TaxTMI 
TaxTMI 
2020 (12) TMI 410
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applicant was appointed as the Interim Resolution Professional ("IRP"). 3. The applicant adds that pursuant to the said admission order, public announcement inviting the claims from all the creditors in Form A of the Schedule II as per Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("Regulation") was made by the IRP on 23.12.2018 and 24.12.2018. Copies of the public announcement inviting the claims are annexed with the application as Exhibit 2. Under the public announcement, the IRP received the claims from the creditors of the Corporate Debtor and accordingly the IRP constituted the Committee of Creditors (CoC). The final list of members of CoC as on 12.09.2019 with their respective voting shares is given below: Sr. No. Financial Creditors Voting Share % 1. Religare Finvest Limited 58.11 2. IndusInd Bank Limited 27.81 3. Aditya Birla Finance Limited 1.44 4. Cap Float Financial Services Private Limited 1.58 5. P. C. Bhatia (HUF) 0.58 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Matrix same as earlier resolved in the 2nd CoC meeting held on 26.02.2019. The e-voting was conducted on 14.06.2019 and 15.06.2019 and the resolution plan was unanimously rejected by the CoC. In the said meeting a resolution was also put for voting for extension of the CIRP under Section 12(2) of the Code for 90 days which was approved by 97.11% voting share and the same was subsequently approved by this Bench, vide its order dated 19.06.2019. Accordingly, a fresh public announcement inviting the EOI from the PRAs was issued on 25.06.2019. 9. In the Fifth meeting of the CoC held on 29.08.2019, the CoC discussed the feasibility and viability of the resolution plan dated 22.08.2019 received from Nitrex (from now on referred to as RA), with the President of RA. The CoC requested the RA to increase the amount of the resolution plan as the same was not satisfactory. The RA informed the CoC that it had already increased the amount of the resolution plan from Rs. 8 crores to Rs. 9 crores when they submitted the same under the second EOI process. After negotiations, the RA agreed to provide an addendum to the resolution plan, wherein the RA would increase the amount of the resolution ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rds EMD and Bank statement of Corporate Debtor have been submitted in proof thereof. 15. The Resolution Professional has submitted Form H under Regulation 39(4). The Resolution Professional has certified that the resolution plan complies with all the provisions of the I&B Code, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and does not contravene any of the provisions of the law for the time being in force. 16. The Resolution Applicant has submitted an Affidavit pursuant to section 30(1) of the Code confirming its eligibility under section 29A of the Code to submit resolution plan. The Resolution Professional has further certified that the said Resolution Plan has been approved by the CoC in accordance with the provisions of the I&B Code and the CIRP Regulations made thereunder. The Resolution Plan has been approved by 96.91% of voting share of financial creditors after considering its feasibility and viability and other requirements specified by the CIRP Regulations. 17. The Resolution Plan includes a statement under Regulation 38(1A) of the CIRP Regulations as to how it has dealt wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to provide additionally Rs. 11 Lakhs which will be exclusively distributed to all the employees/workers of the Corporate Debtor equally, apart from the payment of Rs. 22 Lakhs provided under the Plan to the employees. The Resolution Applicant, vide his letter dated 05.03.2020 sent to RP, has confirmed and revised the Plan amount accordingly. The amount to employees to be paid upfront within 90 days from the date of Order approving this Plan. 24. It is made clear that no further liability can be imposed on the Resolution Applicant in whatever manner except the above resolution amount of Rs. 9.40 Crore as provided in the Plan and a sum of Rs. 11 Lakhs (as mentioned in the above said para) as agreed at the time of hearing to be paid to RP who will distribute it to all the employees/workers. There won't be any further liability on RA towards Financial Creditors, Operational Creditors or other stakeholders, etc. Restructuring of Existing Shareholding 25. On the effective date and with effect from the appointed date, all existing issued, subscribed and paid-up share capital comprising of 76,000 equity shares of Rs. 100/- shall stand cancelled. 26. Equity shares of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cant, on taking control of the Corporate Debtor, shall ensure compliance under all applicable laws for the time being in force. 35. The Resolution Applicant shall obtain the necessary approval required under any law for the time being in force. 36. On perusal of the Resolution Plan, we find that the resolution plan has necessary provisions for its effective implementation. The CoC has approved this Resolution Plan with requisite vote of more than 66% as required under the law, in favor of the Resolution Plan. 37. We are satisfied that the Resolution Plan fulfils the mandatory requirements of Section 30 of the I&B Code and Regulation 38 & 39 of IBBI (CIRP) Regulations, 2016. 38. On the basis of discussion made above and in view of the provisions of Section 30(4) of the Code, we approve the resolution plan submitted for International Book House Private Limited as approved by the CoC. The resolution plan so approved shall be binding on the corporate debtor and its employees, members, creditors [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the similarly situated persons. Hence there is a discrimination which is impermissible. C) In this case there is no basis to show that valuation of the security held by the applicant and by Respondent No. 3 were so different that they be treated differently. Nowhere in the application filed by R1 there is mention of valuation of the security held by the applicant and in fact R1 did not even attempt to make such study. The burden to show a basis for differentiation raises on the person who chooses to differentiate. D) There is a discrimination in treatment with reference to liquidation value of the respective security, the sum of Rs. 8.40 Crores proposed to be paid to R3 in excess of the liquidation value of its security i.e. Rs. 8 Crores which is found in the valuation report. E) The security comprises hypothecation charge on current assets, stocks, book dates, investments, trade receivable, current assets etc. of the Corporate Debtor and the liquidation value of the said hypothecated asset has not been considered at all by the R1 in distribution. F) The liquidation value of the above referred assets on which applicant has exclusive charge is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rporate Debtor', we find that the Appellant- 'Hero Fincorp Limited' has been provided with 32.34% of its admitted claim as it has dissented with the plan. On the other hand, Tata Capital Financial Services Ltd.' has been provided with 75.63% of its admitted claim and other 'Financial Creditors' i.e. 'Indian Overseas Bank' has been provided with 45% of its admitted claim; the 'Bank of Baroda' has been provided with 45% of its admitted claim and the 'Punjab National Bank' has been provided with 45% of its admitted claim. . 12. The impugned order approving the 'Resolution Plan' has been passed by the Adjudicating Authority on 17th October, 2018, but the Adjudicating Authority failed to notice that no 'Resolution Plan' can be approved discriminating the dissenting 'Financial Creditor' in terms with the post amended Regulation 38. It also failed to notice that this Appellate Tribunal much prior to the same, declared the un-amended (old) Regulation 38(1)(c), which stipulated liquidation value for the dissenting 'Financial Creditor', as illegal which resulted in amendment of Regulation 38. 13....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 'State Bank of India (Hong Kong)' who are similarly situated have been discriminated. . 28. Therefore, the Appellant- 'Rajputana Properties Private Limited' cannot take plea that dissenting 'Financial Creditors' can be discriminated on the basis of Regulation 38. At this stage, it is desirable to notice that after the decision of this Appellate Tribunal in "Central Bank of India (Supra)" the Insolvency and Bankruptcy Board of India also amended/repealed the Regulation 38 aforesaid having found it discriminatory. 29. We agree with the submissions made by Mr. Arun Kathpalia, learned Senior Counsel that Section 53, including explanation given therein cannot be relied upon while approving the 'Resolution Plan'. However, that does not mean that a discriminatory plan can be placed and can be got through on one or other ground, which is against the basic object of maximization of the assets of the 'Corporate Debtor' on one hand and for balancing the stakeholders on the other hand. 43. From the two 'Resolution Plans', it will be clear that the 'Rajputana Properties Private Limited' in its 'Resolution ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution Applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors. Quite clearly, secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid. And, most importantly, operational creditors are separately viewed from these secured and unsecured financial creditors in S. No. 5 of paragraph 7 of statutory Form H. Thus, it can be seen that the Code and the Regulations, read as a whole, together with the observations of expert bodies and this Court's judgment, all lead to the conclusion that the equality principle cannot be stretched to treating unequals equally, as that will destroy the very objective of the Code-to resolve stressed assets. Equitable treatment is to be accorded to each creditor depending upon the class to which it belongs: secured or un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Unsecured 2,98,918 Shriram City Union Finance Limited Unsecured 16,59,064 Sandeep Harsulkar Unsecured 2,18,60,250 IDFC First Bank Limited Unsecured 18,56,713 49. The Resolution Professional submits that the applicant/IBL proceeds on the incorrect basis that the CoC has discriminated among similarly situated financial creditors i.e. the applicant and R3. However, even though both are secured financial creditors, the value of security held by R3 is comparatively much higher than the value of the security held by the applicant. The average liquidation value of the securities held by the financial creditors, as reported in the valuation report, is taken as the basis for arriving at the distribution figures. It is to be noted that the valuation reports have not been challenged by the applicant till date and hence the applicant is estopped from contending that the valuations are incorrect. 50. The Resolution Professional submits that, R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luding the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board:" 55. Relying on the above provision it is submitted that, the CoC while determining or approving the distribution pattern shall also take into account the priority and value of the security interest of a secured creditor. The CoC approved the Resolution Plan with 96.91% of vote share which includes the applicant. However, the distribution pattern has been approved by the CoC with 66.98% of the voting share, barring IndusInd Bank which has not voted in favor of the distribution pattern. The Resolution Professional therefore submits that since the applicant has voted for approval of the Resolution Plan, the applicant cannot challenge the Resolution Plan itself which has been voted by the applicant also. 56. The Resolution Professional further submitted that since the distribution pattern was also approved by the CoC with 66.98% voting share, whereas the minimum requirement for approval is 66%, it has to be construed that the distribution pattern has also been approved by the CoC in its commercial wisdom. 57. The Resolution Professional ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... This may, in turn, be accepted by the resolution Applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution Applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place. 42.Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar (supra). 46.Thus, it is clear that when the Committ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....solvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the Code which is to first ensure that resolution of distressed assets takes. 56.So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution Applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors. 57.Indeed, Regulation 13(1) of the 2016 Regulations mandates that when the resolution professional verifies claims, the security interest of secured creditors is also looked at and gets taken care of. 89.We cannot arrive at the conclusion that the acceptance of the resolution plan by the maj....
X X X X Extracts X X X X
X X X X Extracts X X X X
....calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given Under Section 22 of Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I & B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the "commercial wisdom" of the individual financial cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....debtors. Further it is submitted that most of the debts were also time barred and majority of the Section 138 proceedings were dismissed. In the given circumstances the apportionment of Rs. 25 lakhs to the applicant cannot be faulted and the commercial wisdom of the CoC cannot be questioned by this Bench. B) The Judgment in the Essar's case (supra) is a complete answer for all the objections/contentions raised by the Ld. Counsel for the Applicant and the same is summarized below: i. The commercial wisdom of the Committee of Creditors will always prevail; ii. The feasibility and viability of Resolution Plan takes into account all the aspects of Plan including the manner of distribution among the creditors; iii. Judicial review is available only within the four corners of Section 30(2) of the Code; iv. The ultimate discretion of what to pay and how much to pay to each sub-class of creditors is with the CoC and the same should reflect maximizing the value of Corporate Debtor; v. The feasibility and viability of Resolution Plan will also include the distribution of amount to creditors under the plan and in this case, distributio....