TaxTMI 
TaxTMI 
2023 (8) TMI 546
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....red to as 'the Code'), seeking approval of the 'Resolution Plan' submitted by the Consortium of Mr. S.M. Kamal Pasha and Mr. Syed Fahad, (hereinafter referred to as the 'SRA'). While allowing the Application for approval of the Plan, the 'Adjudicating Authority' has dismissed the objections filed by the Appellant herein / 'Promotor of the Corporate Debtor' to the Application preferred by the Resolution Professional. 2. Succinctly put, the main issues raised by the Appellant / Promotor of the Corporate Debtor is that the 'Adjudicating Authority' had wrongly directed for project wise CIRP; that the CoC was improperly constituted and that the amount in the Resolution Plan entitled for Kotak Mahindra Bank Limited (hereinafter referred to as 'the Kotak Bank') is much more than the actual Claim admitted by the Resolution Professional (hereinafter referred to as 'the RP'). It is the further case of the Appellant that the amount claimed was Rs. 36,27,00,000/- whereas the amount provided for under the Plan was Rs. 46,00,00,000/-, which is inclusive of 'interest', which ought not to have been charged after the quantum of the Claim amount HAD already crystalized. The other issue raised by ....
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.... approval of the Constitution of the 2nd CoC for 'Arun Kaustubh', but the same was withdrawn, as a result of which the Claims of Creditors other than those related to 'Arun Auroville' were disregarded. Aggrieved by the sudden disbanding of the CoC for project Arun Parkwood, the Financial Creditors of that project filed two separate Applications, IA NO. 58/2021 & 59/2021, seeking to set aside the decision of the RP, but the same was rejected by the 'Adjudicating Authority', vide Orders dated, 19/03/2021, against which two separate Appeals were preferred and the same are pending. 4. The Learned Counsels appearing for the Respondent Bank and the RP submitted that the Application filed by the Financial Creditor of Project Arun Parkwood has never challenged the Constitution of CoC and that the Application was only for consideration of their Claim. Their Appeals are still pending. It is submitted that M/s Kenstrean Ventures LLP filed IA No. 459/2022 after the approval of the Resolution Plan and expiry of Moratorium seeking leave of the Adjudicating Authority to take steps to enforce their mortgage against project Arun Parkwood in terms of the Debenture Trust Deed and this leave was gr....
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....hat the CoC was erroneously constituted, specifically keeping in view that the Order of project wise CIRP was never challenged. 6. Further, the CoC on 29/10/2020 approved the eligibility criteria for a Prospective Resolution Applicant to provide a Resolution Plan in respect of Project 'Arun Auroville' alone. Based on this eligibility criteria, public announcement was effected on 14/11/2020 clearly stipulating that the Resolution Plan was sought only for Project 'Arun Auroville'. Having participated and attended the CoC Meetings, the Appellant had never exercised his choice of raising this issue. Hence, we do not find any substance in this matter in question. ISSUE : DISQUALIFICATION OF THE SRA CONSORTIUM UNDER SECTION 29A OF THE CODE 7. The 2nd issue raised by the Appellant is that the 4th Respondent / The Consortium of Resolution Applicants is disqualified under Section 29A of the Code and therefore, ineligible to submit a Resolution Plan. It is submitted by the Learned Counsel for the Appellant that the Minutes of the 10th CoC Meeting held on 07/12/2020 discloses a false statement reflecting that the SRA was disqualified for the period from 01/11/2015 to 31/10/2020 and t....
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....Applicants suffered disqualification, challenging which decision, the Resolution Applicants filed W.P. No. 43859 and 43860/2017 in which a Common Order was passed by the Hon'ble High Court of Karnataka on 12/06/2019, wherein it was held that the provisions of Section 164 (2) (a) of the Companies Act, 2013 is prospective in nature and would not be applicable to default committed prior to 01/04/2014. The Union of India filed a Writ Appeal in W.A. No. 2866/2019 as against the Order passed in W.P. No. 56393/2017 and has not sought to challenge the Order, passed in favour of the Resolution Applicants. The Hon'ble Court had directed the Registrar of Companies to restore the DIN of such Directors. We find force in the contention of the Learned Counsels for the Respondents that the Order in W.P. No. 43859 & 43860/2018 has attained finality and therefore, there is no disqualification since June 2019. It is also seen from the record that the RP has conducted due diligence through an independent Chartered Accountant, whose Report establishes that the DIN of the Resolution Applicant was restored and activated in terms of the Order of the Hon'ble High Court of Karnataka. In fact, the Hon'ble Su....
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....ch high interest rates and penal interest was to be recovered, Kotak Bank could have initiated Suit Proceedings or Proceedings under the DRT or under the SARFAESI ACT, 2002 which are meant for recovery. The scope and objective of the IBC is revival and not recovery. It is submitted that CIRP was initiated on 31/01/2020, Kotak Bank submitted its Claim for Rs. 36,27,27,729/- and since the Appellant had already paid Rs. 2,00,00,000/- while the Petition was pending, the IRP had admitted the Claim for Rs. 34,27,27,729/-. But the SRA and the CoC had settled Kotak Bank's Claim for Rs. 46,00,00,000/- by showing the due and outstanding amount as Rs. 53,51,00,000/- as on 30/04/2021. The Learned Counsel for the Appellant strenuously contended that Kotak Bank cannot capitalize on the penal interest and deduct the same from the Resolution Plan. The Learned Counsel placed reliance on the Judgment of the Hon'ble Apex Court in 'Central Bank of India Vs. Ravindra and Ors.' reported in [(2002) 1 SCC 367] in which in Para 46, it is held as follows:- "....True it is that once a suit is filed in the court, so far as Section 34 of the Civil Procedure Code is concerned, the relationship of parti....
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....en the Agreement is silent as to award of interest. It is the case of the Appellant that in the present case, interest and penal interest and their rates have been set out in the Settlement Agreement dated 22/05/2018 and the same has been acted upon and claimed interest and penal interest till the Claim was admitted by the IRP. The Learned Counsel for the Appellant submitted that this situation will not fall under the Interest Act, 1978. The Learned Counsel relied on the matter of 'Kottayam District Co-Operative Bank Vs. Annie John' rendered by the Hon'ble High Court of Kerala and reported in [(2002) SCC Online KER 184] in support of his submission that penal interest cannot be included with the contractual rate of interest for awarding future interest from the date of the suit. 14. The Learned Counsel for the Appellant vehemently contended that after the RP admits the Claim, no further interest can be claimed. In the instant case, penal interest alone accrued to Rs. 13,65,00,000/- from 31/01/2020 to 30/04/2021 and the contractual rate of interest was Rs. 3,26,63,897/-. It is further submitted that Kotak Bank had recovered Rs. 9,30,00,000/- by initiating SARFAESI proceedings and....
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....which states that the total amount due to the Bank as on 30/04/2021 is Rs. 53,51,00,000/-. Further, the Kotak Bank is the sole Creditor having charge over the entire project of 'Arun Auroville' and is accepting Rs. 46,00,00,000/- so that all the other stakeholders, namely homebuyers, workmen, and the Operational Creditors get 100 % of their admitted Claims. The Learned Counsel placed reliance on the Judgment of NCLAT dated 14/11/2018 in 'Binani Industries Vs. Bank of Baroda and Anr.' in Company Appeal (AT) (Ins) No. 32/2018, wherein the Financial Creditors were paid interest during the CIRP Period. 16. The moot question which arises for consideration in this issue of capitalization of penal interest by the Bank, raised by the Appellant, is to be examined within the Provisions of IBC, 2016. The Learned Counsel for the Appellant placed reliance on the Judgment of the Hon'ble Apex Court in the matter of in 'Central Bank of India Vs. Ravindra and Ors.' reported in [(2002) 1 SCC 367] wherein it is held that subject to the terms of a Voluntary Contract or established practice or usage and subject to any legislative restriction, charging of interest at reasonable rates on lendings on p....
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....tes as and when produced by KMBL for clearance on or after its due dates. 29. It is agreed by and between the parties that the Securities shall stand as a continuing security till the full and final realization of Settlement Amount by KMBL and it will be enforceable by KMBL for all monies which may at any time become due and payable by the Addresses to KMBL under the Loan Documents executed between the Addressees and Assignor and Addressees and KMBL respectively to read with above said Assignment Agreement. It is further agreed by and between the parties that the Securities shall also stand as a continuing security fo0r any additional financial facility granted by the KMBL to Addressees till its full and final realization by the KMBL as per the terms and conditions of such additional financial facility. (Emphasis Supplied) 18. This Tribunal is of the considered view that as far as penal interest is concerned, the Appellant is bound by the terms of the Settlement Agreement. The next question which arises for consideration is whether after the moratorium is imposed under Section 13 of the Code, the clock will stop ticking with respect to the Claim amount and ther....
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....en the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.] [(3) The provisions of sub-section (1) shall not apply to - [(a) such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;] (b) a surety in a contract of guarantee to a corporate debtor.] (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process : Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be." 19. A simple and purposive reading of this Section 14 d....
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....of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code." 23. The right which vested with the Kotak Bank / The Financial Creditor by virtue of the Loan Agreement / Settlement Agreement cannot be interfered by the Code. It is mainly for this reason that the non obstante clause, in the widest terms possible is contained in Section 238 of the Code, so that any vested right of either the Corporate Debtor or the Creditor, under any other law for the time being in force, cannot come in the way of the Code. The whole scheme and objective of the Code is to bring the defaulter Companies back on their feet, but at the same time cannot fiddle with the terms of the Contract as far as interest / penal interest or any other terms of the Agreement or Contract is concerned. To reiterate, it is not in the domain of the IBC, 2016, even to decide any contractual interest liability. Section 14 does not impose any restriction on charging of any interest till the amount is paid. It is the commercial wisdom of the CoC with respect to the quantum of amounts to be paid to the Creditors within the Provisions of the Code. 24. ....
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....ision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order "approving a resolution plan" under Section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers "by the resolution professional" during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board. Significantly, the matters or grounds-be it under Section 30(2) or under Section 61(3) of the I&B Code -are regarding testing the validity of the "approved" resolution plan by CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by CoC in exercise of its business decision." 165. I....
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....rd to CIRP of United Seamless Tubulaar (P) Ltd. In appeal, Nclat directed [Padmanabhan Venkatesh v. V. Venkatachalam, 2019 SCC OnLine NCLAT 285] , that the appellant therein should increase upfront payment to Rs 597.54 crore to the "financial creditors", "operational creditors" and other creditors by paying an additional amount of Rs 120.54 crores. Nclat further directed, that in the event the "resolution applicant" failed to undertake the payment of additional amount of Rs 120.54 crores in addition to Rs 477 crores and deposit the said amount in escrow account within 30 days, the order of approval of the "resolution plan" was to be treated to be set aside. While allowing the appeal and setting aside the directions of Nclat, this Court observed thus : (Maharashtra Seamless case [Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, (2020) 11 SCC 467 : (2021) 1 SCC (Civ) 799] , SCC p. 487, para 30) "30. The appellate authority has, in our opinion, proceeded on equitable perception 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 grou....
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....do not wish to set the clock back. ISSUE : BEING AN MSME, THE APPELLANT OUGHT TO HAVE BEEN GIVEN SUFFICIENT OPPORTUNITY AND DUE PREFERENCE WITH RESPECT TO 'THE PLAN' 27. Now, we address to the issue raised by the Appellant that despite being an MSME, the Plan submitted by the Promotor was not accepted. It is an admitted fact that the Appellant did not provide the net worth statement and never deposited the Earnest Money Deposit ("EMD") Amount and did not meet the eligibility criteria. It is seen from the record that pursuant to the approval of the prospective Resolution Applicant criteria by the members of the CoC in the 8th CoC Meeting held on 29/10/2021, the RP proceeded to issue an Expression of Interest in Form G on 04/11/2020. The CoC in the 14th CoC Meeting held on 17/03/2021 directed the RP to issue another EOI to better the Resolution Plan value and to maximise the interests of the CIRP Process, the RP proceeded to re-issue an Expression of Interest in Form G on 20/03/2021. The Final List of Eligible Prospective Resolution Applicants was prepared on 07/04/2021 by RP for the 2nd Expression of Interest issued on 20/03/2021. Eligible Prospective Resolution Applicants wer....
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....ode of operation if two CoC's were to be constituted and continued and need to file application before Hon'ble NCLT for necessary directions Mr. Arun Kumar 03 Nov 2020 9 28 Nov 2020 Application filed before Hon'ble NCLT for permitting the constitution and continuance of the second CoC for Parkwoods was placed and noted Mr. Arun Kumar 30 Nov 2020 10 07 Dec 2020 EOI's received were discussed and approval of RFRP, IM to be issued to PRA Mr. Kabilan V - AGM Accounts representing the Suspended Director 9 Dec 2020 11 06 Jan 2021 Revision in constitution of CoC on account of claim by one Registered Home Buyer approved by the CoC and communication of withdrawal of application filed for second CoC for Arun Parkwoods Mr. Kabilan V - AGM Accounts representing the Suspended Director 9 January 2021 12 03 Feb 2021 Place on record receipt of Resolution Plan for Arun Aurovilla only from one applicant. Not Present 6 February 2021 13 22 Feb 2021 Resolution Plan placed for consideration and SRA was present for clarifications - one consortium of M/s Syed Kamal Pasha and Syed Fahad. Application filed by M/s Kenstream and M/s Pur....
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....cant to mention that the Appellant's representative was present in the Meeting dated 20/07/2021. 30. It is an admitted fact that the Appellant could not provide the net worth statement or deposit the EMD amount. The Learned Counsel for the Appellant submitted that the amount spent by the Promotor during the CIRP was requested to be taken as EMD amount, but was refused by the CoC. Needless to add, the rejection was never challenged by the Appellant herein. As can be seen from the aforenoted table and the dates given in Para 27, it is clear that though two 'Form -Gs' were issued, the Appellant never participated in the 2nd EOI and did not submit a Resolution Plan. The Fourth Respondent after improving the Resolution Plan made a request for consideration and the CoC in its 17th Meeting held on 10/05/2021 took steps to consider the revised Resolution Plan. Even at this stage, the Appellant did not challenge the revised consideration of the Resolution Plan of the 4th Respondent. 31. One of the issues raised by the Appellant is that the Resolution Plan value is less than the Liquidation value and that this is in violation of the Provisions of Section 30(2) of the Code. The 'Adjudic....
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....on for all the stakeholders. As you are aware, objective of the IBC is not debt recovery for financial creditors but it is a law for reorganisation and insolvency resolution of corporate persons in a time bound manner for maximisation of value of assets, to promote entrepreneurship, availability of credit and balance the interests of all stakeholder. Therefore, interest of all the stakeholders is very important and it has to be protected. I as a promoter of the company has significantly invested in the company by way of debt as well as equity over a period of time which is evident from the financials of the company and it is utmost important for the CoC and the RP to protect my interest also in the resolution process. Since there is only one resolution applicant, I am of the view that a good value discovery may not be possible which will be in the interest of the company and all its stakeholders. I also note that the valuation of the project Aurovilla is very high as per the valuation reports obtained by me and in my humble submission, one resolution applicant may not be in a position to provide better value. Further, I have a concern that there may be a possibili....