote ....
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....rity). This decision would be key to assist in determining whether the value of security ought to be related to the proportion of recovery amongst creditors. 56. The DBS submits that its case would be covered by the decision of NCLAT in Essar Appeal (supra.). If NCLAT comes to a conclusion that secured lenders with differently valued security inherently not equal and therefore should be treated differently then the DBS herein would be entitled to recovery of 90%. It is stated that the pay-out to the lenders should be restrained because if the amounts are already distributed amongst all lenders, then the DBS would not be able to recover its rightful amounts which are wrongfully distributed to the lenders. 57. The DBS, vide its written submission dated 14.05.2019, has also placed on record an order of Ld. NCLT, Hyderabad Bench in IDBI Bank v. Mamta Binani in [CP (IB) No. 41/7/HDB/2017 dated 09-05-2019] wherein the Ld. Tribunal has held that the creditors may be given a different proportion of their debt from the resolution fund based upon the value of assets held by each creditor. The relevant portion upon which the DBS has sought to place reliance is reproduced below: ....
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.... Resolution Plan vests with CoC who in the present case has approved the Resolution Plan with 96.95%. The relevant portion of the judgment of the Hon'ble Supreme Court in Arcelor (supra.): "A conspectus of all these provisions would show that the Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors. The Resolution Professional is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the Committee of Creditors, who may or may not approve it. The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the Committee of Creditors that a law has or has not been contravened. Section 30(2)(e) does not empower the Resolution Professional to "decide" whether the resolution plan does or does not contravene the provisions of law." 61. It is further submitted by ....
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....e set of group such as 'Financial Creditor' or 'Operational Creditor', Board by its Regulation cannot mandate that the Resolution Plan should provide liquidation value to the 'Operational Creditors' (clause (b) of regulation 38(1)) or liquidation value to the dissenting Financial Creditors (clause (c) of regulation 38(1)). Such regulation being against Section 240(1) cannot be taken into consideration and any Resolution Plan which provides liquidation value to the 'Operational Creditor(s)' or liquidation value to the dissenting 'Financial Creditor(s)' in view of clause (b) and (c) of Regulation 38(1), without any other reason to discriminate between two set of creditors similarly situated such as 'Financial Creditors' or the 'Operational Creditors' cannot be approved being illegal." 64. The Resolution Professional has submitted that the decision in Essar Steel Ltd. (supra.) will not affect the order of approval of Resolution Plan passed in the present matter as a prospective declaration of law binds the sub-ordinate forums to apply dictum to cases which would arise in future only and where decision opposed to the said princ....
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....porate death by liquidation. 70. The CoC has further referred to the order of Hon'ble NCLAT dated 14.11.2018 in the matter of Binani Cement Ltd, wherein it has held that the Code is not a statute for recovery. The CoC has asserted that since these proceedings are not recovery proceedings, the provisions of Section 48 of Transfer of Property Act would not apply here as this provision would apply solely at the time of enforcement or distribution at the time of liquidation. 71. It is further stated that priority in payment is provided for at the time of liquidation under Section 53 of the Code. However, the Code does not provide for the creation of such distinction at the time of accepting a resolution plan submitted for the Corporate Debtor. 72. The CoC has also submitted that the distribution of funds in the resolution plan is approved by all financial creditors other than DBS in exercise of their commercial wisdom. The majority decision to distribute the amounts in a pari passu manner is said to be a commercial decision of the CoC made in line with the decision of Hon'ble NCLAT in Jyoti Structures case (supra). The appeal against Jyoti Structures case (supra) has b....
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....to an allegation of preferential transactions by it. The ICICI in its application has prayed among other things, for directions to set aside the decision of RP and CoC of not accepting the revised claim amount of the ICICI and refusal to set aside the differential amount to be paid to it in case of its increased claim. 77. The Resolution Professional had filed an application against the ICICI under Section 43(1) of the I&B Code, seeking reversal of transactions amounting Rs. 65.98 crores from the ICICI, about transactions about certain Letters of Credit. The said application was allowed by order of this Bench dated 12.03.2019 wherein; inter alia, it was directed to the ICICI to reverse the amount Rs. 65.98 crores debited from the current account of the Corporate Debtor about the LCs. This Bench also directed the CoC to decide on the appropriation of Rs. 65.98 crores. 78. The ICICI challenged the order of this Bench dated 12.03.2019, before the Hon'ble NCLAT by way of Company Appeal (AT) (Insolvency) No.370 of 2019 which remains pending at the moment with directions not to force the ICICI to return the amount as per this Bench's order. 79. The ICICI addressed its co....
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....Date etc. and not alone the amount of claims made by the creditors of a company under insolvency". Referring to the decision of this Tribunal directing repayment of the Rs. 65.98 crores, it is stated that the resolution plan was submitted after considering the said amount. Therefore, it follows that the resolution applicant has appropriated this Rs. 65.98 crore in its resolution plan in case it is reversed and repaid to the Corporate Debtor. Since the CoC has approved the resolution plan with a 96.95% majority; it can be safely presumed that CoC considered, evaluated and approved every clause of the resolution plan individually as well as the resolution plan as a whole in its entirety. Therefore, the appropriation of the said Rs. 68.98 crores by the resolution applicant is approved by the CoC and can be taken as the decision of the CoC upon the said amount as per our order dated 12.03.2019. 83. The Resolution Professional has filed its written submissions on 15.05.2019 opposing the Application filed by the ICICI. The Resolution Professional has referred to Regulation 13 of CIRP Regulations to state that it has to admit claims of Creditors as on the Insolvency Commencement Date. ....
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....ssional is only given administrative powers as oppose to quasi-judicial powers. 86. The Resolution Professional has also given a note on information regarding recovery of the ICICI in both the scenarios where the additional claim is allowed and rejected. The current total admitted claim of the ICICI of Rs. 513.27 crores is split into secured portion of Rs. 483.63 crores and unsecured portion of Rs. 29.64 crores. The additional claim is proposed to be added to the secured claims and the effect is provided in the following note Admission of additional claim is allowed Admitted Claim as revised Total recovery in amount and percentage if the Appeal is allowed (i.e. the Applicant retains the entire Impugned Amount) Total recovery in amount and percentage if the Appeal is not allowed The percentage recovery of other Secured Financial Creditors. Original admitted claim secured portion amount Rs. 483.63 crores + Additional Claim Rs. 65.83 crores = Rs. 549.46 crores. Currently proposed recovery for the secured portion is Rs. 234.20 crores + the Impugned Amount Rs. 65.98 crores: Rs. 300.18 crores. Percentage recovery for the secured portion will be 54.63% The secur....
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....t of the said judgment in the present matter. 89. Accordingly, the Resolution Professional has submitted that an appeal has been preferred against the judgment of the Hon'ble NCLAT before the Hon'ble Supreme Court that has passed an order of stay over the judgment and for maintaining status quo. Thus, it is submitted that the judgment of the Hon'ble NCLAT is sub-judice. Further, it is submitted that a bill to amend the I&B Code has been approved by the Cabinet which, among other things, seeks to bring amendment for 'inclusion of commercial consideration in the manner of distribution proposed in a resolution plan, within the powers of the Committee of Creditors'. 90. In addition to the above submissions, the Resolution Professional has cited the judgment of Hon'ble Supreme Court in the case of Managing Director, ECIL, v. Karunakar [1993] 4 Supreme Court Cases 727, wherein the Five Judge Bench of the Hon'ble Supreme Court has held that while a court of law promulgates a new principle, its application is made prospective. The relevant paragraph in the said judgment on which the Resolution Professional has relied is reproduced below: "It would....
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...." 91. It is pertinent to note that in the case before Hon'ble NCLAT in Essar Steel (Supra.) the operational creditors were being given NIL or 0% of their debt amount. Also, there were numerous operational creditors who opposed the approved resolution plan. In contrast, the approved resolution plan submitted before us for approval has allotted Rs. 90 crores for payment to the unrelated operational creditors, which amounts to 6.28% of their total verified claim. This is notably higher than the proposed payment of Rs. 40 crores offered to unsecured financial creditors amounting to 3.97% of their total verified claim. Also, there is no opposition filed against this approved resolution plan by any of the operational creditors as of now. We think that the decision of the Hon'ble NCLAT in the Essar Steel case (supra.) and that of the Hon'ble Supreme Court in an appeal against the same would not have any adverse bearing upon the approval of the present case before us. 92. In light of the above decision of the Hon'ble Supreme Court and adhering to the objective of the I&B Code, we do not wish to keep the approval of this resolution plan in abeyance till the final judgm....