TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 385
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 resolution applicants and access to the Virtual Data ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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, AWL had emerged as the "Potential Successful Applicant" as per th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 of the fund is set out below: Sl. No. Particulars Amount(Rs. Crores) Source of Fund 1 Eq....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hall 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 Closing Date. (ii) To be paid out of the internal accruals/cash flow of the Corporate Debtor. 2 Secured Financial Creditors 8377.42 4053.19 (i) In the event the amount payable towards the Workmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds 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 amount by the operational creditors pursuant to the approval of the resolution plan by the Hon'ble NCLT. (iv) Only Rs. 14,31,62,68,911/-is said to be claimed by unrelated parties. As per the resolution plan, the amounts proposed by the resolution applicant for ope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 days from the Effective Date and in priority to any Claim of any other creditor, out of the internal accruals/cash flow of the Corporate Debtor. It is further provided that all costs, expenditure incurred / to be incurred by the Committee of Creditors towards the CIRP of the Corporate Debtor ("CoC Costs") shall be full....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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 business and operations of the Company. The implementation of the Plan will be supervised by the Monitoring Agent, until Closing Date. 29. The Resolution Applicant has dealt with the interests of all stakeholders in the Corporate Debtor, including the Financial Creditors and the operational creditors. 30. The Resolution Applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omply 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 modification, change, or termination of the contract entered by the Corporate Debtor, with either related party or unrelated party of the Corporate Debtor or existing promoters, no unilateral right of modification, change, or termination of contract can be allowed. However, the Resolution Applicant may modify, change or terminate any contract as per the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 all applicable law for the time being in force. 40. We shall clarify here that any resolution applicant shall takeover the Corporate Debtor with all its assets and liabilities as per terms of the approved Resolution Plan. If any relief concerning any identified liability of the Corporate Debtor is required, then that needs to be specifically mentioned an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch, 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 Resolution Plan when it is put to the vote. The Resolution Professional submits that the CIRP is in its concluding stage, and the relaxation of the timeline will enhance the chances of successful resolution of the Corporate Debtor. It is also submitted that the Regulation 39(4) was amended on 03.07.2018 to provide that the Resolution Professional shall endeavour to file the appr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cation. 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 share of CoC. 53. The DBS submitted that the availability and terms of credit are influenced by several factors, including the quality and value of the security. The facility was extended among other things, on the consideration that the Applicant would be granted an exclusive charge over Fixed Assets of considerable value. It is contended that creditors with different security interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted 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: "... Financial Creditor holding the security interest over the assets of Corporate Debtor were given higher amount from out of the Resolution Fund than those who are not holding the security interest or holding security interest which is lower in value. This grouping of Financial Creditors does not amount to any discrimination. The creditors who are having valuable assets are to be given higher percent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 the Resolution Professional that the waterfall of distribution under section 53 for Financial Creditors only sets out the distinction between 'debts owed to Secured Creditors' and 'Financial debt owed to Unsecured Creditors'. Section 53 or the definition of 'Secured Creditors' in the Code does not set out any distinction among the secured creditors based on priority of their charge/ranking of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 principles has been taken prior to such declaration of law then such matters cannot be interfered with on the basis of such prospective declaration of law. 65. To support the above contention that the decision in Essar Steel Ltd. (supra.) will not affect the order of approval of Resolution Plan passed in the present matter, the Resolution Professional has sought reliance on Judgements of Hon'ble Supreme Court in Baburam v. C.C. Jacob AIR 1999 S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 been dismissed by the Hon'ble Supreme Court. Further, the CoC has submitted that in the light of the judgement of Hon'ble Supreme Court, in the matter of K. Sashidhar v. Indian Overseas Bank, [2019] 102 taxmann.com 139/152 SCL 312, there is no provision in the I & B Code that empower the Resolution Professional, the Adjudicating Authority or even the Appellate Authority to reverse the "commercial decision" of the CoC. 73. We have heard the arguments of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting 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 concern to the RP and CoC that in case it is required to refund the amounts, the claim of the ICICI against the Corporate Debtor would stand increased to the extent of the refund. In the 22nd CoC meeting, the members of the CoC are said to have decided that the distribution of proceeds was required to be finalised based on the admitted claims before voting and the same cannot be changed subsequently. The Resolution Professional informed the CoC in its 23rd meeting that he can....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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. The relevant portion of Regulation 13 relied upon by the Resolution Professional is reproduced below: "The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the secu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 secured portion of the claim will be Rs. 549.46 crores and proposed for that portion will be Rs. 234.20 crores. Percentage recovery on the secured portion is 42.6% The proposed recovery for the secured portion of the claim of all other financial creditors is 48.4% Admission of additional claim is not allowed Admitted Claim 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, thus, be clear that the Supreme Court of the United States of America has consistently, while overruling previous law or laying a new principle, made its operation prospective and given the relief to the party succeeding and in some cases given retrospectively and denied the relief in other cases. As a matter of constitutional law, retrospective operation of an overruling decision is neither required nor prohibited by the Constitution but is one of judicial attitude depending on the facts and circumstances in each case, the nature and purpose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecured 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 judgment of the Hon'ble Supreme Court against the decision of the Hon'ble NCLAT in Essar Steel case (supra.) is delivered. 93. Given the above observations, we approve the resolution plan with modifications, as mentioned above, which shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors, Resolution Applicant and other stakeholders involved in the resolution plan. 94. The resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolutio....