TaxTMI 
TaxTMI 
2022 (1) TMI 910
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....dian Overseas Bank filed in CP (IB) No. 41/07/HDB/2017 against that order the IDBI Bank has filed the Appeal. 2. The Applications are filed by IDBI Bank and Indian Overseas Bank who are members of Committee of Creditors (CoC) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) for seeking main reliefs:- "(a) Declare that the Resolution Professional was not eligible to place the Resolution Plan before the CoC for voting and that CoC is not eligible to vote on such plan in the absence of ascertaining compliance with the mandatory provisions of the Code. (b) Declare that the Resolution Plan dated 11.12.2018 is discriminatory and contrary to the Code and applicable law." 3. These Applications preferred challenging approval of Resolution Plan by the CoC. As common question of law are involved and are based on the same set-of facts, there were heard together and disposed of by the impugned order by the Adjudicating Authority. 4. The brief and relevant facts made in I.A. No. 24 of 2019. The Adjudicating Authority admitted the Application filed by Canara Bank under Section 7 of the IBC, initiating the Corporate Insolvency Resolution Process (CIR....
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....s under the Code, RP and other members of CoC proceeded to illegally vote on the resolution plan. 9. In the resolution plan the Financial Creditors are classified as FC category A and FC category B based on the Security held by the Creditors. The resolution plan described FC category B as those Financial Creditors who have exclusive security interest on the assets of the Corporate Debtor which are not critical to its operations as a going concern. The resolution plan envisages that these assets will be transferred to a newly incorporated wholly owned subsidiary of the Corporate Debtor which will later handed over the possession and control of the relevant assets to these FC category B lenders, a power of attorney authorising them to deal with their respective assets on which they have exclusive charge in such a manner as they deemed fit and appropriate the proceeds thereof in entirety. 10. The said classification is based on the criticality of the security provided by the Corporate Debtor. The Security on assets considered non-critical being classified as FC category B. It is further averred that the Code does not provide for any classification or priority or differential tre....
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....d not other third persons. Therefore, the clause 4.3 is illegal and needs to be severed. 16. It is submitted that without prejudice, in so far the plan seeks to extinguish the rights of Appellant over the security created by the ex-promoter over the trademark in favour of the Appellant, while not interfering with the security created by third parties over the benefit of other Financial Creditors, is evidently discriminatory inter se the Financial Creditors. The Respondents in their reply have failed to rebut this ground. 17. It is also submitted that plan has arbitrarily categorise Financial Creditors into category A and B. The plan classifies certain category A Financial Creditors and also being category B, being those who have charged on assets which are admittedly considered as a not being critical for running the Corporate Debtor as a going concern. Contrary to all logic and reasons, in addition to what they are entitled to as Financial Creditors category A i.e. participation in cash payment to be made to the Financial Creditors in the amount prescribed and the entitlement to receive certain equity as prescribed in the plan, all such Financial Creditors who are category B....
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....to each creditor depending upon the class to which it belongs: secured or unsecured, financial or operational. (Para 57) Reliance is further placed upon Swiss Ribbons Pvt. Ltd. Vs. Union of India 2019 SCC Online SC 73 (Para 45). Binani Industries Ltd. Vs. Bank of Baroda and Ors. CA (AT) (Ins) No. 82 of 2018 decided by this Appellate Tribunal and affirmed by the Hon'ble Supreme Court vide its order dated 19.11.2018 in Rajputana Properties Pvt. Ltd. Vs. Ultratech Cement &Ors. Civil Appeal No. 10998 of 2018. Therefore, while there can be classification of Financial Creditors between different classes-there has to be intelligible differentia for such classification and then treatment of such creditor has to be equitable. The categorization sought to have been done by the Resolution Applicant does not satisfy the requirement of intelligible differentia and therefore, the Financial Creditor category B who are granting to retain the security created in their favour should receive less in distribution in category B to the extent value of securities they are entitled to retain. 21. Ld. Counsel for the further submitted that without prejudice to the aforesaid submissions the resolution am....
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....er, modify and impair an of the right, claims, interests of the parties against the Company or guarantors under the Financial Documents or to that extent between the creditors inter se" therefore, the MOU does not change inter-se priorities of the lender and does not in any manner make any security of lenders better or worse. It is thus, denied that the Appellant has pari passu charge over the trademarks. It is denied that the Appellant suppressed the existence of MOU in the Appeal since the MOU has been specifically dealt with in the Appeal. 24. It is submitted that the impugned order has been based proceeding on incorrect presumption that "Financial Creditor holding 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, when in fact, a plain reading of the plan reflect a position to the contrary. 25. The aforesaid reasoning applied to purportedly justify the two-fold discrimination sought to be done under the plan. In so far as such findings of the impugned order seek to address the issue of discrimination between....
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.... resolution plan. Therefore, the approved resolution plan is binding on all stakeholders of the Corporate Debtor including the Appellant. Moreover, the statutory limitation under the IBC has long expired and accordingly at a belated indirect attempt to challenge the approved resolution plan cannot be permitted by this Appellate Tribunal. 28. The Counsel for the Appellant has urged that the Appellant is a secured creditor of the Corporate Debtor by placing reliance on a deed of hypothecation dated 03.09.2012 in regard to trademark. However, in the Application filed before the Ld. Adjudicating Authority and in the Appeal there is no averment with regard to trademark issue. The trademark issue raised by the Appellant during the course of the argument before this Appellate Tribunal. It is well settled principle of law that there can be no case beyond pleading which has been reiterated in catena of Judgments, for this preposition of law he cited the Judgments of Hon'ble Supreme Court in the case of Trojan & Co. Ltd. Vs. N. Nagappa Chettiar, 1953 SC 235 (Para 32), Bachhaj Nahar Vs. Nilima Mandal & Ors. (2008) 17 SCC 491 (Para 17), Kalyan Singh Chouhan Vs. C.P. Joshi (2011) SC 706 (Par....
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....an is discriminatory and therefore illegal. While on the other hand the Appellants indicates that upon payment of a higher amount under the resolution plan, the is so called illegality can be removed. 33. It is submitted that one of the contentions raised by the Appellant is that RP has not taken proper legal advice and certified the resolution plan submitted by the SRA. The email dated 12.12.2018 issued by the RP falsified the said contention as the resolution plan has legal clearance from AZB Partners (Law Firm Advising the CoC). It is also submitted that in the 20th CoC meeting several discussions were held in relation to the matters of distribution or categorization of assets of the Corporate Debtor into core-assets and non-core assets. Therefore, it is requested that the Appeal deserves to be dismissed. Submissions of Respondent No. 2 34. Ld. Counsel for the Respondent No. 2 submitted that after passing of the impugned order, Ld. Adjudicating Authority vide order dated 03.06.2019 approved the resolution plan and the Appellant has not challenged that order. Hence, that order has attained finality and is binding on all stakeholders including the IDBI Bank. 35. It is ....
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....stribution of the funds among the Financial Creditors. A. Financial Creditors, the Resolution Application identify three kinds of Financial Creditors under FC category A on the basis of charge and/or security interest. Which the respective Financial Creditors were holding on the core-assets of the Corporate Debtor. The FC category A Financial Creditors were accordingly paid cash out of Rs. 350 Crores basis the value of the charge and /or security interest which the respective Financial Creditors were holding on that core-assets of the Corporate Debtor. 37. It is also submitted that the CoC failed to decide the distribution mythology even till 20th CoC meeting and accordingly the CoC left it to the discretion of the resolution plan but distribute the resolution fund in the manner which is reasonable according to Resolution Applicant. The CoC could not arrive at a consensus as record to the distribution of the resolution fund. In such circumstances, the Resolution Applicant was called upon to distribute the resolution fund as per its own assessment. The Resolution Applicant will like to emphasis on the fact that FC category A Financial Creditors and FC category B Financial Credito....
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....ank cannot contain that IDBI is similarly placed alongwith other Financial Creditors and thereby claim that the resolution plan is discriminatory. No discrimination has been made by the Resolution Applicant in the distribution of resolution fund among the Financial Creditors. 41. It is also submitted that the table prepared by the IDBI Bank is denied and disputed since such table has been unilaterally prepared by IDBI Bank without any basis whatsoever and such table is not made in accordance with the facts and circumstances in respect of the Corporate Debtor. 42. It is also submitted that the Appeal is not maintainable in the light of the Judgment of Hon'ble Supreme Court in the case of K Sashidhar Vs. Indian Overseas Bank & Ors. wherein Paragraph 3 Hon'ble Supreme Court has held that the legislature has not endowed the adjudicating authority with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC muchless to enquire into the justness of the rejection of the resolution plan by the dissenting Financial Creditors. The Hon'ble Supreme Court has further held that the legislature consciously, has not provided any ground to challenge the commerc....
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.... submitted that the Adjudicating Authority vide its order dated 03.06.2019 in I.A. No. 66 of 2019 had approved the resolution plan which was subsequent to filing of the present Appeal. The said order dated 03.06.2019 was not impugned in this proceedings and was never challenged by the Appellant and hence, the same is attained finality. Thus, the instant Appeal is not maintainable in view of the provisions of IBC since allowing the said Appeal shall defeat the provisions of Section 31 of the IBC which makes the resolution plan binding on all stakeholders. It is settled law of the land that commercial wisdom of the CoC shall prevail as was held by the Hon'ble Supreme Court in the matter of K. Shashidhar Vs. Indian Overseas Bank (2019) 12 SCC 150. 47. The Appellant did not place any objections before the Adjudicating Authority while considering the Application for approval of resolution plan. Therefore, the present Appeal is rendered infructuous as the resolution plan has already been approved vide order dated 03.06.2019 and has not been challenged by the Appellant for the reasons best known to the Appellant. 48. It is also submitted that the Respondent No. 3 cannot represent th....
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.... MOU dated 30.05.2014 voted in favour of the resolution plan. 51. It was in the 20th meeting when the resolution plan was considered for voting that the Appellant raised an objection pertaining to distribution of the funds/proceeds under the resolution plan despite effect with the same was discussed at length in many meetings prior to that. However, the Appellant failed to propose any methodology for distribution of funds and as such the approval of resolution plan is a commercial decision of the CoC, the Appellant does not have any locus standi to interfere with the commercial wisdom of the CoC. For the reasons, it is prayed that the Appeal be dismissed with costs. 52. After hearing Ld. Counsels for the parties, we have gone through the record and written submissions filed by the parties. 53. The following issues arose for our consideration:- (i) Whether the Appellant has an exclusive security/charge over the trademarks? (ii) Whether the criteria for FCs category A and B is based on sound principle? (iii) Whether the Resolution Plan is discriminatory and in violation of the IBC? (iv)Whether once the Resolution Plan is approved by the Co....
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....y i.e. the Corporate Debtor and the ex-promoters of the Company in favour of the Appellant (IDBI Bank) and since the borrower was not in a position to create charge on its fixed assets, the borrower agreed to create charge on its trademarks of Deccan Chronicle, the Asian Age, Andhra Bhoomi and Financial Chronicle owned by Hypothecators. 56. Ld. Counsel for the Appellant raised an objection that the Hypothecation deed is executed by the Corporate Debtor and the ex-promoters of the Corporate Debtor Company jointly. The Corporate Debtor and its promoters had created exclusive security over the trademarks viz Deccan Chronicle, the Asian Age, Andhra Bhoomi and Financial Chronicle (together trademarks) in favour of the Appellant, pursuant to the deed of hypothecation dated 03.09.2012. The Respondents have unconditionally accepted the contains of the hypothecation deed. A perusal of clause 3 of hypothecation deed conclusively established that the trademarks are a joint property of the Corporate Debtor and its promoters and not sole property of the Corporate Debtor. The resolution plan, therefore, cannot extinguish the Appellant's security rights over the said trademarks as such rights ....
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.... to alter, modify or impair any of the rights claims and interest of the parties against the Company or guarantors under the financing documents or to that extent between the creditors inter se (iv) No parties shall use this MOU either as a defence against any other creditors or for any purpose beyond the scope of transaction enshrined in this MOU. Clause 6 of the MOU, Effective date and Term:- "This MOU shall be binding on the parties from the date of this MOU and the parties agreed to adhere to the timeline for the common benefit of the parties. The validity of this MOU shall be a period of 12 months from the date of this MOU which can be extended on mutual consent of the parties." 59. With this term, the effective date of the MOU is 30.05.2014 and the validity of this MOU for 12 months means 29.05.2015. It is not pleaded by the Respondents that after 12 months the validity of MOU was extended by the parties. In the MOU there is no condition that all six parties shall share 1/6th of the sale proceeds. Whereas clause (e) provides that "Wherein it was decided that the parties can jointly proceed with the sale of trademarks and the sale proceeds so realised shall be depo....
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....ademarks of the Corporate Debtor. therefore, the Appellant got less amount in comparison to Canara Bank. 63. Ld. Adjudicating Authority in the impugned order held that the Financial Creditors holding security interest over the assets of the Corporate Debtor were given higher amount from out of the resolution fund, then those who are not holding security interest or holding security interest which is lower in value. According to the Adjudicating Authority a Financial Creditors who has a higher amount of security, it will get more amount out of the resolution fund in comparison to a Financial Creditor who has holding security interest of lower value, he will get a lower amount out of the resolution fund. It means, the Adjudicating Authority has evolved a new basis which is not pleaded by any of the parties. 64. The Resolution Applicant unable to justify the basis of categorization of the Financial Creditors in category A and B. It is undisputed that when this resolution plan was submitted before the CoC at that time the Appellant has raised a serious objection in regard to categorization. The Resolution Applicant is unable to convince us that the categorization is based on soun....
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....ts are unable to justify the grounds of discrimination then certainly the Financial Creditors who get lower amount in comparison to other Financial Creditors of the same class can raise the issue before the Adjudicating Authority. It is not the case when the Appellant has raised the objection first time before the Adjudicating Authority, the Appellant has raised the objection at the inception when the Resolution plan put up before CoC in 20th CoC meeting on 10.12.2018 for approval. 68. In the 20th CoC meeting, there was a detailed discussion about the resolution plan. The representative of IDBI has taken part in the discussion and raise some objections which are recorded in the minutes. Some of them as under:- (Please See Pg. 276, 280 and 281 of Appeal Paper Book) "IDBI raised the question that the RA has not given any basis of distribution in the resolution plan or to the CoC members, to which the PA displayed the reply given by the RA (given hereunder) dated 28.05.2018. The query of the IDBI is answered then the IDBI asked the CoC legal counsel whether it has seen that the plain is discriminatory or not and why is this question not being dealt with by the leg....
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....and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of Section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board." 72. The sub-section (4) of section 30 of IBC has been amended w.e.f. 16.08.2019 and the words "the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority of value of security interest of a secured creditor is inserted." 73. It is also useful to refer the Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), Regulations, 2016. Regulation 38 reads as under:- "Mandatory contents of the resolution plan (1) The amount payable under resolution plan- (a) to the operational creditors shall be paid in priority over financial creditors and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolu....
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....o. Creditor Admitted claims of the A table setting forth the pro-rata shares of admitted claims of Financial Creditors as against the total payment offered to them under the Resolution Plan: pro-rata share in the Financial pro-rata share in the total Settlement amount offered as total Creditor admitted (In Rupees) claims of all per the Resolution resolution the Financial Plan dated 11.12.2018 the Creditors (In Rupees) (in percentage) amount offered to Financial Creditors (in percentage) 1. Andhra Bank 374,22,73,435 4.57 9,50,00,000 2.66 2. Axis Bank Ltd. 808,13,64,102 9.88 45,00,00,000 12.59 Canara Bank 827,13,48,319 10.11 125,00,00,000 34.96 4. Central Bank of 106,10,68,746 1.30 1,70,00,000 0.48 India 5. Corporation 192,28,01,475 2.35 3,50,00,000 0.98 Bank 6. Ganga 92,43,015 0.01 1,00,000 0.0028 Properties Pvt. Ltd. 7. Hamilton & 3,69,72,055 0.05 5,00,000 0.014 Company Ltd. 8. HDFC Bank 95.77,20,076 1.17 1,10,00,000 0.....