TaxTMI 
TaxTMI 
2023 (11) TMI 1034
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....or approval of Resolution Plan submitted by Puro Naturals JV; IA No.963 of 2022 and I.A. No.112 of 2022 filed by Respondent Nos.1 and 2 objecting to the Resolution Plan. The Adjudicating Authority by the impugned order rejected IA No.2165 of 2021 field by the RP - Ritesh R Mahajan for approval of the Resolution Plan and IA No. 963 of 2022 and 112 of 2022 filed by Respondent Nos.1 and 2 for rejection of the Resolution Plan submitted by Puro Naturals JV, were allowed. The Company Appeal (AT) (Ins.) Nos.661-663 of 2023 has been filed by the Successful Resolution Applicant Puro Naturals JV challenging the impugned order. Company Appeal (AT) (Ins.) No.651 of 2023 has been filed by Ritesh R Mahajan, RP challenging the impugned order and Company Appeal (AT) (Ins.) No.1005 of 2023 has been filed by 38 Sugarcane Farmers and creditors of the Corporate Debtor, who have come up in this Appeal challenging the impugned order rejecting the Resolution Plan. 2. Brief facts necessary to be noticed for deciding these Appeal(s) are: (i) Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor - Shivaji Cane Processors Limited was initiated by an order dated 18.02.2021 ....
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....reditors to proceed against the Personal Guarantor. (vi) It is useful to extract the main reason given by the Adjudicating Authority for rejecting the Resolution Plan. The reasons as contained in paragraph 13 of the judgment are as follows: "13. The counsel for the Resolution Professional has sought to distinguish the above case by arguing extensively that the Resolution Plan only assigns the personal guarantees and does not extinguish the same. However, the argument is without any merit for two reasons. Firstly, the argument is in complete defiance of record and is factually incorrect, as the Resolution Plan in fact and indeed seeks to not just assign but extinguish the personal guarantee and securities in the garb of assignment in favour of a third party. Secondly, without prejudice to the above, such assignment is without consent of Dissenting Financial Creditors which cannot bind the Dissenting Financial Creditors. In a recent judgment, the National Company Law Tribunal, Indore Bench has in its order dated January 06, 2023 in the matter of Naveen Kumar Sood RP of Ujaas Energy Ltd & Anr v/s. Ujaas Energy Ltd & Ors has upheld the said settled position of law in ....
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....ered view that such Resolution Plan cannot be approved and deserved to be "rejected". Accordingly, I.A. No. 963 of 2022 filed by The Kolhapur Urban Co-Op Bank Limited, I.A. No. 112 of 2022 filed by Shree Warna Sahakari Bank Limited are "allowed" and IA No. 2917 of 2021 filed by Dombivli Nagari Sahakari Bank Ltd. are rendered "infructuous and disposed of"." (vii) Aggrieved by the impugned order, these three Appeal(s) have been filed as noted above. 3. We have heard Shri Amar Dave, learned Counsel appearing for the Successful Resolution Applicant (in Company Appeal (AT) (Ins.) No. 661-663 of 2023); Shri Krishnendu Datta, learned Senior Counsel appearing for RP (in Company Appeal (AT) (Ins.) No. 651 of 2023); Shri Siddharth S. Chapalgaonkar, learned Counsel appearing for Sugarcane Farmers, who have filed Company Appeal (AT) (Ins.) No.1005 of 2023; and Shri Sumant Batra, learned Counsel appearing for Respondent Nos.1 and 2 - dissenting Financial Creditors. 4. We shall proceed to notice the submission raised on behalf of the learned Counsel for the Appellant(s) together. The learned Counsel for the Appellant challenging the impugned order contended that very basis of order o....
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....arned Counsel appearing for Respondent Nos.1 and 2 refuted the submissions advanced by the learned Counsel for the Appellant(s) and submits that there were other grounds apart from the ground of extinguishment of securities and personal guarantee of the Financial Creditors to object the Resolution Plan. It is submitted that the payment to the dissenting Financial Creditor is not in accordance with Section 30, sub-section (2) as well as Regulation 38 of the CIRP Regulations, 2016. Under the Resolution Plan, the payment to the Financial Creditors are being made upfront within 90 days, whereas the payment to dissenting Financial Creditors shall be made in three years, which payment is contrary to the scheme of the IBC. The learned Counsel has referred to clauses of Resolution Plan, i.e., Clause C-3 provisions for secured Financial Creditors of the Corporate Debtor. The learned Counsel for the Respondent has also placed reliance on judgment of Hon'ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Assocaition & Ors. vs. NBCC (India) Limited and Ors. - passed in Civil Appeal No.3395 of 2020. The learned Counsel for the Respondent further submits that according to the Re....
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....cured by charge of assets, they are offered a higher amount than the other creditors. II. The Terms of payment of secured financial crditors: a. The Resolution of the debt of Secured Financial Creditors, is proposed in the following manner (i) Rs.20,48,71,434/- (Rupees Twenty Crore Forty Eight Lakhs Seventy One Thousand Four Hundred and Thirty Four only) towards the repayment of the debt; (ii) Rs.2,00,00,000/- (Rupees Two Crore) towards assignment of balance debt after adjusting the settlement amount. b. The Resolution Applicant proposes to pay an aggregate amount of Rs.22,48,71,434/- (Rupees Twenty Two Crores Forty Eight Lakhs Seventy One Thousand Four Hundred and Thirty Four Only). This amount is split in two portions, as detailed hereinabove. The first portion will be adjusted towards the debt and thereafter the balance debt will be assigned by the Secured financial Creditor for an aggregate consideration of Rs.2.00 Crore to the entity identified and nominated by the Resolution Applicant. c. The assignment of debt will be of balance outstanding debt along with all the underlying securities, guarantees etc. The cost of assignm....
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....cured financial creditors amount Rs.4.49 Cr includes assignment of Rs.2.00 Crores. g. On approval of the Resolution Plan the entire debt of the Secured Financial Creditor will be settled and on assignment of debt at the end of four years there will be no liability remaining." 8. Clause-III, deals with 'Extinguishment of claims of secured Financial Creditors'. Clause-IV deals with 'Release of security on the assets of Corporate Debtor' and Clause-V, which deals with 'dissenting Financial Creditors' are as follows: "III. Extinguishment of Claims of Secured Financial Creditors: a. Liability of Corporate Debtor for Secured Financial Creditors shall be restricted to the Claims notified and accepted by Resolution Professional and forming parts of Information Memorandum and other email communication as sent by the Resolution Professional. All other claims of Secured Financial Creditors other than those mentioned in Information Memorandum shall be extinguished as per Extinguishment of Claim (C -13 of this Resolution Plan) with no recourse to the Corporate Debtor and/ or Resolution Applicant. b. Other than as specified in PART C-I above, any and all ot....
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....on Plan. All requisite documents as required by law will be executed by the Resolution Applicant and the Secured Creditors to give effect to the Resolution Plan once approved by Adjudicating Authority. Further necessary formalities for modification of charge with ROC and sub registrar of assurances shall also be carried out within 60 days of the date of execution of documents. It is expressly agreed that the Secured Financial Creditors shall execute the necessary relinquishment deed for release of the security as may be applicable under this Resolution Plan. Further, the Secured Financial Lenders shall, upon receipt of the payment from the Resolution Applicant, issue the No Objection Certificate for modification/satisfactions/ part payment and execute the Form CHG 1 for modification or Form CHG 4 for satisfaction, as the case may be within 7 days of receipt of the payment. In case of any delay or failure to issue NOC and/or execute Charge related forms, any related penalties shall be borne solely by such Secured Financial Creditor. It is required as a part of the Resolution Plan that the existing Secured Financial Creditors shall cease to have any charge on the Current Assets of th....
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....pplicant exercises its right of prepayment, its lability towards the payment of interest shall be reduced/ waived off proportionately. V. Dissenting Financial Creditors: i Payment to the dissenting Financial Creditors: The dissenting Financial Creditors (i.e. those Financial Creditors who vote against, or abstain from voting for, the Resolution Plan approved by the CoC) shall be paid an amount not less than an amount to be paid to them in accordance with Sec 53(1) in the event of Liquidation of the Corporate Debtor. ii In terms of the code, if there are any dissenting Financial Creditors, then in such circumstances they shall be paid in accordance with Sec30(2) along with Sec 53(1) of the Code. iii The upfront payment will be made 1 day before the payment to the assenting creditor. At the same time payment of instalment will be made 1 month before the due date of instalment to the assenting Financial Creditor. In view thereof payment will eb made as per 30(2), 53(1) and in priority to the assenting financial creditor. iv In the event, Resolution Applicant choose to make entire payment upfront, then in that event payment will be made as p....
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....er's dues Unsecured 3,23,75,474 3,23,75,474 8 Redemption of Converted Preferential share capital Unsecured 7,34,49,000 7,34,49,000 Total 95,58,50,796 43,82,17,730 10. Against the liquidation value of Rs.21,15,61,184/-, the Successful Resolution Applicant has proposed the payment of Rs.43,82,17,730/-. It is also relevant to notice that both the employees and workmen and sugarcane farmers are being paid 100% of their admitted claim, which is clear from table extracted in paragraph 2(g) of the order of the Adjudicating Authority as quoted above. 11. The two principal questions, which have arisen for consideration in these Appeal(s) are to the following effect: (I) Whether Resolution Plan providing for extinguishment of security interest and the guarantees of the Financial Creditors including dissenting Financial Creditors is contrary to the provision of Section 30, sub-section (2) and the CIRP Regulations? (II) Whether the payment, which have been proposed to the dissenting Financial Creditors in the Resolution Plan, is contrary to the provisions of Section 30, sub-section (2) and CIRP Regulations? Questio....
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.... It is further relevant to notice that each Financial Creditor has personal guarantee in their favour to secure the loan extended by them. All Financial Creditors has assented for relinquishment of such security except Bank of Baroda which had only 5.83% vote share. The decision of the CoC to accept the value for relinquishment of personal guarantee was a commercial decision of the CoC which cannot be allowed to be impugned at the instance of dissenting Financial Creditor. 29. In view of the foregoing discussions, we are of the view that the Adjudicating Authority committed error in rejecting the Application for approval of the Resolution Plan on the ground that plan could not have contained a provision for extinguishment of personal guarantee of the personal guarantors. Plan allocates a plan value for extinguishment of personal guarantee which has been accepted by the Financial Creditors by a vote share of 78.04%. We, thus, are of the view that the order of the Adjudicating Authority dated 06.01.2023 is unsustainable. In result, we allow the Appeal and set aside the order dated 06.01.2023 passed by the Adjudicating Authority. We hold that the Resolution Plan submitted by ....
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....rm that each resolution plan - (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of 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 provision....
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....g Financial Creditors are entitled to upfront payment is not in line with the statutory scheme as contained in the IBC and the CIRP Regulations. There is no provision which can be pointed out, which requires Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors. What is required by law is the payment "in priority over the Financial Creditors who voted in favour of the plan". When we look into the relevant clauses of the Resolution Plan, i.e., Clause C-3(V), which dealt with dissenting Financial Creditors, the clauses clearly provided for payment to dissenting Financial Creditor in priority, since the payment in favour of the dissenting Financial Creditor has to be made prior to payment to the assenting creditors, be it upfront payment or payment by installments. The submission of the learned Counsel for Respondent Nos.1 and 2 that they were entitled for upfront payment and provision of not providing upfront payment violates the provision of IBC and CIRP Regulations cannot be accepted. The provisions of Resolution Plan in C-3(V) providing for payment to dissenting Financial Creditors are not in contravention of any provisions of Section 30, su....
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.... as Regulation 38, the priority for the amount payable came to be specified, not only to the operational creditors but also to the dissenting financial creditors over their assenting counterparts. The Hon'ble Supreme Court has reiterated the legal position as contained in Section 30, sub-section (2) as well as CIRP Regulations that payment has to be made in priority. As we have already noticed that payment to the dissenting Financial Creditors is in priority, hence, no contravention can be found out as contended. The same principles have been reiterated in paragraph 121.1 and 121.2, which have been relied by learned Counsel for Respondent Nos.1 and 2, which are as follows: "121.1. Therefore, when, for the purpose of discharge of obligation mentioned in the second part of clause (b) of Section 30(2) of the Code, the dissenting financial creditors are to be "paid" an "amount" quantified in terms of the "proceeds" of assets receivable under Section 53 of the Code; and the "amount payable" is to be "paid" in priority over their assenting counterparts, the statute is referring only to the sum of money and not anything else. In the frame and purport of the provision and also the....
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....lution Plan submitted by Successful Resolution Applicant was approved by the CoC in the meeting dated 30.07.2021 and RP filed application for approval of Resolution Plan being IA No.2165 of 2021 immediately thereafter. The Corporate Debtor was engaged in sugar industry and was engaged in cane process. Sugarcane season has already begun as has been submitted by learned Counsel for the Appellant and inspite of the Plan having been approved on 30.07.2021 and 02.08.2021, the creditors including the Farmers are waiting for the amount to be paid and due to erroneous order passed by the Adjudicating Authority, rejecting the Resolution Plan, the Corporate Debtor could neither be revived nor creditors can be paid. We have looked into the Resolution Plan, Clause C-11, which deals with 'concession and relief sought', is as follows: "C-11: Concession and relief Sought The Resolution Applicant, will approach all the concerned authorities for reliefs and concessions, if any hindrance is faced by the Resolution Applicant from any authority at later stage will approach the Tribunal after the sanction of the plan. The carry forward losses are permitted under Section 79 of....