TaxTMI 
TaxTMI 
2022 (5) TMI 460
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....Pundir, Ms. Kanak Malik, Mr. Rishabh Lekhi and Mr. Kanay Pisal, Advocates J U D G M E N T (VIRTUAL MODE) [Per.: Dr. Alok Srivastava, Member (Technical)] The two appeals, namely first one preferred by Rana Saria Poly Pack Private Limited [CA (AT) (Ins) No. 422 of 2021] and the second one preferred by Simbhaoli Sugars Ltd. [CA (AT) (Ins) No. 741 of 2021] have been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called 'IBC'). The appellants in both appeals are aggrieved by the order dated 17.3.2021 in IA No. 290 of 2020 in CP/IB/ALD/ No. 120 of 2017 (hereinafter called "Impugned Order"). Both the appeals are being disposed of by this common judgment as the issues raised in both the appeals pertain to the same Impugned Order. 2. The Appellant in CA No. 422 of 2021 M/s. Rana Saria Poly Pack Private Limited has stated that the corporate debtor -a Special Purpose Vehicle constituted as a Joint Venture Company of M/s. Simbhaoli Sugars Limited(in short 'SSL') and EDF Mann Group - took a loan of Rs. 100 crores from IDBI Bank to set up a refinery in the year 2012. These loans were secured by personal guarantees provided by the promoters of SSL a....
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....gars Pvt. Ltd. without considering the fact that the entire exercise of CIRP was carried out against the interest of the stakeholders and in violation of the mandatory provisions of IBC. He has added that the Resolution Professional and CoC proceeded to seek contrary reliefs from the Adjudicating Authority under Chapter II and Chapter III of the IBC, and once proceedings under section 33 in Chapter III of IBC had commenced upon filing of CA (AT) (Ins) No. 83 of 2019 by the Resolution Professional, the CoC became functous officio and could not consider and approve a resolution plan which was prepared in accordance with erroneously obtained report of the liquidation amount which was not acceptable to the stakeholders. He has further stated that the resolution plan approved by the Impugned Order has resulted in transfer of the business of the company at a value which is much below its actual worth causing loss to all the stakeholders including the creditors. He has also stated that various applications which involved recovery of approximately Rs. 85 crores (namely CA No. 227 of 2018, CA No.235 of 2018 and CA No. 236 of 2018) were pending before the Adjudicating Authority, and while ap....
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....sets. In particular, he has referred to the discussion noted in the minutes of the 20th CoC meeting at pp.46-48 of the Rejoinder Affidavit to show that the Resolution Professional pointed out in the meeting that he had, in an earlier 15th meeting of the CoC, apprised the members that no further fresh valuation was required to which they had consented. The minutes also note the view of Ms. Nancy Agarwal, authorized representative of Union Bank of India that under Regulation 27 of CIRP Regulations, the Resolution Professional has been given the power to obtain a third valuation report in case of major disparity in the initial two valuations and that the cost of valuation should be included in the CIRP cost. The Learned Counsel for Appellant has urged that the cost of third valuation if met by CoC members will not be in accordance with CIRP regulations, and furthermore in undertaking the third valuation only one valuer for each class, namely, (i) Securities or Financial Assets, (ii) Land and Building, and (iii) Plant and Machinery, were appointed instead of two valuers as stipulated in the CIRP Regulations. 6. The Learned Counsel for Appellant has stated that using the liquidation ....
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....rd. English edition and Jansatta Hindi edition. 10 Date of final List of Eligible Prospective Resolution Applicants The Corporate Insolvency Resolution Process in the matter of Uniworld Sugars Private Limitged was commenced w.e.f. 29.05.2018 and as on date of commencement of CIRP Regulation 36B of the IBBI CIRP Regulations was not into existence. It was inserted vide Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 04-07-2018). Xx xx xx xx 7. The amounts provided for the stakeholders under the resolution plan is as under: (Amount in Rs. Crore) S.No. Category of Stakeholders Sub-Category of Stakeholders Amount claimed Amount Admitted Amount Provided under the Amount Plan Provided to the Amount claimed xx xx xx xx xx xx 2. Operational Creditors (a)Related Party of corporate debtor 371.90 122.53 NIL NIL (b)Other than (a) above: (i)Government (ii)Workmen 0.34 0.34 0.28 81.57% (iii)Employees 1.55 1.51 0.30 20.25% (iv)Others 10.05 8.34 1.58 18....
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....e corporate debtor's assets, it amounts to defrauding the creditors and thus these irregularities are covered under section 66 of the IBC. 10. The Learned Senior Counsel for Appellant (in CA (AT)(Ins) No. 741 of 2021) has adverted to page No. 7 of the Appeal Paperbook in CA 741 of 2021 to point out that the liquidation value as per the evaluation carried out by valuer Jagdish Mistry and Parag Seth on 28.5.2018 are Rs. 126.30 crores and Rs. 121.01crores respectively, whereas the third valuation carried out on 8.10.2020, under the directions of CoC and paid for by the CoC has estimated liquidation value as Rs. 52.69crores. He has urged that the third liquidation valuation which is significantly different from the first two valuations was done without any legal justification and hence consideration of the third liquidation valuation of Rs. 52.69 crores ignoring the first two valuations is neither justified nor legally tenable. He has also argued that the CIRP was initiated on 29.5.2018 and the 10th meeting of the CoC took place on 7.4.2019, when the CoC resolved not to seek any extension beyond the stipulated period of 270 days for the CIRP. Furthermore, an application for orders o....
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....ed Senior Counsel of Respondent, no third valuation of liquidation value was undertaken and therefore this judgment is distinguishable on this ground. He has finally urged that the Impugned Order being bad in law should be set aside. 13. The Learned Senior Counsel for Respondent No.1/Resolution Professional has argued that the Appellant does not have locus standi to challenge the approval of the resolution plan, as it is based on commercial wisdom of the CoC, and therefore, an appeal against an order approving the resolution plan under Section 31 can be assailed only on grounds under section 61(3) of the IBC. In support, he has cited the judgments of Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel vs. Satish Kumar Gupta (2020 8 SCC 531)and also K. Sashidaran vs. Indian Overseas Bank (Civil Appeal No. 10678 of 2018) to maintain that the decision taken by the majority of creditors is binding on minority creditors and creditors who have no voting share, and therefore in the present case the Appellant has no locus standi to challenge the commercial wisdom of CoC and hence the approval of the resolution plan. 14. The Learned Senior Counsel for Responde....
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....is to ascertain that the resolution plan meets the requirement of Section 30 of the IBC, and the tribunal has to cede ground to commercial wisdom of the creditors than to assess the resolution plan on the basis of the quantitative analysis vis-à-vis the liquidation value. 16. The Learned Senior Counsel for Respondent No. 1 has stated that no objection was raised on the Forensic Audit Report by the erstwhile management and creditors and hence is would have had no adverse impact on the resolution plan, and also this report was not available to the Adjudicating Authority when the application for approval of the resolution plan was filed. Finally, he has urged that since the Impugned Order does not go against any legal provisions of IBC and the Adjudicating Authority has acted well within its jurisdiction and mandate under law, the Impugned Order should not be interfered with. 17. The Learned Counsel for Respondent No. 3/Successful Resolution Applicant (M/s. NCIRCLE Exim LLP) in CA No. 741 of 2021 has argued that the resolution plan which was approved by the Adjudicating Authority was submitted in the year 2020, the SRA is still committed to implementing it. He has further....
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....t had there been liquidation of the corporate debtor, the operational creditor/Appellant would not have received a 'nil' payment. Further, he has pointed out, the Forensic Auditor's report was made available on 20.1.2021 and the Resolution Professional sent it for comments on 8.2.2021. Since the Forensic Audit Report was available on 20.1.2021, it was desirable that the Resolution Professional should have taken action on the omissions and commissions that came out in the report, even if he did not put it up before the CoC. He has cited the judgement in the matter of Binani Industries Ltd. vs. Bank of Boarda and Another (2018 SCC Online NCLAT 521), wherein this Tribunal has held in para 48 that if the operational creditors are ignored and provided with liquidation value on the basis of misplaced notion and misreading of section 30(2(b), then the objectives of IBC will not be achieved and in such a situation, such a plan can be held to be against the provisions of IBC. 19. The provisions of IBC and regulations made there under that are relevant to this case are reproduced below for ready reference:- Regulation 27 of CIRP Regulations, 2016 27. Appointment of Professionals.- (....
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.... considered the fair value or the liquidation value, as the case may be. (2) After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29: (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value. Section 25 of IBC 25. Duties of resolution professional. - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - (a) take immediate custody and control of all the assets of t....
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....s hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors Section 66 of IBC, 2016 66. Fraudulent trading or wrongful trading. - (1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there w....
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....and liquidation value will be estimated and later communicated to the members of CoC. Furthermore, we also note that a third valuation has to be undertaken in the event two estimates of valuations are significantly different, whereupon the Resolution Professional may appoint a third registered valuer. 22. Admittedly, two valuations were carried out by M/s. Jagdish Mistry and M/s. Parag Seth and the valuations obtained from them are as follows:- Date Name of Valuer Liquidation value (in Rs.) Fair value(in Rs.) 28.5.2018 Jagdish Mistry 126. 30 crore 184.95 crore 28.5.2018 Parag Seth 121.01 crore 175.29 crore 23. We note that under the CIRP Regulations no power has been given to CoC to call for any valuation of fair and liquidation value though we don't think there is any bar under IBC provisions for the CoC to call for a fresh valuation report. Assuming that the CoC were to call for a valuation report to assist itself in the decision making, we are of the opinion that the procedure and process as outlined in regulations 27 and 35 ought to be followed. The reasons for obtaining two valuations, we feel, is so that a single valuation should not ....
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....ations under the IBC has been duly complied by the RP way back in 2018. So far as the fresh valuation is concerned or consideration of any third party valuer's report is concerned, it is up to COC or individual Financial Creditor whether they consider original valuation or whether they wish to get a fresh and uptodate valuation by third party or conducted by themselves. In this context, he quoted that one disciplinary case (Bhupesh Gupta-IP) adjudicated by IBBI just for the reason that he upon requisition of COC got the third valuation done and the cost of valuation was borne by corporate debtor. IBBI held that since there is no provision of fresh valuation within the IBC, 2016 therefore the cost of any such valuation would not be borne by the corporate debtor. In his explanation Mr. Madaan continued that in line of the said decision the cost of fresh valuation and other associated expenses should only be borne by the COC members. Mr. Madaan further submitted that lot of time has already been spent non this entire process, but resolution professional is duty bound by this law to conduct everything within a time frame he cannot wait fo9r an indefinite period of time. Ms. Na....
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....ns and limitations in their reports on which the valuation(s) have been carried out, therefore this exercise would not only be time consuming and but also incurring expenses. IDBI representative expressed his concerns non the valuation of land and he sought clarifications from RP. RP apprised the COC that the non-availability of connecting road to refinery and non-industrial approval of part of land are the main factors contributing to low valuation of Land. RP, then, requested Mr. Sanjay Tapriya CEO of the corporate debtor to explain the same in detail. CEO explained as how road lock pending conversion of part of land for industrial purposes and abundantly available land in vicinity has affected the valuation in last two years. He also added that presently in Kandla and surroundings where the refinery plant of corporate debtor is situated, there is no buyer for industrial land, with lack of further industrialization no property is easily sellable over there and market has become very limited and volatile and Kandla is not having a regular Industrial area as well and therefore with lack of sellable proposition of industrial land the market price of existing land is close to agricul....
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....fore-mentioned minutes of CoC meetings that members did have objection about undertaking a fresh valuation (third valuation in the present case), but eventually the issue came down to the payment of expenses in relation to fresh valuation and the main issue about whether to undertake a third valuation or not was side-stepped. It is thus a case of missing the woods for the trees. Since the liquidation value forms the basis of deciding the inter se` payments to creditors it requires that the valuation exercise be undertaken with absolute impartiality and. Hence, in our view the relevance and application of Regulations 27 and 35 are pertinent in the process of appointment of valuers and for establishing the need for a fresh valuation. 29. The Ld. Senior Counsel of Respondent has pointed out the observation of Hon'ble Supreme Court that a report obtained in the process of payment of insurance amount can form the basis of decision in the matter of Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited and Anr. [(2009 8 Supreme Court cases 507] wherein Hon'ble Supreme Court held that: "37. The option to accept or not to accept the report is with the insurer. Howeve....
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....nior Counsel for the 'Committee of Creditors', if need be and if an extraordinary situation so arises, the 'Committee of Creditors' holds the discretion in conformity with the Regulations framed by the Board to extend the timeline over and beyond the 'process documents'. The said fact is also evidenced in the proviso to Clause 1.3.1 of the 'process document'....... 73. In exercise of powers conferred by Section 31 of the 'I&B Code' read with order of remand by the Hon'ble Supreme Court, we have gone through the records, revised 'resolution Plan' submitted by 'Ultratech Cement Limited, gist of which noticed earlier and being satisfied that the 'resolution Plan' approved by the 'Committee of Creditors' under sub-section (4) of Section 30 in its 17th meeting held on 28th May, 2018 meets the requirements as referred to in sub-section (2) of Section 30, we approve the revised 'Resolution Plan' submitted by 'Ultratech Cement Limited' which shall be binding on the 'corporate debtor' and its employees, members, Creditors, guarantor and other stakeholders involved in the 'Resolution Plan'." As opposed to the contention of Ld. Counsel for Respondents, the Ld. Counsel for Appellan....
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....erception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel (supra), the relevant passage (para 54) of which we have reproduced in earlier part of this judgment. The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have ....
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.... in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Thus, it is clear that when the Committee of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjud....
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....te of the previous decisions in Essar Steel(supra) as also in K. Sashidhar v. Indian Overseas Bank and Ors.: (2019) 12 SCC 150 and Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors.: (2020) 11 SCC 467, summarised the principles as follows: "77. In the scheme of IBC, where approval of resolution plan is exclusively in the domain of the commercial wisdom of CoC, the scope of judicial review is correspondingly circumscribed by the provisions contained in Section 31 as regards approval of the Adjudicating Authority and in Section 32 read with Section 61 as regards the scope of appeal against the order of approval. 77.1. Such limitations on judicial review have been duly underscored by this Court in the decisions above-referred, where it has been laid down in explicit terms that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised by the CoC. The limited judicial review available to Adjudicating Authority lies within the four corners of Sect....
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....wisdom of the financial creditors." 38. It is noted from the above-mentioned judgments that while 'commercial wisdom' of the CoC is the most important factor in the formulating and finalising a resolution plan, the commercial wisdom has to be exercised keeping in mind the key features of the IBC which would, inter alia, mean balancing the interests of the creditors which would establish the 'viability and feasibility' of the resolution plan. 39. Another issue that has been raised by the Learned Counsel for Appellant is the matter of conducting forensic audit of the corporate debtor and not placing the report of forensic audit for the consideration of the Adjudicating Authority. The matter of undertaking forensic audit was discussed by the CoC in its 20th meeting and it was conducted on the direction of the CoC. This report was received on 20.1.21 by the RP, who sent it to the creditors vide e-mail dated 8.2.2021. The Learned Counsel for Respondent has claimed that since the creditors did not raise any objection or concerns regarding the contents of the Forensic Audit report, it was not placed before the Adjudicating Authority. The Learned Counsel for Appellant has claimed tha....
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....ion report on fair and liquidation value and the approval of resolution plan of Rs. 54.02 crores make it clear that the quantum of liquidation value was relevant and material in allocating payments to be given to the workmen, employees and the operational creditors. 43. Section 30(2)(b) stipulates that the payment of debts of operational creditors should be in such a manner as may be specified by the IBBI, which shall not be less than the amount to be paid to such creditors in the event of the liquidation of the corporate debtor under section 53. Hence, the correct liquidation value of the corporate debtor assumes significance insofar as payments towards stakeholders and creditors are concerned. In order to assess the quantum of payments we disregard the third valuation of liquidation value for reasons that have been discussed extensively earlier in this judgment and assume that the liquidation value would be the average of the first two liquidation value estimations, which would be Rs. 123.66 crores. The full CIRP cost of Rs. 8 crores would be paid out of the assumed liquidation valuation of Rs.123.66 crores and Rs.115.66 crores will remain available for payment to workmen, emp....