TaxTMI 
TaxTMI 
2021 (2) TMI 162
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....seventh meeting of the COC (Committee of Creditors), the claim of Appellant -Financial Creditor was reduced along with voting share. Subsequently, the Resolution Plan filed was taken up by COC and Plan of one Consortium Cosyn Ltd. (Respondents 1 to 3 in Company Appeal (AT) (Ins) 976 of 2019) came to be approved by COC. Thereafter Appellant filed I.A. 52 of 2019 seeking direction to COC to include claim of the Appellant for Rs. 10.40 Crores (by which the claim had been reduced) and correct the voting share and to reconsider the Resolution Plan. These I.A.s came to be dismissed as per the Impugned Order dated 25th April, 2019. Thus the Company Appeal (AT) (Ins) No.552 of 2019 is filed. (B) Company Appeal (AT) (Ins) No.976 of 2019 has also been filed by the same Appellant and this Appeal has been filed after the Resolution Plan which was approved by COC has been approved by the Adjudicating Authority by Impugned Order dated 31.07.2019. This Appeal has been filed primarily on the basis that the Resolution Plan was approved after deducting part of the claim of the Appellant and the Resolution Plan was approved by the Adjudicating Authority without taking into account effect of 201....
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....or at Rs. 26/- each equity share with a lock-in period of one year from date of issuing the same. Appellant claimed that 52 Lakhs shares at Rs. 20/- per share were issued and allotted to the Appellant on 12th May, 2017 by the Corporate Debtor and value of these shares was Rs. 10.40 Crores only. It is claimed that for balance Rs. 3.10 Crores, Corporate Debtor was required to issue and allot additional shares but Corporate Debtor failed to allot the additional shares. It is claimed that the alleged shares were in the nature of security and were held by the Appellant as pledgee of shares. The Appeal claims and it is argued that there was failure on the part of Corporate Debtor with the terms of Agreement and Notice dated 13th July, 2017 (Annexure A-3 - Page 93) was issued. Subsequently, another Notice dated 16th September, 2017 (Annexure A-4 - Page 97) was issued in terms of Clause 2.1.1(ii)(d) of the Agreement and Appellant withdrew the concessions and reinstated the original claim along with interest amounting to Rs. 39,27,81,934/-. The Appeal claims and it is argued that as Corporate Debtor defaulted, Appellant filed Application under Section 7 of IBC on 3rd January, 2018 (Annexure....
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....he Impugned Order dated 25.04.2019 after referring to the disputes raised recorded the point for consideration and its findings and reasons as under:- "10. The point for consideration before this Adjudicating Authority is whether the Applicant is entitled to a claim of Rs. 43,68,84,792/- and restoration of voting percentage at 16.09% of the Application. 11. From perusal of material record, this Adjudicating Authority finds that the stand of the Applicant that it is merely a pledgee of the shares is incorrect as the said shares were admittedly transferred to the demat account of the Applicant on 12.05.2017. Therefore, the Applicant becomes the absolute owner of the said shares, of course with a rider of a lock-in period of one year before which the Applicant is not entitled to sell the said shares. That being so, this Adjudicating Authority holds that the Resolution Professional is right in taking into account the value of 52,00,000 Shares @ Rs. 20/- per share and accordingly reducing a sum of Rs. 10.40 Crores from and out of the original claim of Rs. 35.02 Crores. It is pertinent to note that the value of the shares of any Listed Company are fluctuating one and va....
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.... of 52,00,000 shares at price of Rs. 20 per share (10.40) 3 RTGS paid to SERI on 31.03.2017 (0.10) 4 RTGS paid to SERI on 26.09.2017 (0.10) 5 RTGS paid to SERI on 30.12.2017 (0.05) 6 Total Outstanding 24.37 7 Add: Interest @12% 5.91 8 Over due charges @ 36.5% 2.01 Total dues considered by the Company 32.29 10. It is argued by the Resolution Professional that the Appellant is still holding 52 Lakhs shares at price of Rs. 20/- per share amounting to Rs. 10.40 Crores but at the same time is claiming these amounts as if the same are due, which is not tenable. The Appellant participated in the meetings even after reduction of the voting share from 7th to 11th COC meetings. The Respondent is supporting the Impugned Order. The Respondent is pointing out that the Agreement dated 22nd September, 2016 does not show that the shares issued were in the nature of security against loan. It is also argued that the Corporate Debtor issued 52 Lakhs shares worth Rs. 10.40 Crores and this is reflected in the Balance Sheet of the Company. Thus, according to the Respondent, there is no fault in the reduction of the claim and con....
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....Lakhs Only) provided to the Borrower, the Borrower Company would issue 52,00,000/-numbers of shares of the Borrower Company @ Rs. 26/- per share morefully described in Schedule IV therein these shares will be issued on preferential allotment basis in compliance with SEBI guidelines, rules and regulations. The shares so issued will be held by the Lender under lock in period for a period of one year (12 months) from the date of issuance of the same as per SEBI guidelines. ii) The said shares shall be issued by the Borrower Company within a period of 90 days from date of execution of these presents. iii) After a period of one year from the date of issuance of the said shares the Lender would be entitled to sell the said shares in the open market and recover the market value of the same. iv) If at the time of sale of the shares by Lender, the value of the shares in the market is above Rs. 31/- (Rupees Thirty One) per share, the Lender shall retain an additional 30% of the value over and above Rs. 31/- per share. The balance 70% of the difference amount being the value over and above Rs. 31/- (Rupees Thirty One Only) per share shall be refunded to the Borrower....
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....fter the lock in period as per SEBI guidelines), the transaction cannot be held to be pledge under Section 172 of the Indian Contract Act, 1872. Reading the Agreement dated 22.09.2016 we are unable to hold that the transfer of shares was only a security and not absolute transfer. We do not agree with the Counsel for the Appellant that the shares were pledged. The learned Counsel for Respondent has argued that if there had been a pledge, it would reflect in the Demat Statement. Considering the record, fact remains that the shares were allotted to the Appellant as per the Agreement. May be, at the time when the shares were allotted, the rate was Rs. 20/- per share, the Corporate Debtor being a listed entity. 14. The Appellant on 13.07.2017, issued Notice (Annexure A-3) and without specifying amount claimed that there was unpaid financial debt arising out of Agreement dated 22nd September, 2016 and threatened the Corporate Debtor with IBC proceedings. Later, the Appellant sent Notice dated 16th September, 2017 (Annexure A-4) and informed the Corporate Debtor as under:- "Since the account became irregular, under a Loan Cum Hypothecation Agreement dated 22nd September 2016, ....
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....t of Rs. 10 Crores due and payable in Para - 19 of the admission Order and referred to the Judgement in the matter of "Innoventive Industries Ltd. vs. ICICI Bank" (2018 1 SCC Page 407) where there were observations that Adjudicating Authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy that default has occurred and it is of no matter that the debt is disputed so long as the debt is "due" i.e. payable. The Adjudicating Authority at that time on such analysis proceeded and admitted the Application under Section 7. Thus, we do not find any substance in the argument of the learned Counsel for Appellant that the Adjudicating Authority in the present Impugned Order dated 25th April, 2019, in a way reviewed its earlier Order. 17. For the above reasons, we do not find any substance in the present Appeal. 18. Company Appeal (AT) (Ins) No.552 of 2019 is dismissed. No Orders as to costs. Company Appeal (AT) (Ins) No. 976 of 2019 19. This Appeal has been filed against the acceptance of the Resolution Plan in the eleventh meeting of COC dated 6th December, 2018. It refers to the same relationship of the ....
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.... Applicant, has justified the acceptance of the Resolution Plan by COC. It is stated that the Plan was approved on 06.12.2018 in eleventh meeting by majority of 83.25%. The Resolution Plan was approved by Adjudicating Authority vide Impugned Order dated 31.07.2019. Against said approval, no Appeal was filed till 13.09.2019. It is claimed that when Amendment Act, 2019 was enforced w.e.f. 06.08.2019, there was no proceeding or Appeal pending. It is claimed that there was no contravention of law as was applicable when the Resolution Plan was approved by COC and the Adjudicating Authority. The total dues of Appellant were considered after deducting value of 52 Lakhs shares. The mandate of Section 30(2) and Section 30(4) of the Amended Act and CIRP Regulations has been complied with while arriving at the amount payable. Commercial wisdom of COC cannot be trespassed in judicial review unless there is non-compliance of Section 30(2), 30(4) of IBC and Regulation 39 of CIRP Regulations, 2016, the challenge of the Appellant is merely to the quantum. The approved Resolution Plan is binding on all the stakeholders. 22. The learned Counsel for the Appellant in this Appeal No.976 of 2019 subm....
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....of operational and financial creditors. It is only for this purpose that Section 53(1) is to be looked at as it is clear that it is the commercial wisdom of the Committee of Creditors that is free to determine what amounts be paid to different classes and sub-classes of creditors in accordance with the provisions of the Code and the Regulations made thereunder." (Emphasis Supplied) Para 110 and 111 also may be reproduced as relevant to deal with arguments (infra). They read as under:- "110. As has been held in this judgment, it is clear that Explanation 1 has only been inserted in order that the Adjudicating Authority and the Appellate Tribunal cannot enter into the merits of a business decision of the requisite majority of the Committee of Creditors. As has also been held in this judgment, there is no residual equity jurisdiction in the Adjudicating Authority or the Appellate Tribunal to interfere in the merits of a business decision taken by the requisite majority of the Committee of Creditors; provided that it is otherwise in conformity with the provisions of the Code and the Regulations, as has been laid down by this judgment. 111. Equally, Explana....
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....s for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the [payment] of other debts of the corporate debtor; [(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1.-For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to su....
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....eeds to be rejected. When the Impugned Order was passed and the Appeal was filed, we had heard the Appellant and Counsel for Respondent No.3 who had appeared and the delay of six days in preferring Appeal was condoned on 20th September, 2019. That Order has not been challenged. The Impugned Order was passed on 31.07.2019 and when the Appeal has been filed and delay has been condoned, we are unable to accept argument that the benefit of the amendment can be denied. Above para - 111 of Judgement in the matter of "Essar Steel" also makes it clear that Appellate Proceeding is continuation of original proceeding. Thus when Appeal is admitted after condoning delay, Appellant is entitled to claim that it is entitled to benefit of the Amendment Act. Now it needs to be seen if the Resolution Plan as approved is in compliance of the Amended Provision as far as regards the Appellant keeping in view para - 109 (referred supra) in Judgement in the matter of "Essar Steel". Further dictation 26. This Appeal along with Company Appeal (AT) (Ins) No.552 of 2019 were reserved for Judgement on 25th November, 2020. When we sat down to write the Judgements, it was felt necessary that the Resolu....
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....rovides for the payment of debts of Appellant - Financial Creditor, who did not vote in favour of the Resolution Plan (in such manner as may have been specified by the Board), which shall not be less than the amount to be paid to such Creditor in accordance with Sub-Section 1 of Section 53 of IBC, in the event of a liquidation of the Corporate Debtor. If no, what should be the payment. 8) Resolution Professional is further directed to file copies of Form 'G' (Regulation 36A(2)) and Form 'H' (Regulation 39(4)). 9) Resolution Professional is directed to file the Affidavit and documents as directed within 10 days, after serving copies of the Affidavit on Counsel for Appellant and Respondent No.3 and after serving copy on Respondents Nos.1 and 2 along with copy of this Order. Proof of service be filed with regard to service of Affidavit on Respondents 1 and 2. 10) List this Appeal on 19.01.2021 for further hearing as part heard." 27. In response, the Resolution Professional filed Affidavit dated 11th January, 2021 along with two Annexures (Diary No.24809). When the matter came up before the Tribunal on 19th January, 2021, we passed the following Order:- ....
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....essional of MIC Electronics Limited, Hyderabad. 3. As per the directions of Hon'ble NCLAT dt. 19.01.2021, the Respondent (RP) herein submits the following: 1) After due deliberations the COC approved the resolution plan on 06.12.2018 during its 11th COC Meeting. The Resolution plan was approved by Hon'ble NCLT on 31.07.2019 and the amendment to Section 30(2)(b)(ii) was on 16.08.2019, having retrospective effect on certain conditions. 2) With reference to Para 3 of order dated 04.01.2021, it is confirmed that, as per approved Resolution Plan the Appellant is entitled for Rs. 8.64 Crores out of admitted claim amount of Rs. 32.29 Crores. This admitted amount of Rs. 32.29 Crores is under challenge in Appeal No.552 of 2019. The dues at the time of execution of loan agreement was Rs. 35.02 Crores, is also correct. However the average value of the secured assets held by Appellant is Rs. 12.86 Crores (this is derived from the valuation given by two independent valuers, Valuer - 1 = Rs. 12.72 Crores and Valuer - 2 = Rs. 13.00 Crores and the average being 12.86 Crores - Copy of the valuation reports are enclosed as Annexure -1). 3) With reference to Para 7....