TaxTMI 
TaxTMI 
2022 (5) TMI 490
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....ssenting Financial Creditor challenging the order dated 19.05.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Court No.-1, whereby the Adjudicating Authority approved the Resolution Plan submitted by the Resolution Applicant- 'Dev Land & Housing Private Limited' (Respondent No.2). The brief facts of the case and sequence of the events necessary to be noticed for deciding this Appeal are:- Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor- 'GB Global Limited' (formerly Mandhana Industries Limited) was initiated by order dated 29.09.2017. Liquidation value on date of CIRP was found to be INR 307/08 Crores. On 30.11.2018, the Resolution Plan of one 'Formation Textiles LLC' ("FTL") in respect of the Corporate Debtor was approved. FTL took over the management and control of the affairs of the Corporate Debtor on 31.01.2019. However, after running the affairs of the Corporate Debtor for several months, it could not implement the Resolution Plan. On 05.12.2019, the Adjudicating Authority passed an order directing handing over of possession of the Corporate Debtor to the Committee of Creditors (CoC) which in turn will be....
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....9th May, 2021 contrary to the provision of Section 30(2) of the Code; c. Pending the hearing and final disposal of the present Appeal, the effect and implementation and execution of the impugned order dated 19th May 2021 passed by the Hon'ble Adjudicating Authority, Mumbai Bench in I.A. No. 19/2021 filed in the Company Petition No. 1399/2017 kindly be stayed; d. Declare the second valuation of the Corporate Debtor as untenable in the eyes of law; e. Any other just and equitable order in the interest of justice may kindly be passed." 2. We have heard Shri Abhijeet Sinha, Learned Counsel for the Appellant, Ms. Pooja Mahajan, Learned Counsel for Respondent No.1, Shri Ramji Srinivasan, Learned Senior Counsel for Respondent No.2 and Shri Gopal Jain, Learned Senior Counsel for Respondent No.3. 3. Shri Abhijeet Sinha, Learned Counsel for the Appellant submits that there is no provision in the Code which empowers the Respondent No.1 to carry out a fresh valuation process on the basis of which the fair value and liquidation value can be determined. It is submitted that in terms of the valuation of the Corporate Debtor as on 29.09.2017, liquidation value came....
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....report. The Appellant- Indian Bank was present in the 32nd CoC meeting and did not object to fresh valuation which was decided to be taken. In the 36th CoC meeting held on 20.10.2020, a query was raised on distribution to Dissenting Financial Creditors, to which Resolution Professional had clarified that in such an event, the lender would be entitled to their share of the net liquidation value which shall be arrived after providing adjustment for CIRP and estimated liquidation cost. The minutes of the said meeting were circulated but no objection or concerns were raised by the Appellant. The Resolution Plan fully complies with the provisions of Section 30(2)(b). In 39th CoC meeting held on 01.01.2021, revised plan value lender wise distribution was placed. The CoC had approved the Resolution Plan as well as the distribution of lenders of the amount proposed by the Resolution Applicant which was approved by 67.01% voting share. The Appellant cannot be allowed to question the commercial wisdom of the CoC which approved the plan with requisite voting percentage. 5. The submission of the Counsel for the Appellant that in the liquidation value as per Section 53 of the Code, there sho....
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....ts that the Appellant having unequivocally agreed to conduct a fresh valuation and to the liquidation value, it cannot be heard in objecting the fresh valuation obtained as on 31.07.2020. The issue of distribution mechanism was discussed in 36th CoC meeting and the meetings of the joint lenders committee. During the CoC meeting, there is no objection of any kind raised by the Appellant. It is for the first time by e-mail dated 04.01.2021, the Appellant raised concern before the Resolution Professional in relation to value payable to it. Fresh valuation was conducted to enable revival of the Corporate Debtor. The Dissenting Financial Creditor is only entitled to liquidation value minus CIRP costs and estimated liquidation costs. In any case, on monetary terms, Appellant is making the highest recovery under the Resolution Plan. 9. We have considered the submissions of the parties and perused the record. 10. From the submission of the counsel for the parties and materials on record, following are the questions which arise for consideration in this Appeal: (i) Whether the decision of the CoC taken in 32nd CoC meeting held on 27.08.2020 to obtain a more recent valuation r....
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.... as on 29.09.2017. The second valuation report was obtained as on 31.07.2020 which has given the liquidation value INR 184.93 Crores. The emphatic attack by Learned Counsel for the Appellant is on the second valuation exercise. It is submitted that the liquidation value is on the date of initiation of CIRP and there can be no liquidation value in between. The facts of the present case, as noticed above, indicate that CIRP which commenced on 29.09.2017 came to an end by approval of the Resolution Plan by FTL on 30.11.2018, after that FTL had took over the management and control of the affairs of the Corporate Debtor and it ran the Corporate Debtor for almost a year. The Resolution Plan could not be implemented by FTL and the Adjudicating Authority by an order dated 05.12.2019 directed the FTL to hand over the possession of the Corporate Debtor to the CoC and the Resolution Professional which ultimately was handed over on 08.01.2020. The present is a case where the CIRP which was initiated on 29.09.2017, a Resolution Plan came to be approved and after approving of the Resolution Plan under Section 31(3), the Moratorium came to an end and Resolution Professional to forward all records....
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....nsidered by the CoC for reference and evaluation purposes. The RP informed the forum that while fair/liquidation values as on insolvency commencement date are available, however, given deterioration in business performance of the Corporate Debtor over a significant period of time and the additional disruptions on account of the Covid-19 pandemic, the earlier valuation reports will not reflect such value erosion. The RP further reminded the forum that considering these aspects, it was agreed in the 32nd CoC meeting that a more recent valuation report would be more representative of the current fair and liquidation value of the Corporate Debtor and such valuation reports will be used for and referred to for all purposes in connection with the corporate insolvency resolution process of the Corporate Debtor. Representatives of legal counsel of CoC also mentioned that in their understanding, in a few cases, such as in the case of CIRP of Amtek Auto which E&Y team had confirmed earlier, the CoC had agreed to revise liquidation valuation to a more recent date which was then used as base for all CIRP processes. The RP further stated that since confidentially undertakings for discl....
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....r 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". 17. 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 that there is any bar under IBC provisions for the CoC to call for a fresh valuation report. We, thus, do not find any substance in the submission of the Counsel for the Appellant that fresh liquidation value could not have been obtained by CoC and we further do not accept the submission of the Counsel for the Appellant that distribution consequent to liquidation value as on 31.07.2020 is not in accordance with law. 18. The second limb of argument which has been advanced by the Counsel for the Appellant is regarding the liquidation value ascribed to the Appellant in the Resolution Plan as well as by the CoC. Submission is that the value ascribed is in accordance with Section 30(2)(b) r/w Section 23. Section 30(2)(b) which was inserted by Act 26 of 2019 w.e.f. 16.08.2019 is as follows: 30. Submission....
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....agraph 128, following has been laid down: "128. When it comes to the validity of the substitution of Section 30(2) (b) by Section 6 of the Amending Act of 2019, it is clear that the substituted Section 30(2)(b) gives operational creditors something more than was given earlier as it is the higher of the figures mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount to operational creditors. The same goes for the latter part of sub-clause (b) which refers to dissentient financial creditors. Mrs. Madhavi Divan is correct in her argument that Section 30(2)(b) is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cramdown unsecured financial creditors who are dissentient, the majority vote of 66% voting to give th....
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.... and not at the stage of resolving insolvency is correct. Section 30(2)(b) of the Code refers to Section 53 not in the context of priority of payment of creditors, but only to provide for a minimum payment to operational creditors. However, this again does not in any manner limit the Committee of Creditors from classifying creditors as financial or operational and as secured or unsecured. Full freedom and discretion has been given, as has been seen hereinabove, to the Committee of Creditors to so classify creditors and to pay secured creditors amounts which can be based upon the value of their security, which they would otherwise be able to realise outside the process of the Code, thereby stymying the corporate resolution process itself." 22. We may also notice the judgment of the Hon'ble Supreme Court in "K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150". In K. Sashidhar, the Hon'ble Supreme Court had occasion to consider the provisions of Section 30 of the Code. While considering the provision of Section 30(4), following was held in paragraph 68:- "68. Suffice it to observe that the amended provision merely restates as to what the financial creditors are expect....
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....this Court, after taking note 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 Section 30(2) of the Code, which would essentially be to examine that the resolution p....
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....a a particular creditor or any stakeholder. In paragraph 13, following was laid down:- "13. It needs hardly any elaboration that financial proposal in the resolution plan forms the core of the business decision of Committee of Creditors. Once it is found that all the mandatory requirements have been duly complied with and taken care of, the process of judicial review cannot be stretched to carry out quantitative analysis qua a particular creditor or any stakeholder, who may carry his own dissatisfaction. In other words, in the scheme of IBC, every dissatisfaction does not partake the character of a legal grievance and cannot be taken up as a ground of appeal." 26. Further, the Hon'ble Supreme Court categorically held that what amount is to be paid to different classes or subclasses of creditors is essentially the commercial wisdom of the Committee of Creditors and Appellant cannot suggest a higher amount to be paid to it with reference to the value of its security interest. In paragraphs 17, 19, 20 & 21, following was laid down:- "17. Thus, what amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and th....
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....y in paragraph (D) has noted the summary of financial proposal. In paragraph D (iv), following has been noticed by the Adjudicating Authority:- "(iv) Pay-out proposed for financial creditors as per clause 12.5.2 of the Resolution Plan is as under:- Financial Creditor Category Admitted Amount Allotted Amount % Secured Financial Creditors Dissenting 389.63 72.41 19% Assenting 774.14 78.59 10% Unsecured financial Creditors Dissenting NA NA 0% Assenting 17.17 - 0% Total 1180.95 151.00 13% 29. All dissenting creditors have been allotted amount of 19% of their admitted amount without there being any discrimination in the dissenting creditors. It is relevant to notice that the Appellant is not the only dissenting creditor. The Appellant himself has brought on the record minutes of 39th meeting of the CoC held on 01.01.2021 which indicate that apart from Indian Bank, Bank of India, Union Bank of India, Punjab National Bank, Karur Vyasa Bank and Canara Bank were also dissenting creditors. All dissenting creditors have been provided same percentage as against the admitted claim. In the 39th CoC me....
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....to the distribution mechanism, the forum deliberated and discussed various scenarios of distribution. Based on oral discussions with the Resolution Applicant, it is understood that the Resolution Applicant has proposed to increase the financial proposal to FCs by INR 6 crores from INR 145 crores to INR 151 crores. The said incremental amount is proposed to be distributed to better the recoveries of only those members of the CoC (State Bank of India, Saraswat Bank, Bank of India, Union Bank of India and SIDBI) who were otherwise being affected in the event Scenario 1 is agreed to by the CoC and accordingly the increased amount was proposed to be distributed only among those affected CoC members as per Revised Scenario 1 which has been placed before the CoC. Name of Bank Scenario 1 (Plan Value being split in the ratio of each lender's individual LV) Revised Scenario 1 Payout to CoC members Bank of Baroda 26.77 26.77 State Bank of India 12.87 16.87 Saraswat Bank 9.50 10.20 Bank of India 8.85 9.45 Indian Bank 40.39 40.39 Union Bank of India 3.69 4.19 Axis Bank 19.57 19.57 Punjab ....