TaxTMI 
TaxTMI 
2022 (3) TMI 700
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.... the Corporate Debtor "M/s Applied Electro Magnetics Pvt. Ltd." The Appellant is aggrieved certain legal infirmities in the examination of the Resolution Plan by the Resolution Professional and inadequate allocation for salary, pension and gratuity amounts of workmen/employees in the approved Resolution Plan. 2. In brief the facts of the case are that the Appellant was appointed as Manager R&D (Railway Projects) by the Respondent/Corporate Debtor "M/s Applied Electro Magnetics Pvt. Ltd." on 07.05.2008 and given a basic salary alongwith house rent allowance, PF, Gratuity and LTA and he joined the Corporate Debtor on duty on 07.05.2008. The Appellant has further stated that he continued to work well and consequently the Respondent kept on revising or increasing his salary package even though the payment of salary and other perks was not systematic and beset with delays. The Appellant has further stated that despite repeated requests for payment of pending salary and related amounts the Respondent paid no heed. A final demand was made by the Appellant vide notice dated 17.08.2017 in Form-3 under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate....
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.... Resolution Applicant (in short 'SRA') did not make any change in the amount of PF dues of employees/ workmen in the light of the PF Authority's order, and the Resolution Plan was approved by the Adjudicating Authority vide impugned order dated 02.04.2019, which the Appellant has assailed by claiming it to be not inconsonance with the provisions of the IBC. 5. In this Appeal, the Appellant has alleged irregularities committed by the Resolution Professional in the constitution of Committee of Creditors (in short 'COC'), not carrying out forensic audit, preferential transactions carried out by the erstwhile management of the corporate debtor, among other allegations, and prayed for setting aside the impugned order thereby rejecting the Resolution Plan submitted by the Successful Resolution Applicant. The Appellant has also prayed for sending the matter for investigation of irregularities committed by the Resolution Professional to Serious Fraud Investigation Office or investigation and necessary action. 6. We heard the arguments submitted by the Ld. Counsels for the parties and also perused the record. 7. The Ld. Counsel for the Appellant has argued that the approved Resolution Pl....
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....on Plan was in accordance with Section 30(2)(e) of the IBC. He has further argued that since the liquidation value which was admissible to the operational creditor would have been NIL, hence, the amounts payable to workmen/employees on account of salary, PF and gratuity dues had to be reduced. He has further stated that in such an event, Section 36(4) will be applicable and the amounts of pension fund, gratuity fund and provident fund will have to be kept out of the 'liquidation estate' and then payment will have to be done in accordance with the waterfall mechanism given in Section 53. His argument is that since the plan was approved by 100% voting in the CoC, the commercial wisdom of the CoC in approving such a Resolution Plan cannot be questioned and the distribution therein to various stakeholders cannot be changed by either the Adjudicating Authority or the Appellate Tribunal. 11. The Ld. Counsel for the Committee of Creditors has supported the arguments put forward by the Ld. Counsel for the Resolution Professional and has said that in view of the NIL liquidation value of the Corporate Debtor even the secured financial creditor such as the banks have had to take a large hair....
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....s basis a Resolution Plan submitted by the Resolution Applicant fails to meet the legitimate liabilities of the employees. (vii) No action was taken regarding forensic audit as opined by the then IRP (At Pg. 427 Para 5 of the Appeal Paper Book) which was denied by the CoC. (viii) The claim of Bank of India as financial creditor was wrongly shown as 41.50 Crores instead of Rs. 31.80 crores (since Bank of India had received Rs. 9.70 Crores as payment towards One Time Settlement). In such a situation the voting share of Bank of India was artificially inflated and thus, constitution of CoC as well as allocation of voting shares was wrong. 13. To appreciate the issues raised by the Appellant in the appeal, we peruse Section 30(2)(b) of the IBC as it stood at the time of approval of the Resolution Plan i.e. on 02.04.2019. This provision is as follows:- "30. Submission of Resolution Plan xxx (2) The Resolution Professional shall examine each Resolution Plan received by him to confirm that each resolution plan - xxx (b) provides for the payment of the debts of the Operational Creditors in such manner as may be specified by the board which shall not be less than the amount ....
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....s preceding the insolvency initiation date is shown as Rs. 0.59 crores. This class of debt and the debt of secured financial creditor Bank of India should rank equally in payment. After payment of full CIRP costs of Rs. 0.18 crores from the Liquidation amount of Rs. 6.1 crores, the payment to workmen for a period of 24 months and security creditors has to be made. The actual claim of the Bank of India is Rs. 31.80 crores instead of Rs. 41.50 crores and the claim of workmen for 24 months period preceding insolvency initiation date is Rs. 0.59 cores. Hence the remaining amount of Rs. 6.10 crores (-) 0.18 crores = Rs. 5.92 crores has to be distributed between them proportionately. Since the Bank of India has been offered Rs. 9 crores as settlement of its claim which is about 28% of its claim amount, the workmen should also be given 28% of Rs. 0.59 crore which is equal to Rs. 0.1652 crore. Therefore the workmen should get an additional Rs. (0.1652-0.09) crores = Rs. 0.8834 crores to be distributed among them as per their proportionate shares. 17. In the scheme for payments according to section 53 as it stood on the date of passing of the approval order for resolution plan, the wages a....
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....of not less than 66 % of voting share of the financial creditors after considering its feasibility and viability, the manner of distribution proposed which would take into account order of priority amongst the creditors as laid down in sub-section 1 of Section 53. Hon'ble Supreme Court has held in the case of K Shashidhar Vs. Indian Overseas Bank &Ors. Civil Appeal No. 10673 of 2018 as follows:- "31.......... 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 creditors or their collective decision before the adjudicating authority. That is made non justiciable." 20. Ld. Counsel for the Appellant has referred to the Judgment of Hon'ble Supreme Court in th....
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....India. Despite such a payment having been made, the representative of Bank of India continued to claim that the amount proposed by the Bank of India at Rs. 41.49 Crores be included as due as financial debt due from the Corporate Debtor, there are a series of communication (attached at PP. 126 - 135 of the Appeal Paperbook) which culminated in this issue being discussed in the first meeting of the CoC held on December, 22 2017 (Notice and Minutes of meeting attached at PP. 189 - 203 of the Appeal Paper Book). It is clear that the then IRP Mr. Navin Kumar Jain also raised the objection of the inflated claim of Bank of India being considered in the constitution of CoC and the voting rights therein but the matter was not taken to its logical conclusion by the next RP. Be that as it may, since the voting share of Bank of India even with the reduced claim shall be around 80% we do not think it would affect the overall voting pattern in the CoC when the resolution plan was approved with a 100% vote share, since any percentage of voting for approval more than 66% would have achieved the same result. 24. It is useful to reproduce the list of creditors prepared by Mr. Navin Kr. Jain under R....
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....itution of CoC, the IRP has made comments regarding related parties, claims of Mr. Naresh Aggarwal, MD and Ms. Kavita Aggarwal (Daughter of Mr. Naresh Aggarwal) as financial creditor and conversion of operational debt into financial debt. Further in the meeting for discussing the claim of Bank of India representative has proposed that the amount being 41.49 Crores with an agreement the mandatory bring it back to the agreed legal claim from Applied Electro Magnetics which is "OTS amount approved - the amount paid by AEM so far subsequent to OTS date" in the first CoC meeting. These issues were discussed in the first CoC meeting held on 22.12.2017 (minutes attached at PP. 128 to 203 of the Appeal Paperbook) and the following has been recorded in Paragraph 7:- "It was informed that some loans in the names of family members of Directors have been taken from DhanLaxmi Bank which were infused in the Company". 26. Again in Paragraph 10 it is noted in the minutes as follows: "10. Mr. Navin Kumar Jain pointed out that loans were taken from SM Finlease has been obtained by practically assigning the receivables from Tata Power. Only net proceeds after deducting the repayment of dues to ....