TaxTMI 
TaxTMI 
2022 (3) TMI 821
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....ailing the order dated 21.9.2020 passed by the Adjudicating Authority (NCLT, Kolkata)in IA (IB) No. 680/KB/2020 in CP IB No.1440/KB/2018, by which the Adjudicating Authority has approved the resolution plan of the Corporate Debtor Kharkia Steels Private Limited. 2. The Appellant is aggrieved by the Impugned Order as the Resolution Plan approved by the said order has not considered the claims of the operational creditors adequately and only around 0.16% of the admitted claims of the operational creditors have been taken care of in the approved resolution plan. 3. The facts of the case, as stated and argued by the Appellant, are that the Corporate Debtor/Kharkia Steels Private Limited entered into a Power Purchase Agreement (hereafter called 'PPA') with Respondent No. 1 Kharkia Steels Pvt. Ltd. for supply of power to operate their manufacturing units. Thereafter Kharkia Steels started drawing power from the Discom Damodar Valley Corporation (in short called 'DVC') and not piled up a huge amount of electricity dues. Since the Corporate Debtor was unable to pay the overdue amount, a notice for disconnection of power supply for non-payment of dues was issued by the Appellant on 12....
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.... days from the date of issuance of the notice, failing which the power supply would be disconnected without any further reference to the corporate debtor. Later, through letter dated 23.11.2015and another letter dated 25.5.2016, the DVC communicated that a total arrear due amount for period April 2014 to May, 2015 is Rs. 4,06,85,200 and for the period April 2013 to March 2014 the arrears amount is Rs. 4,43,94,390. 7. The Ld. Senior Counsel for Appellant has further urged that after initiation of CIRP against the Corporate Debtor, the Appellant submitted its claim and also proof of claim vide letter dated 17.10.2019 (attached at pp. 77-82 of the Appeal paper book) as an operational creditor. She has further submitted that the Appellant's claim was admitted for Rs. 18.71 crore but only an amount of Rs. 14 lakhs was approved for all the operational creditors in the approved Resolution Plan whereby the Appellant received a meager amount of Rs. 3 lakhs. She has further submitted that by the time the resolution plan was approved, Appellant's dues had increased to about Rs. 39 crores. 8. The Learned Sr. Counsel for Appellant has referred to Clause 8 of Section VI of the Resolution P....
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....ssar Steel judgment (supra)to argue that Regulation 38(1-A) of the IBBI (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 stipulates that the amount due to operational creditors under the resolution plan are supposed to be given priority in payment over financial creditors and when the COC exercises its commercial wisdom to finalize the resolution plan for revival of the Corporate Debtor, it must necessarily take into account this requirement before it arrives at a business decision for approving the proposed resolution plan. 10. The Learned Senior Counsel for Appellant has further argued that payment of past dues and reconnection of electricity supply after depositing security deposit are covered under the West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations ('WBERC Regulations' in short) made under the Electricity Act, and thus the Adjudicating Authority has exceeded its jurisdiction by approving a resolution plan which, inter alia, takes away the right of the Appellant available under the Electricity Act and WBERC Regulations. She has referred to clauses 4.1.4, 4.6.3 and 4.6.4 which relate to disconnection of power supply, d....
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....e with NCLT under the provisions of IBC which allows for the dues of DVC as an operational creditor to be treated differently from other operational creditors. He has further argued that under section 30(2)(b)(i) and (ii), the provision regarding treatment of claims of operational creditors has been laid down and Explanation 1 clearly states that if the provision of section 30(2)(b) is followed then it is supposed to meet the requirement of equity and viability. He has also referred to the principle laid down by the three-judge bench of the Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel (supra) which has held in paragraph 73 as follows:- ' 73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or some-class of creditors is with the Committee of Creditors. But, the decision of such committee must reflect the fact that it has taken into account maximizing the value of the assets of the Corporate Debtor and the fact that it has adequately balanced the interests of all stake holders including Operational Creditors...... Thus, while Adjudicating Authority cannot interfere on merits with ....
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....f 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 such creditors.' 17. It is noted that the liquidation value of the Corporate Debtor has been estimated as Rs. 6.52 crores. In the event of liquidation of the corporate debtor the amount to be paid to operational creditors would be NIL as the admitted claim of financial creditors is Rs. 411.16 crores. In this context the resolution plan makes a provision of Rs. 0.14 crore fo....
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....s and penalty for non-payment of dues of Rs. 8.43 crores. TOTAL CLAIM OF OTHER OPERATIONAL CREDITORS 94.84 19. Thus, we see that against DVC's total claim of Rs. 18.71 crore it has been paid an amount of Rs. 0.03 crore which is shown in in the approved resolution plan as follows:- "6.6.5 Distribution of payment: The settlement amount of Operational Creditors of Rs. 014 crore shall be paid to them in proportion to their respective admitted claim against total admitted claims under this head. The distribution & Payment timelines, thus, shall be as under: (Rs. Crores) Operational Creditors Claim admitted Sharing %age Settlement amount offered and to be paid upfront within a period of 13 days from the effective date Commissioner of Commercial Taxes, Government of West Bengal 76.13 80.27% 0.11 Damodar Valley Corporation 18.71 19.73% 0.03 Total 94.84 100% 0.14 The total payout under this head shall remain unchanged at Rs. 0.14 crore, irrespective further Claims admitted by RP. In case any further claim admitted under this head, the time line for payment and the Settlement amount of Rs. 014 crore....
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....re the adjudicating authority. That is made non-justifiable.' 22. Again in the Ghanashyam Mishra case (supra), Hon'ble Supreme Court has concluded in paragraph 95 as follows:- "Para 95 (iii) Consequently, all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of their solution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued'. 23. Thus, it is clear that the commercial wisdom of the CoC in arriving at a business decision has been given primacy and finality and is not open to judicial review unless the decision carries any infirmity under law. 24. The Learned Senior Counsel for Appellant has referred to the judgment of the Hon'ble Supreme Court in the matter of Embassy Property Developments Private Limited vs. State of Karnataka & Ors. (2020 13 SCC 308) to emphasize that the dispute regarding payment of past dues has to be decided in the light of Electricity Act and WBERC Regulations made there under. The said judgment of Hon'ble Supre....
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....ties of the Corporate Debtor towards DVC until the Effective Date (whether or not recognized or set out in the Information Memorandum), are collectively the 'DVC liabilities'. DVC liability is a 'claim' and 'debt' as defined under the IBC), and would consequently qualify as 'operational debt'(as defined under the IBC) and therefore, the full amount of such DVC liabilities shall be deemed to be owed and due as of the Effective Date, the liquidation value of which is assumed NIL and therefore, no amount is payable in relation thereto. However, the Resolution Applicant has proposed a payment towards settlement of DVC liabilities as set out in clause No. 6.6 of section 2 of part (B) (Financial Proposal) of this plan. Such DVC liabilities shall immediately after the Effective Date, irrevocably and unconditionally stand fully and finally settled at the settlement price offered by Resolution Applicant under this Plan, with there being no further claims whatsoever by DVC and all rights to invoke or enforce the same shall be waived.This will assist the RA in immediate start of production of goods. a. All pending dues of DVC (whether claimed or not whether contingent or crystalized,....
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....on applicant has to apply for fresh connection, payment of security deposit and any other charges that may be admissible under WBERC Regulations will have to be paid by the successful resolution applicant. 29. We are also of the view that the commitment to supply power to the successful resolution applicant/corporate debtor should be in accordance with the WBERC Regulations made under the Electricity Act. Clause (g) above, which directs DVC to ensure availability of continuous power to the plant at the same rate at which it is supplied power to the adjoining units, will have to be modified since the conditions that are applicable for supplying power to the corporate debtor under a new agreement shall be at the tariff rate and conditions that would prevail at the time of signing of the agreement for a fresh connection by DVC with the Successful Resolution Applicant. 30. We are of the view that the Resolution Plan which has taken care of the debts of the Operational Creditors in accordance with provisions of section 30(2)(b) shall ipso facto be taken as fair and equitable to the Operational Creditors since the distribution of total operational debt amount approved in the Succes....